hktdc.com - Air Transport

Overview

As one of the regional hubs for Asia, Hong Kong is connected with most urban centres in Asia within 5 hours of flight time.
Handling 3.7 million tonnes of cargo (up 4.5% from 2006) and 47 million passengers (up 7.3% from 2006) in 2007, Hong Kong International Airport (HKIA) was Asia's third busiest 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 best airport among facilities serving 40 million-plus air passengers annually in the Airports Council International's 2007 Airport Service Quality Awards. HKIA ranked fourth overall in the awards, which surveyed nearly 200,000 people worldwide.
Nearly 90 airlines operate about 5,700 flights weekly, linking HKIA to more than 150 destinations worldwide including 40 cities of the Chinese mainland. As of end January 2008, Hong Kong has signed air services agreements with 58 aviation partners.

Industry Data

-	2004	2005	2006	2007	2008*
Air cargo Throughput ('00 tonnes)	3,090	3,402	3,579	3,742	3,382
Year-on-year (YoY) growth	+17.0%	+10.1%	+5.2%	+4.6%	-0.6%
No. of passengers handled (million)	37.1	40.7	44.4	47.8	44.5
YoY growth	+35.4%	+9.7%	+9.1%	+7.5%	+2.3%

Source: Hong Kong International Airport
* January to November

Air Transport	June 2008
Number of Establishments	150
Employment	30,815

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

Business Receipts (HK$ billion)

-	2005	2006	2007
Hong Kong-based airline/helicopter companies and supporting services	83.2	91.6	100.2
Local representative offices of overseas airline companies	1.2	1.0	1.1
Travel agents and airline ticket agents	50.3	62.3	71.5
Total	134.6	154.9	172.7

Sources: Report on 2007 Annual Survey of Transport and Related Services, 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 March 2007, HKIA's terminal 2 (T2) was added, further increasing its passenger and cargo handling capacity. HKIA's ultimate capacity, at full development, is 87 million passengers and 9 million tonnes of cargo a year.

The two air cargo terminals in the airport are privately-run. The larger one, known as the SuperTerminal 1 (ST1), is one of the most advanced and largest air cargo facilities in the world - its 330,000 sqm gross floor area comprising a main terminal and an express centre. The design capacity for ST1 is 2.6 million tonnes a year, including 200,000 tonnes for the Express Centre. Asia Airfreight Terminal (AAT)'s T2, the other cargo handling terminal at HKIA, has increased its handling capacity to 1.5 million tonnes per annum and thereby constitutes 30% of the airport's cargo handling capacity. 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 terminal was scheduled to be operational by 2011, and will increase HKIA's cargo handling capacity to 7.4 million tonnes from the current 4.8 million tonnes. In view of a foreseeable decline in global cargo volume, Cathay Pacific is discussing with the HKIA for postponing the terminal's construction.

However, in view of long-term passenger and cargo growth, HKIA is studying the necessity of constructing a third runway.

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

-	2006	2007	2008*
Total Exports	30.7	31.3	32.3
Domestic Exports	37.5%	30.3%	31.4
Re-exports	30.3%	31.4%	32.4
Imports	38.1%	38.5%	38.4

Source: Hong Kong External Merchandise Trade 2007,and October 2008, Census and Statistics Department
* January to October

Air transport has become more important to Hong Kong trade over the years. 32% and 38% of Hong Kong's total exports and imports were done through air transport up to October 2008, compared with 26% and 19% in 1980 respectively. This trend is particularly notable for imports, with its share doubling from 19% in 1980 to 38%. 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 trucking them to the mainland.

Up to October 2008, Hong Kong's total exports by air reached US$99 billion, up 12.6% YoY from 2007. 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 period, they reached US$126.6 billion, up 9.5% YoY from 2007. 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 (US$ million)

Total Exports

-	Jan-Oct 2008	Jan-Oct 2007	YoY Growth	Share of total, 2008
Chinese mainland	22,083	20,065	10.1%	22.3%
USA	16,038	15,352	4.5%	16.2%
Japan	5,656	5,575	1.4%	5.7%
India	5,065	2,887	75.5%	5.1%
Singapore	4,156	3,457	20.2%	4.2%
Korea	4,061	4,151	-2.2%	4.1%
Taiwan	3,678	3,874	-5.1%	3.7%
UK	3,001	2,643	13.5%	3.0%
Thailand	2,119	1,790	18.3%	2.1%
Malaysia	2,009	1,779	12.9%	2.0%
Total including others	98,972	87,921	12.6%	100.0%

Source: Hong Kong External Merchandise Trade October 2008, Census and Statistics Department

Total Imports

-	Jan-Oct 2008	Jan-Oct 2007	YoY Growth	Share of total, 2008
Japan	17,878	17,250	3.6%	14.1%
The Chinese mainland	15,298	13,694	11.7%	12.1%
Singapore	14,487	13,130	10.3%	11.4%
Taiwan	13,931	13,813	0.9%	11.0%
USA	10,971	9,868	11.2%	8.7%
Korea	6,156	7,022	-12.3%	4.9%
India	6,103	4,566	33.7%	4.8%
Malaysia	5,189	4,819	7.7%	4.1%
Thailand	4,246	3,613	17.5%	3.4%
UK	2,792	2,095	33.3%	2.2%
Total including others	126,579	115,608	9.5%	100.0%

Source: Hong Kong External Merchandise Trade October 2008, Census and Statistics Department

In terms of trade by air, the Chinese mainland, US, and Japan were the largest markets, representing 22.3%, 16.2% and 5.7% of total Hong Kong exports by air from January to October 2008 respectively. The fastest growing market was India, up 76% YoY from US$2,887 million to US$5,065 million in the same period, mainly driven by robust trade in pearls, precious and semi-precious stones.

