Hong Kong may once more seem secure as the vibrant gateway to China, but the future did not always look so certain. The high point was meant to have come in mid-1997 when the city was handed back to China after 150 years as a British colony. This not only seemed to symbolise China's arrival as a world economic power, but also to ensure the fortunes of Hong-Kong and its thriving aviation industry. However, events elsewhere in Asia conspired to make the city's first years as part of China more of a trial than a triumph.
Just as the handover was taking place the region's economy went into meltdown. For Hong Kong's aviation industry, what followed was unprecendented. In 1998 Cathay Pacific Airways announced the first full-year net loss in 35 years and the city's second carrier - Dragonair - was forced to reduce capacity. The 1998 opening of a new airport at Chek Lap Kok was to have been a source of great pride. In the event, its opening was marred by embarrassing problems on both the passenger and cargo sides - and by bitter complaints by airline users about the high cost of doing business at the facility.
But as has typically been the case in no-nonsense Hong Kong, action was taken quickly to make things right. Not only is Hong Kong International Airport (HKIA) winning praise for its efficiency, it is experiencing record passenger and cargo growth. The airport's operator has also reduced user fees at the facility.
Cathay is profitable again and expanding rapidly after two years of stress. Dragonair is growing fast and plans to more than double its fleet within five years. The territory's cargo operator Air Hong Kong (75% owned by Cathay), is also experiencing a surge in business. All of this is on the back of strong economic growth boosted by recovery in the region and, most importantly, in China itself. More growth is forecast as the recovery continues, and with China's impending accession into the World Trade Organisation (WTO).
"The key thing is the recovery of the regional economy, which means more people will travel," says outgoing head of the Hong Kong Airport Authority (AA) Billy Lam. Acting chief executive since December 1998, Lam returns to Hong Kong's civil service at the end of this year. "With WTO, more people will be coming through Hong Kong. The government has also been doing many things to draw visitors to Hong Kong. The prospects for Hong Kong are very good."
For HKIA, which replaced venerable but over-burdened Kai Tak, 1999 was a banner year and 2000 has been even better. Last year's passenger traffic and cargo volume growth figures of 6% and 21%, respectively, were impressive, but the first half of this year has already seen 11% passenger growth and 19% cargo growth (see graph on page 46).
Liberalisation
Air services negotiators say some of the growth can be attributed to liberalisation promises made by the government last year. Michael Wong, the principal assistant secretary charged with air services negotiations, says that over the past year "open" bilateral arrangements have been secured with more than 10 countries, particularly in the area of cargo.
"We are liberalising. We are not yet open-capacity, we are not yet open-skies, because we do not yet see that as being in Hong Kong's interests," he says. "But we know that government protectionism is not the solution. We are actively practising what we are preaching. The primary concern for us, as air services negotiators, remains the economic interests of Hong Kong."
Hong Kong's China-appointed chief executive, Tung Chee Hwa, announced liberalisation pledges in his 1999 policy address to counter criticism that the new Chinese Special Administrative Region was too protectionist.
While some are still critical - mainly US airlines seeking more fifth freedom rights to serve Asian cities by way of Hong Kong - Wong argues that the territory has liberalised greatly. He says negotiators have been aggressively seeking new air accords since China assumed control. To prove his claim he points to the 21 air services agreements Hong Kong had with other countries prior to the handover and contrasts that figure with the 44 it has now, plus the four new agreements which have been initialled and only await formal signing.
Wong adds that air links with China are the "most important" and that there is "scope for more", even though Hong Kong and China already agreed to a major increase in capacity arrangements earlier this year. That accord now allows "equal opportunity" for airlines from either side. This is seen by some as a springboard to allow further growth to and from China through Hong Kong, particularly in the area of cargo.
