Is Hong Kong airport facing even stronger headwinds as rivals Shenzhen and Guangzhou eye air supremacy in Greater Bay Area?

Is Hong Kong airport facing even stronger headwinds as rivals Shenzhen and Guangzhou eye air supremacy in Greater Bay Area?

February 18 marks five years since Beijing unveiled its blueprint to turn the Greater Bay Area into a hi-tech powerhouse by 2035. The region of more than 86 million people covers Hong Kong, Macau and nine Guangdong cities.

In the final of a four-part series, Laura Westbrook looks at how different cities are vying to conquer the skies and who’s flying high and who risks being left behind. Read parts one, two and three.

When CEO Pete Chareonwongsak was deciding how to streamline operations for Malaysia-based cargo carrier Teleport, Guangzhou stood out as the obvious choice for flights from Southeast Asian cities to the Greater Bay Area.

The logistics arm of Capital A, formerly the AirAsia Group, has used Hong Kong International Airport (HKIA) – the world’s busiest cargo hub – for five years, operating seven routes. It has five routes to Guangzhou, among its 39 to mainland China.

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Among its Hong Kong routes, Teleport flies from Kuala Lumpur as well as from two smaller eastern cities, Kota Kinabalu and Kuching. Chareonwongsak said he wanted to replicate the three routes to Guangzhou.

The CEO, 36, said that with 50 per cent of e-commerce ending in second- and third-tier cities beyond Southeast Asian capitals, flying directly from where the goods originated in the bay area would be “cheaper, faster and better”.

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Pete Chareonwongsak is CEO of cargo carrier Teleport. Photo: Handout

The bay area plan, unveiled by Beijing in 2019, aims to link Hong Kong, Macau and nine cities in Guangdong province, including Shenzhen and Guangzhou, into an economic powerhouse by 2035.

Enhancing Hong Kong’s status as an international aviation hub forms part of the blueprint for the vast area spanning 56,000 sq km – but other airports are looking to grab a slice of the pie for themselves.

Guangzhou airport snagged the CEO’s interest because it was “hungry” for business from international operators and had what he called a “plug and play” ecosystem, where the operator understood how to keep things efficient, from customer clearance to truck waiting times.

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Chareonwongsak said he had “great discussions” with the airport and planned to test a number of direct connections, pending regulatory approval, from March.

“We gravitate to people who are hungry for new ways of doing business. Things are changing very quickly … I don’t think it’s a one-stop shop any more out of Hong Kong, or even Shenzhen,” he told the Post from Kuala Lumpur.

While some experts warned Hong Kong could lose out in the battle for business, others dismissed the idea, saying the pie would keep on growing, and the city would remain the bay area’s international aviation hub because of its superior network.

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Guangzhou Baiyun International Airport. Photo: Handout

Shenzhen and Guangzhou, however, are aggressively expanding capacity and increasingly looking at more international routes, despite outbound mainland demand not fully recovering yet after the pandemic. The three airports are within 150km of each other.

Hong Kong airport has yet to reach pre-pandemic passenger traffic levels and experts said it was crucial for the city’s flag carrier, Cathay Pacific Airways, to resume its network and upgrade its services to compete with mainland rivals.

‘Healthy competition’

Chareonwongsak said Hong Kong was “by default” the starting point to launch routes internationally, being a connector with ease of clearance and established trade links.

The city had been built on its “amazing linkages”, he said, with a large proportion of global trade and e-commerce transiting through it.

Hong Kong has retained its status as the world’s busiest air cargo hub, with Guangzhou trailing in 15th place and Shenzhen a distant 20th.

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But passenger numbers tell a different story. In 2018, 74.7 million passed through the airport, the figure dipped to 71.5 million the following year as social unrest rocked the city, before the Covid-19 pandemic brought it to a standstill.

HKIA handled 39.5 million passengers last year, or 55 per cent of 2019 levels.

Guangzhou Baiyun International Airport has been chasing Hong Kong’s aviation success for years, passing it in terms of passenger numbers in 2019 and 2023, with 73 million and 63 million, respectively. It has ranked first in the country for passenger traffic for four years in a row.

International travellers accounted for 14 per cent of last year’s figures.