On the import side, Japan, the Chinese mainland, and Singapore were the largest markets as of January to October 2008. They represented 14.1%, 12.1% and 11.4% of Hong Kong's sources of imports by air during the period. The fastest growing markets were India and the UK, up 33.7% and 33.3% YoY respectively. The rise in imports from India was mainly driven by pearls, precious and semi-precious stones; while growth of imports from the UK was driven by telecommunication parts and equipment.

Service Providers

There are nearly 90 international airlines providing about 5,700 scheduled passenger and all-cargo flights each week between Hong Kong and over 150 destinations worldwide. About 70% of these flights are operated with wide-bodied jets. There is also an average of approximately 84 non-scheduled passenger and cargo flights each week.

Exports

Based on the latest available statistics, Hong Kong's exports of air transport services amounted to HK$61.5 billion in 2006¹ (or 10.9% of all services exports), which rose from HK$56 billion in 2005, or up 9.3%.

HK$ billion

-	2002	2003	2004	2005	2006
Exports - Air Transport Services	40.6	36.9	47.6	56.2	61.5
Contribution to Services Exports	12.1	10.4%	11.1%	11.3%	10.9%

Sources: Report on Hong Kong Trade in Services Statistics for 2006, Census and Statistics Department

Major Export Markets of Air Transportation Services 2004-2005 (HK$ Million)

-	2004	Share (%)	2005	Share (%)	2006	Share (%)
Asia	26,733	56.1	30,658	54.5	32,402	52.7
North America	7,492	15.7	8,819	15.7	10,245	16.7
Western Europe	8,389	17.6	10,585	18.8	12,608	20.5

Sources: Report on Hong Kong Trade in Services Statistics for 2006, 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, including 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 Airport Authority Hong Kong and the State-owned Assets Supervision and Administration Commission of Zhuhai Municipal People's 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.

Since the operation of HKZAM from 1 October 2006, ZHA has seen strong passenger growth. Passenger volume rose from some 640,000 in 2005 (before the JV operation) to 1 million in 2007, up 56%. Cargo throughput also grew, from 8,900 tonnes in 2006 to 10,800 tonnes in 2007, up 21% YoY.

HKIA also has a 35% stake in Hangzhou Xiaoshan International Airport, which it helps to operate. Passenger volume grew YoY by 18% from 9.9 million in 2006 to 11.7 million in 2007, while cargo volume recorded a 6% growth from 186,000 tonnes to 196,000 tonnes during the same period.

Industry Development and Market Outlook

According to the International Air and Transport Association (IATA), the global air transport industry is forecast to generate losses worth US$2.5 billion for 2009, due to the economic downturn, moderating trade volume and related transportation demand. IATA forecast that Asia-Pacific carriers will report losses amounting to US$1.1 billion in 2009.
The General Administration of Civil Aviation of China (CAAC) forecast that the Chinese mainland will have 192 airports and 244 airports by the end of 2010 and 2020 respectively. Mainland passenger traffic is expected to grow by 11.4% annually to 2020, while freight traffic to grow by 15% a 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. There are now some 100 chartered flights between the mainland and Taiwan, without having to fly over Hong Kong's air zone. The mainland has opened a total of 21 airports, including Shanghai, Guangzhou, Nanjing, Chengdu, Shenzhen, etc; while Taiwan has opened 8 airports, including Taipei, Taichung, Kaohsiung, etc. In terms of sea ports, the mainland has opened 63 ports while Taiwan opened 11.
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. Coaches are available every 30 minutes transporting passengers between the airports. This arrangement further enhances cooperation between HKIA, which has strong international connectivity, and SZIA, which has more connections with mainland cities.
In September 2008, DHL completed its expansion of Central Asian Hub facilities in Hong Kong, more than doubling its handling capacity to 75,000 pieces per hour (pph) from 35,000 pph previously.
DHL announced in late 2007 that it will locate its North Asia hub in Shanghai. The facility is expected to be operational in 2010. Its designed capacity is 20,000 parcels and 20,000 documents per hour.
Fedex's Asia-Pacific Transshipment Centre in Guangzhou will begin operations in February 2009. After the facility is opened, delivery time for Fedex's international mail is expected to be cut from the current three days to one.
In June 2008, UPS announced that it will move its intra-Asia air hub from the Philippines to Shenzhen. The facility, expected to be operational in 2010, will have a capacity of 18,000 pph, expanding from its 7,500-pph facility in the Philippines.
Besides working on the feasibility of a third runway, HKIA has also been studying the potential development of the mid-field for more bridge-served parking stands and terminal facilities. In addition, HKIA is working with the Civil Aviation Department to increase the capacity of the runways from the current 55 takeoffs and landing per hour to 68 by 2015.

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. The registered capital requirement is the same as that for mainland enterprises - RMB 1.5 million for first-grade domestic air ticket agency 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, instead, mainland-incorporated banks (including both domestic and foreign banks) or guarantee companies recommended by the China Air Transport Association are acceptable.

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.

Hong Kong Industry Profiles