GREAT CITIES AND AVIATION
The Importance of
Transport Routes
Our Chief Executive, Mr C. H. Tung,
challenged us in his policy address last year to think about how to promote Hong Kong
amongst the ranks of world's great cities. Just a few days ago, the new Commission for
Strategic Development issued a report on the long-term development strategy for Hong Kong.
It recommended that Hong Kong develop itself as Asia's "world city" and a major
city in China. Both have sparked a lively debate on what makes a city great, and how this
greatness can be enhanced.
It is clear there are a number of key
factors in determining a city's wealth and influence. These factors include geographical
location, proximity to natural resources, culture and tradition, fiscal and monetary
policies, and availability of skilled labour. All of these are important, but they alter
in relative importance over time to reflect social, political, cultural and technological
developments.
History offers us a number of strong clues
as to what makes a city great. Five hundred years ago, the city of Venice prospered as it
dominated the lucrative trade routes from Europe to the Middle East. The same could be
said a thousand years ago of the Chinese city of Changan (now Xian) owing to its
favourable location on the Silk Road. Two thousand years ago, it was Rome - with the
Romans expanding their empire to ensure "all roads lead to Rome".
Closer to our time, Malacca, Goa, and Macau
were major trading ports in Asia while Singapore was yet to develop. It was not fertile
land or natural resources that provided the key to these cities' success but their
position on the main trade routes of the time. They grew as these trade routes boomed. As
the position of the trade routes changed because of the development of new transport
technologies, these cities declined.
This particular component in the
development of great cities - their
relationship with transportation routes - is an area that I will concentrate on today. It is an issue that has sometimes
been overlooked yet its continuing significance is still very much in evidence. Nowadays,
of course, people no longer travel by camel or ship. Most people travel by air and, as a
result, one characteristic that contemporary commercial and business centres have in
common is that they are all aviation hubs. Obvious examples are London, Singapore, Hong
Kong, Tokyo and New York. These are all major aviation centres.
People may argue about what comes first: a
great city or the transport links that support it. But, in the last fifty years, the
fostering of strong aviation links has gone hand in hand with the development of
modern-day great cities as focal points for trade, finance, services, travel and tourism.
The ease of getting to and from these aviation hubs has provided a key pillar for economic
development. Strong aviation links have enabled cities to grow in wealth, influence and
population.
The Contribution of
Home Carriers
There is one common strand linking leading
aviation centres; they all have strong home carriers. I appreciate that this argument
might be viewed as self-serving but I make no apologies for advancing it: this is not just
an argument for Cathay Pacific and Hong Kong; it applies with equal force to British
Airways and London, Singapore Airlines and Singapore, and United Airlines and Chicago. The
advantages of having a strong home carrier are self-evident. A strong home carrier will
promote its base aggressively as a travel, tourism, service and business centre. It is in
its natural self-interest to do so. An overseas carrier has its own set of loyalties to
its own home base.
A home carrier makes a significant
contribution to the local economy. It is typically a major foreign exchange earner.
Roughly 75% of Cathay Pacific's HK$27 billion revenue last year was from overseas. The
ratio for Singapore Airlines is also about 75%. In many countries the airline's
"export function" and
role as a foreign exchange earner is crucial.
A home carrier also concentrates a wide
range of high value-added headquarter operations in its home economy, as well as a range
of support operations such as catering, ground services, cargo logistics, and aircraft
maintenance.
Cathay Pacific and its subsidiaries, for
instance, employ some 26,000 people in Hong Kong, the Singapore Airlines group and Thai
Airways employ similar numbers in their own home cities. Compare these figures to the
number of people that airlines employ overseas. For instance, Cathay Pacific carries
around a million passengers a year to Japan but only has 400 people based there. British
Airways, Qantas, Thai Airways and Canadian Airlines are all important players in the Hong
Kong market but employ a hundred people or less for their operations here.
Home carriers also generate a large
proportion of high-skill jobs in their home bases. Look closely at airlines' headquarter functions and you will find that
airlines create a pool of value-added jobs around their own industry that adds to the
professionalism and experience of the home base economy's workforce. Examples include
engineering, and cargo logistics.
A home carrier is frequently amongst a
country's major internationally recognised brands. The carrier acts as de facto ambassador
for the international reputation of an economy and influences perceptions of its home
base. It can make citizens feel proud of their country's achievements. If an individual is
asked to name any five leading companies in a foreign country, the national airline is
almost certain to be mentioned. Examples include Lufthansa in Germany, British Airways in
Britain, and Qantas in Australia.
Strong home carriers also help to maximise
tourism. In pursuing market share, airlines actively pursue passengers and bring them to
their home cities. Every visitor that is brought to a city will spend money and support
other industries such as restaurants and hotels. (In turn that creates employment and
benefits the related industries, not merely tourism and trade.) Taking into account the
impact on passengers and cargo, the multiplier effect of this industry on the economy is
very substantial.
