Hong Kong Airlines (HKA) survives to fly another day, but the underlying challenges have not gone away.

On December 2, it emerged that The Hong Kong Air Transport Licensing Authority had met with senior HKA management on November 29, 2019 to discuss their financial position. The airline had cut some of its services and even delayed staff payments. There were major concerns HKA could fold as the airlines’ backer, the cash strapped conglomerate HNA Group, had already confirmed that it was facing difficulties.

The Authority issued this statement:

“Having considered the latest financial position of HKA, ATLA was of the view that HKA’s financial position has deteriorated rapidly to such an extent that has severely impacted on HKA’s capability in meeting its obligations as an employer to pay salary and the probability of providing a satisfactory service under its license in respect of continuity and regularity of operation. ATLA found the situation extremely worrying.”

The regulator had warned the airline it needed to shore up its financial position by December 7 or risk the suspension or loss of its license. By December 4, HNA reported it had a plan to inject cash to allow HKA to pay all outstanding salaries to staff the next day.

In a statement on December 7, the Air Transport Licensing Authority said the cash injection plans were satisfactory, but that it would continue to closely monitor HKA operations. So, for now it carries on flying but the underlying challenges have not gone away & this could end up being nothing more than a delayed collapse.

Challenge #1 – the on-going anti-Beijing protests have no sign of ending the destabilising impact on the territory & the aviation sector in particular.

Reuters reported that Hong Kong Airlines was in a precarious financial position even before the unrest. According to people with knowledge of the matter the unlisted company in April 2019 told shareholders it had lost HK$3 billion ($383.39 million) in 2018.

In addition, Cathay Pacific is expected to issue a profit warning over the coming weeks, as well as plans to reduce capacity next year. Arrivals into Hong Kong dropped 46% in October from mainland China, and 44% from international visitors. For those flying into Asia from North America airfares are over 50% cheaper than their historical levels and still people won’t fly.

It would be ironic if the protests result in both HKA and Cathay being unable to fly (and we are not there yet). That would leave the territory without a national carrier, opening the door for Chinese carriers to fill the void and control Hong Kong flights; the result of which would be the very thing the protestors are riling against.

Challenge #2 – USA & China Trade War. There is no doubt this is having a massive impact on the region, far beyond China and Hong Kong. It is severely damaging growth and business sentiment. Despite promising rhetoric from Washington on progress (no such comments from Beijing) there is no sign of an end to this, whether in part or in full, or either side backing down.

Until these challenges end, there will remain significant hurdles for the airline sector in Hong Kong and beyond.