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HONG KONG: Soaring fuel costs and a decision to buy aircraft instead of renting them led to the demise of budget Hong Kong airline Oasis, the company's founders said in an open letter published Thursday.
Raymond and Priscilla Lee apologised to the thousands of stranded passengers, company employees and to investors after the airline went into liquidation 18 months after it tried to shake-up the airline industry.
The Lees said the high price in oil -- a tonne of jet oil has risen more 60 per cent in the past year to around 1,060 US dollars, according to International Air Transport Association figures -- was also a key factor.
"The hike of the oil prices has also affected us severely," they said in the letter published in several Hong Kong newspapers.
"As a newly started airline, we have found it next to impossible to obtain a credit facility from financial institutions to carry out fuel-hedging programmes. We only managed to hedge once successfully."
"As oil prices sharply increased, the fuel costs took up the majority of our budget," dealers said.
They said that the original business plan was based on renting aircraft, rather than buying them and required just 25 million US dollars to achieve profitability.
"However, during our... licence application process, as we faced opposition from our competitors for almost six months, our rental aircraft were then snatched away by other competition, and we have had to purchase aircraft instead of renting them," the couple said in the statement.
"This placed a huge strain on the group's financial resources.
The airline's move into liquidation Wednesday follows the collapse of three budget carriers in the United States in the last two weeks, as the increase in oil prices squashes already-thin margins.
Adrian Lowe, an aviation analyst with brokerage CLSA, said unless budget operators have strong financial backing, they will struggle.
"Oasis didn't get the scale up and running in time," Lowe told AFP.
"A lot of these companies need financial support, and Oasis were looking for funding. In this environment, they are not the only airline that is having difficulty."
Stephen Miller, the company's chief executive who announced the company was stopping flights and moving into liquidation at a short press conference on Wednesday, said the model had achieved strong demand.
"What we did not achieve was ramping up fast enough to get a critical mass of aircraft and destinations," Miller said, according to the Wall Street Journal.
Oasis launched in October 2006, offering one-way Hong Kong to London pre-tax fares of 1,000 Hong Kong dollars (128 US).
It later added a link to the western Canadian city of Vancouver, but it failed in attempts to set up routes to California.
A rescue package from HNA Group, the parent company of Hainan Airlines, was foiled at the last minute, a report in the South China Morning Post said.
It collapsed when it was discovered that Raymond Lee, who is also a pastor in Hong Kong, had already pledged his shares in the carrier as collateral for a personal loan.
"You can say that he derailed the airline," the paper quoted an unnamed source as saying.
Around 30,000 passengers were facing having to purchase new tickets, and 700 staff were awaiting to hear their fate, reports said. - AFP/ac
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