Hong Kong Air Cargo: From Strength to Strength? Or set to decline?

Transcription

1 Hong Kong Air Cargo: From Strength to Strength? Or set to decline? A Competitiveness Review Aerospace Forum February

2 Key Findings Hong Kong is a formidable and highly successful air cargo hub, with advantages over competing hubs that cannot be eroded quickly In spite of significant challenges, growth has surpassed all other hubs in the region Connectivity remains a key advantage Clustering, reliability, efficiency remain more sustainable as advantages Free port status has been key force for value-added growth 2

3 But Connectivity advantages are eroding rapidly Origination-Destination business remains strong, but must be in jeopardy as PRD companies move inland Transhipment activity is weaker than at other Asian hubs, and this could be a source of weakness going forward Significant frictions may hamper future growth: Costs Customs and cross-boundary complications Import-Export Ordinance Trade Declaration Charge and GST Freight forwarders have new-found flexibility: loyalty to Hong Kong diluted if frictions not addressed Supply side constraints threaten future growth 3

4 Reasons for concern New and efficient airports emerging across Asia New air services agreements rapidly enhancing connectivity of competitors Competitor recognition of the importance of cargo Inland migration of Mainland factories Growth of air cargo within the Mainland providing stimulus to Baiyun, Shanghai Direct Taiwan-Mainland services will impact cargo sooner than passengers 4

5 Hong Kong strengthens regional lead Million tonnes Y e a r H o n g K o n g S i n g a p o r e B a n g k o k Ta i p e i O sa k a K u a l a L u m p u r To k y o Se o u l D u b a i Source: Airports Council International. Includes express, excludes mail 5

6 Why has leadership been consolidated? Luck and location: Hong Kong s pivotal role as a trading hub Astonishing PRD economic growth New airport was marvelously timely Powerful logistics cluster Freeport status 6

7 So what does the future hold? Hong Kong average air cargo growth 9.8% since 1990 But air cargo forecasts for the future vary: For Asia, Boeing says % to 2025 For China CAAC says 13.3% to 2010 and 10.9% to th Five Year Programme says 15% to 2010 For Hong Kong: Cathay Pacific says 7% to 2020 Hactl says 5-5.6% to 2020 Airport Authority says just under 5% 7

8 Who is right? Implausible that Hong Kong growth will stall while China growth is so strong Baiyun will see faster growth, and so will be perceived as catching up Potential for (even significant) diversion exists The only 100% committed driver for Hong Kong growth is Cathay Pacific: much rests on its success The competitive moment of truth lies in the more distant future certainly beyond 2010 Betting odds: faster average growth than anyone predicts 8

9 Competitors: Baiyun and Baoan Unthreatening in the past Limited capacity Cumbersome customs Short working hours Limited connectivity Narrow bodied services But changing circumstances: Big investment in cargo, and significant new capacity Strengthening connectivity, including international Lower charges Improving efficiency (FedEx, Air France, Lufthansa, Northwest) Closer to factories Eliminating weaknesses faster than many expected 9

10 Competitors: Shanghai Closer to US and Europe 2010 World Expo Spectacular growth plans and connectivity improvements UPS by 2009 But Split hub could be a problem Air traffic management a nightmare, and slot congestion acute 10

11 Vulnerabilities: Transhipment Neglected in favour of high-value-adding O-D business But this leaves Hong Kong vulnerable: Volume and critical mass Connectivity and frequencies Helps to address import/export imbalances 11

12 Hong Kong s worsening air cargo trade imbalance, Unload Load 2000 (in 000 tonnes) Source: Census & Statistics Department 12

13 Vulnerabilities: Transhipment Neglected in favour of high-value-adding O-D business But this leaves Hong Kong vulnerable: Volume and critical mass Connectivity and frequencies Helps to address import/export imbalances Can contribute to Regional distribution centre business Can strengthen Hong Kong s multimodal capabilities As O-D business is set to stabilise, transhipment activity will be key to future growth Will need to replace antiquated Import-Export Ordinance In sum: Hong Kong lags, is vulnerable and needs to move fast 13

14 Vulnerabilities: High Costs A statistical bear s nest But air cargo handling costs are unquestionably high and out of line: 3 to 4 times above Guangzhou and Singapore 4 to 5 times Xiamen Premium may be sustainable for now, but not for long New AAT facility has stimulated some price cuts A new air cargo handling facility would without question be a critical stimulus to lower fees 14