The airport, home to one of the world’s biggest carriers, China Southern Airlines, operates three runways, with two more expected by 2025.

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Shenzhen Bao’an International Airport. Photo: Handout

It said by the end of last year, it had opened more than 100 international and regional routes, including to Los Angeles, Rome, Paris, London and Sydney, operating over 1,000 flights every week. Around a quarter of routes from Guangzhou are international, according to Chinese aviation flight data service Variflight.

The airport is also home to FedEx’s Asia-Pacific hub.

Shenzhen Bao’an International Airport, meanwhile, has traditionally been a domestic hub but is aggressively pursuing international expansion, with generous subsidies helping it to add routes. It is also building a third runway, set to go into operation in 2025.

Around 15 per cent of the airport’s routes are international, according to Variflight. It handled 52.73 million passengers last year, around the same as in 2019, 95 per cent of whom were domestic travellers.

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Hong Kong could boast more than 200 international destinations before the pandemic hit. That has dropped 114, according to data from Cirium, an aviation analytics company.

HKIA’s three-runway system, part of a HK$144 billion (US$18.5 billion) expansion, is expected to be completed at the end of 2024 and will raise capacity to more than 100 million passengers a year.

As the city emerged from the pandemic, the Airport Authority, HKIA’s operator, last year showcased its grand ambitions to capture cross-border air travellers. Part of that plan is to have 30 upstream check-in facilities, up from 15 now, in bay area cities.

Authority executive director Steven Yiu Siu-chung told the Post an area of collaboration was with Zhuhai airport, through a “Fly-Via-Zhuhai-HK” passenger service launched in December. The authority has a 55 per cent stake in the mainland company that has run Zhuhai airport since 2006.

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Mainlanders can travel to Zhuhai airport, transfer by coach to HKIA’s restricted area and head directly to their boarding gate for international destinations. And vice versa, Hongkongers can connect to mainland cities via Zhuhai. Last August, the authority launched a similar service with Macau.

The authority said 40,000 passengers had made the 70-minute between the airport and Macau and Zhuhai so far.

Yiu said the scheme – which he called a “win-win” situation – was expected to handle 8 million passengers by 2030, by coach and ferries. Before the pandemic in 2018-19, 4.5 million passengers used land and sea services at the airport to bay area destinations.

Zhuhai has one of the smaller bay area airports and is focused on domestic travel. Beijing, Shanghai, Chongqing and Hangzhou are among its 69 destinations, according to Variflight.

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Airport Authority executive director Steven Yiu. Photo: Jonathan Wong

“Zhuhai will help to bring some second-tier city passengers to Hong Kong and Hong Kong international passengers can make use of Zhuhai airport connecting to the second-tier cities,” Yiu said, while also dismissing concerns about competition in the bay area.

“We will still maintain our status. We cannot avoid Shenzhen and Guangzhou expanding their international network, this is true, because of the demand.

“I see it as healthy competition. I cannot say it is cooperation. Actually, passengers have the freedom to choose based on the frequency and the price.”

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Yiu said it would take time for Guangzhou and Shenzhen to catch up, noting Hong Kong had seven daily flights to London’s Heathrow, which was attractive to those wanting flexibility.

“Cathay Pacific is very important. They have to provide a very reliable, very frequent service. This is still Hong Kong’s edge for international flights,” he said.

However, Yiu acknowledged the mainland’s slowing economy, which had affected people’s appetite for overseas travel, was a major hurdle for HKIA to fully restore passenger levels.

Another hurdle was the supply of flights from local carriers, he said.

Flight plans

Cathay and budget arm HK Express have targeted a return to full passenger flight capacity by the end of 2024. That is in line with the airport’s prediction of when it will recover passenger traffic.

Cathay last month said it would cancel 12 flights a day on average until the end of February in a bid to ensure smooth operations over the Lunar New Year holiday, amid a shortage of experienced pilots. CEO Ronald Lam Siu-por admitted the wave of cancellations had hurt the airline’s brand reputation and apologised to customers.

Yiu said he understood the difficulties Cathay faced as it sought to hire pilots and cabin crew to meet its capacity targets.

“They are trying very hard. I believe they will come back, probably at the latest by the end of this year. If not, it will be the middle of next year,” he said.

