With MIA in the final stages of a full-scale expansion, the Hong Kong-Zhuhai Airport Management Company Ltd, a joint venture between the Hong Kong Airport Authority and the state-owned management company, Assets Supervision and Administration Commission of Zhuhai Municipal People's Government, announced on January 7 that since it had taken charge of the management of Zhuhai Airport on October 1, 2006, business has picked up, with annual passenger throughput amounting to 800,000 passengers for the year, up 25 percent compared to 2005. The company also announced that the construction of the Skypier would soon be underway, a project to provide scheduled ferry service between the airports of Zhuhai and Hong Kong for a "seamless link between sea and air travel."

What will this mean for MIA?
At a press conference, Zhuhai executive vice-mayor Xian Wen, Hong Kong Airport Authority Chief Executive Officer David Pang, Assets Supervision and Administration Commission General Manager Vivian Cheung, and Airport Authority Finance and Commercial Director Raymond Lai Wing Cheung said that the collaboration between Zhuhai and Hong Kong has already achieved outstanding results in just three months' time. In 2006, Zhuhai Airport had a first time record-breaking passenger flow of 800,000 passengers, well ahead of 2006's target of 760,000 passengers and a record-breaking freight throughput of 10,000 tons.
Cheung said that the Assets Supervision and Administration Commission is going to set up service centers in downtown Zhuhai and Zhongshan, like the check-in service provided in central Hong Kong to attract customers who had been neglected in the past. And along with the completion of expressways linking the western coastal region of the Pearl delta with Zhuhai, Zhongshan and Guangzhou. Because of this, along with significant changes in the management of Zhuhai Airport, she said she is very optimistic that Zhuhai Airport will achieve a record-breaking passenger throughput of 1 million passengers this year. "By 2010," she predicted, "Passenger flow and cargo throughput are expected to reach 1.5 million and 50,000 tons respectively."
Nowadays, there are only 22 daily flights taking off and landing at Zhuhai Airport with an average daily passenger throughput of 2,500 passengers. The number of air carriers operating at Zhuhai Airport has recently increased to five: China Western Airlines, Spring Airlines, Xiamen Airlines, China Eastern Airlines and Hainan Airlines. Cheung said that this year, the number of carriers will be increased to seven, and added that early this year, the airport will launch its first international all-cargo service, with two flights between

Zhuhai and Manila each week
Improvemens in the last quarter of 2006, the management company had already upgraded the facilities of Zhuhai Airport according to national civil aviation standards. Runways in the airfield were improved, a CCTV monitoring system and security check logistics were completed, new security and safety devices were installed and tested, and first aid facilities were upgraded. Part of the airport was renovated, including the main hall and lounges. The staff were given additional training and emergency drills were conducted to improve emergency response capability. These improvements cost HK$50 million, of which HK$15 million came from Hong Kong investors and HK$35 million from Zhuhai.
Hong Kong and Zhuhai intend to boost their collaboration in terms of shareholding as well as in their role as co-managers. Cheung said it will take about four years for the Hong Kong Airport Authority to become a shareholder in Zhuhai Airport. At present, the focus is on increasing the number of flights and operation routes. The Hong Kong Airport Authority has officially participated in the operation of Zhuhai Airport since October 1 of last year, and the registered capital of the joint venture had amounted to Rmb 360 million. It holds a 55 per cent stake in the company, which it acquired for Rmb198 million through its wholly owned subsidiary HKIA (China) Ltd. The state-owned Assets Supervision and Administration Commission of Zhuhai Municipal People's Government controls the remaining 45 per cent of the joint venture, which it acquired by injecting Rmb162 million through its wholly owned company, Zhuhai Headway Transportation Investment Co. Ltd. The joint venture has exclusive rights to manage and operate Zhuhai Airport for 20 years. The Zhuhai-Hong Kong Airport Management Company Ltd is the first professional airport management company in China with foreign holdings. The board of directors is made up of seven members, four appointed by the Hong Kong Airport Authority.

Going for a bigger market
Pang announced that in order to cope with Zhuhai Airport's development as an aviation and logistical hub in the western PRD region, the management company plans to open up ferry service between Zhuhai Airport and Hong Kong International Airport to attract more Mainland travelers transiting to Hong Kong via Zhuhai. Meanwhile, the company is preparing to submit a proposal for the project to the Zhuhai authorities. If the proposal is approved, the Skypier could be up and running by 2008.
Pang said this type of "seamless linkage between sea and air travel" will maximize the benefits of integrated transportation, allowing passengers to complete boarding procedures in Zhuhai and board their plane in Hong Kong. This will bring more FIT passengers to carriers operating out of Zhuhai.
The "marriage" between Hong Kong and Zhuhai airports creates bright prospects for the future of the 12-year old Zhuhai Airport, which has fretted for years about how to stop financial loss. The airport began, which began operation on May 31, 1995, was designed and constructed according to the 4E standards adopted by international civil airports and was seen as a daring and pioneering project. It was the first airport in China constructed with local municipal government investment. The HK$6.9 billion project was one of largest airports in China at that time in terms of scale and sophistication. Its 90,000-square meter terminal building can handle 5,000 passengers per hour during peak periods, accommodate 100,000 carriers taking off and landing annually, an annual passenger throughput of 12 million and a cargo handling capacity of 600,000 tons. Nevertheless, shortly after Zhuhai Airport began operations, it faced the embarrassing situation of too few passengers. Monthly passenger flow equaled the daily passenger flow of the old Baiyun Airport in Guangzhou, the capacity utilization rate of its facilities was only 6 percent, and the total freight throughput had reached only 1/60 of its designated handling capacity. All these caused Zhuhai Airport to suffer long-term deficits and its accumulated debts soon amounted to HK$4 billion. In 2001, its creditors filed lawsuits against the Airport and the court froze the airport's operating revenue and assets.

