Lone HK budget carrier Oasis halts flights

Wed Apr 9, 2008 7:09am EDT
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By Joanne Chiu and Joseph Chaney

HONG KONG (Reuters) - Hong Kong-based budget carrier Oasis Hong Kong Airlines said on Wednesday it had halted flights and would go into liquidation after just 17 months in the air as record high fuel prices and stiff competition triggered heavy losses.

Oasis' decision to pull the plug on operations out of Asia's third-busiest airport raises fresh questions about the viability of budget airlines, which are struggling with rapidly rising costs and facing a potential slowdown in demand as world economic growth cools.

The carrier, which said in January 2007 that it planned to go public on the Hong Kong stock market by late 2009, is now looking for investors to rescue the embattled firm or buy its assets, executives told reporters.

Speculation abounds that dominant Hong Kong airline Cathay Pacific (0293.HK: Quote) might make a pitch to buy Oasis, but Cathay spokeswoman Carolyn Leung said it would not comment on rumors.

Oasis, which flies to London and Vancouver, took off in October 2006. But its maiden flight to London didn't get off the ground after it failed to secure permission to fly over Russian airspace.

Oasis accumulated losses of about HK$1 billion ($128 million) over two years of operation, local newspapers reported. Executives declined to comment on the scale of the losses.

Sources close to Hainan Airlines Co (600221.SS: Quote)(900945.SS: Quote) -- China's No. 4 carrier, partially controlled by billionaire George Soros -- said its parent HNA Group is interested in buying Oasis to muscle into the Hong Kong market, which is seeing strong growth as personal and business travel to and from China booms.

Those sources with knowledge of the matter told Reuters the firm had been in discussions for months to buy control of Oasis, and had approached the city's government about the deal.   Continued...