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  • Dec 22, 2014
  • Updated: 2:21am
NewsHong Kong
TRANSPORT

Airport Authority's incentive plan for new routes encounters turbulence

Critics say authority has been wasting money on discounts for carriers that open new routes

PUBLISHED : Tuesday, 26 August, 2014, 11:49pm
UPDATED : Wednesday, 27 August, 2014, 10:08am
 

Doubts are hanging over the effectiveness of an Airport Authority incentive scheme to get airlines to open up new routes, as nearly half of the newly established routes are no longer in operation.

The scheme, known as the New Destination Incentive Arrangement, offers carriers discounts on landing fees for new routes they add to the airport's network.

Since its launch in 2004, the scheme has approved 245 applications - but a critic says many of the new destinations were smaller mainland cities.

The authority insists the scheme is useful, but declines to say how much it has cost in the past decade.

One of its annual reports showed that in 2010 alone, the authority waived HK$50 million in landing charges under the scheme. The Post estimates that up to this year, at least HK$200 million in landing charges has been waived.

Just half of the new routes are still in operation, according to the authority.

The scheme's cost-effectiveness is now under question, particularly as Hong Kong debates building a third runway, estimated to cost HK$130 billion.

Michael Mo, spokesman for the Airport Development Concern Network, said the scheme led to inefficient use of the Chek Lap Kok airport.

Many of the new routes were to inland destinations on the mainland, he said, while the planes assigned to these destinations were narrow-bodied jets with a low passenger capacity.

"There are buses going directly from Hong Kong to these cities," Mo said.

"Why do we need so many small aircraft flying to these cities, using up our valuable airspace and slots so cheaply and easily?" he asked.

Joe Ng Cho-hin, vice-chairman of the Board of Airline Representatives, also questioned the incentive mechanism.

"Airlines are subsidised just by opening a new destination," Ng said. "There is a risk of them closing [the route] after a year if it does not work out. [The incentive] will be wasted."

Instead, he said, carriers should get incentives based on flight frequency rather than just by adding new destinations.

But a spokesman for the authority said: "The scheme plays a role in strengthening the airport's position as an international and regional aviation centre."

He added: "The [authority] has no power to decide people's travel patterns, nor how airlines would like to carry their passengers or cargo."

In good years, landing, parking and route expenses account for about 15 per cent of an airline's operating costs.

The scheme was first introduced in 2001, but was shelved a year later. It was resurrected in 2004 amid Hong Kong's eagerness to restore its reputation as a world-class aviation hub following a bruising battle with severe acute respiratory syndrome.

Under the scheme, airlines can get a year of rebates on landing charges - 75 per cent in the first six months and 25 per cent for the remainder of the year.

Landing charges at Chek Lap Kok are among the lowest in the world and have not been adjusted since the airport opened in 1998.

Professor Michael Fung Ka-yiu of Chinese University's Aviation Policy and Research Centre, questioned whether the scheme was a failure.

"If you think about it, flights to all major destinations already exist," he said. "It is all about testing the market and stimulating demand [for new destinations] before competitors move in."

Aviation industry consultant Henry Chan Hin-lee agreed. "The simple fact is that every airport wants to become a hub because connecting flights help grow the network. Relying on local passengers is simply not enough."

But Chan said the scheme should be reviewed and revised to reduce wastage.

Chek Lap Kok's biggest rival in the region - Singapore's Changi Airport - will start to provide all airlines a 10 per cent discount on landing fees from next month until March 2016.

Changi Airport already offers a variety of incentives to airlines for opening up new destinations. It has added 20 new cities to its network over the past two years, with nearly half of them mainland cities.

