In the absence of any formal arrangement between Hong Kong and southern China with regards the Pearl River Delta's booming air cargo business, the recent opening of the new Guangzhou Baiyun International Airport in August has triggered off a huge challenge for Hong Kong International Airport's airfreight business. A Report by Payload Asia's Wong Joo San.

In the absence of any formal arrangement between Hong Kong and southern China with regards the Pearl River Delta's booming air cargo business, the recent opening of the new Guangzhou Baiyun International Airport in August has triggered off a huge challenge for Hong Kong International Airport's airfreight business.

The application by Federal Express (FedEx) to begin daily services to Guangzhou in 2006 as part of the third tranche of extra frequencies won by US carriers in the latest air services agreement (ASA) with the mainland is already a firm indicator of this challenge.

But FedEx's flights depend on obtaining the US Department of Transport's (DoT) approval. And when it happens, the integrator hopes to build its business at Guangzhou with an eye to making the airport one half of a dual-hub strategy in the Asia Pacific region.

So far, only 12 new frequencies will be awarded to US cargo carriers in 2006 but the DoT has received requests for 20 new flights from incumbent airlines when applications closed on September 23.

In separate development, Northwest has won the right to initiate a daily passenger flight with cargo carried in the bellyhold of its aircrafts to Guangzhou from Detroit, with a stopover in Tokyo.

HKIA still has several advantages over other airports in Pearl River Delta.

China Southern Airlines, whose hub is at the new Baiyun Airport, is aggressively marketing its services and is expected to be a formidable opponent to Hong Kong's air cargo players.
All these activities will boost the new Baiyun Airport, whose initial phase covers an area of some 15 square kilometers. It is capable of handling 1 million tonnes of cargo a year.

The airport, which has two runways, also boasts of having the largest cargo terminal as well as the largest hangar in the Chinese mainland.

The cargo terminal covers more than 10,000 square metres and the hangar, which costs more than 900 million yuan (US$108.43 million), takes up 96,000 square metres, large enough for four Boeing 777 aircraft to be parked there.

The centre, which will be located on a 115,000 square metres site in the Huadu District of Guangzhou City, will be called the Guangzhou Airport Logistics Centre. It will include an area of 53,000 square metres for multi-functional air-cargo warehousing facilities for freight forwarders and agents.

An additional 18,000 square metres area will be dedicated for the use of processing fresh and live products, including flowers and seafood. In addition, back-up services, business and logistics operation will be provided at a 27,000 square metre site.

British consultancy firm, GHK recently estimated that the value of air freight to be handled by new airport in Guangzhou will grow by an average of 27 percent annually from 2002 to 2010.

Guangzhou's New Baiyun Airport will be posing a major challenge.

Although HKIA handled 2.64 million tonnes in 2003, up 6.6 percent from the earlier record of 2.48 million tonnes in 2002, and handles more international cargo than any airport in the world, it is taking the Baiyun challenge that is looming across the border very seriously.

With lessons learnt from how Shenzhen port's Yantian International Container Terminal which started from scratch in 1994 and has today emerged as one of the leading container terminals in China handling 5.25 million 20-foot containers last year, HKIA is taking no chances.

Dr David J Pang, chief executive officer of Airport Authority Hong Kong (AA), is certainly aware of this serious challenge and in outlining his strategy for HKIA, he cited the enhancement of cargo flow as the priority in maintaining Hong Kong's position as the premier air cargo hub in southern China.

Improving connectivity with the Pearl River Delta, smoothening cross-boundary processes and developing cooperation with Mainland airports, especially with those within the PRD region were the main thrust of AA's plans, he says.

"At the end of the day, what matters most to the customers are factors including connectivity, reliability, efficiency and cost-effectiveness," Dr Pang says. He points out that currently HKIA has a comparative advantage in these aspects but these had to continue to improve and grow upon the existing critical mass.

With the Mainland international air cargo sector projected to grow double-digit year on year, Hong Kong could benefit enormously by a huge slice of the business.

As logistics is one of the important pillars that support the Hong Kong economy, Dr Pang says it was important that there was timely provision of air cargo facilities in Hong Kong to meet increasing demands. Air cargo traffic at HKIA is expected to grow 6 percent per annum long term, with express cargo to grow at a rate of 13 percent per annum.

AA has become very pro-active in boosting business through HKIA. It recently re-introduced rebate incentives on landing charges to attract airlines to operate flights to new destinations from HKIA. Airlines will be entitled to get a 50 percent rebate on landing charges for the first year on flights they operate to a new destination, and a 25 percent rebate in the following year.

To fend off competition from Guangzhou, AA has also launched direct ferry boat services to cities in China and is considering opening a check-in centre in the Pearl River Delta.

Only time can tell how HKIA will fare as the new Guangzhou Baiyun Airport is definitely out to give Hong Kong's airfreight business a run for its money.

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Copyright for texts and pictures: Payload Asia, Singapore. This report is brought to you in partnership with Payload Asia, the air cargo/express magazine for the Asia-Pacific and Middle East regions. To learn more about Payload Asia, please visit their website.