Development of the
Hub
Home carriers contribute directly to the
development of the hub's network by carrying business traffic and tourist visitors to and
from their primary hub via the route network. Casual observation alone will reveal how
much a traveller's routing is affected by an airline's network. A traveller from the USA
to Mainland China for example is unlikely to travel via Hong Kong if he or she is
travelling on a Japan Airlines ticket. A traveller from Australia to Europe holding a
Malaysian Airlines or Singapore Airlines ticket is unlikely to go through Bangkok. By the
same token, if the Cathay Pacific or Dragonair network is strong, this is more likely to
attract the passenger to go via Hong Kong, thus bringing all the related benefits to Hong
Kong.
Competition in international aviation is
increasingly determined by "network strength". The strength of an aviation hub
is determined by the multiplying effect of connecting routes that radiate from its centre.
Maximising the connectivity offered by a hub requires high levels of service frequency and
schedule coordination that only a strong home carrier can deliver.
The Hong Kong to Colombo service is a good
example. The number of end to end passengers between Hong Kong and Sri Lanka is quite
limited and could not really justify a regular scheduled service. However, by offering
connections via Hong Kong, Cathay Pacific attracts passengers from North America, Japan,
Korea, Taiwan, Philippines and even Australia to go via Hong Kong to Colombo. As a result,
Hong Kong people now enjoy regular direct flights to Sri Lanka. Cathay Pacific, for
obvious reasons, remains keen to develop the end to end market. That has to be good for
tourism and trade in both places.
If however this route is denied to Cathay
Pacific or if the economics (such as high aviation costs or oversupply) make it
undesirable, it is not only this one route between Hong Kong and Sri Lanka that would
suffer, but the whole network connectivity offered by the Hong Kong hub.
Contrary to the views expressed by some, a
strong home carrier does not "crowd out" other carriers. In reality, it tends to attract more airlines to
come to the hub. Foreign airlines still want to fly to Frankfurt, for example, where
Lufthansa has 61% of airport movements, or to Singapore, where the strong home carrier has
52% of the flights. The successful development of a strong home carrier establishes the
core of the hub, attracting more airlines to serve routes that broaden the network.
Even though a city might enjoy an excellent
geographical location, and even a distinguished history, without a strong airline it will
struggle to attract the necessary critical mass of international air routes and struggle
to become a great city. Take Brussels: located at the heart of Europe, and housing the
headquarters of NATO and the European Community, Brussels lacks a strong home carrier.
People travelling to Belgium will often go via other great cities such as London,
Amsterdam or Frankfurt that offer better frequencies and connections.
The opposite is also true. London and
Amsterdam, although geographically less central to the European continent than Brussels,
are better developed today than Brussels. The strength of their respective airlines, BA
and KLM, has supported their ongoing development. Amsterdam has maintained its position as
a trading centre with the help of KLM, not to mention its continued success as one of the
world's leading seaports.
The significance of the home carrier's
contribution to the local economy is clearly apparent in the efforts of home carriers,
home governments, local airports, regulatory authorities, and aviation authorities to
ensure a hub can deliver its maximum economic value. The capital-intensive nature of
airport infrastructure and related projects and airline operations makes it necessary that
all parties work together.
Singapore is an example. The Government has
built one of the best airports in the world in a country of only three million people. As
far back as 16 July 1972, Prime Minister Lee Kuan Yew identified the economic returns a
strong airline provides when he said: "Singapore runs an airline ... for plain economic benefit." It is no surprise to find the image of
Singapore Airlines is "advertised" on the back of Singaporean $20 and $100 bank notes!
To return briefly to history, England,
Holland and Portugal all enjoyed periods of influence and prosperity which were
significantly shaped by the quality of their ocean going fleets (the "national
carriers" of pre-aviation
days). Naval and entrepot ports developed to support the merchant business that flourished
within these international trading networks.
Home Carriers and
Technological Change
Technological change can alter trade routes
and lead to a city losing greatness. History provides numerous examples. New and faster
sailing ships meant new routes between Europe and Asia. Venice, Xian, Goa, and Malacca all
declined as the trade routes they once dominated lost significance.
In aviation, technological change has
allowed aircraft to have greater range. This has meant to airlines no longer needed to
make as many transit stops on the way to their final destinations. Major airports such as
Shannon in Ireland and Gander in Canada, which used to have great importance as
trans-Atlantic stop-over points were bypassed. Isn't there a risk that once aircraft can
operate non-stop between South East Asia and North America, Hong Kong will suffer a
similar fate?
