Hong Kong Industry Profiles

Overview

• As one of the regional hubs for Asia, Hong Kong is connected with most urban centres in Asia and half of the world's population within 5 hours of flight time. Currently, over 100 airlines operate about 6,400 flights weekly, linking Hong Kong International Airport (HKIA) to more than 160 destinations worldwide including about 40 cities of the Chinese mainland.
• Handling 3.9 million tonnes of cargo and 53.9 million passengers in 2011, HKIA was Asia’s third busiest international passenger airport, and continued to rank as the world’s busiest airport in terms of international cargo throughput since 1996.
• HKIA has been recognised as the world's leading airport – it was named World's Best Airport at the 2011 World Airport Awards, and ranked fourth by the Airports Council International in the 2011 Airport Service Quality Awards. In short, HKIA received 10 Best Airport awards in 2011.
• By March 2011, Hong Kong had signed air services agreements with 65 aviation partners (6 of them have not yet to come into force).

Industry Data

Source: Hong Kong International Airport
* January

Source: Quarterly Report of Employment and Vacancies Statistics, Census and Statistics Department

Business Receipts (HK$ billion)

Sources: Key Statistics on Business Performance and Operating Characteristics of the Transportation, Storage and Courier Services Sector in 2010, Census and Statistics Department

Range of Services

The air transport industry can be divided into the cargo and passenger sectors. The two sectors overlap since over half of Hong Kong's airfreight is carried in the holds of passenger aircraft rather than pure freighters. There are scheduled and non-scheduled carriers operating in both the cargo and passenger sectors. In the cargo sector, there are two major cargo types, namely, express cargo and heavy lift cargo.

Hong Kong International Airport

Hong Kong International Airport (HKIA) at Chek Lap Kok, which allows 24-hour operation, was opened with a single runway and facilities in July 1998. The second runway and associated facilities were opened in May 1999. In view of long-term passenger and cargo growth, after the public consultation conducted in 2011, Airport Authority Hong Kong (AAHK) has proposed to the government to construct a third runway. After the government provided support in March 2012, AAHK is now preparing the environmental impact assessment, plan design details and financial arrangements.

The two air cargo terminals in the airport are privately-run. The larger one is known as the SuperTerminal 1 (ST1). With more than 330,000 sqm of gross floor area, ST1 is one of the most advanced and largest air cargo facilities in the world. It can handle over 3.5 million tonnes of cargo. The other cargo handling terminal at HKIA, Asia Airfreight Terminal (AAT)’s Terminal 2, was added in March 2007. There is an airfreight forwarding centre at HKIA, providing space for warehousing, loading platforms, truck parking bays and offices.

In March 2008, Cathay Pacific was awarded the contract to build and operate a third cargo terminal with an area of 10 hectares. The construction was stalled due to the decline in global cargo volume in 2009. The terminal was scheduled to be operational before June 2013, and will increase HKIA’s cargo handling capacity to 7.4 million tonnes from the current 4.8 million tonnes.

In an effort to enhance operational efficiency, HKIA has started printing radio frequency identification (RFID) tags in addition to traditional barcodes for baggage since January 2008. RFID tags can be read more quickly and contain more information, with readable rates at 97% compared with 80% for barcodes.

Percentage Share of Air Cargo Value

Source: Hong Kong External Merchandise Trade, Census and Statistics Department
* January

Air transport has become more important to Hong Kong trade over the years. 33.5% and 39.0% of Hong Kong’s total exports and imports were done through air transport in 2011, compared with 26% and 19% in 1980 respectively. Hong Kong’s efficiency in customs clearance and its status as a free port are among the main contributors to this increase. Simple customs clearance and 24-hour operation of HKIA makes it convenient for goods destined for the Chinese mainland to go through Hong Kong and then truck them to the mainland.

In 2011, Hong Kong's total exports by air reached HK$1,119 billion, up 15.3% from 2010. Major Hong Kong exports by air included electronics and their parts and components, telecommunications equipment, apparel and clothing accessories, jewellery (finished and unfinished), timepieces and eyewear.

For imports by air in the same year, they reached HK$1,469 billion, up 11.1% from 2010. Major Hong Kong exports by air included electronics and their parts and components, telecommunications equipments, jewellery (finished and unfinished), timepieces, toys and sporting goods.

Trade by Air by Main Country / Region (HK$ billion)

Total Exports

Source: Hong Kong External Merchandise Trade, Census and Statistics Department

Total Imports

Source: Hong Kong External Merchandise Trade, Census and Statistics Department

In terms of export by air, the Chinese mainland, the US and India were the largest markets, representing 26.3%, 14.3% and 7.2%of Hong Kong’s total exports by air in 2011 respectively. On the import side, Singapore, the Chinese mainland and Japan were the largest markets in 2011. They represented 11.4%, 11.3% and 11.2% of Hong Kong’s total sources of imports by air during the year.

