BC Business
What is it about Vancouver that attracts the eccentric fringe of the airline industry? The question seems only reasonable in the wake of this spring’s collapse of Oasis Hong Kong Airlines. It would be one thing if just one offbeat billionaire’s dreams of a low-cost long-haul airline went up in flames. But the collapse of Oasis came just one year after the sudden demise of Harmony Airways, another low-cost carrier started on the whim of a wealthy entrepreneur who saw a golden opportunity in Vancouver’s ties to Asia.
It would be one thing if just one offbeat billionaire’s dreams of a low-cost long-haul airline went up in flames. But the collapse of Oasis came just one year after the sudden demise of Harmony Airways, another low-cost carrier started on the whim of a wealthy entrepreneur who saw a golden opportunity in Vancouver’s ties to Asia.
Harmony was started in November 2002 by reclusive Vancouver billionaire David Ho. Although Harmony initially flew to vacation sunspots such as Mexico and Hawaii, Ho’s eye was on the big prize: China. The airline’s fortunes fizzled when Canada failed to gain China’s “approved-destination” status, and it folded in April 2007. Oasis flamed out in much more spectacular fashion. Launched by Hong Kong pastor Raymond Lee and his wife Priscilla in 2005, with service between Hong Kong and London, England, Oasis touched down in Vancouver in June 2007; within the year, Oasis would go bust, applying for liquidation in April 2008.
“This is the conundrum of the airline business,” explains Joseph D’Cruz, an industry analyst and professor of strategic management at the University of Toronto’s Rotman School of Management. “Even though it’s such a lousy business from an economic and profitability point of view, people continue to enter the industry. The lure of flying blinds people to the economic realities of the airline industry.”
It’s easy enough to understand that boys with money like to play with airplanes. But why Vancouver? Much of it has to do with what would appear, on first blush, to be an obvious business case: a lot of people in Vancouver have business and family ties to Hong Kong and China, which makes the city a natural magnet for the country of 1.3 billion seeking opportunities in North America. And nobody knows this better, goes the thinking, than entrepreneurs with a foot in both Asia and Vancouver. “There’s an irrational line of argument that says that because they are ethnic owners, they will be able to better serve an ethnic population base,” counters D’Cruz. “The actual fundamental economics of airlines have nothing to do with ethnic origins; it has to do with the cost of aircraft and things like that.”
Oasis was founded by arguably the more eccentric of Vancouver’s recent airline entrepreneurs. Raymond Lee is a pastor at Hong Kong’s Faith Community Church. Having earned an education degree at Harvard, he made his fortune as founder of Oasis Development Enterprises, a Boston-based group of real estate investment and development companies. When Lee arrived in Vancouver in May 2007, handing out free tickets for Oasis’s direct flights between Vancouver and Hong Kong, Priscilla – who wore the title “executive director” – appeared alongside at every stop on the press junket. The airline’s goal, according to the Lees? Fostering world peace through affordable travel. “We’re looking at breaking through many of the logjams caused by high airfares,” Priscilla told Business in Vancouver at the time. “Education, trade, political friendships and international relations – there is so much tension in the world because people don’t understand each other.”
In the name of world peace, Oasis launched its Vancouver-Hong Kong round-trip service at $650, with business class going for $2,800; equivalent flights offered by Air Canada (AC.A-T) and Cathay Pacific were going for about $2,500 and $7,500. At the time, Raymond offered BCBusiness the improbable explanation that Oasis could afford the cut-rate prices thanks to the economies of flying point-to-point, as opposed to traditional airlines’ hub-and-spoke model. Flying exclusively long-haul saves on gas, he explained, much as highway driving is more economical for cars; it also causes less wear on the aircraft. And flying only from one point to another meant that pilots could live at home, saving the airline the expense of housing them for overseas layovers.[pagebreak]Upon the airline’s demise less than a year later, an open letter signed by both Raymond and Priscilla blamed the high cost of fuel and “relentless competitive response from every direction, aiming to crush us for good.” But according to Rotman’s D’Cruz, Lee’s strategy was doomed from the start: with only two planes, Oasis couldn’t hope to compete with the bigger airlines. “The long-distance airline business is a very difficult business to enter,” says D’Cruz. “In order to achieve high load factors, you need high frequency, and with one or two aircraft you can’t do that. . . . The ability of an established carrier like Air Canada to retaliate against entry is very strong. They’ve got the planes and the routes and the financial resources and the crews, so it’s very easy for Air Canada to compete on price against a newcomer and in fact drive them out of business.”
Like Raymond Lee, Harmony founder David Ho is a tycoon with ties to Hong Kong. At the time of Harmony’s founding, Ho – heir to the Hong Kong Tobacco fortune – was chairman and CEO of David T.K. Enterprises, whose extensive B.C. business interests include MCL Motor Cars, University Golf Club, DTKH Robson Developments and South Alder Greenhouses. Like Lee, he decided to launch a low-cost long-haul airline on a personal whim. He often told the story of how he and his daughter were stranded at the Maui airport for 18 hours in January 2001 and how he vowed at the time to start a low-cost airline focusing on customer service.
Harmony was born as HMY Airways in November 2002, initially with flights from Vancouver and Edmonton to select Mexican sunspots; it would later add flights to Hawaii and other popular vacation destinations, including Las Vegas, Los Angeles and London, England. Ho’s sights, however, were clearly set on China from the outset. In March 2003, the Vancouver Sun reported that Ho had been kicking tires at the Boeing plant outside of Seattle, shopping for planes to serve direct flights between Vancouver and cities in China that were not already served by major airlines – cities such as Xi’an, Dalian and Harbin.
But the travel services Harmony planned to offer hinged on Canada garnering “approved-destination” status from China, and that approval was slow in coming. Harmony scored a coup in December 2004 when it lured then-finance minister Gary Collins from the B.C. Liberal government to head the airline, perhaps in hopes that his political savvy might help grease the diplomatic wheels. Approved-destination status appeared imminent in early 2005, and in May that year Harmony received preliminary approval from the Canadian Transportation Agency for a code-sharing agreement with China Eastern Airlines that would allow Harmony to fly to Beijing and Shanghai.
Relations between Ottawa and China quickly soured, however, and approved-destination status fell back into limbo, as did Harmony’s permission to fly to China. When Collins left – as suddenly as he had arrived – in December 2006, he cited failure to secure flight service to China and Asia as his one failure. “If there is one thing I was not able to accomplish, it is that,” he told the Vancouver Sun at the time, adding, “I expect that will come for Harmony . . . but not in the immediate future.” It wouldn’t come soon enough. Harmony would cancel its flights the following April, never having secured the coveted routes to China. At the time of Harmony’s shutdown, Ho cited increasing operating costs and aggressive price competition from larger carriers.
With the billion-plus people in China itching to get out and see the world, and the sizeable and growing expat community in Vancouver, the lure for aspiring airline entrepreneurs will likely endure. Why not grease the trans-Pacific migration corridor by buying or leasing a couple of planes and offering low-cost direct service? All it takes is deep pockets and a determination to take on the established carriers. Richard Branson managed to do it with trans-Atlantic air travel, but so far Vancouver has not materialized as the next hub of low-cost overseas travel. To succeed against the established carriers on the trans-Pacific route, however, it will likely take more than a disgruntled vacationer, or a pastor with dreams of world peace.