Fallacious arguments over airport charges
Kevin Sinclair in his article on Monday, 'Airport charges a threat to tourism', argued one side of the case in the complex issue of airport charges - that of the airlines.
If anyone could prove to me that reducing airport charges by, say, 30 per cent would result in a commensurate increase in the number of arriving passengers, I would cut the charges today. We are in the business of running an airport, and more passengers means more business for all, not just the airlines.
Unfortunately, linking airport charges with passenger demand is just one of several fallacies that keep surfacing in this debate. Passengers fly to destinations because of their need or desire to do so. They do not think: 'Gosh, I'd better not fly to Heathrow or Tokyo or Hong Kong because the airport landing fees are a bit high.' Contrary to claims by the airlines, routes are not chosen according to airport charges. Airlines fly to markets, based on passenger demand.
So what do airlines look for at airports? When the British Airports Authority, one of the world's largest airport operators, surveyed 30 leading international airlines, they found the following criteria, in descending order of importance, were some of their most pressing concerns: passenger demand; profitability; ability to obtain take-off slots; range of airlines; quality of ground handling; discount offers; handling charges; landing fees; efficiency of baggage handling; security checks; check-in facilities; ease and speed of transfer; runway delays; passenger comfort; congestion level; first/business class lounges.
Landing fees are an average concern. It could be argued that costs affect yield, and that airport charges are a cost. But they are not nearly as significant as Mr Sinclair and others believe. According to the International Civil Aviation Organisation, airport charges constitute only 4.3 per cent of airlines' operating costs. Compare this with ticketing, sales and promotions (15.7 per cent) and fuel (11.2 per cent).
On a given flight, the airport charges at Chek Lap Kok make up a little over two per cent (half of 4.3 per cent) of the cost. So, even if we halved our airport charges, it would only mean a one per cent saving for each airline, but a 50 per cent reduction in our revenue. It is doubtful that a one per cent saving would sway an airline's decision.
This leads us to another fallacy: reducing airport charges will be good for business and Hong Kong.
There are many different ways to calculate the costs. But we reject the claim that our charges are excessive. At Hong Kong International Airport, they are straightforward and include landing, parking and terminal building charges (other airports include many other charges, such as lighting).
Where does Hong Kong rank? According to figures from the aviation industry's own lobby group, the International Air Transport Association (IATA), the total airport charge received by airport operators per visit of a B747-400 varies from US$15,593 (HK$120,600) at Kansai to US$488 at San Francisco. The charge at Chek Lap Kok was US$5,695 (HK$44,139), lower than those at Kansai, Tokyo, Sydney, Amsterdam, Macau, Frankfurt, China (which charges the same at all international airports), Osaka, Heathrow and Taipei; and in the middle of the list of 20 airports.
Last year, many airlines reduced flights in Asia, notably to Jakarta, Seoul, Manila, Bangkok, Kuala Lumpur and Singapore. Interestingly, these were among the cheapest airports according to IATA. At the time, some Japanese airports were turning away flights. And despite the downturn in Hong Kong, 5.7 per cent more passengers arrived in the last six months of last year than in the corresponding period of 1997.
Some commentators have asked why we have reduced rents for retailers but not cut airport charges for airlines. First, this is not entirely correct, as we cut our intended airport charges by between 25 and 40 per cent prior to opening. Second, retail revenue agreements and airport charges are not the same issue. Retailers have fixed minimum payments that must be met each month regardless of their turnover. We agreed to lower these minimum guarantees by 30 per cent across the board. There are no such minimum guarantees for airlines: if business is slow, they can reduce frequencies and so on.
Another irrelevant argument is that airport charges at Chek Lap Kok are higher than they were at Kai Tak. Comparing the two is pointless, just as it is to compare the difference in rent between a small, old crowded apartment, and a much bigger, new one with much better amenities. Kai Tak was an obsolete and largely depreciated facility which could afford quite low charges. Chek Lap Kok is a bigger, new facility that must be paid for. The airlines also had a big say in its design.
The airlines have argued vigorously for reduced fees. They are in business, after all, and a penny saved is a penny earned.
For the Airport Authority charges are a slightly different matter. We have to consider the interests of a number of parties. We are obliged by law to operate the airport according to 'prudent commercial principles' and cover our costs on a yearly basis, and, if possible, provide our shareholder the Hong Kong Government with a modest return.
So on one side we have the responsibility for this investment that belongs to the people of Hong Kong. We must balance this by providing the best facilities and services available to our business partners at a reasonable cost.
It is in everyone's interest - the Government, the AA, the airlines, other business partners and the public - that we run this airport on the tried and tested 'user pays' principle which has served Hong Kong well. It is also essential that we can service our debt so we continue to borrow at favourable rates (considerable savings result from this type of money management) to develop future stages of the airport.
In his article, Mr Sinclair said the airport is a 'vital core item of community infrastructure' that should be 'run at public expense'. Such a move would be folly: as we have pointed out, this would not guarantee more tourists, but would provide a substantial taxpayer subsidy to airline shareholders.
In conclusion, we need to reconsider the question: Is there any guarantee that reduced airport charges will result in more flights? The answer is clearly no. Would such savings be passed on to passengers? Again, no. Then one can only conclude that the AA has no right giving away legitimate revenue when there is no logical or ethical reason for doing so.
Raymond Lai Wing-cheung is finance and commercial director of the Airport Authority