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Air Transport Industry in Hong Kong

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, more than 100 airlines operate about 1,000 flights daily, linking the Hong Kong International Airport (HKIA) to about 180 destinations worldwide including 48 cities on the Chinese mainland.
  • Handling 56.5 million passengers and 4.03 million tonnes of cargo and in 2012, 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 2006.
  • HKIA has been recognised as the world's leading airport – it was named World's Best Airport at the 2012 TTG Travel Awards since 2002, and crowned as the “Best Airport in Asia Pacific” at the GlobeRunner Awards 2012.
  • As at June 2013, Hong Kong had signed air services agreements with 67 aviation partners (5 of them have not yet come into force).

Industry Data

Hong Kong International Airport

2011

2012

2013*

Air cargo Throughput (‘000 tonnes)

3,938

4,025

1,626

   Year-on-year (YoY) growth (%)

-4.6

+2.2

+2.3

No. of passengers handled (million)

53.9

56.5

23.9

   YoY growth (%)

+5.9

+4.8

+3.9

Source: Hong Kong International Airport
* January-May

Air transport industry

March 2013

Number of Establishments

145

Employment

24,748

Vacancies

205

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

Business Receipts (HK$ billion)

2010

2011

Hong Kong-based airline and helicopter companies

93.2

106.7

Local representative offices of overseas airline companies

1.1

1.3

Service activities incidental to air transportation

19.1

20.9

Sources: Key Statistics on Business Performance and Operating Characteristics of the Transportation, Storage and Courier Services Sector in 2011, Census and Statistics Department

Range of Services

The air transport industry can be divided into the cargo and passenger sectors. These 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. With the government’s support, AAHK received the Environment Impact Assessment (EIA) Study Brief in August 2012, which sets out the scope of environment issues to be addressed in the Study.

In cooperating with the construction of the Hong Kong Link Road, which will connect the Hong Kong–Zhuhai–Macau Bridge with the new Hong Kong Boundary Crossing Facilities, there will be 28 stands entering service in end-2014. Besides, new infrastructure projects integrating the airport’s facilities have been started.

The two air cargo terminals in the airport are privately-run. The larger one is known as the SuperTerminal 1 (ST1). With more than 390,000 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. In 2013, Hong Kong Air Cargo Terminal Limited (Hactl), the company which operates ST1, received the Best Business (Application) Gold Award at the Hong Kong Information and Communication Technology (ICT) Awards. 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 first stage of the Cathay Pacific Cargo Terminal opened in February 2013 with full operations scheduled for end-2013. This is expected to increase HKIA’s cargo handling capacity by 50% to 7.4 million tonnes from the current 4.8 million tonnes.

In an effort to enhance operational efficiency, HKIA has adopted the printing of integrated radio frequency identification (RFID) baggage tags since January 2008. The new tags, which combine an embedded RFID chip with a barcode, replace traditional barcode-only baggage tags. 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

2011

2012

2013*

Total Exports

33.5%

33.6%

34.7%

Domestic Exports

30.3%

27.7%

28.2%

Re-exports

33.6%

33.7%

34.8%

Imports

39.0%

28.6%

38.7%

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

Air transport has become more important to Hong Kong trade over the years. 35% and 39% of Hong Kong’s total exports and imports were done through air transport in the first five months of 2013, 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 for the mainland.

In 2012, Hong Kong's total exports by air reached HK$1,154 billion, up 3.1% from 2011. For imports by air in the same year, they reached HK$1,509 billion, up 3.1% from 2011.

Trade by air

2012

Major exports items

(HK$ billion)

(% share)

Telecommunications equipment

295.9

24.6%

Thermionic and parts thereof

197.9

17.1%

Pearl, precious stones (finished and unfinished)

100.7

8.7%

Major imports items

Thermionic and parts thereof

511.1

33.9%

Telecommunications equipment

200.7

13.3%

Pearls, precious and semi-precious stones

141.0

9.4%

Trade by Air by Main Country / Region

Total Exports

 

2012

Jan-May 2013

HK$ billion

% change

% share

HK$ billion

% change

% share

World

1,153.8

+3.1

100.0

483.3

+5.2

100

Chinese mainland

320.8

+9.0

27.8

133.1

+6.4

27.5

US

167.0

+4.6

14.5

66.1

-0.5

13.7

India

67.4

-16.5

5.8

30.9

+5.6

6.4

Japan

62.7

15.7

5.4

23.0

-6.1

4.8

Korea

40.7

-6.0

3.5

18.2

+9.5

3.8

Taiwan

40.5

-4.9

3.5

17.7

+13.0

3.7

Germany

37.6

-9.8

3.3

15.1

-1.3

3.1

Singapore

33.1

0

2.9

14.5

+12.2

3.0

UAE

27.8

+29.3

2.4

12.9

+12.6

2.7

Netherlands

25.9

+3.2

2.2

10.0

-5.8

2.1

UK

23.9

+8.6

2.1

9.5

-0.3

2.0

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

Total Imports

 

