Cathay Pacific

IATA pushing their own barrow, so let them pay

PUBLISHED : Tuesday, 22 February, 2011, 12:00am
UPDATED : Tuesday, 22 February, 2011, 12:00am

HK needs third runway to keep its edge, IATA says

SCMP headline, February 17

It was not actually the International Air Transport Association that said this. It was only its chief executive, Giovanni Bisignani, but, seeing as he will soon turn his job over to Cathay Pacific's Tony Tyler, we need not expect change.

I shall leave the question of when we may need a third runway to the usual overpaid consultants, pointing out only that we need not give IATA's opinion much weight. That bunch would slather the entire world's surface in runways if it had the chance.

Well, maybe this overstates things but the point is that IATA is an airline lobby. Its role is to make governments pick up the bill for construction of new airports and then scream injustice when those same governments ask airlines to contribute through airport charges.

It has played the game successfully in Hong Kong. Our airport took eight years to achieve its miserably low target return of 5 per cent on equity and even this meagre profit is entirely derived from that maze of shops and advertising displays through which you must push yourself to get to your flight.

This source of revenue was up 12 per cent from the previous year. Airport charges were down 12 per cent. The airlines may just about cover the cost of the services we provide them at the airport, maybe not. Let us put more perspective on this. Our airport's average annual return on equity over the 12 years of its existence at Chek Kap Kok was less than 3 per cent. The equivalent ROE of Cathay Pacific, its biggest user, was more than 6 per cent over that time. Cathay isn't happy with this. It targets a double-digit ROE.

It expects us to be happy with a single-digit ROE, however. Why is sauce to the goose not sauce to the gander?

Then again, what would you expect when the airport's chief executive addresses his comments in the annual report to 'Dear Stakeholders'? The taxpayers who put up the money are shunted aside. Weak-willed civil servants address themselves instead to the people who scream the loudest.

But let's get back on track. Assuming we do need a third runway, how shall we pay for it?

Here is a simple idea. We shall turn for our model to the port industry where common financial sense tends to prevail in most countries as there is no equivalent of IATA to lead government policies astray.

What we shall do is invite each and every airline that uses our airport to sign a 20-year binding commitment to passenger disembarkations in Hong Kong.

We shall want enough of these to satisfy any syndicate of banks that airport revenues in the future will be large and secure enough to make construction of a third runway a viable investment.

The new runway can then be entirely financed with bank borrowings or a bond issue.

If the airlines are not confident enough of their future here to sign such a commitment then we shall have very good reason to question whether a third runway is really needed. Perhaps the airlines think the risk of an economic downturn in the mainland or the competition from high-speed trains too great. They can tell us with a signature.

And if the investors who put up the money want more than this alone then we can adopt landing slot auctions for the existing two runways.

Every slot will be open for bid. The highest bidder will get the slot. If there are no bids we won't need the third runway. If the bidding is heavy then auction revenue will provide the necessary money.

Whatever route we take, the people of Hong Kong should not be asked to pay a cent from public revenues for it. An airport is ideally suited to the user pay principle. Private finance cannot only do the job but can tell us whether and when the job needs doing.

And when IATA comes calling to say it is unfair, that the Hong Kong taxpayer should be made to pay and that the Hong Kong economy will be brought to a halt if airlines are not given a free ride, there is one obvious thing our government can do.

It is to give IATA the same treatment that it now gives tobacco lobbyists - there is the door, fellas. Make use of it.