The city of Dubai proves that this need not
be the case. With the assistance of a strong and vigorous home carrier, transit hubs can
remain strong despite technological change. In the 1970s airlines flying between Europe
and Asia would typically make a transit stop in the Middle East, most often in Bahrain. In
the 1980s, advances in airline technology meant airlines could fly direct to their
destinations with no need to stop in the Middle East. This threatened to deprive cities
like Bahrain and Dubai of their role as air transport hubs. The strength and rapid growth
of the Dubai-based airline Emirates however, has ensured the city has retained its place
as an important global aviation hub.
The Role of Cargo
As we are discussing the role of trade and
transport routes, we must mention the important role of air cargo. Air cargo growth has
been substantial and is rapidly taking on an increasingly important role in the economic
development of many countries in this world. In this region, airline profitability often
depends on air cargo. Singapore Airlines earns about 23% of its revenue from air cargo,
Korean Airlines earns about 25%, Cathay Pacific Airways some 28%, China Airlines over 30%,
and some carriers even more.
Most cargo is carried in the bellies of
passenger aircraft. Policies to promote aviation centres should therefore not overlook the
impact of cargo. It would be dangerous to treat air cargo as a separate industry when we
talk about air traffic - it is often a vital component in ensuring the viability of
passenger services to both new and existing destinations.
Opportunities for
Hong Kong
Some have suggested that Hong Kong needs a
new approach to become a successful aviation hub. Let's be clear about this: Hong Kong is
currently one of the world's leading aviation hubs. It occupies an enviable role as a
great city and an important trade centre. Hong Kong ranks number three among world
airports in terms of international passenger throughput. Its 30m international passengers
a year puts it behind only London Heathrow and Frankfurt. In terms of international air
cargo, Hong Kong is an undisputed number one with 1.98m tonnes in 1999, ahead of Tokyo
Narita. This is from a tiny population base of six million people.
There is no cause for us to believe that
Hong Kong is inadequate or substandard as our aviation centre. The remarkable growth we
have enjoyed over many years is the envy of the region. A great deal of credit must go to
farsighted government policy and the hard work of everyone in the aviation industry. But
there is no shortage of competitors and, in order for Hong Kong to maintain its
pre-eminence, we must concentrate on enhancing the factors which have contributed to our
stunning success.
To stay at the top we need to consider the
following key questions:
- how can we improve our air transport facilities
and infrastructure?
- how can we enhance and strengthen the role of our
home carriers?
- how can we complement and reinforce
the growth of our aviation industry by the development of tourism?
Let us examine each of these three points
briefly:
a. Infrastructure
The old airport at Kai Tak did not allow
room for growth and frustrated the local airline industry's ambition for expansion. The
new airport is a tremendous infrastructure gain for Hong Kong. We are now even better
positioned to grow Hong Kong as Asia's leading aviation hub. We can add more frequencies,
and new aircraft. The additional capacity is already being put to good use. In 1999, the
airport set a new record for cargo, and the number of passengers was more than 30 million.
To promote our hub status to the fullest,
we need improved facilities for transit and transfer. Not every route can interconnect
perfectly - but improved facilities will attract even more people to choose Hong Kong over
alternative hubs. In many other airports, transit passengers enjoy a full range of
entertainment and shopping facilities. These range from swimming pools inside the airside
area to bars and lounges, cinemas, personal video rooms, gyms, spas and saunas, electronic
game halls, golf-driving rooms, discos, lucky-draws, half day tours, and full day tours.
These extensive shopping, eating and entertainment outlets can make a five-hour wait seem
too short!
Airport costs must be competitive and
reasonable. Having good facilities alone will not help, and high costs discourage
airlines, especially home carriers. All governments must remember the multiplier effect of
increased passenger numbers and not overlook the overall benefit to the economy.
Having a good airport is not sufficient by
itself to guarantee the development of a hub. Sharjah, Jeddah, and Zhuhai all have
wonderful airports but their future development will depend significantly on the
successful performance of their respective home carriers.
b. Hong Kong must
enhance its airline industry
The Government has a role to play in
ensuring that airlines in Hong Kong are given a level playing field and have the market
access required to compete effectively with foreign competitors.
Although this is an industry laced with
politics and diplomacy, and with very large and specialised capital investments, there can
be no question of our government granting subsidies or "special treatment" for home carriers, as I am afraid some other
counties continue to do. That has never been the Hong Kong way. Subsidies kill business
motivation. However, business-friendly policies from the Government - such as reasonable
airport charges, reasonable general conditions and competitive costs of doing business -
would enhance the competitiveness of the industry while upholding free market principles.
Some have argued we should allow unlimited
access for any foreign airline to mount services to, from and beyond Hong Kong. They say
this would lead to additional flights and wider customer choice. Let me make it quite
clear: we are not afraid of competition and we welcome other airlines flying to Hong Kong.