Dragonair, Hong Kong's only carrier with permission to serve mainland China, has taken advantage of the newly open regime by expanding services and announcing a move to more than double its fleet. In July, it also leased a Boeing 747-200F from Atlas Air for use on its first all-cargo flights to the UK through the Middle East and mainland Europe, as well as to Shanghai in China. More cargo routes and freighter aircraft are planned, says Dragonair head Stanley Hui, who adds that the airline's cargo strategy is to build on the strength of its China network, which currently covers 17 cities.
Cargo's role
Cathay is also aggressively adding capacity, both on the passenger and freight sides. Responding to cargo's growing importance, Cathay agreed in May to wet-lease a 747-200F from Southern Air for two years. It also took delivery of a new 747-400F of its own from Boeing in September - the first of a batch of three ordered over the past year. This lifted the airline's 747 freighter fleet to 10 aircraft, including three on lease to Air Hong Kong. Cathay has since added new cargo routes to San Francisco, New Delhi and Penang, Malaysia, bringing to 19 the number of destinations it serves with freighter aircraft. The airline is at the same time carrying freight for DHL to four Asian cities on passenger aircraft through a novel three-year agreement.
General manager for cargo Kenny Tang says Cathay is working to expand its freight operations on the back of optimistic growth forecasts. He reveals that the 27.3% share of total revenue recorded by cargo sales in 1999 was eclipsed by the first half figures for 2000, which rose to 28.5%.
Enhanced efficiency
As Cathay and Dragonair expand, and as more carriers operate to Hong Kong from China and other parts of the world, the airport authority says it is working to increase efficiency at HKIA. The number of freighter aircraft parking stands is to increase by 60%, while a marine cargo terminal and logistics centre are planned. At the same time, the government is considering allowing a third cargo handler to be established earlier than expected to compete with Hong Kong Air Cargo Terminals and Asia Airfreight Terminal, which are recording healthy growth.
General manager for airport planning John Pashen says the authority is also looking at wider expansion requirements through a strategic study being conducted by aviation consultants. Due to be completed in July, the study will cover three main areas: cargo growth requirements; a second passenger terminal; and a new midfield area terminal concourse.
In the cargo area, a major economic study of Hong Kong's industry will be carried out, looking at the possibility of establishing a free trade zone. Pashen says there may not be enough space for new facilities and more land may have to be reclaimed - HKIA was built on reclaimed land off Lantau Island, west of the main Hong Kong Island. The study will also look at when a second passenger terminal will be required, something Pashen says is still "a long way into the future" - at least 2008. Consultants, in the meantime, will look at ways to enhance existing facilities.
The study's third stage will cover options for a so-called midfield area between HKIA's parallel runways west of the control tower. A plot of land is vacant, and the study will look at how a concourse should be built as well as make recommendations on its size and the number of aircraft stands that are required. Hong Kong's Civil Aviation Department is at the same time looking to improve operations. Studies were recently launched to determine the ultimate hourly capacity of the airport's two runways, which will increase to 50 movements per hour from 45 by next year. Trials of satellite-based air traffic management systems are also beginning. Acting authority head Lam says he is happy with progress at HKIA and in Hong Kong's aviation industry as a whole, but acknowledges that more enhancements are needed. Increased through-passenger volume, for example, has forced a need for transit area improvement.
The authority's financial performance is also improving, and Lam says full-year net profitability will soon be achieved. Such a development could lay the groundwork for privatisation in the coming years. "I'm absolutely confident that with things coming up with the economic upturn, and the larger volumes handled, we will definitely be in a very strong position in the next few years," he says.
HKIA recently became the first airport operator in Asia to win an international credit rating from Standard & Poor's - which Lam says will allow for the issue of bonds and possibly enhance its ability to raise cash. He adds that financial targets are being met and the authority will achieve a target of 5% yield over 50 years, by which time massive investment costs should be repaid. "If you look back over two years, things are on the right track. The economy is returning and we are definitely doing very well in our business," Lam says. "The key thing is to make the airport an engine for growth. And that is what we are working to do."
Source: Airline Business
