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Hong Kong's Oasis founders say oil spike, cost of planes led to collapse Hong Kong's Oasis founders say oil spike, cost of planes led to collapse
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Tags :Loyalty & Other, Oasis Hong Kong
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 of oil -- a tonne of jet oil has risen more 60 percent in the past year to around $1,060, according to International Air Transport Association figures -- was also a key factor.
"The hike in oil prices has also affected us severely," they said in a 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," the letter said.
The Lees said the original business plan was based on renting aircraft, rather than buying them and required just $25 million 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 on 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 Agence France-Presse.
"A lot of these companies need financial support, and Oasis was looking for funding. In this environment, it is 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 brief 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 pretax fares of HK$1,000 ($128).
The airline later added a link to the western Canadian city of Vancouver, but it failed in its attempts to set up routes to California.
A rescue package for Oasis from HNA Group, the parent company of Hainan Airlines, was foiled at the last minute, a report in the South China Morning Post said.
Oasis collapsed when it was discovered that Raymond Lee 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.
(c) Centre for Asia Pacific Aviation. Date posted:11-Apr-08
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