Hong Kong Dragon Airlines Ltd. History

Company Perspectives:

With its international flight crew and traditional Asian hospitality on the ground and in the air, Dragonair is aiming higher to provide a pleasurable and comfortable flying experience.

Key Dates:

1985:

Dragonair is established.

1990:

CITIC Pacific, the Swire Group, and Cathay Pacific acquire an 89 percent stake.

1996:

CNAC acquires a 36 percent interest, which is later upped to 43 percent.

2000:

A new company headquarters opens; cargo service to Europe is launched.

2005:

The company plans to enter the U.S. cargo market.

Company History:

Hong Kong Dragon Airlines Ltd., better known as Dragonair, is Hong Kong's second largest airline. Founded in the mid-1980s as a charter operator, the airline has evolved from an independent startup to a well-connected regional force. Dragonair flies a young fleet of Airbus jets to about 30 destinations in Asia. More than three million people fly the airline every year. Its cargo operations extend as far as Europe and the Middle East. China National Aviation Company Ltd. (CNAC) is the company's largest shareholder (43.29 percent). CITIC Pacific Ltd. (28.50 percent), Cathay Pacific Airways Ltd. (17.79 percent), and Swire Pacific Ltd. (7.71 percent) also have significant holdings.

Company Takes Wing in 1985

Hong Kong Macau International Investment Company was formed by Hong Hong investors in 1984. Backers included the family of textile tycoon Chao Kuang-piu. According to the Christian Science Monitor, the purpose of the group was to demonstrate confidence in Hong Kong's future after the scheduled turnover of the colony from Great Britain to the government of the People's Republic of China. Mainland China investment vehicles controlled 40 percent of Dragonair's shares.

The group established Hong Kong Dragon Airlines Limited, or Dragonair, in 1985. Hong Kong shipping executive Sir Yue-kong Pao was named Dragonair's chairman. Pao invested $7.7 million of his own money in the venture. Stephen H. Miller was the company's general manager.

Flight operations began in July 1985 with a Boeing 737 flight between Hong Kong and Kota Kinabalu, Malaysia. The first flights were charters to China and tourist destinations in other Asian countries.

Dragonair was the first local competition for Cathay Pacific Airways Ltd. in forty years. (Another new player, Air Hong Kong, focused exclusively on freight. It was later acquired by Cathay.) Dragonair announced the scope of its ambitions in January 1987 with the order of two long-range MD-11 aircraft. However, it was not able to gain the scheduled routes it needed to compete effectively. Y.K. Pao sold his holdings to the Chao family in 1989.

Changing Hands in 1990

CITIC Pacific Ltd. (part of PRC-owned China International Trust & Investment Corp.), Swire Pacific Ltd., and Cathay Pacific (itself backed by Swire) acquired an 89 percent stake in Dragonair in 1990. The family of Dragonair chairman K.P. Chao reduced their holding in the company from 22 percent to 6 percent. Airline Business reported that Cathay and its parent company Swire Pacific paid HKD 343 million ($44 million) for their combined 35 percent stake.

The change in ownership was followed by a period of cooperation between British-backed Cathay, Mainland China authorities, and Dragonair. Cathay transferred its routes to Beijing and Shanghai to Dragonair in March 1990. Dragonair continued to fly to secondary destinations in the region, including Dhaka, Bangladesh; Kagoshima, Japan; and Pattaya and Phuket, Thailand.

Cathay also gained the right to manage the smaller airline for fifteen years. Dragonair leased a Lockheed L-1011 Tristar from Cathay Pacific for service to the mainland, which became the focus of its route development. Dragonair was provided access to Cathay Pacific's reservation systems. Within a few months, Dragonair's monthly passenger count doubled to 60,000.

In 1992, Dragonair bought a 30 percent holding in Hong Kong ground handling company International Aviation Services (IAS), later Hong Kong International Airport Services, Ltd. (HIAS). The remaining shares were acquired in 1994.

Dragonair began shifting to an Airbus fleet in 1993 with the arrival of a half-dozen mid-sized A320s. Widebody A330s were added to the fleet in 1995.

By the mid-1990s, Dragonair was flying to 20 destinations, including 14 in China. It carried more than one million passengers a year and operated a fleet of nine planes. The airline was believed to have been profitable by 1991 and reported earnings of HKD 722 million ($93 million) in 1995. A planned flotation was shelved, however.