2012

Jan-May 2013

HK$ billion

% change

% share

HK$ billion

% change

% share

World

1,508.8

+2.7

100.0

616.2

+3.9

100.0

Chinese mainland

184.7

+11.5

12.2

79.2

+12.2

12.9

Taiwan

170.8

+7.9

11.3

74.9

+15.8

12.2

Singapore

164.9

-1.5

10.9

67.6

+3.4

11.0

Japan

159.9

-2.6

10.6

53.5

-15.0

8.7

US

141.3

-3.9

9.4

57.6

+3.3

9.3

India

76.2

-6.8

5.1

33.8

+2.1

5.5

Switzerland

75.8

-0.5

5.0

30.8

-5.3

5.0

Korea

67.9

+2.1

4.5

31.2

+27.5

5.1

Malaysia

46.5

-11.8

3.1

16.4

-15.4

2.7

UK

41.5

+12.5

2.8

14.9

-3.1

2.4

Thailand

40.7

-7.1

2.7

16.1

+4.9

2.6

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 in 2012, representing respectively 27.8%, 14.5% and 5.8% of Hong Kong’s total exports for that year. On the import side, the Chinese mainland, Taiwan and Singapore were the largest markets in 2012. They represented, respectively, 12.2%, 11.3% and 10.9% of Hong Kong’s total imports by air during the year.

Service Providers

There are more than 100 international airlines providing about 1,000 scheduled passenger and all-cargo flights each day between Hong Kong and about 180 destinations worldwide, including 48 mainland cities. There are approximately 590 non-scheduled passenger and cargo flights each week on average.

Exports

Based on the latest available statistics, Hong Kong's exports of air transport services increased by 11.3% to HK$ 89.8 billion[1] in 2011, representing 35.9% of total transportation service exports for that year.

 

2008

2009

2010

2011

Exports - Air Transport Services(HK$ Billion)

76.3

61.6

80.7

89.8

Contribution to total Transportation Services

33.9%

33.5%

34.8%

35.9%

Sources: Report on Hong Kong Trade in Services Statistics for 2011, Census and Statistics Department

Besides air cargo handling business, another potential 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 Chinese-foreign joint venture company (JV) - a joint venture between AAHK and Hangzhou Xiaoshan International Airport Co. Ltd. Under the joint agreement which lasts for a long-term period starting from 2006, HKIA owns 35% of the joint-venture, while the rest is owned by the Hangzhou government. In 2012, HXIA’s passenger volume grew 9.2% from 2011 to 19.1 million, while cargo throughput increased 10.5% to 338,400 tonnes. During 2012-13, a new domestic passenger terminal (T3) and a second runway entered service successively.

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

Industry Development and Market Outlook

World
  • According to the International Air and Transport Association (IATA), the global air transport industry is expected to gain a profit of US$12.7 billion in 2013. Passenger demand is expected to gain by 5.3% in 2013, while the cargo demand is projected to increase by 1.5%.
Asia-Pacific
  • For Asia-Pacific airlines, IATA upgraded in June 2013 the 2013 forecast for the region to a profit of US$4.6 billion, which is the largest profit among the regions. Yet, the margins in Asia-Pacific have fallen sharply in light of the doldrums in cargo market.
China
  • 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.

Industry collaboration between Hong Kong, Chinese mainland and Taiwan

Hong Kong ↔ Chinese mainland
  • In January 2010, HKIA officially launched SkyPier, a new cross-boundary ferry service aimed to facilitate travelling between the Pearl River Delta and the world via Hong Kong.
  • In March 2011, five major airports in the Greater Pearl River Delta region, including Hong Kong, Macau, Guangzhou, Shenzhen and Zhuhai, signed a Memorandum of Understanding (MOU) to enhance cooperation and sustainable development.
  • In 2009, a joint venture between AAHK and Shanghai Airport (Group) Co. Ltd started to manage terminal operations, retail business and the East Ground Transportation Centre at the Shanghai Hongqiao International Airport.
  • AAHK and Beijing Capital International Airport (BCIA) signed an MOU in October 2011 on a “sister airports” arrangement between the two airports.
Hong Kong ↔ 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 cargo capacity by 70% from 1,700 tonnes to 3,000 tonnes per week for each side by mid-2012. Such ASA helps strengthen Hong Kong’s position as a leading international and regional aviation centre.
Chinese mainland ↔ Taiwan
  • In June 2011, the mainland and Taiwan agreed to increase the maximum number of weekly chartered flights between the two places (without flying over Hong Kong’s air zone) from 370 to 558. The maximum number of weekly cargo flights has also increased from 48 to 56. Under the arrangements, the mainland has opened 41 airports to Taiwan, and Taiwan 9 airports to the mainland.

  • 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 more than the one in the Philippines. UPS has opened several facilities in the Asia-Pacific Region, such as the high-tech Hangzhou facility opened in June 2013.
  • 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. In October 2012, Fedex Express signed with Shanghai Airport Group to build a US$100 million new express and cargo hub at Pudong International Airport. The 134,000 sqm hub is expected to meet expansion requirements for next decade with capacity to sort up to 36,000 documents and packages per hour and will totally have 59 truck docks.

The Mainland-Hong Kong Closer Economic Partnership Arrangement (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.


[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.


Content provided by Picture: Jacqueline Yuen