By Nandan Mandayam

NEW DELHI, June 3 (Reuters) - An accelerating fall in the price of air tickets from recent high levels is the biggest challenge at Cathay Pacific's 0293.HK budget arm HK Express, its CEO said, as competition rises after a third runway opened at Hong Kong's airport.

Many airlines, including HK Express and its low-cost rivals, are capitalising on the third runway that opened in November to add more flights, CEO Jeanette Mao told reporters on the sidelines of the IATA annual meeting in New Delhi.

HK Express was the world's fastest-growing airline last year, with flight frequencies up 46% from 2023 according to aviation data firm OAG, and it expects to grow by more than 30% this year, according to Mao.

"But of course such aggressive growth in the supply also added pressure on the yield side," she said.

HK Express annual yield, a proxy for airfares, fell 23% year-on-year in 2024, mainly due to intense price competition on regional routes pushing airfares down. Yields at Cathay Pacific's full-service airline were down 12%.

Airfares in Asia are coming down from post-pandemic record highs as the region's airlines continue to restore seat capacity. Asia's air travel recovery has lagged the rest of the world due to China and Hong Kong being slower to return to international flying after COVID-19.

Last year, capacity between Hong Kong and short-haul destinations surged by almost 40%, so fares from Hong Kong to Southeast and Northeast Asia are under pressure, Mao said.

Some Asian rivals with lower-cost home bases are using "fifth-freedom" rights, which have been allowed for many years in Hong Kong, to fly routes from the city to destinations outside the foreign airline's home country, directly competing with HK Express routes, Mao said.

For example, Thai AirAsia in June launched a Bangkok-Hong Kong-Okinawa route.

Another drag on HK Express has been the grounding of Airbus AIR.PA 320neo planes due to industry-wide issues with their Pratt & Whitney engines, Mao said.

Half of the 10 A320neos in its fleet are still grounded, she said, adding there was not a definite timeline of when the issue can be resolved.

The situation is improving but the airline needs more clarity from the engine manufacturer "to regain the confidence for our recovery aircraft reactivation", she said.

Pratt, owned by RTX RTX.N, did not immediately respond to a request for comment.

(Reporting by Nandan Mandayam in New Delhi, Writing by Lisa Barrington; Editing by Jamie Freed)

((Nandan.Mandayam@thomsonreuters.com; Mobile: +91 9591011727;))