Ho bucking headwinds: Vancouver businessman's Harmony Airways takes aim at lucrative Chinese market

Source: NATIONAL POST
Section: Financial Post
Page: FP1 / Front
Byline: Jason Kirby
Date: 12/17/2005

David Ho is one of Vancouver's most private businessmen. He is heir to a Hong Kong tobacco empire worth billions. And for the past three years, Mr. Ho has been the living, breathing bank account -- always open for withdrawals, 24 hours a day -- for fledgling Harmony Airways Inc., a small, four-plane airline with big plans.

He is also running late for a rare interview to talk about his big-ticket baby and his plans to offer flights to China.

No matter. Gary Collins, the man who oversaw the bank accounts for British Columbia as finance minister until he took the job of chief executive at the airline a year ago, is at Harmony's headquarters near Vancouver International Airport. And he's pumped about what the next few months hold in store for the company.

Mr. Collins is the type of guy any smart billionaire would want running his upstart airline. Cool as a cucumber (the man is a rehabilitated politician, after all), he projects the confidence of someone at the controls of a 150-ton jumbo jet. He did, after all, spend thousands of hours in cockpits as a flight trainer and pilot before venturing into politics.

Harmony's wings are firmly intact on its modest fleet of Boeing 757s, but these are crucial times for the company. After three bumpy years, it has emerged as a scrappy niche carrier that claims it has turned a profit on at least some of its routes, even as it juggles high fuel prices, fickle consumers and pressure from much larger competitors.

Now it wants to tackle the lucrative Chinese market. Beijing recently gave it permission to fly in and out of the country. But it's not clear when, or even if, Ottawa will follow suit. That has tied up an already complicated decision about buying new long-haul aircraft that will see Mr. Ho write the biggest cheque of his short career as an airline incubator.

"The great thing about David is unlike a lot of the airlines that have come and gone in the last few years, he's said let's build this cautiously and provide a competitive service that no one else will," Mr. Collins says.

Almost on cue, Harmony's founder bursts through the door, and it is soon clear he is the highly charged yang to Mr. Collins' yin. Mr. Ho's head is cocked sharply to the side. "My neck, pulled a muscle," he explains, nearly shouting, in a thick Hong Kong accent.

As he drops into an empty chair, his cellphone screams out a distorted tune. Seconds later, he springs to his feet again and rummages through his office for a cold bottle of water to cradle between his shoulder and jaw. But not before offering it to his guest. Ever the conscientious host, it was Mr. Ho's disgust at the crummy service on other airlines that spurred him to launch Harmony in the first place.

As the story goes, in 2001, Mr. Ho was stuck in a Hawaii airport for 18 hours when he struck upon the idea of launching his own airline. It would have smiling staff, he envisioned, with more legroom and full meals on all its flights. All that, and competitive prices, too.

It wouldn't be the first business venture for the heir to one of Asia's wealthiest dynasties, the family behind Hong Kong Tobacco Co.

Since Mr. Ho arrived in Vancouver in the 1980s, he has sprinkled his considerable fortune throughout the B.C. Lower Mainland. He bought a local bottling plant for $100-million, which he later sold to Pepsi for a reported $300-million. He owns a luxury car dealership, a golf course and a real-estate development company. (On the side, he finds time to act as honourary consul for the Republic of Seychelles.)

His latest and biggest venture lifted off in November, 2002. Three years later, after several name changes -- from MY to HMY to Harmony -- the carrier flies to nine cities in Canada, the United States and Mexico and employs 280 people.

The airline has faced its share of detractors. Early on, one airline analyst dismissed the carrier, saying, "The chance of survival is slim."

And there have been plenty of unpleasant surprises, such as the time bureaucrats in Ottawa demanded the deep-pocketed entrepreneur cough up $25-million, "with no interest," he complains, in case his airline followed the unhappy path of Canada 3000, JetsGo and other defunct carriers. He has seen key employees quit, citing sickness in the family, only to resurface the next day at a rival airline. Then there was the nasty matter of the catering truck that backed into one of his planes.

Twice.

"The airport is so big, how could that happen?" he asks, genuinely astonished.

But Harmony has defied its critics and offered a few surprises of its own, not the least of which was landing the former finance minister in the pilot's seat --though neither Mr. Collins nor the company will say how much it cost to put him there. "We're on the most solid ground we've ever been since we got Gary," Mr. Ho said. "Before, I didn't know the business. I just used my common sense to do it."

