Cathay Pacific bulk handling facility at HACTL
Cathay Pacific bulk handling facility at HACTL
The battle lines have been drawn as competition heats up between the three air cargo terminals at Hong Kong International Airport as they try to boost their market share. Asked if he expected there to be a price war, Asia Airfreight Terminal (AAT) general manager Khaw Hock Eng said: “I guess you can’t avoid it as the customer will take advantage of the situation. But offering better services is something that we have always been doing and we will continue to improve our services whether there is competition or not. “I wouldn’t really say it’s a price war as we would have to maintain a reasonable rate according to market forces. We can’t really do cutthroat pricing so low that it affects our profitability. We still have to account for whatever pricing we are involved in. “It’s not a matter of pricing alone. There are other considerations. Service quality is important, safety and security is always in the mind of customers. How shipments are accepted in good order, whether they are properly declared, checking of the contents, packaging, and the weight. All these are safety concerns.” Asked if he expected the other two terminal operators would try to lure their customers, he said: “Yes. That is competition. The three terminals have to compete strongly with each other. That’s business. Everybody is trying to improve services, secure a bigger market share and to grow.’’ Kelvin Ko, chief executive officer of Cathay Pacific Services Limited (CPSL), the operator of Cathay Pacific Cargo Terminal (CPCT), said: “There is no question that customers always look at price as well as better services. But you will also be aware of the operating cost in Hong Kong, which has increased significantly over the past few years, mainly driven by land shortages, high construction costs and the labor shortfall. In my experience, customers actually consider the value of services and quality as a whole.’’ To compete in the market, CPSL differentiates itself by offering improved services. Ko said: “We have reduced cargo processing times so clients can get their cargo earlier. We also broke down cargo carried by a passenger flight to mere three hours after the arrival of a flight, and five hours for freighters. We also offer enhanced security with advanced technology, and reduced the minimum connection time for transshipment to five hours, or as short as three hours with prior arrangement.” Asked with the terminals chasing the same cargo whether Cathay and AAT would try to lure Hactl’s customers, Whitehead said: “Absolutely. That is the new trend in the market.’’
Hactl CEO Mark Whitehead
Hactl CEO Mark Whitehead
Ko, of CPSL, added: “Of course our ultimate goal is to attract more customers, but even more importantly, we want to make our customers more competitive in the market by offering better services. Airlines have different focuses and priorities. At CPSL, we serve only a small number of carriers and we can be very flexible to provide customized services to suit individual needs.” CPSL currently serves only seven customer airlines, but flag carrier Cathay Pacific accounts for the lion’s share of the CPCT business. Before the launch of the cargo terminal, Cathay was a customer of Hactl and accounted for 40% of Hactl’s annual tonnage. “Cathay is in a strong position,’’ said Whitehead. “They are the ones that can’t be wooed as they have already got their own carrier handling a large portion of their business.” Hactl is Hong Kong’s largest independent cargo handler, serving more than 100 airline companies and has an annual design capacity of 3.5 million tonnes. AAT’s annual capacity is 1.5 million tonnes and it provides service to more than 50 airline customers, including charter carriers. “The environment in Hong Kong has fundamentally changed,’’ said Whitehead. “You have something like 7.6 million tonnes of handling capacity and not sufficient cargo. There is a supply and demand problem.’’ Khaw, of AAT, said: “The capacity situation is such as in any environment whenever a new terminal or new business starts up. This capacity increase is to build for the future. At this stage there will naturally be high capacity available and it will take a few years to fill up. “Hong Kong will continue to see growth with ups and downs, depending on the China market. In the short term, everybody will try to fill their terminal as much as possible.” Overcapacity in Hong Kong Ko, of CPSL, said: “We have just added 2.6 million tonnes of capacity to the market, enhancing Hong Kong’s competitiveness as a global logistics hub. No doubt it will be a situation of short-term overcapacity. “With new infrastructure we believe the added capacity will create added value for Hong Kong as a whole in the long run.’’ Whitehead said: “If you take any airport around the world that is like Hong Kong, which has airlines wishing to come and wishing to expand their businesses, you have to expand the infrastructure and other facilities as well, whether that’s catering, aircraft maintenance, ground handling or even a third runway. All of this stuff has to be planned and put in place before the capacity is unable to deal with the growth. So that’s exactly where we are. “We hope the natural growth in the industry will come back and the airlines will continue to grow and then the additional capacity will surely be absorbed. “The volumes are really being driven by only some carriers, which is putting a lot of capacity in the market. Middle East carriers and Hong Kong airlines have had quite significant material growth, while the American carriers are starting to come in. The European volumes are slightly down, but we expect the volumes to come back.’’ Hactl ended 2014 with its strongest quarter of the year, handling 491,476 tonnes, up 4.9% on the same period of 2013. For the year as a whole, Hactl’s total tonnage handled was up 8.7% at 1,814,726 tonnes. Exports increased by 6.7% to 1,035,899 tonnes, imports were up 10.3% to 498,338 tonnes, transshipments were up 28.6% at 130,834 tonnes, and mail/express traffic grew 3.1% to 149,655 tonnes. Whitehead said after the release of the results: “This is a very pleasing result, with good increase in all areas of our business. Transshipments once again showed exceptional growth, fuelled both by increased road feeder activity by our subsidiary Hacis, and the continuing underlying development of Hong Kong as Asia’s preferred regional hub. Before the release of the 2014 airfreight figures, Ko, of CPSL, said: “In the first half of 2014 we saw growth in the market compared to 2013. In the first quarter we saw some recovery and the second quarter was better. By the end of March we saw more recovery and with the introduction of new technology, like Apple’s new iPhone 6, we expect a pick-up in traffic.’’ The release of the 2014 figures showed CPCT handled 1.45 million tonnes of cargo in 2014. The terminal saw its highest tonnage record on 8 November, handling 5,476 tonnes of cargo on the day. Traffic at CPCT was largely driven by transshipment in 2014, accounting for 54% of the cargo tonnage. Import and export cargo tonnage was 15% and 31%, respectively. After the release of the results, Ko said, “2014 was Cathay Pacific Cargo Terminal’s first full year of operations. With concerted efforts by our dedicated team, we were able to achieve the highest level of service performance that we promised our customers from the beginning.’’ Third Runway Since HKIA commenced operations in 1998, air traffic has grown by leaps and bounds. The volumes of passengers, cargo and aircraft movements have more than doubled. The practical maximum capacity of the current two-runway system is 420,000 aircraft movements per year, meaning that the airport is fast approaching its maximum handling capacity. There is a pressing need to expand the airport to meet its long-term demand. If Hong Kong is unable to meet its future aviation demand, the city will gradually lose its position as a regional and international hub. This could jeopardize the status of Hong Kong as an international centre of logistics, trade, tourism and finance, the four pillars that support the city’s economy. Hactl, the major air cargo terminal, has been pushing HKIA hard for the past few years to build a third runway. Whitehead said, “The ongoing strong growth of our business, based on our 100 airline customers, clearly demonstrates the need for Hong Kong’s third runway. For Hong Kong to continue such impressive development and maintain its position as the world’s number one cargo hub, we must have the additional capacity necessary for airlines to realize their full potential.’’ In June 2011, the AA published the HKIA Master Plan 2030 (MP2030), which outlined HKIA’s future development options. In August 2012, the AA received the Environmental Impact Assessment (EIA) Study Brief from the Director of Environmental Protection that set out the scope of environmental issues to be addressed. On 7-November 2014, the Director of Environmental Protection approved the EIA report on the runway project. And on 17-March 2015, the Executive Council re-affirmed Hong Kong’s need for the three-runway system.