HK airport woes focus attention on regional rivals

Sadly, in the financial markets, there is little room for sentiment. While Hong Kong struggles to get its airport back into smooth operation after days of chaos caused by protesters, investors have been pumping up the shares of regional competitors likely to gain from an overflow of demand.

Shares in Shenzhen Airport closed up 10 percent at RMB10.43 on Tuesday while Guangzhou Baiyun International Airport leapt 4.5 percent to RMB19.11. China Express Airlines also rose 2.7 percent to RMB10.26 and China Eastern Airlines finished 1.2 percent higher at RMB5.15. 

The Civil Aviation Administration of China (CAAC), meanwhile, announced that in order to ensure travel between Hong Kong and the mainland runs smoothly it would increase airport capacity, do a better job of refunding and renewing tickets, and improve transit capacity in the Greater Bay Area. The CAAC envisages having the ability to easily redirect travelers bound for Hong Kong to Guangzhou, Shenzhen, Zhuhai or Macau instead. Moreover, it is working on a plan to easily reroute outbound passengers via Guangzhou or Shenzhen. 

Hong Kong’s airport is currently well ahead of Guangzhou and Shenzhen, ranked third in the country behind Beijing and Shanghai. But the two GBA rivals are close behind, in fourth and sixth place, respectively, and they are growing faster. In terms of cargo throughput, Hong Kong airport was crowned first, but this is an area that Guangzhou and Shenzhen are particularly focused on, building up massive “aerotropolis” zones around their airports to better facilitate air cargo trade. 

Despite having been reaffirmed earlier this year as the “dragon head” of the GBA’s aviation market, Hong Kong is facing both a short-term and a long-term challenge to its dominance. In the short term, the airport protest could cost HKIA as much as 206,000 passengers, 13,863 tons of cargo and RMB10.1 billion (US$1.4 billion) in lost revenue a day. In the longer term, infrastructure in the GBA is being built out at a pace that the HKIA cannot possibly keep up with, analysts believe.

CITIC Securities wrote in a research note that the protests could boost Shenzhen’s status as an international air hub and accelerate its infrastructure buildout plans. China Southern and Air China are seen as the two biggest beneficiaries of any such boost, as they dominate flights in the Guangzhou and Shenzhen hubs.

Huachuang Securities also wrote in a recent report that Hong Kong airport’s development had been facing bottleneck problems anyway and these were likely to be exacerbated.

Hong Kong has a big lead in terms of international connections: its 123 flight destinations is more than Guangzhou and Shenzhen combined. Hong Kong has 80% of the regional share for the European and North American market, 70% for Japan, Koran, the Oceania and Taiwan and 57% for Southeast Asia. 

However, growth in takeoffs and landings at HKIA has slowed in recent years: 1.4% in 2016, 2.2% in 2017, and 1.8% in 2018. Passenger throughout grew by 2.9%, 3.4% and 2.5% in those years, respectively. The trend continued in the first half, takeoffs and landings growing by 1.1% and passenger throughput by 2.1%. In June, the numbers turned negative. 

In comparison, Guangzhou and Shenzhen are seeing strong growth.

Huachuang said Shenzhen and Guangzhou would undoubtedly overtake Hong Kong in time, as they had larger and faster-growing economies around them. 

Huachuang predicted that by 2025, Guangzhou Baiyun’s passenger throughput will reach 100 million, with a compound growth rate of 5.3%. Of this, international passenger throughput will reach 30 million, with a compound growth rate of 8.2%. 

Shenzhen airport is expected to reach passenger throughput of 76.07 million by 2025, with a compound growth rate of 4%. Of this, international passenger throughput will reach 15.26 million, with a compound growth rate of 15%. 

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