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Move will force Hong Kong to rethink air cargo policy as dominance comes under threat, say analysts

China Southern Airlines, the biggest mainland airline by fleet size, plans to grow its freighter fleet to 14 aircraft from  two by 2011.

Analysts say the move will mean more freight connections and volume for Guangzhou's Baiyun International Airport, forcing Hong Kong to rethink its air cargo policy.

Like its mainland rivals, China Southern has been slow to develop its freighter business because of a long-standing imbalance between exports and imports.

Load factors for inbound cargo traditionally have been much lower than for outbound, keeping profit margins thin.

China's airlines  operate only 33 freighters with 7,700 tonnes of capacity.  UPS and FedEx, the two biggest dedicated cargo carriers in the United States, between them operate 1,000 freighters.

However, China's swift economic growth, spurring demand for such prime air freight commodities as high fashion, fine wines and delicate electronic products, means that imports and exports are coming into a better balance.

Chinese airlines have begun forming cargo alliances with international carriers.

Shenzhen Airlines teamed up with Lufthansa to form Shenzhen-based Jade Cargo Airlines which operates two Boeing 747s  and plans to expand the fleet to six aircraft by next January.

China Southern has a code-sharing arrangement with Air France Cargo-KLM Cargo. 'We can increase our load factor by exchanging pallets and extend our reach to Europe where we don't have enough coverage,' a China Southern spokesman said.

He declined to comment on market rumours that China Southern would set up a joint venture with its code-sharing partner.

By 2011, China Southern expects to take delivery of six Boeing 777s, which can stay in the air for 10 hours  and six Airbus A300s which can be adapted for  passenger and freight service. The first of the A300s, which are principally designed for use on regional routes, will be delivered at the end of this year.

Analysts say such developments pose a serious challenge to Hong Kong's long-standing dominance of the air cargo market in south China.

'Hong Kong's superior connectivity and the frequency of flights on key international routes, which facilitates efficient 'just-in-time' operation for exporters, is fast eroding,' said David Dodwell, the chief executive of aviation consultancy Strategic Access.

In the past five years Baiyun Airport's role as an international hub has grown. Another 10 international destinations have been or will be launched this year.

'If we [in Hong Kong] stumble, the price we pay is likely to be substantial,'  Mr Dodwell said.

He said the Hong Kong government needed to update the import-export ordinance to facilitate more transshipment business.

And he said the efficient use of air space was being hindered by the conservative air spacing regime in Hong Kong and the refusal by the Beijing government to allow planes bound for or leaving in Hong Kong to fly through  the mainland's air space below 10,000 feet.

'I can see healthy growth of 5 per cent to 8 per cent  a year in Hong Kong for the next five years,' said Matthew Ma, vice-president of Cargolux, an airline based in Luxembourg. 'It is a performance-based industry; it's not only capacity that counts.'

Mr Ma said Guangzhou could not match Hong Kong for reliability and just-in-time management. However,  Hong Kong still needed to embrace the 'open skies' concept and address the issue of high service charges, he said.



China Southern freighter expansion to lift Baiyun airport