China National Aviation Corporation (Group) Ltd. (CNAC Group), the civil aviation unit of the Chinese government, acquired a controlling interest in Dragonair in 1996. (Before this, CNAC had begun to set up its own competing carrier, to be called China Hongkong Airlines.) The 35.86 percent stake cost HKD 1.97 billion. (CNAC later raised its holding to 43 percent). CNAC chairman Wang Guixiang was subsequently named chairman of Dragonair, replacing one of the founders, Chao Kuang-piu. Also in 1996, Dragonair formed a maintenance and repair joint venture with Dah Chong Hong.

A period of expansion followed the CNAC investment. Dragonair opened new routes and acquired new equipment. In the spring of 1997, both Dragonair and Cathay Pacific temporarily grounded their new Airbus 330 jets due to problems with the Rolls-Royce Trent 700 engines.

With CNAC backing, Dragonair was poised to capitalize on increased traffic to Mainland China after the time of the July 1997 transfer of sovereignty. The opening of Hong Kong's new Chek Lap Kok in April 1998 was another factor in favor of expansion. Asia was seen as one of the world's leading growth areas in aviation demand--at least until the Asian financial crisis hit later in the year. This setback was only temporary, and the region was soon leading forecasts for both passenger and cargo growth. Cathay Pacific veteran Stanley Hui was named Dragonair CEO in 1997 after seven years with the airline.

Cargo Operations Grow after 2000

Dragonair moved into a brand-new headquarters at Chek Lap Kok airport in the end of June, 2000. It also unveiled new uniforms and a new advertising campaign, as well as its own frequent flyer program, dubbed "The Elite." Dragonair joined the regional frequent flyer program Asia Miles in September 1999 and the JAL Mileage Bank in June 2001.

In the summer of 2000, Dragonair began flying dedicated freighters on routes to Shanghai, China, and Europe and the Middle East (Hong Kong-Dubai-Amsterdam-Manchester), using leased Boeing 747s. Cargo service to Osaka was added in May 2001. Dragonair also bought two 747s, which were delivered in 2001. A cargo route to Xiamen, China, opened in 2002. Dragonair also began freight and passenger service to Taipei, Taiwan, in July of that year. This brought Dragonair into competition with Cathay Pacific again for the first time in a dozen years. At the same time, Cathay Pacific filed for permission to once more fly directly to the Chinese mainland.

Dragonair's net profits rose 60 percent to HKD 540 million in 2002. By this time, reported Aviation Daily, cargo operations accounted for 30 percent of revenues. Freight volume increased nearly fifty percent in 2002, to 20,095 tons.

The airline's fleet expansion continued in 2003 despite the war in Iraq. This was due to an apparently insatiable market for travel to and from Mainland China and Taiwan. However, the SARS threat forced the airline to temporarily reduce its flight schedule by 63 percent in the spring of 2003. The bird flu crisis caused a similar disruption a year later.

In November 2003, Dragonair began a scheduled service to Bangkok and the next month joined China Southern Airlines in a codeshare arrangement for Hong Kong-Guangzhou traffic. The airline began flying to Tokyo's Narita Airport in April 2004. Codeshare flights for several destinations were operated in partnership with Air China beginning in February 2004.

The passenger market rebounded in 2004, driven by newly affluent Chinese tourists. Dragonair increased frequencies and scrambled to hire additional flight attendants to meet demand.

Cargo continued to see consistent growth. Dragonair began operating a Hong Kong-Shanghai freight route on behalf of DHL in June 2003. Dragonair used a leased Airbus A300 freighter to start a cargo service to Nanjing in June 2004. A second daily European loop, to Frankfurt and London, followed a month later. In mid-2004, the carrier had five Boeing 747 freighters and 26 Airbus passenger airliners.

A route to Sydney was scheduled to open in the second half of 2005. Manila, Philippines, and Seoul, Korea, were other anticipated destinations. Dragonair also planned to begin service to the United States in 2005, at first with cargo flights. The airline was planning to more than double its freighter fleet to nine Boeing 747s by 2008.