Service Providers

There are over 100 airlines providing over 6,000 scheduled passenger and all-cargo flights each week between Hong Kong and over 160 destinations worldwide. There is also an average of approximately 500 non-scheduled passenger and cargo flights each week.

Exports

Based on the latest available statistics, Hong Kong's exports of air transport services increased by 30.7% to HK$ 82.5 billion¹ in 2010, representing 35.5% of total transportation services exports for that year.

HK$ Billion

Sources: Report on Hong Kong Trade in Services Statistics for 2010, Census and Statistics Department

Major Export Markets of Air Transportation Services (HK$ Billion)

Sources: Report on Hong Kong Trade in Services Statistics for 2010, Census and Statistics Department

Besides air cargo handling business, another potential aspect for Hong Kong to export air transport-related services is airport management services, especially in the operation of air cargo terminal. This can be done either by investing in air cargo terminals overseas, or by providing consultant services. Hong Kong is well positioned to tap into this market, as more and more airports around the world, particularly the Chinese mainland, are to be privatised or operated on a commercial basis.

A success story is the Hong Kong-Zhuhai Airport Management Co. Ltd (HKZAM) - a joint venture between AAHK and the State-owned Assets Supervision and Administration Commission of Zhuhai government to manage the Zhuhai Airport (ZHA). Under the joint agreement which lasts for 20 years starting from 2006, HKIA owns 55% of the joint-venture, while the rest is owned by the Zhuhai government. In 2010, ZHA’s passenger volume grew 31.3% from 2009 to 1.8 million. Cargo throughput increased 27.8% to 17,600 tonnes, while air traffic movement rose 61.3% to 37,700.

Besides ZHA, AAHK has also entered into different forms of cooperation with various airports on the Chinese mainland, namely Hangzhou Xiaoshan International Airport, Shanghai Hongqiao International Airport and Beijing Capital International Airport.

Industry Development and Market Outlook

• According to the International Air and Transport Association (IATA), the global air transport industry is expected to gain a profit of US$6.9 billion in 2011 and US$3.5 billion in 2012. Passenger demand is expected to gain by 4% in 2012, while the cargo demand is projected to remain flat. The weakened momentum is caused by uncertain global economy due to the Europe sovereign debt crisis.
• For Asia-Pacific airlines, IATA has upgraded its 2011 forecast for the region by US$800 million to a profit of US$3.3billion in December 2011, which is the largest absolute profit among the regions. IATA said airlines had improved load factors and profitability on China's expanding domestic market. For 2012, carriers in the Asia-Pacific are expected to deliver the largest absolute profit at US$2.1billion.
• The Civil Aviation Administration of China (CAAC) projected China’s passenger traffic to grow by 11.4% annually to 2020, and by 2025, China will become the largest air freight market in the world. Within the 12th Five Year Plan period (2011-2015), China will invest approximately USD2.4 trillion into the industry, so that the country will have around 5,000 planes and 220 airports to handle 450 million passengers each year. 
• On 15 December 2008, “Three links” (meaning direct transportation, postal, and trade links between the Chinese mainland and Taiwan) was officially restored after almost 60 years. In June 2011, both parties agreed to increase the maximum number of chartered flights between the mainland and Taiwan (without having to fly over Hong Kong’s air zone) per week from 370 to 558. The maximum number of cargo flights has also increased from 48 per week to 56 per week. Under the arrangements, the Chinese mainland has opened 41 airports to Taiwan, and Taiwan has opened 9 airports to the mainland.
• Notwithstanding the increasing chartered flights between the Chinese mainland and Taiwan, HKIA signed a new Air Services Arrangement (ASA) in December 2011 with Taiwan to increase the passenger capacity from 170 flights to 205 flights per week, and increase the cargo capacity by 70% from 1,700 tonnes to 3,000 tonnes per week for each side by the Summer of 2012. Such ASA helps strengthen Hong Kong’s position as a leading international and regional aviation centre.
• In July 2011, HKIA was awarded as the most efficient in Asia-Pacific by The Air Transport Research Society, for the fifth consecutive years.
• In January 2010, HKIA officially launched the SkyPier, which is a new cross-boundary ferry terminal, aims to facilitate travelling between the Pearl River Delta and the world via Hong Kong.
• AAHK and Beijing Capital International Airport (BCIA) signed a Memorandum of Understanding (MOU) in October 2011 on a “sister airports” arrangement for the two airports. The MOU was made to expand experience-sharing and cooperation between HKIA and BCIA, which have been exchanging management expertise since 2002. AAHK also provided consultancy and support services for the smooth launch of BCIA’s Terminal 3 prior to the Olympic Games in 2008. The MOU will help the two parties further develop the two airports.
• In October 2008, HKIA and Shenzhen International Airport (SZIA) jointly launched a Hong Kong-Shenzhen Airports Link, enabling HKIA and SZIA passengers to obtain boarding passes for connecting flights at either airport. This arrangement further enhances cooperation between HKIA, which has strong international connectivity, and SZIA, which has more connections with mainland cities.
• Airport Authority Hong Kong (AAHK) signed a cooperation agreement with Shanghai Airport Authority (SAA) for the establishment of the Shanghai Hong Kong Airport Management Co., Ltd (a joint-venture company) in October 2009. The company manages Hongqiao Airport’s east and west terminals, the east traffic control centre of Hongqiao’s integrated transport centre and also the retail business of the two terminals. Under the joint agreement which lasts for 20 years starting from 2010, HKIA owns 49% of the joint-venture, while the rest is owned by SAA.
• Agreed on July 2010, Shanghai Hongqiao Airport is added as a point for scheduled air services between China's Mainland and Hong Kong.
• Working in collaboration with different industry parties, Hong Kong Polytechnic University (PolyU) developed an Air Cargo Processing System using RFID technology, facilitating air cargo processing.
• UPS’s new intra-Asia air hub in Shenzhen was officially opened in May 2010. The new hub has a handling capacity of 18,000 pieces per hour (pph), 1.4 times larger than the old one in the Philippines.
• Fedex’s Asia-Pacific Transshipment Centre at Guangzhou Baiyun International Airport has begun operations since February 2009. It is the biggest logistics centre of Fedex outside the US, with a capability to handle up to 24,000 packages an hour at the start of operations.

