The COVID-19 pandemic has disrupted various businesses and economies, with the aviation industry bearing the brunt as many countries and regions have imposed travel restrictions or even lockdown measures. Limited by its physical area, Hong Kong can in no way be like the United States or the Chinese mainland, which have a large domestic market in the aviation industry to share losses with. Due to the substantial reduction in flights, a large number of aircraft are now parked at Hong Kong International Airport, exhibiting a spectacular yet lamentable “aircraft show”.
Since social unrest got hold of Hong Kong in the second half of 2019 until the outbreak of the COVID-19 pandemic in the first half of 2020, HKIA and the entire aviation industry have undoubtedly faced great challenges that other major airports around the world have not encountered. According to the Airport Authority, passengers handled and air traffic movements at HKIA were 60.9 million and 37,7420 respectively in the 2019-20 fiscal year, forcing HKIA out of the “Top 10 passenger airports in the world” list. Moreover, hit by international trade disputes, freight volumes fell by 7.3 percent to 4.7 million metric tons.
Being the giant of Hong Kong’s aviation industry, Cathay Pacific Airways has been hit hard by the pandemic, recording a drop in both passenger and cargo volumes. In April, its passenger loads plunged 99.6 percent to just 458 a day. In the first four months of this year, passenger loads fell 64.4 percent from the same period last year, while cargo loads fell 26.6 percent from the same period last year, resulting in a total loss of HK$4.5 billion (US$580.6 million).
In order to mitigate the impact on Cathay, the Hong Kong Special Administrative Region government announced in early June a recapitalization plan to invest HK$27.3 billion in the airline from its Land Fund. At that time, many people questioned why the government helped only Cathay when many other companies were experiencing the same difficulties during the outbreak of COVID-19.
In order to maintain Hong Kong’s renowned reputation in aviation, it is vital, starting now, to make use of the three years prior to 2024 to coordinate and cooperate with the airports in Shenzhen, Guangzhou, Zhuhai and Macao. This will help unify market resources and allocate them in an effective way so as to achieve a win-win situation
Cathay Chairman Patrick Healy said that with commercial bond markets today largely shutting out airlines that cannot solicit support from government shareholders, one option in the face of heavy losses would be to let the business go under.
Considering Hong Kong’s aviation industry and hub status, Cathay is indeed “too big to fail”. The company now handles 57 percent of passengers and 41 percent of cargo at HKIA. Globally, besides having an extensive air network and air rights, Cathay has dedicated 49 passenger terminals and 14 cargo terminals among over 220 terminals owned by Hong Kong around the world. All these mean that Cathay is not simply an airline company, but also a key player for Hong Kong in maintaining and enhancing its position as an international aviation hub.
Financial Secretary Paul Chan Mo-po emphasized that investing in Cathay was to maintain and promote Hong Kong as an international aviation hub and to enhance the city’s overall economic development. In fact, from both the perspective of developing its aviation industry and the long-term interests of Hong Kong, the bailout of Cathay is timely and justified. Article 128 of the Basic Law states that the HKSAR government shall provide necessary conditions and measures to maintain Hong Kong as an international and regional aviation center. Furthermore, according to the Outline Development Plan for the Guangdong-Hong Kong-Macao Greater Bay Area released in February 2019, one of the objectives of the plan is to build up a world-class airport cluster, referring to Hong Kong as an international aviation hub. The aviation industry can additionally boost economic development, the exchange of business travelers, tourism, hotel and other related industries, not to mention international trade, transportation and logistics, which will consolidate Hong Kong’s reputation as an international financial, shipping and trading center.
Therefore, formulating long-term and diversified development objectives for the aviation industry should be the main focus of the government and the entire industry when the social unrest and pandemic are over. According to the Bay Area plan, to consolidate and strengthen Hong Kong’s position as an international aviation hub, we need to build up Hong Kong’s ability in aviation management training, and develop high-value-added cargo transportation, aircraft leasing and aviation financing services.
If the Three Runway System kicks off as scheduled in 2022 and becomes operational in 2024, it will expand the overall passenger and cargo volume of HKIA and bolster the overall development of Hong Kong’s aviation industry. However, having low-cost cargo ports in the Bay Area means the competition among airports in Hong Kong, Guangzhou and Shenzhen is keen. Therefore, in order to maintain Hong Kong’s renowned reputation in aviation, it is vital, starting now, to make use of the three years prior to 2024 to coordinate and cooperate with the airports in Shenzhen, Guangzhou, Zhuhai and Macao. This will help unify market resources and allocate them in an effective way so as to achieve a win-win situation.
Apart from maintaining high-quality and efficient airport services to attract transit passengers and cargo throughput, expanding the aviation education industrialization, continuing to promote aircraft leasing and aviation industry financing, and establishing an aviation dispute settlement center should also be the main objectives for Hong Kong to, if it wishes to, further its success in the aviation industry.
According to the statistics in 2018, among the four Hong Kong airline companies, Cathay, Dragonair, Hong Kong Airlines and Hong Kong Express, local pilots comprise only about 20 percent of the total while the proportion of local pilots in Singapore is as high as 80 percent. Therefore, based on the existing foundation of the Hong Kong International Aviation Academy, industrializing the aviation education and cooperating with other airports and airlines in the Bay Area will undoubtedly strengthen the sustainable competitiveness of the aviation industry of Hong Kong and the entire Bay Area.
Moreover, relying on the city’s advantages as an international financial center, the government launched a new tax system in July 2017 that allows qualified aircraft-leasing operators to enjoy a tax reduction during aircraft-leasing business activities, for the purpose of developing the aircraft-leasing business in Hong Kong.
Since then, a substantial amount of mainland aircraft-leasing companies including ICBC Leasing and CALC have settled their businesses in Hong Kong, making an important step forward in supporting Hong Kong to become an international hub for aircraft leasing and aviation financing. In addition, when aircraft financial leasing services together with passenger and cargo loads increase, the corresponding demands for legal services will also increase.
Under this circumstance, Hong Kong should fully utilize its advantages in legal services to expand its development in resolving aviation disputes. Hopefully HKIA will become an aviation legal services and dispute resolution hub for the Bay Area, and even the Asia-Pacific region.
The author is a member of the Aviation Development and the Three-runway System Advisory Committee.
The views do not necessarily reflect those of China Daily.
