AFA - Aerospace Forum Asia

Hong Kong Government Aviation Policy Review
Fast Car on a Level Playing Field... Blue Skies Ahead?

"Hong Kong is a very reliable car: we are driving pretty fast - but we don’t speed." Sandra Lee, Permanent Secretary for Economic Development, used this earthbound analogy to sum up the SAR government’s policy of progressive liberalisation of air rights during her address to the Aerospace Forum Asia’s 138th Industry Leader Luncheon at which she also presented aviation scholarship awards to meritorious students studying aviation related courses at the Hong Kong Polytechnic University and the Institute of Vocational Education, Tsing Yi.

In addition, in what AFA President Martin Craigs described as a clear and comprehensive review of Hong Kong’s aviation policy, guest of honour Ms. Lee said that simply declaring open skies was not in Hong Kong’s best interest, and low-cost carriers (LCCs) should not expect any favours in terms of incentives to set up shop at Hong Kong International Airport.

As the debate swirls around whether Hong Kong can maintain its status as a regional hub and a premier gateway to mainland China, Ms. Lee gave a robust defence of Hong Kong’s policy of progressive liberalisation of the territory’s air services regime.

While some critics maintain that Hong Kong has been less than progressive in its liberalisation measures, Ms. Lee said Hong Kong had in fact adapted to the changes in the operating environment since the 1990s. These efforts, together with the growth of facilities at the airport and other infrastructural developments, had produced sterling results, she said.

"Some of you may ask, why don’t we simply adopt an open skies approach? The answer is simple. Progressive liberalisation best serves Hong Kong’s interests. Hong Kong negotiates on the basis of equitable exchange of air rights, and open skies does not necessarily mean an equitable exchange."

A second consideration is Hong Kong’s long-established principle of adopting a level playing field. "Open skies makes sense only when the entire sky is opened up. The definition of open skies championed by some parties tends to be determined, I’m afraid, to suit their own economic interests."

The level playing field principle also applies to LCCs. "We firmly believe we should leave it to the travelling public to decide what kind of services they want," Ms. Lee said, adding: "There is no justification for the government to come up with specific policies or measures to support specifically LCC operations."

Apropos of LCCs, Ms. Lee said that if the U.S. and European experience was anything to go by, she would not be surprised to see a high casualty rate among the start-ups. Nevertheless, their emergence poses a serious challenge to legacy carriers, and adds further momentum to the general trend of moving towards more liberal air services arrangements. "Our region is no exception."

Liberalisation, she noted, brought with it more competition into the market. "But wearing my consumer-protection hat, greater competition definitely is in the interest of the travelling public.

"And yet, before our local airlines protest, we also believe that competition provides incentives, if not pressure, for our local carriers to remain competitive in the global market. I am glad that they have risen to the challenge and have gone from strength to strength."

Turning to the challenge to Hong Kong’s position as the premier gateway to mainland China, Ms. Lee noted that for historical reasons, Hong Kong’s international network and that of the mainland had been separated.

"But, looking to the future, there is a strong case to optimise the existing resources and to create a synergy between the two networks. A major task of the liberalisation process is therefore how to implement multiple destinations of local carriers and some mainland and overseas routes to create that synergy."

This wouldn’t happen overnight, Ms. Lee said. "But it should be one of our priorities in the months and years ahead." Coincidentally, just hours after Ms. Lee spoke, Cathay Pacific Airways announced it had been told by the Hong Kong government that it had been granted rights to operate additional passenger services to Beijing as well as new cargo services to Shanghai and passenger services to Xiamen.

As Cathay’s Chief Operating Officer (and soon to be Chief Executive) Philip Chen said in a statement: "Being able to operate a daily service to Beijing is welcome, yet still a small entry into this market. There also remains a need to secure an early start of Cathay Pacific passenger services to Shanghai, currently the third-busiest passenger route out of Hong Kong after Taipei and Bangkok. This would be the most effective way to increase the volume of passenger traffic to and though Hong Kong."

One development that Hong Kong was closely watching was the emergence of different forms of plurilateral ASAs globally, Ms. Lee said.

"Some may ask whether these plurilateral efforts will provide the essential building blocks for some kind of multilateral set-up similar to the World Trade Organisation. I personally believe that a credible multilateral process requires a general consensus yet to be reached by all parties.

"As far as aviation is concerned that consensus is obviously lacking at the moment and in my view, at least in the foreseeable future, aviation will continue to be governed largely through a bilateral framework."