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One of two administrative regions of China, Hong Kong has experienced an advancing aviation industry for a number of years. Hong Kong's only civil airport is Hong Kong International Airport (HKG), a leading passenger gateway in Asia and one of the busiest airports in the world in terms of international passengers and cargo flights. With over 85 airlines, HKG is the hub for Cathay Pacific, Dragonair, Air Hong Kong, Hong Kong Airlines and Hong Kong Express. Although Hong Kong does not have a national airline, Cathay Pacific would be the closest to such. The Civil Aviation Department is the aviation authority in Hong Kong, responsible for providing air traffic control services as well as reporting to the Government.
Airports in Hong Kong
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The Lufthansa Group is taking measures across its three full service brands to recalibrate in East Asia, its second largest long haul market by ASKs after North America - and with the highest growth potential. Hong Kong has been the group's de facto hub, historically, despite the lack of a Star Alliance partner. JVs are forming with Star partners Singapore Airlines and Air China, and the Hong Kong hub will diminish in importance. This will take time: JVs with Singapore Airlines and Air China are evolving slowly, with the Asian party being conservative compared with the more experienced Lufthansa.
The JVs will enable the Lufthansa Group to fill white spots (Malaysia, Indonesia) and improve offline connections; Australia is the group's largest offline market. Many of these opportunities are markets where Gulf airlines have already dominated the market. Lufthansa has an existing JV with ANA: 17% of East Asian seats are covered under a JV. After the Air China and SIA JVs come into force this figure will rise to 64% – still less than JV coverage in North America.
Seoul Incheon airport has turned 15, having first opened in late Mar-2001. The all-new airport has accumulated 49 million passengers since then, making it the fifth largest major hub in Northeast Asia. Incheon is now setting its sights on 2030: it plans to double passenger volumes to 100 million, including 20 million transfer passengers. This is nearly a tripling of 2015's 7.4 million transfer passengers who made up 15% of total throughput.
Increasing the share of traffic as transfers to 20% will be difficult: transfer passengers have been on the wane at Incheon. The total transfer volume decreased in 2014, and in 2015 was still below the 2013 peak. The 15% transfer share in 2015 is below 2014's 16% and 2013's 19%. The growth in direct seat capacity from mainland China to North America has pressured Incheon's transfer business; Beijing Capital airport will likely exceed Hong Kong's North America capacity by the end of 2016 while Shanghai Pudong is not far behind.
The UK’s Birmingham Airport enjoyed one of its best ever years in 2015. Britain’s seventh biggest airport serves its second largest city, and recent route gains lend weight to its drive to grow accordingly.
The airport has stiff competition from huge hubs such as London Heathrow and outright low cost airports such as London Stansted alike, quite apart from local rivals. Birmingham is similar to mid-sized businesses in other industries in that it feels the pinch from either side of the economic spectrum. But with essential infrastructure in place, the prospect of a high-speed rail line, and aggressive route marketing Birmingham Airport is finally closing in on the status that its public and private sector owners demand.
The concentration of direct routes from Birmingham is clearly on Europe while existing and planned routes, some of them quite new since the opening of a runway extension, are evident in the Middle East and South Asia, in addition to two US routes.
This report looks at present and future growth trends at Birmingham airport, the local airport statistics, how the airport matches up to competing airports on either side of its catchment area across a range of metrics, at construction activities and at its ownership.
A billion dollars is difficult to ignore. So with little surprise Cathay Pacific's HKD8.5 billion (USD1.09 billion) realised fuel hedging loss dominated the story of its 2015 annual results. Many of Cathay's peers – airlines in mainland China and the Gulf – are unhedged, but those that are hedged are generally coming off their most restrictive hedges in 2016. Yet Cathay has hedged twice as long as other airlines, so hedging losses will continue well into 2016. The hedging volatility is in contrast to Cathay being consistent and conservative elsewhere in the business.
Despite increasing profits, there is large concern over underlying business fundamentals. Cargo, accounting for a quarter of revenue, has been a depressed story for some years and is now worsening. Cargo's underperformance has demanded stronger result from the passenger business. Yet the passenger business faces increasing challenges as competitors embark on ambitious growth and Cathay's premium strategy fails to deliver sufficient passenger volumes and yields. Long haul premium demand is weakening and new destinations planned for 2017 are being postponed. A 6% decrease in total operating costs in 2015 was mostly passed on to passengers as yields dropped 11%. Ex-fuel costs grew 2%, lower than the 6% increase in capacity. Further cost savings will be as necessary as they are precious.
Few low cost airlines have had route pickings as lucrative as those of HK Express. Although its hub airport of Hong Kong has significant slot restrictions and an underwhelming business reception to LCCs, there was significant pent-up demand. This was especially the case to markets in Northeast Asia, where LCC penetration remains lower than in Southeast Asia. HK Express' relaunch as an LCC in Oct-2013 fortuitously coincided with the depreciating Japanese yen and Korean won, further boosting outbound Hong Kong travel. In Feb-2016, 43% of HK Express' seats are to just three cities: Osaka, Seoul and Tokyo.
In Feb-2016 HK Express will operate 13 A320s but plans rapid growth to 50 by the end of 2018, effectively requiring the airline to take one aircraft every month for the next three years. HK Express plans to open four to six new markets in 2016, and at the end of the year will receive its first A320neo and A321ceo. Existing markets could expect additional capacity (frequency increase or replacing A320s with A321s). But as HK Express saturates core opportunities in existing markets, it will need to grow in the more classical LCC sense of stimulating demand in destinations largely new to Hong Kong. Already it plans to open new destinations around Southeast Asia (Laos, Myanmar) and the Pacific Islands (Guam, Saipan). Sister full service airline Hong Kong Airlines also plans to serve Saipan, highlighting the growing challenge of overlap between the two airlines, which do not have a defined dual brand strategy.
Asia's flag airlines are a stately bunch. They have generally avoided the major public upsets of European and American peers while state or family/conglomerate ownership grants a long term mindset, and their renowned service casts a public halo. Cathay Pacific especially strives for continuity. Thus it is an upset when, as now, prospects for the year shift.
2016 was to be notable for Cathay, financially and strategically. Cathay expected further benefit from fuel as it came off hedges. Delivery of its first 12 A350s were to open new routes, restore frequencies and right size capacity. This has changed – but not because of the Chinese economy, as some will be quick to speculate. The continuing decline in fuel prices has likely seen Cathay's unrealised hedging losses increase (to approximately USD1 billion) with much to become realised losses. This is in an environment where mainland Chinese carriers are unhedged and other competitors have shorter hedging obligations, disadvantaging Cathay in an over capacity market.
Growth is expected to be cut owing to a further A350 delivery delay and pilot union "contract compliance" that greatly reduces flexibility and the ability to train new pilots, limiting expansion. These new challenges add to existing concerns over weak passenger and cargo yields, and a falling stock price.
Further integration with wholly owned Dragonair is still planned (possibly with a re-branding) while finally moving to 10 abreast 777 economy seating reduces unit costs but invites an unwelcome response from passengers.