PaulLewis/MACAU
To invest over $1 billion on an all-new airport for a small city of 400,000 inhabitants would appear to be a financial gamble, but Macau, having built its economy around the casino industry, is accustomed to playing for high stakes. Payback for the Portuguese-run enclave now hinges on the ability to diversify and develop its new aviation business.
Macau's new airport has taken on the discernable look and feel of a small international gateway in the 20 months since opening, despite an initially slow start (Flight International, 5-11 June, 1996, P26). The airport is now averaging around 60 scheduled departures and arrivals every day and has been playing regular host to 18 airlines, including local carrier Air Macau.
José Queiroz, Macau civil-aviation authority (AACM) chairman, recalls: "We started in November 1995 and at that time Air Macau had one aircraft. They now have six. The airport has experienced a lot of growth since that time and we finished 1996 with a throughput of 1.3 million passengers." He adds that the airport expects "-to finish this year with between 1.7 and 1.8 million passengers".
Intermediate transit point
Growth has been fuelled primarily by traffic to and from mainland China and Taiwan, the bulk of which is using Macau as a intermediate transit point. Of the 777,281 passengers arriving and departing from the airport in the first five months of 1997, some 65% originated from Taiwan and 22% from neighbouring China.
While this has proved to be an invaluable source of start-up income for Air Macau, accounting for all but of five of the airline's 103 weekly frequencies, it is a market which is fraught with risks and leaves Macau exposed. "There are two issues which must be resolved, the airport's dependence on Air Macau for 50% of its business, and on Taiwan as its main source of passengers," warns Queiroz.
The recent resumption of direct shipping between the Chinese mainland and the Taiwanese island has once again raised the spectre of direct air links, bypassing both Macau and Hong Kong. With political relations between Beijing and Taipei continually blowing hot and cold, there is also the potentially even more devastating threat of conflict. This was underscored in 1996 by a series of Chinese missile firings in the Taiwan straits, forcing the closure of several international air routes.
As a result, the local Portuguese administration is pressing Air Macau to pursue a twintrack course of expanding its routes into China, while at the same time opening new regional destinations in Asia. In addition to diversifying Air Macau's network, the approach is intended to attract other international carriers wanting onward connections into China (Flight International, 18-24 June, P14).
The carrier to date is exploiting only four of the 30 bilateral air-service agreements negotiated with other countries. Besides China and Taiwan, the airline operates three-times weekly to Bangkok in Thailand and, from 21 July, twice a week to Manila in the Philippines. "These agreements represent a lot of economic value and Air Macau has to use these traffic rights to its benefit," says Queiroz.
For Air Macau's Chinese, Portuguese and local shareholders, the main concern is to cut the airline's losses, $6.7 million in 1996, and generate a return on their investments. "Our strategy is to balance growth with our financial situation. We cannot put our company into a position of higher risk," cautions Leonel Miranda, Air Macau president and vice-chairman.
With a fleet of two Airbus Industrie A320s and two A321s, the airline carried close to 665,000 passengers in its first full year of operations and achieved an average load factor of 68%. Its goal is to increase this to 1 million passengers by the end of 1997.
The airline added the two 178-seat A321s in March and May on lease from International Lease Finance. Its concession agreement with the Government calls for the addition of a further two aircraft a year through to 2000. The airline plays down talk of acquiring a widebody airliner, despite enjoying load factors of close to 80% on its two daily flights to Shanghai.
The carrier's newly appointed chief executive, Li Keli, warns: "As a young airline, Air Macau should be very careful in planning its operations. The paramount concern is to guarantee safety and reliability, and at the same time remain financially healthy and viable as a regional carrier."
Li, a former deputy director of international affairs for China's civil-aviation authority (CAAC), is coy about the sensitive issue of adding new mainland destinations. With CAAC-owned China National Aviation (CNAC) a 51% shareholder in Air Macau, however, the airline is better positioned than most to ask for what it wants.
The airline now operates to Beijing, Qingdao, Shanghai, Wuhan and Xiamen and, under a recent AACM-CAAC memorandum of understanding, it will be given new rights to Chongqing, Fuzhou, Guilin, Hangzhou, Kunming and Nanjing. Other important points thought to be of interest to Air Macau include Chengdu, Haikou and Xian.
Its parallel strategy for developing services elsewhere in Asia is to target markets which do not now enjoy good air links with China. "Macau is a small city and there is not enough traffic for one airline. We need to have a good network into mainland China to be able to extend our routes outside the China-Taiwan market," explains Miranda.
Air Macau has set its sights on Japan, which does not yet have a bilateral air-services agreement with Macau. "We're actively talking to them now about a bilateral," says Queiroz. The market offers potentially high yields and is now served only by periodic charters operated by the three main Japanese carriers.