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8

This article is now closed to comments

johnyuan
So there is a business plan all the way long.
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Catch the yet to be developed small towns and cities flying to Hong Kong to make their connecting flights to elsewhere. If it is to compete with Singapore it is most likely flying to Europe. Then for the time to wait for the connecting flights, let the transiting passengers shop to their heart. A good business plan – Cathy Pacific gets the flying business and the Airport Authority gets its rent from the airport shopping mall and the elites gets the retail business.
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The other side of the accounting is no income for the ordinary citizens other than some low paying jobs for shopkeepers. And some annual dividends pocketed by government for more of such money making business.
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So the genius of the business plan is for the profit making participants zero down in investment. The trillions investment for the ‘third runway’ package is zero income in the pocket of the investing public. This is taking Hong Kong majority as blind as a bat.
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These days there are more intelligence to go around than must be in the hands of privileged few.
ryan.swift@scmp.com
So, now we see the truth of it. The Airport Authority has been offering discounts for loss-making routes for years, and has then decided it needs a new runway at extraordinary cost (and public expense) to support its misguided business scheme. It sounds to me like the Board of Directors at the Airport Authority are a bunch of political hacks that are dispensing favours to their cronies who sit on other boards at other major corporations. It's a good thing that anti-trust law in Hong Kong is so weak.
rpasea
Just to justify the third runway......answered my own question.
rpasea
Why is it the AA's responsibility to fund new routes? Another govt-business collusion.
aab7772003@yahoo.com
Actually, what's truly shameful is the pathetic ignorance of the masses though they are certainly wronged by the current political system. 1.) Such incentive programs have been in place with major international airports around the world for decades. 2.) The majority of the new destinations are not even in the Greater China region. 3.) Many of the new destinations, both passenger & cargo, are NOT even inaugurated & operated by the Cathay group. 4.) New routes to Dallas, Boston, Seattle, etc. also received similar incentives at the other ends of the routes.
All the talks below are just bogus. Are the foreign airports & the foreign economic development offices colluding with businesses in HK too? If you have not noticed, the royally loss-making Jetstar group is a lost cause. The trillions are already here: the Government does NOT want to spend them. Singapore cares about the welfare of its people AND its economic future through critical world-class infrastructure projects. The "cronies" are not stupid because they can see how much of the airport land and terminal space are needed for the airport operations such as cargo handling, heavy aircraft maintenance, etc. It is much easier & profitable to build a skyscraper mall on Nathan Road. There is only one kind of good & high-paying jobs for most HKers: the jobs must be in grade-A air-conditioned offices that involve speculations in the financial markets. As usual, the possessed demagogue here is making the same idiotic speech.
aab7772003@yahoo.com
HKG and SIN are not even competing with each other head-on because each airport has its inherent strengths. For example, HKG provides superb one-stop connections to North America for SE Asia while SIN trumps in connections to Europe for the region.
www.scmp.com/business/article/1571636/let-hong-kong-taxpayer-hook-new-runway-please?page=all#comments
www.scmp.com/business/article/1557115/let-spoiled-airlines-fund-hong-kongs-third-runway-not-public-purse#comment-105095
www.scmp.com/comment/article/1555587/improving-airports-efficiency-fastest-way-ease-air-traffic-congestion?page=all#comments
www.scmp.com/business/article/1554322/keep-hong-kong-airport-wide-body-jets-and-ditch-need-third-runway?page=all#comments
www.scmp.com/news/hong-kong/article/1553618/airport-bosses-accused-manipulating-flight-figures-justify-third?page=all#comments
www.scmp.com/comment/article/1549621/hong-kong-airport-must-meet-global-demand-or-risk-falling-behind?page=all#comments
****www.scmp.com/comment/insight-opinion/article/1574263/hong-kong-needs-third-runway-one-paid-users#comment-112098
****www.scmp.com/comment/article/1581468/airport-authoritys-fixation-third-runway-blinding-it-other-options#comment-115202
johnyuan
We the public must warn the Legco don’t misbehave when the ‘third runway’ comes to ask for public funding. We will be focusing on those legislators particularly who were treated with an excursion flying out to Paris free with spouse in toll.
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As more other shameful operations by AA come to light, the public should be rightfully on guard.
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I will also advise CY Leung not to honor the third runway plan and tourism as a pillar industry that devised by the previous administration. Condition in politics and economy in mainland China is undergoing a big change. And Hong Kong economy has had its economy recovered long since the SARS for all these pillar projects. The trillions waiting to be spent can be spent on seeding a anti poverty plan, health and education. A society which doesn’t invest in these areas can’t be said it is a society. Hong Kong public will respect a CE who does.
TDHK
Seems jetstar asia was willig to open new routes... what happened to them now after SWIRE opposed their license... ?

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