China’s bullet trains are coming for HK’s airlines

Still bruised from a typhoon that grounded hundreds of flights, Hong Kong’s status as Asia’s top aviation hub faces a new threat: Chinese bullet trains.

The world’s longest high-speed rail network will extend to downtown Hong Kong on Sept. 23, providing a direct connection to 44 mainland destinations. With the addition of services from Guangzhou and Shenzhen — the major cities closest to Hong Kong — what’s now a daylong train trip to Beijing would be cut to nine hours.

China’s high-speed network stretches for 25,000 kilometers (15,500 miles) and is a strong competitor for airlines in a market where congested airspace and limited landing slots mean regular flight delays. Since China’s first bullet-train service connected Beijing to the nearby port city of Tianjin a decade ago, Chinese airlines have lost customers, especially for journeys shorter than 800 kilometers — roughly the distance from Hong Kong to Changsha, the capital of Mao Zedong’s home province of Hunan.

“The fact that passengers will get off the train in downtown Hong Kong rather than at the airport on an island and then have to take another train ride to the city will prompt many to choose trains,” said Yu Zhanfu, a partner at Roland Berger Strategy Consultants in Beijing.

A bullet-train ride can cost less than half the price of a ticket on Cathay to the 11 overlapping destinations, with the biggest savings for routes of less than 800 kilometers. Passengers would also save time on pre-boarding security checks required for flights and travel to and from airports.

With 11 of Cathay Pacific Airways Ltd.’s more than 20 China destinations overlapping with high-speed rail, the Hong Kong marquee carrier stands to be the biggest casualty.

Click here to read about Hong Kong’s airport congestion

Cathay, already under pressure from mainland carriers that are widening their networks and offering cheaper tickets, is set to lose passengers on flights of less than three hours, said Corrine Png, founder of Singapore-based Asia transport research firm Crucial Perspective.

For many passengers, the train’s wider seats, increased legroom and freedom to move around translate to greater comfort. Airlines have the advantage of loyalty from customers who collect frequent flyer miles, but even that may not be a big incentive, according to Ivan Zhou, an analyst with BOC International Holdings in Hong Kong.

“You could possibly get more miles by paying your restaurant bills with a credit card than by flying short haul,” Zhou said.

Cathay didn’t respond to requests for comment on competition from the new rail link.

Airlines have focused on longer domestic routes where flying has a clear advantage in time, often reducing or canceling services that compete directly with bullet trains. Last December, the start of high-speed train services between western China’s Chengdu and Xi’an led carriers to cut daily flights between the two cities to about three from several dozens before.

Cathay and its regional airline, Cathay Dragon, which flies most of the group’s mainland routes as well as to to nearby destinations such as Japan and Southeast Asia, may have to modify their networks as the group works toward a profit this year after two straight annual losses.

“There is a lot of room for maneuvering” of Cathay Dragon’s network, said Zhou at BOC International.

As well as the air advantage over longer distances, planes and trains continue to compete on popular routes such as Beijing-Shanghai, and flights maintain an advantage to cities not connected directly by a high-speed rail service.

The extended rail service is another sign of China’s efforts to integrate Hong Kong with the mainland even though the former British colony is governed separately. Earlier this year, state-controlled Cosco Shipping Holdings Co. completed a $6.3 billion acquisition of Orient Overseas International Ltd., Hong Kong’s largest container-shipping firm.

“The high-speed rail strengthens the economic ties between mainland China and Hong Kong,” Roland Berger’s Yu said. “For a lot of Chinese cities, this is a big breakthrough because it is the first time they have a direct link with Hong Kong, the most important hub in southern China.” (Bloomberg)