South Korea has also caught Air Macau's attention. There is already strong competition on routes between Macau and Seoul, however, with Asian Airlines and Korean Airlines each operating thrice-weekly passenger services. Other potential destinations include Laos, Myanmar, Vietnam and, in the longer term, Australia. "Sydney will be our first destination outside Asia, but we haven't decided whether to start in 1999 or 2000," says Miranda.
The AACM's plan for broadening the airport's airline user base hinges to a large extent on the impact of Hong Kong's new international airport at Chek Lap Kok, scheduled to open in April 1998. Competition has already begun to heat up, with recent Hong Kong Airport Authority (HKAA) figures claiming to show that average airport charges at Chek Lap Kok will be lower than those at Macau, even after a mean 85% increase over and above that levied at the soon-to-be-closed Kai Tak.
"Those figures are based on completely wrong assumptions," counters Queiroz. "They [the HKAA] did the calculations based on a passenger departure tax of HK$50 [$6.50]. It is now HK$100. We've redone the figures and, excluding air bridges, Macau is 10-12% cheaper than Kai Tak. If it's cheaper than Kai Tak, Macau for sure will be less expensive than Chek Lap Kok."
HKAA statistics also fail to take into account the projected higher cost of the 31km (17nm) journey to Chek Lap Kok, compared to Kai Tak. "Time is another factor," adds Li. "From Chek Lap Kok to downtown Hong Kong will take up to 45min, compared to Macau to Hong Kong, which takes only an hour and is cheaper."
Pier pressure
Travelling time would be further cut with the long-awaited construction of a ferry pier at the airport, eliminating the need to transfer passengers to Macau's main ferry terminal in the city. The AACM now hopes to have an airside terminal completed by the second half of 1998, providing a concession contract now before the Government and Sino-Portuguese Liaison Group is approved.
The AACM is planning for an even shorter sea link between Macau and Chek Lap Kok, which are only 40km apart. Whether this happens will depend largely on the attitude of the Hong Kong authorities. Macau pins part of the blame for the delay to the airport ferry terminal on the former UK administration's refusal to accept Hong Kong-bound passengers without them first clearing Macau customs, immigration and quarantine.
Macau's success in pulling in Hong Kong traffic will also depend on how quickly Chek Lap Kok reaches its initial maximum design capacity of 35 million passengers a year. Kai Tak is already handling close to 30 million passengers, while Macau still has considerable room for growth before it reaches its existing ceiling of 6 million. "Even with two runways, Chek Lap Kok will soon reach its technical and operational limits and any spillover traffic will allow Macau aviation to develop," suggests Li.
Carriers, including SAS, have turned to Macau in the face of slot shortages at Kai Tak. The Scandinavian airline ships cargo from Hong Kong to Macau by sea barge to connect with four weekly Boeing 747 freighter flights to Kansai in Japan and Gothenburg in Sweden. Asiana, in addition to its passenger service, operates a twice-weekly Boeing 767 freighter service to Macau and has added a third 747 frequency.
Air cargo is another area AACM is keen to see more fully developed. Local freight handling, together with passenger processing and aircraft line maintenance, is the sole responsibility of MASC-Ogden. The Sino-American joint venture, in which CNAC holds a 25% stake, operates an 8,000m2 (86,000ft2) cargo terminal and claims to offer "incentive pricing" that is up to 20% cheaper than that of Hong Kong Air Cargo Terminals (HACTL).
"Macau is perfectly placed as a cargo hub," says MASC-Ogden managing director Richard Jamieson. "Our biggest growth has been in the air-cargo field. We're currently operating at about 90t a day, which represents about 25% of capacity, and so, in real terms, there is still a lot of room for growth."
Despite its position and pricing, Macau stills has to overcome logistical and infrastructural barriers if it is to ever compete effectively with HACTL, which is now handling around 1.4 million tonnes annually. Measures needed include improved transport links with the manufacturing areas of the Pearl River delta and the establishment of Macau's own local freight-forwarding industry, independent of Hong Kong.
Air Macau, at the same time, is being pressed to develop a dedicated air-cargo capability, rather than simply carrying small quantities of freight in the belly of its A320/321s. "Some of the major air-cargo carriers are prepared to use Macau, but they need Air Macau to act as a feeder into China. The airline is now studying this," says Queiroz.
Business attractions
Other initiatives to attract more business include the construction of an adjoining hotel and business centre, as well as an aircraft-maintenance site. The 9,000m2 single-bay hangar is due for completion in September, and MASC Ogden is looking to bring a new partner, preferably an airline, to help operate the centre.
Macau has established itself as an important regional airport over the past 20 months, disproving many of its earlier critics who viewed it as a financial white elephant. Macau will follow Hong Kong and return to Chinese rule at the end of 1999, which should assure Air Macau and the airport of an even brighter future. "China is big market and taking into account that it is home to a 1.2 billion population, it offers great potential," concludes Li.
Source: Flight International