Coming out of the pandemic, Lam had said Hong Kong would still play an important role, but the bay area would act as an “extended home market”, to connect customers there to destinations Cathay served.

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This is being reflected in the airline expanding the number of Mandarin-speaking staff on flights. It plans to employ 4,000 staff from the mainland by the end of 2025, including more than 1,500 cabin crew.

Stanley Hui Hon-chung, CEO of Hong Kong’s newest carrier, Greater Bay Airlines, and a 40-year aviation veteran, is banking on HKIA remaining the most popular airport for international travel to and from the bay area.

But the former Airport Authority chief said financial incentives offered by Shenzhen authorities to operate more international routes was “not great practice” and worked against market forces.

In 2019, Shenzhen’s government introduced a 380 million yuan (US$54 million) subsidy for new international passenger flights, on top of a 1 billion yuan subsidy to build a satellite terminal.

It has the backing of the central government, which approved a 12.3 billion yuan investment to build a third runway that is expected to handle 80 million passengers a year by 2030.

However, the mainland’s economic slowdown remained a challenge. IATA said international demand for travel to and from the mainland was 40 per cent below 2019 levels.

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Law Cheung-kok, senior adviser at the Aviation Research and Policy Centre at the Chinese University of Hong Kong, said the trend was clear.

With Guangzhou and Shenzhen airports operating more long-haul and regional flights, the share of passengers from the Pearl River Delta and bay area going through Hong Kong would decline.

But Law noted that the central government had approved all three airports building new runways as it had projected longer-term demand.

The Airports Council International, a trade body, estimated mainland passenger traffic would grow from 1.4 billion in 2019 to 3.5 billion in 2042, equivalent to a 4.2 per cent rise annually.

“That means the central government will be expecting, despite Covid, a high growth of passengers in the Greater Bay Area in the next 10 to 15 years, and therefore, the central government has made the decision to support the expansion of these three airports,” Law said.

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He said regional airports did not see a need for cooperation as the market continued to expand.

Law said it was critical that Cathay Pacific upgraded and enhanced its services, especially to long-haul destinations.

He said the quality of mainland carriers had improved substantially in the past few years, including by investing in new aircraft, particularly long-haul planes.

In addition, tickets were 20 to 30 per cent cheaper than Cathay’s, he added.

All these factors meant for “longer-haul routes, the major airlines on the mainland have become more competitive” than Cathay.

‘Pie is getting bigger’

Freddy Yip Hing-ning, president of the Hong Kong Travel Agent Owners Association, said the mainland’s high-speed rail network had taken away business from domestic airlines, spurring airports to look to develop new international routes.

Some foreign airlines were reluctant to return to Hong Kong post-pandemic, he also noted. For example, Egypt Air flew three times a week from Cairo to Hong Kong up until March 2020, and had yet to resume its services, but had a daily service to Guangzhou, in addition to Shanghai, Beijing and Hangzhou.

Gary Ng Cheuk-yan, a senior economist with Natixis Corporate and Investment Bank, said Hong Kong had work to do in getting passenger traffic back to pre-pandemic levels even with some of the best international routes in the bay area.

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The shipping industry provided a cautionary tale as Hong Kong was once among the top five ports in the world, he said. But massive construction by mainland cities allowed ships to move goods to them directly.

Last year, Hong Kong was in 10th spot globally, lagging leader Shanghai, and Shenzhen and Guangzhou in fourth and sixth, respectively.

“Hong Kong’s ranking among ports has slipped a lot,” Ng said, noting growing capacity on the mainland could take business away.

“It’s possible the aviation industry in Hong Kong may actually face a similar dilemma,” he said.

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But Billy Mak Sui-choi, an associate professor at Baptist University’s accountancy, economics and finance department, said geography would help to determine demand, with Zhuhai airport bringing in passengers from the western side of the Pearl River Delta.

On the eastern side, he said, Hong Kong would compete with Shenzhen for passengers looking for direct connections at cheaper prices.

“Mainland cities have developed very quickly and the market share is getting bigger and bigger in terms of percentage, but also the pie is getting bigger and bigger,” he said.

“Maybe the percentage you are sharing will decrease slightly, but the pie is getting bigger.”

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