Principal Subsidiaries: Dragonair Holidays; Hong Kong International Airport Services Ltd. (HIAS); LSG Lufthansa Service Skychefs (31.94%); Hong Kong Airport Services Ltd. (HAS) (30%); Dah Chong Hong-Dragonair Airport GSE Service Ltd. (DAS) (30%); Das Aviation Support Ltd. (DSL) (30%); Wise Counsel Ltd. (WCL) (30%).

Principal Competitors: Cathay Pacific Airways Ltd.; China Airlines Ltd.; CR Airways Ltd.; EVA Airways Corporation.

Further Reading:

• Bailey, John, "The Dragonmaster," Flight International, May 12, 1993, p. 29.
• Barling, Russell, "Dragonair Freighter Spree Targets US," South China Morning Post (Hong Kong), May 7, 2004, p. 3.
• ------, "Dragonair Plots New Europe Loop," South China Morning Post (Hong Kong), February 20, 2004, p. 2.
• Bangsberg, P.T., "Dragonair Boosts Airbus Fleet; Two A320s Ordered, Five More Optioned," Journal of Commerce, October 30, 1996, p. 3B.
• Berfield, Susan, "A Plane Tale of Caution," Asiaweek, May 29, 1997, p. 1.
• Dennis, William, "Dragonair Launches Narita Service with Tourism Campaign," Aviation Daily, February 2, 2004, p. 5.
• Done, Kevin, "SARS Wreaks Havoc on Asian Airlines," Financial Times (London), April 12, 2003, p. 19.
• "Dragonair Fleet Expansion Goes According to Schedule," Aviation Daily, April 9, 2003, p. 5.
• Evans, David, "Dragonair Lifts Fleet as Freight Demand Soars," South China Morning Post (Hong Kong), Bus. Sec., October 6, 2000, p. 2.
• Ionides, Nicholas, "Dragonair Snubbed as CNAC Continues Its Dogfight with Cathay," South China Morning Post (Hong Kong), Bus. Sec., March 25, 1996, p. 8.
• Lee, Isabel, "China Tourists Lift Dragonair," South China Morning Post (Hong Kong), June 19, 2004, p. 5.
• Lewis, Paul, "All Change," Flight International, May 28, 1997, p. 31f.
• Lo, Joseph, "Carriers Hit Turbulence," South China Morning Post (Hong Kong), September 17, 2002, p. 1.
• Kristof, Nicholas D., "Dragonair: A Gnat That Roars," New York Times, March 9, 1987, p. D10.
• Mackey, Michael, "Growing Up," Air Transport World, November 2000, p. 112.
• Ng, Eric, "Dragonair to Fly to Sydney Next Year," South China Morning Post (Hong Kong), June 1, 2004, p. 2.
• Page, Paul, "Flying Dragon: Hong Kong's Younger Airline Isn't Afraid of Competition, and Dragonair Has an Expansion Plan to Prove It," Air Cargo World, November 2002, pp. 26f.
• Putzger, Ian, "Bigger Dragon: While Passenger Trade Has Been Falling, Hong Kong's Dragonair Has Been Planning a Big Freight Expansion," Air Cargo World, July 2003, pp. 18f.
• Rosenberg, Barry, "Dragonair Aims to Breathe Its Own Fire," Overhaul & Maintenance, December 2001, p. 31.
• Smith, Patrick, "Hong Kong Airlines Vie for the China Trade," Christian Science Monitor, Bus. Sec., August 27, 1985, p. 20.
• Tabakoff, Nick, "Airlines' Expansion Reaches for the Skies," South China Morning Post (Hong Kong), New Era Life Sec., July 1, 1997, p. 47.
• Thomas, Geoffrey, "Lucky Dragon: Hong Kong's Second Airline Finds Opportunity, Success in the China Market," Air Transport World, June 2002, pp. 32+.
• "Under Their Wings," Economist, May 21, 1994, p. 75.
• Whitaker, Richard, "Second Strings," Airline Business, April 1992, pp. 38+.
• ------, "Taming the Dragon; Freight Fortunes," Airline Business, August 1990, p. 44.
• Willoughby, Jack, "A Free Market?," Forbes, March 23, 1987, p. 158.

Source: International Directory of Company Histories, Vol. 66. St. James Press, 2004.

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