The Closer Economic Partnership Arrangement between Hong Kong and the Mainland (CEPA)

Under China's WTO commitment, foreign services providers are permitted to operate minority-owned joint venture aircraft and maintenance services enterprises.

Since the implementation of the Regulations on Foreign Investment in the Civil Aviation Industry in August 2002, China has been allowing foreign companies to invest, through joint ventures, in the construction of runways, passenger terminals and cargo terminals, as well as in other supporting services such as ground services, aircraft maintenance, air catering, hotels and restaurants, and aviation fuel supply. Foreign investment in air traffic control remains off-limits.

Under CEPA, Hong Kong services suppliers (HKSS) are allowed to establish contractual joint venture, equity joint venture or wholly-owned operations to provide airport management services and airport management training and consultation services for small and medium airports. Moreover, they are also allowed to set up wholly-owned operations to provide 7 types of ground services. However, the period of validity of the contract for airport management services should not exceed 20 years, which is shorter than the 30-year limit stipulated in the aforementioned Regulations regarding foreign-invested joint ventures.

As far as the qualifying criteria like "nature and scope of business" and "years of operation required" are concerned, HKSS need to have obtained the relevant licences in Hong Kong.

HKSS are also allowed to set up joint venture enterprises with mainland Computer Reservation System (CRS) service suppliers on the mainland. The mainland side shall have the majority shareholding in the enterprise. Licences for the setting up of joint venture enterprises are also subject to an economic needs test.

Under CEPA, HKSS are allowed to set up wholly-owned companies to provide air transport sales agency services to cover international routes including Hong Kong, Macau and Taiwan. From January 2011, HKSS will also be allowed, under provisions of Supplement VII to CEPA, to provide air transport sales agency services covering domestic routes in the form of wholly-owned enterprises. The registered capital requirement is the same as that for mainland enterprises - RMB 1.5 million for first-grade domestic air ticket agencies and RMB 0.5 million for second-grade agencies.

In addition, HKSS are not required to go through the substantive initial vetting by local representative offices of the China Air Transport Association (CATA). They can submit the application materials directly to the CATA for examination. HKSS also do not have to submit economic guarantee provided only by China-capital banks like before, and instead, mainland-incorporated banks (including both domestic and foreign banks) or guarantee companies recommended by the China Air Transport Association are acceptable.

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¹ No breakdown into cargo and passenger revenues is available. Passenger revenue is collected when an overseas visitor travels to or from Hong Kong by a Hong Kong-based airline. Cargo revenue is collected through the exports of goods by a locally-based airline, since most Hong Kong exports are sold on free-on-board terms.