Shakeup in Macau
In 1999, to find a way out, the Zhuhai municipal government began to seek an outside partner. It held meetings with Hong Kong International Airport, Guangzhou's Baiyun Airport, Federal Express and Macau International Airport to discuss collaboration. Last year, when the news of the partnership between the airports of Zhuhai and Hong Kong was released, it caused a shakeup in Macau. Industry observers predicted that the alliance between Zhuhai and Hong Kong airports would wipe out all that MIA had achieved in building up its air freight logistics business in recent years. As the ambitious airport in Zhuhai scrambles for more passengers, MIA is watching and worrying.
At the press conference, Pang said that competition between the two airports is healthy, and that both parties will benefit. He emphasized that MIA targets local residents, Taiwanese and some visitors, while its main aviation routes cover the major big cities of Taiwan, China and some international cities.
Since the PRD has five civil airports, competition between them are natural, Pang continued, predicting that competition would be keen, but because Zhuhai Airport has a different positioning and target market than Macau's airport, it won't be cutthroat. Upgrades and business development by both airports will create incentives for more development and for maximizing both airports' operations.
There's no way to know if what Pang said was routine promotion or not, but it can be assumed that Hong Kong has its own objective behind the two airports' "marriage." Hong Kong hopes to maintain its "Big Brother" status in the PRD, and more importantly, it can fortify its competitiveness against other PRD airports. Hong Kong International Airport's investing in Hangzhou's Xiaoshan Airport was a clue that suggests the Hong Kong-Zhuhai airport does amount to teaming up against MIA.
As Pang said, until now, Taiwanese are MIA's main market. Besides having to prepare for the launch of direct cross-straits flights, now MIA also has to worry about Zhuhai Airport's aggressive marketing. Some in the industry note that the population of the PRD region remains more stable, so the volume of customers will not increase drastically right away. An increase in passenger flow at Zhuhai Airport will mean other airports will undoubtedly experience a reduction in theirs.
Meanwhile, MIA is striving to attract low-cost carriers, in hopes of finding other markets besides Taiwanese travelers. But the airports of Hong Kong and Zhuhai want the same markets, and that means MIA's future development will be an uphill struggle.
When compared with the advanced design of Zhuhai Airport, MIA looks outdated. MIA Logistic Cargo Development Director Cui Guang explained that before MIA opened, it hired US consultants who predicted that the airport's freight traffic would reach 220,000 tons by 2015, a figure attained 11 years ago. He admitted that the forecast made at that time was a bit conservative, since the consultants had based their analysis mainly on local economic and population data. Besides MIA, Hong Kong's Chek Lap Kok and Shanghai's Pudong International Airport also had the same miscalculations in freight and logistics forecasts, with freight throughput of both airports already surpassing the forecast figures much earlier.