Yet we need to bear in mind that the prime motivation for overseas airlines is to draw
traffic back to their own home hub. The states and airlines which lobby for unilateral
concessions from Hong Kong very rarely reciprocate by granting our own requests for more
market access. In an industry still governed by government to government agreements,
unilateral concessions equate to a slow death for the local airline industry and the
shrinking of the hub.
But above all - and this is a point ignored
by many commentators - Hong Kong already has a very liberal aviation industry. We could
not have grown to become the world's third largest international airport by being closed.
Currently 62 scheduled carriers operate to Hong Kong and offer direct links to 112
destinations. This emphasises the benefits of the prudent bilateral policy pursued by the
Government over the last two decades.
One vital factor for ensuring the future
role of Hong Kong as a leading aviation centre is Mainland China. The Mainland is already
an important aviation hinterland for Hong Kong and its importance will grow. We must
continue to enhance Hong Kong-Mainland China links. The recent agreement to expand air
services between Hong Kong and Mainland China is a step in the right direction. This
illustrates the effective role the Hong Kong Government can play in promoting home
carriers, the strength of the hub, and the interests of the travelling public.
c. Developing tourist
attractions
Tourism and visitor events and attractions
are essential for attracting passengers. As an airline, we welcome the imminent arrival of
Disney in Hong Kong. Yet events and attractions on their own are not enough to draw
visitors. Petra, Angkor Wat, and St. Petersburg all have plenty of attractions, but how
does one get there?
There are also a lot of other important
ways to encourage tourism. Appropriate and effective marketing is vital - and efforts are
being made in this area. Visa requirements are also a consideration. If entry formalities
simplified, this would encourage more people to enter.
Hong Kong as an
Aviation Centre
Hong Kong is blessed by a favourable
geographical position. If you draw a circle with a radius of five hours flying time from
Hong Kong, the circle encompasses Mainland China, Japan, Indonesia and a large part of
India. It also reaches northern Australia. All the major cities in Asia and half of the
world's population are covered. The circle includes five of the seven countries or
territories with the highest foreign reserves, namely Mainland China, Hong Kong, Taiwan,
Japan, and Singapore. Many would agree that this five-hour circle region also covers the
areas of the highest economic growth potential.
There can be no doubt that Asians will
travel in much greater numbers in future. The current ratio of travellers in the Asian
countries is relatively low. If we look at the United Kingdom, the Netherlands, or Germany
35-40% of the population take an international air trip every year. In Asia, the ratio in
Japan is only around 12%. In Korea it is about 10%. The ratio in Mainland China may just
be 0.1%. Think what will happen with growing affluence. Who would have predicted the
economic growth in Mainland China, Korea and other Asian countries 30 years ago?
Hong Kong will be an important beneficiary
of Asia's growth. Mainland China is now the number one source of tourists to Hong Kong.
Ten years ago nobody would have predicted that Marks and Spencer in Hong Kong's plush
Pacific Place would now happily accept Renminbi!
Hong Kong is truly at the "Heart of
Asia". The history of Hong Kong's many achievements needs no elaboration, but the
more important issue is how we can ensure that this success is maintained. My thesis is
that continued greatness on the global stage in this new century is inextricably linked to
the strength of our aviation links. That in turn, is dependent on the strength of the
local airline industry with its indelible commitment to making a success of the Hong Kong
hub.
Hong Kong stands to gain tremendously from
the increase of Asian air travel. Its proven and pragmatic aviation policy, which through
our collective efforts has allowed us to become one of the world's most successful
aviation hubs, has, in no small part, contributed to us becoming one of the world's great
cities.
What can you do to help the further
development of Hong Kong as an aviation centre? Travel Cathay Pacific of course! But more
seriously, I would ask you to be cautious in scrutinising the motives of those Cassandras
who foresee ruin and doom for Hong Kong unless we take radical new steps to remodel our
aviation sector. Instead, we should play to our immense and proven strengths as an
aviation centre and maintain an approach of openness, balanced with fairness and
reciprocity in our approach to the regulation of air services.
Cathay Pacific is Hong Kong's airline and
we are proud of the role we have played over the past 50 years in building Hong Kong's
success. We have grown - without
the benefit of government handouts - from being a one-aircraft operation to one of the world's great airlines. Over
the last few years we have made tremendous efforts to improve our competitiveness: we have
cut costs, we have improved our productivity, and made significant investments in new
facilities and new aircraft. We are improving the competitiveness of ourselves and Hong
Kong. We are poised to begin a period of significant expansion and we are now exploring
the scope for adding a range of exciting new routes.
With the renowned "Spirit of Hong
Kong" - the hard work,
innovation and dynamism of Hong Kong people - coupled with appropriate government
policies, and the efforts of the home carriers, I am confident Hong Kong will continue to
enhance its role as an aviation centre, and remain one of the world's great cities.
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