THE GREAT DEBATE
Jonathan Sharp reports:
Sparks Fly and Illumination Provided as Advertised
AFA President Martin Craigs promised fireworks at the November 5 Great Debate on pricing policies at Chek Lap Kok. And fireworks there were a-plenty, with sparks flying not just from the principal duellists, the unashamedly opinionated columnist Jake van der Kamp and long-standing industry expert and former Cathay Pacific director Richard Stirland. There were also some fairly robust rhetorical rockets fired from the floor by three of Cathay Pacific’s top musketeers, Messrs Turnbull, Tyler and Hughes-Hallett, in what turned into one of the livelier lunchtime events hosted by the AFA. Verbal fusillades including “ludicrous logic? “naïve?and “ridiculous?were aimed at van der Kamp who, to his credit, refused to give ground even in the face of such withering fire. He didn’t even say “Ouch.?
The Dutch journalist himself lit the blue touch paper with his September 17 column in the South China Morning Post headlined “Solution for high airport charges should start with doubling them? This drew an instant response in the form of a letter written by AFA Director General Liz Bosher inviting van der Kamp to the debate, which was held on the motion “The airlines are getting the world’s best airport on the cheap.?
Presenting his case in his signature forthright style, van der Kamp began by saying he felt a fool for paying HK$46,000 for a business class Hong Kong-London return ticket on Cathay Pacific, his point being that the aviation industry has failed to embrace free market principles that have seen drastic price reductions in other businesses, and he cited telecommunications in particular. He said Hong Kong does not own any airlines, but it does own an airport, on which Hong Kong tax payers are getting a miserable return on their HK$36 billion investment. By contrast Cathay Pacific ?which he taunted for not including Hong Kong’s bauhinia emblem on its livery ?had managed to average an 8.4% ROI in the past five years, about the same as that achieved by the British Airports Authority.
“Our airport charges are so low that a 2003 study by the Transport Research Laboratory rates Chek Lap Kok at 44th in airport charges out of 50 international airports it reviewed,?said van der Kamp, adding: “When you hear airlines complaining that they pay too much in airport charges at CLK, and when they lobby ?a non-stop lobby ?for lower charges, just remember that the word you are looking for is ‘gall??
He accused airlines of taking advantage of an antiquated system of route allocation to make money from landing rights given to them at an airport into which they have put no money. “I think that uses our airport very cheaply indeed,?he said, adding that complaints about landing charges were not only an insult, but also put Hong Kong at risk relative to other airports in the Pearl River Delta.
The simple solution, he said, was to forget about negotiating freedom rights ?“which the airlines speak of when they seek to restrain freedoms??open up Hong Kong’s skies to all-comers and introduce an auction for landing slots at CLK. “Drag (the aviation business) into the 21st century, kick and scream as it may, and thus let Hong Kong be everything that it can be.?
Opposing the motion, Stirland was equally forthright. It was ironic, he said, to receive a lecture on economics from someone who was so naïve as to pay Cathay so much to fly to London when much reduced prices were available on other carriers. Accusing his opponent of “ludicrous logic? Stirland asked rhetorically: “The only way to increase revenue is to increase charges? What kind of business is that? Most businesses increase revenue making their products cheaper, selling more of them, increasing their productivity and perhaps even at the outset have their businesses selling on the basis of loss-leaders until they have established themselves in the market.?
He asked how could one possibly compare the ROI at the British Airports Authority, whose Heathrow and Gatwick facilities date back to World War II, with an airport like CLK built in the 1990s.
Stirland added: “To try to compare the rate of return for an airport with that of airlines, which are in a highly competitive business on all of their routes is ludicrous. Do we look at the return on investment in a bus stop, or bus terminal, or a road??
Not all of Stirland’s barbs were aimed at van der Kamp. On the issue of whether CLK was expensive, Stirland said a critical point was that airlines had had no say on what investments went into CLK. “I am not suggesting that the airport is gold-plated. But certainly if you are going to pay for something, one should at least have a degree of consultation and say in the investment that is made before you are asked to pay for it. Regrettably, that was not done.?
He concluded: “In a highly competitive industry, and in a situation where Hong Kong is competing with other airports in the region, and not just in the Pearl River Delta, and where we are looking for a healthy return on the investment, the answer, as the street trader would say, is to pile them high and sell them cheap.
“In other words, the objective of the Airport Authority should be to encourage the maximum use of this facility and thereby increase its unit revenue, and to do that by providing a product that is attractive to the airlines and to the passengers and which encourages the use of the airport to the maximum degree.?
The crosshairs came back on van der Kamp when the debate was thrown open to floor, with Cathay Chief Executive David Turnbull saying that since the columnist could buy a much cheaper ticket for his London trip in Bangkok, “Why don’t you live in Bangkok??
On van der Kamp’s point about Cathay’s 8% ROI, Turnbull pointed out the little troublesome matter of debt, which airlines take a huge risk on. “I would be prepared, if you could guarantee it, to shake your hand here and now, to have 8% return on capital employed in the airlines for ever more.?
Turnbull said he welcomed open skies for Hong Kong ?but there must be a fair exchange. Among Cathay’s big bugbears were U.S. carriers that demanded open skies from Hong Kong without offering anything in return in the United States. “We have absolutely no fear of liberalisation of the skies as long as there is a level playing field.?
Director of Corporate Development Tony Tyler said it was absolutely ridiculous for van der Kamp to say Cathay had not invested in the airport, as the airline had spent more than US$1 billion in facilities to run its business at CLK. And on that “old saw?concerning the bauhinia emblem: “Do you want to fly to Taipei? If we fly the bauhinia flag we won’t be welcome in certain places.?
Tyler’s parting shot: “It’s a sign of how we have to live in a real world when you are running an airline. Perhaps you don’t when you are writing a column.?
Reinforcing arguments on the open skies debate came from Cathay Chairman James Hughes-Hallett, who said open skies were “two lovely words, they sound fantastic. But remember that we cannot land our equipment in San Francisco and fly to Denver, Colorado, or any where else in the U.S. So why should United fly from Hong Kong to Bangkok, particularly when we know that they are going to pull off the route when SARS comes along again??
Van der Kamp’s riposte was that this was Cathay’s problem, not his. “We own an airport in Hong Kong. It’s the airport that concerns me, not your airline.?
When the smoke had cleared, Craigs reminded us of the high-value events upcoming on the AFA calendar. These include the Air Finance Journal Conference 8-9 November, and media briefing and cocktail reception with Honeywell Aerospace President, Bob Johnson on 8 November and an Industry Leader Luncheon with David Wang, President Boeing China in December.
Craigs also reconfirmed that Airbus’s John Leahy had promised AFA members an invitation to visit Toulouse for the maiden flight of the A380 in Q1 2005.
The AFA have a host of other club gatherings planned and famous faces lined up for 2005. There has never been a better time to sign up for AFA membership and enjoy the good company and the occasional fireworks.
Video Highlights
Opening
Introduction
Jake van der Kamp
Richard Stirland
Q&A
Wrap Up
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