Limited benefits
MIA's runway is only 3,360 meters long, shorter than Zhuhai Airport's 4,000-meter runway. At present, construction is underway at MIA to expand the areas used for logistics, apron size and runways for carriers, and is expected to be completed in a year or two. The 3,360-meter runway will be lengthened by 500 meters to cope with takeoff and landing of large carriers. However, Professor Zheng Tianxiang of the Hong Kong, Macau and Pearl River Delta Research Centre of Zhongshan University said he "does not feel optimistic" about the benefits to be derived from MIA's expansion.
In the Global Forum on Logistics 2006 held during the Third China International Logistics Week, Zheng said that the passenger flow of the five major airports in the Pearl River Delta region could reach 260,000,000 passengers in the long run and the growth in regional population will reach 60,000,000 in the future. The average number of times PRD passengers travel by air annually is 4.3 times per person, which is very close to the current 5.7 times recorded in Hong Kong. By 2020, if the regional economy has sustainable development, he believes that there will not be an oversupply in the overall airport passenger handling capacity in the Greater PRD region, but there could be exceptions, with oversupply at particular airports.
At present, he said, around 25 percent of MIA's capacity for passenger traffic is not fully utilized. He pointed out that passengers using MIA travel by air an average of 10 times a year, with Taiwanese passengers accounting for 60 percent of traffic. Direct cross-strait flights will bring a considerable decline in the number of Taiwanese travelers using Macau as a transit point, and still more will be lost to a more efficiently run Zhuhai Airport. When the Hong Kong-Zhuhai-Macau Bridge opens and the Hong Kong's airport is packed with flights, more and more customers from Macau will be attracted to board flights from Hong Kong, since its airport offers more routes.
Zheng predicts that by 2020 the overall freight handling capacity of airports in the Greater PRD will reach 20,000,000 tons, which matches the overall potential freight handling capacity of airports in the Greater PRD region in 2020 forecast by the GHK company from Hong Kong and the PA Company of the US. Since the source of cargo remains concentrated in the PRD, the improved management of airports in the PRD will gradually erode the competitive edge of the efficiently managed airports of Hong Kong and Macau. At the same time, it is highly unlikely that the cost of land transport of cargo from the PRD to airports in Hong Kong and Macau will go down, so it will be a challenge for Hong Kong to maintain its 45 percent market share in air freight within the Greater PRD. He believes that since the MIA has positioned itself as an airport with international trunk lines, it should gradually shift its current focus from that of direct cross-straits flights to one of international freight or passenger transport or place equal emphasis on these two areas.
As MIA's lifeblood, how should Macau's air freight logistics and transport respond to the "marriage" between the airports of Hong Kong and Zhuhai? MIA Logistic Cargo Development Director Cui Guang thinks that the size of the air freight transport logistics market in the PRD is fixed, and that when neighboring airports become more competitive, they pose a threat for MIA. That's why he believes that in the future, MIA's air freight logistics development should focus on competing for small markets: "In the same market, when other people takes a bigger share, it means that we have a smaller share," he explains.
Cui looks at it this way: MIA should take collaboration between the airports of Hong Kong and Zhuhai seriously, since the two airports may steal the freight markets away from Macau.
"Originally, it was easy for Macau to seize the freight business in the western region of the PRD and difficult for Hong Kong to do so. But when the Hong Kong and Zhuhai airports work hand in hand, it is easy for them to get the freight business in the western region, since Zhuhai Airport can be used as a cargo collection point for Hong Kong. Zhuhai Airport provides a convenient channel, which makes it difficult for Macau to get a toehold in the market." He emphasized that for MIA to maintain its competitiveness, it must build up logistic channels that are far more convenient than the ones offered by Hong Kong and Zhuhai. It has to increase the efficiency of its existing freight transport service, making it faster and smoother. Logistics involves huge manpower and effort; it can't be done by a single person with a weapon. It is necessary to treat the overall industry as a whole and all those sectors related to the logistics industry have to work hard together towards the same goal in order to maintain sustainable development, he explained.

On the straight and narrow
Cui also said that in face of the Hong Kong's and Zhuhai's collaboration, even though Macau's logistics sector will inevitably be stressed, it should not lose confidence. "In the early days when MIA was founded, it was the youngest airport with the worst facilities ever in the Pearl Delta region. Given its industries and its population, he pointed out, Macau's logistics business should not have been able to survive. But it actually made some progress. In 2005, MIA's annual freight throughput reached 220,000 tons, but that was even less than one-tenth of the throughput amount for Hong Kong, with annual throughput of 3,400,000 tons. From this perspective, the logistics operations at MIA were very weak. But compared with other provincial airports in China, with the exception of those in Beijing, Shanghai, Guangzhou and Hong Kong, freight throughput handled by MIA topped the list. In Xiamen Airport, for example, moved only about 150,000 tons of freight in 2005. Compared to Portugal, the MIA fared far better, since the total freight throughout of all that country's airports amounted to 120,000 tons in 2005."
"Over 10 years of air freight business operation, MIA has proved it has its markets for survival. But in the coming days, MIA has to face a lot of challenges. Besides having to build more efficient freight channels, it has to offer more specialties and show what kind of difference it could offer". Cui believes that MIA has two major problems: first, as China opens up further to international trade, liberalization of the air freight business is at the top of its agenda, and airports in China will soon enjoy a lot more room for development; secondly, the "three links" across the Straits will be complete, and MIA must strive to reduce its dependence on its Taiwan routes and develop others before this happens.
Although MIA recorded freight volume of over 220,000 tons in 2004 and 2005, the logistics sector thinks that this record was set because an increase in domestic demand brought about by large-scale construction work launched over the past two years, as well as Hong Kong's inability to handle excessive amounts of business. In the future, Hong Kong will only have to direct part of its freight business to Zhuhai to have a huge impact on MIA. The future of MIA does not look bright.
Only three months into the "marriage," the airports of Zhuhai and Hong Kong had already generated promising results. In the future, when these two airports become more closely linked, will MIA, in between the two, be able to break out of its dependence on Taiwanese customers and be successful in further developing low-cost air traffic? Will it be able to provide specialized services and services that make the competitive difference in its freight transport business to attract clients? Or, in the end, will it be left out of much of the passenger and freight transport business? At the moment, it's hard to tell, but for sure, MIA has a rugged road ahead.

by Yi Ya