15 Responding to the Challenges Home carrier response will be critical Freight forwarders can move Other major cargo operators can hedge: Fedex, Lufthansa, Air France, China Southern If Hong Kong slips in any way, the shift away could be swift Major initiatives must thus be driven by CX, KA: Air cargo handling costs down Mainland connectivity improved New terminal is competitively critical 15

16 The ultimate decider: resolving supply side challenges Even if demand continues to grow, and home carriers are able effectively to respond, major supply side challenges could scupper all plans: Take-off and landing capacity 16

17 Aircraft movements HONG KONG INTERNATIONAL AIRPORT Hourly Total Aircraft M ov e me nt Histogram 21 Aug - 27 Aug am Maximum Movement Rate = 53 per Hour 9.00pm MON TUE Number of Movement WED THU FRI SAT SUN Hours (Local Tim e) 17

18 Average seats per flight, Number of Seats Implication: : total airport capacity falls from 87m to 60m Year Source: Cathay Pacific 18

19 HK Air Cargo handling capacity 7,000,000 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000, Tonnes Capacity Growth at 6% Projected Capacity 75% of capacity

20 The ultimate decider: resolving supply side challenges Even if demand continues to grow, and home carriers are able effectively to respond, major supply side challenges could scupper all plans: Take-off and landing capacity Overall airport capacity Air traffic management problems These need critically to be tackled: Aircraft spacing from 54 to 84 per hour Tackling the wall problem: a military headache New runway and flight paths 20

21 Summary Hong Kong is highly successful, and for good reason Superior connectivity, but advantage is eroding Significant clustering strength, but the cluster can today more easily migrate - to Baiyun in particular Free port status has been critical for cargo, but this is under threat Transhipment activity is weaker than at other Asian hubs, and this could be a source of weakness going forward Significant weaknesses exist and may hamper future growth from customs to trucking and Import-Export Ordinance Air cargo handling costs need to be brought down Major supply side constraints threaten future growth Air space and traffic management problems need urgent resolution 21

22 Hong Kong Air Cargo: From Strength to Strength? Or set to decline? Your thoughts? 22

23 Connectivity: advantages and disadvantages Much is talked about Hong Kong s superior connectivity. but just how superior are we? 23

24 International connectivity, Hong Kong vs Mainland Outbound frequencies Destinations Hong Kong Macau Guangzhou Shanghai Beijing Shenzhen Source: HKIA, CAAC, OAG Weekly 24

25 International connectivity, Hong Kong vs Mainland Destinations Hong Kong Macau Guangzhou Shanghai Beijing Shenzhen Source: HKIA, CAAC, OAG Weekly 25

26 International connectivity, Hong Kong vs Asia competitors Outbound Frequencies Destinations Hong Kong Singapore Bangkok Seoul Narita Taipei Kuala Lumpur Dubai Source: HKIA and schedules of respective Asian airports 26

27 International connectivity, Hong Kong vs Asia competitors Outbound Frequencies Destinations Hong Kong Singapore Bangkok Seoul Narita Taipei Kuala Lumpur Dubai Source: HKIA and schedules of respective Asian airports 27

28 Mainland connectivity, Hong Kong vs Mainland hubs 2500 Outbound Frequencies Destinations Hong Kong Guangzhou Shenzhen Shanghai Pudong Shanghai Hongqiao Beijing Macau Zhuhai Source: HKIA, CAAC and OAG Weekly 28

29 Mainland connectivity: Hong Kong vs Mainland hubs 2500 Outbound Frequencies Destinations Hong Kong Guangzhou Shenzhen Shanghai Pudong Shanghai Hongqiao Beijing Macau Zhuhai Source: HKIA, CAAC and OAG Weekly 29

30 Mainland connectivity, Hong Kong vs Regional Competitors Outbound frequencies Destinations Seoul Bangkok Singapore Narita Kuala Limpur Dubai Hong Kong Source: Schedules of respective airports; HKIA 30

31 Mainland connectivity, Hong Kong vs Regional Competitors Outbound frequencies Destinations Seoul Bangkok Singapore Narita Kuala Limpur Dubai Hong Kong Source: Schedules of respective airports; HKIA 31

32 So how good is Hong Kong s connectivity? Better than Mainland airports for international routes, but not for domestic China Stronger than regional competitors in terms of access to Mainland airports, but weaker than some international routes In net terms, Hong Kong is thus currently strong But in view of rapid catch-up, this advantage is being eroded rapidly. 32