Harmony has carved out niche routes, such as direct flights to Hawaii from several Western cities, including Calgary, Victoria and Kelowna, B.C., that have begun to turn a profit, said Mr. Collins, though he would not offer further details. The company has heavily marketed Hawaii as a summer destination, while at the same time luring Hawaiians to B.C. with winter ski packages at Whistler. Both Air Canada and WestJet took notice and have responded by either adding new routes or lowering fares on existing flights to the tropical island.

Meanwhile, Harmony has stayed true to Mr. Ho's pledge to offer better service no matter what the ticket price, at a time when Air Canada has affixed $5 price tags to its ham sandwiches.

"Airlines have gone out of their way over the past five years to annoy their customers as much as possible by charging for headsets and doing away with meals," Mr. Collins said. "It doesn't cost a lot more to give people decent service."

As for the future, Harmony has plans to add further North American cities to its routes, such as Montreal, New York and San Francisco. But the prospective destination that has most consumed Mr. Collins's time and energy is China. Almost since its launch, the airline has publicly mused about serving Beijing and Shanghai as well as smaller cities.

China is a compelling destination. As the country develops, its airline business has exploded. Last year an estimated 100 million Chinese boarded flights, up 38% from the year before. Add to that increased business travel to and from North America, as well as a loosening of rules restricting Chinese tourists from travelling overseas, and it's little wonder Harmony has its sites set on the Orient.

"If you're going to fly Vancouver to Beijing and Vancouver to Shanghai, there are a lot of people who want to go for low cost, and that's a huge niche market that's underserved," said Karl Moore, an airline industry expert and professor at the Desautels Faculty of Management at McGill University in Montreal. But he cautioned the venture may not be a windfall for Mr. Ho. "The profit potential is greater for Air Canada because they can attract people to pay the $9,000 for a business-class seat because of their lounges and connector flights through the Star Alliance."

Still, Harmony has taken several steps toward its goal of servicing the Chinese crowd. For one, Harmony recently wrapped up negotiations with Beijing to operate flights to Shanghai and Beijing. Half of the flight attendants the company has been hiring speak either Mandarin or Cantonese as a second language. And Mr. Collins said Harmony is in talks with China Eastern, the country's third-largest airline, to reach a code-share agreement. With that, Harmony could sell tickets under its name with China Eastern providing the service.

Mr. Ho is not satisfied, though. He wants Harmony to fly the route itself. But to do that, he will have to get around the bureaucrats at Transport Canada.

"Harmony has not been allocated any frequency rights to China because they don't have their own planes to fly that route," said Lucie Vignola, a spokeswoman for the agency. "If they do that, then they can apply for that frequency."

It's a Catch-22. Harmony's fleet of 757s can easily handle distances such as Vancouver to Hawaii, but not direct to China. That will require the purchase of new planes, something Mr. Collins does not want to undertake until he is assured Ottawa will allocate some of the Chinese routes to Harmony.

"To the guy who's going to be buying them, I don't want to say, 'Hey, David, we bought these airplanes but we don't have any place to go,' " to which Mr. Ho offers a nervous laugh.

That's not to say the multihundred-million dollar process of buying new long-haul aircraft is not underway. But it's a decision that starts with the future and works backward. In about five to seven years, Boeing's new 787 Dreamliner and the Airbus 350 will be on the market. Already the manufacturers are duking it out for orders and Mr. Collins has talked with both companies.

In the meantime, Harmony needs to buy temporary aircraft that are capable of direct flights to China until the 787 or 350 is ready. To minimize equipment and repair costs, the airline wants all the planes it will have in its fleet to be from the same manufacturer.

But unlike a few years ago, when anyone who wanted to launch an airline could wander into the Arizona desert and buy used planes from one of several massive open-air depots, these days the global aircraft market is hot. North American carriers may be going out of business like it's 2001, but in the Middle East, India and Asia, airlines are booming. India and China alone have orders pending for at least 60 Dreamliners, while any used aircraft are being snapped up.

"I sort of feel some days like I'm shopping in the Soviet Union," Mr. Collins said. "You get to the front of the lines and they say, 'OK, today we're selling butter.' "

For now the federal election means Transport Canada's hands are tied. Still, Mr. Collins is confident that when the time comes, he will find the planes Harmony needs and be able to convince Ottawa its rules on allocating routes are outdated. That's where his political savvy and contacts could come in handy.

Mr. Ho, whose contacts reach high into the Chinese political machine, remains upbeat about his little airline's prospects.

"I'm always optimistic," he said. "But you have to be very patient, do it the right way, the proper way."