Hong Kong’s future as an aviation hub is up in the air

After three pandemic years, global aviation is expected to return to profit this year, but some regions are recovering faster than others
The Asia-Pacific is lagging behind North America, and Hong Kong, having faced severe reputational damage as a regional aviation hub, faces an uncertain road to recovery

David Dodwell

Published: 6:15am, 17 Jun 2023

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In the early 2000s, I was tasked by the then Central Policy Unit to tackle the biggest aviation question of the day: would Hong Kong really need a third runway and when?

The conclusion was clear at the time: not only would a third runway be needed, but it would open and be operating at full capacity in the early 2020s. We suggested with a degree of embarrassment that the government would need to consider a fourth runway. The next question was where we might put it, with the awkward but compelling logic that it should be built for – and in cooperation with – the rest of the Greater Bay Area.

These were optimistic times when Hong Kong’s new airport at Chek Lap Kok held the world in awe, winning every global award going, and when Cathay Pacific year after year ranked among the world’s leading international airlines.

Scroll forward two decades, and those conclusions seem with hindsight to have been horribly wrong and naive. But could any scenario planner have anticipated the extreme shocks that would take global aviation to the brink of collapse?

After six months of violent street anarchy in 2019, then three years of extreme pandemic isolation, Hong Kong International Airport has dropped far down the list of the world’s leading airports. It currently ranks 33rd, according to Skytrax.

Recovery is on the way, but how long it will take and whether Hong Kong will ever recover its world-leading hub status is an open question. Cathay Pacific has for three years been staring over a precipice. Cathay Dragon is no more.

Seventy Cathay aircraft were parked at Alice Springs in Australia during the pandemic as passenger capacity collapsed to an astonishing 2 per cent compared to “normal” times in 2019. Cathay was forced to turn to the Hong Kong government for HK$39 billion in support. It cut over 5,000 jobs in Hong Kong and reported losses in 2020 that peaked at HK$21.6 billion.

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Even today, as Hong Kong’s flag carrier edges back into profit, chairman Patrick Healy has warned that the group is only back to 50 per cent of pre-pandemic passenger capacity, targeting 70 per cent by the end of 2023, and full recovery by the end of 2024. But with recession risks still being flagged, full recovery may be even further on the horizon.

The pandemic provoked a near-death experience for the aviation industry in most parts of the world, as net losses between 2020 and 2022 reached US$183.3 billion. With some relief at an annual meeting in Istanbul earlier this month, Willie Walsh, head of the International Air Transport Association, was able to predict a return to “wafer thin” global profits amounting to US$9.8 billion this year – or US$2.25 per passenger – and to report passenger traffic at around 90 per cent of 2019 pre-pandemic levels.

But some regions have begun to recover faster than others. North America’s airlines are now forecasting 2023 profits of US$11.5 billion, with passenger demand now 2 per cent above 2019 levels and seat capacity 5 per cent above 2019 levels. Europe is mounting a strong recovery too, with profits forecast to climb to US$5.1 billion this year, passenger demand just 6 per cent below 2019 levels, and seat capacity just 2 per cent below 2019 levels.

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Sadly for us in Hong Kong, the laggard by far is the Asia-Pacific region, where IATA forecasts losses of US$6.9 billion this year, with passenger demand still 29 per cent below that in 2019, and seat capacity still lagging that in 2019 by 26 per cent.

This slow recovery seems largely due to China’s decision to remain closed to the world for so long. So it is not surprising that Hong Kong, moving in lockstep with the mainland, is proving to be one of the slowest economies in the world to recover.

The latest Skytrax airline rankings reflect this clearly: Cathay Pacific, which stood sixth in the 2021 rankings, dropped to 16th last year. Hardly of any comfort, several other Asian airlines were downgraded too: Taiwan’s Eva from 7th to 18th, Philippine Airlines from 52nd to 77th, and China Eastern from 78th to 96th.

Asia-Pacific’s clear beneficiary was Singapore, which captured a passenger windfall as it moved fast to lift Covid travel restrictions. Changi is now by far the region’s leading aviation hub.

Travellers walk past an indoor waterfall in Jewel, a commercial and entertainment complex at Singapore’s Changi Airport, in 2022. Photo: Bloomberg

Whether, and how quickly, Hong Kong is able to restore its global standing as an aviation hub remains uncomfortably uncertain, and will powerfully impact the city’s wider economic recovery, because of the importance of aviation to tourism, as well as the hotel, retail, conference and exhibition, and cargo sectors.

We have without doubt suffered severe reputational damage as a regional hub, and over the past three lockdown years, many carriers worldwide have discovered – and become comfortable with – new ways of travelling to and from the region.

Harshly publicised controversies surrounding Cathay Pacific as it begins the process of post-pandemic rebuilding have also been unhelpful. Negative attitudes to Cathay Pacific among mainland passengers could also be harmful, given the importance of the mainland market, and the Greater Bay Area in particular, to Cathay Pacific’s long-term future.

As I look back on those innocent years following the exciting opening of Hong Kong International Airport, it can be challenging to explain how our aviation economy could have stumbled into such terrible times. For sure, we will not be thinking about a fourth runway for a very long time.

David Dodwell is CEO of the trade policy and international relations consultancy Strategic Access, focused on developments and challenges facing the Asia-Pacific over the past four decades.