Despite the recent disappointing performance of the global air cargo industry, Hong Kong is set to remain a leader and has a good chance of success, according to senior aviation executives speaking at the annual Asian Logistics and Maritime Conference in Hong Kong.

The average cargo load factor for airlines around the world in the past few months has been far lower than the 80% for the passenger side.

“What strikes you about the load factor is that it bumps along at about 46% – that’s very low,” said Andrew Herdman, director general of the Association of Asia Pacific Airlines. “The reason for that is a lot of cargo flows are directional rather than round-tripping. The other thing is a lot of that belly space that’s flying is on routes where there is no cargo demand. It’s superfluous capacity.”

The figures show that there has also been a dip in the last six months to about 43%. “That’s because nobody anticipated the slowdown this year, and so the cargo capacity that’s been put into the market this year has been ahead of demand,” said Herdman. “That’s a bad sign – falling load factors means falling rates and you’ll see cargo capacity being trimmed accordingly to go with the market.”

Rupert Hogg, chief operating office of Cathay Pacific Airways, said that, despite the slowing Chinese economy, there are still “huge opportunities” for the airline. “People talk about the slowdown in China – that’s undoubtedly true, but a one-trillion-dollar economy growing at 5-6% is a lot better than other parts of the world still,” he said. “I can see that there’s a shifting economic model, where export-led is being counterbalanced by consumer-driven demand in China. I think that’s a real opportunity for this industry, particularly when you think of the structural imbalances that exist between cargo going out of Hong Kong versus cargo coming in.”

Apart from China, a slowdown has also been experienced by many carriers in emerging markets in Southeast Asia. But DHL Express has not seen the same declines that others have.

“If you look at markets such as Vietnam, Myanmar and Singapore, for example, they’ve been performing very well,” said Lars Winkelbauer, vice president of aviation, network planning and control for the Asia Pacific at DHL Express. “We’re also continuing to invest in Southeast Asia. We recently announced that we’re making an €85 million (US$90 million) investment in a hub in Singapore which is scheduled to open in 2016. So from the express side, I must say that we do not see the same volatility and the same trend that the traditional air freight market is seeing.”

Unlike DHL Express, Cathay also operates a large network of widebody passenger flights, which Hogg said gives the airline an advantage over pure freighter operators.

“The symbiotic relationship between belly space and freighters is important because the cargo demand here is very strong,” said Hogg. “It’s usually about 25% of our revenue. That allows us to put on additional passenger services and frequencies much earlier than we would if we were solely reliant on passenger revenue. The more frequencies and destinations we can serve, then the more connectivity we can get for freight as well.”

Highlighting the performance of the Boeing 777-300ER, of which Cathay has 53, Hogg said that a converted 707 freighter used to take 35 tonnes of cargo, but the belly of a 777-300ER today is capable of holding an average of 25 tonnes and even a maximum of up to 36 tonnes.

As successful as Hong Kong is, it is not perfect and is presenting difficulties to airlines on both the passenger and cargo side.

“We’ve built a great hub here, but Hong Kong is not without its challenges,” said Winkelbauer. “These relate to slots – it’s getting more and more difficult to find the times for the slots that we need. The second part is parking. We have very short turnaround times, and if we have to park our aircraft at the west apron, it’s just not possible because it’s too far from our hub and the towing time is too long.”

Other problems involve labour and land, according to Winkelbauer. “The number of open jobs at the airport is a concern. We need people to staff our hub, so of course it’s a problem if we can’t get them to work here,” he said. “Last but not least is land. The current hub is operating at max designed capacity. We are interested in expanding and bringing in more aircraft but clearly, in order to do so, we need the following things: land, labour, parking and slots. As long as that can be fixed, I think there’s a great future for Hong Kong, and there definitely are opportunities in terms of expanding and further serving the Asia-Pacific here, as well as the world, out of Hong Kong. But these challenges obviously have to be addressed at some point.”

These problems should be relieved somewhat in the next decade, with Hong Kong International Airport recently securing approval for the construction of a third runway, as well as additional taxiways, terminal buildings and parking stands. At the completion of the entire project by 2030, the airport will be capable of handling almost 9 million tonnes of cargo per year.

“We’re a big believer and supporter of the third runway,” said Hogg. “The building of that infrastructure is absolutely vital.”

One of the reasons for the overall confidence in the growth of air cargo in the region is the rise of the middle class, particularly in emerging economies.

“It already outnumbers the middle-class markets of Europe and North America, and it will continue to drive travel and the consumption of everything from cars to mobile phones,” said Herdman. “As we heard earlier, 42% of online shoppers are in Asia. So Asia is not just a factory, it’s a massive centre for consumer markets and we have to rethink the logistics. It’s not just outbound – a lot of it is inbound to Asia and intra-Asia, so that’s a big strategic shift compared to say 20 years ago.”

Fred Lam, CEO of the Hong Kong Airport Authority, said that he is expecting an annual growth rate of 5% over the next 20 years, attributing this to increased transhipments, shorter life cycles of consumer electronics, and the rise of e-commerce on mobile platforms.

Hogg called himself a “qualified bull,” saying that there are some real positives for the long-term future of Hong Kong. “We should always acknowledge when we’re lucky, perhaps by accident as much as by design, that this is the most southerly point in Asia when you can fly non-stop to both coasts of North America,” he said. “That of course makes a big difference to belly uplift.”

Although air cargo is flat year-on-year right now, Herdman said he thinks there will be a resumption of growth if the GDP projections are correct, but that it’s going to take time, because airlines don’t create or stimulate cargo demand – they can only take what’s given and fight over their share.

“Don’t be disheartened,” he said. “Hong Kong is one of the leaders, along with Dubai, Singapore and some other likely suspects. We’re on the right track, and we shouldn’t take our foot of the accelerator as far as streamlining the flow.”

Hong Kong International Airport is not resting on its laurels and is determined to do whatever it takes to maintain its enviable position as one of the top air freight hubs in the world.

“Today, we stand at the crossroads of Hong Kong’s future development, with huge opportunities ahead for those willing and able to capitalize on the growth of our city’s aviation industry,” said Lam. “At HKIA, we will do our utmost to ensure that the airport continues to serve as a growth engine for the logistics and cargo industries, and the landmark icon of our city’s development well into the 21st century.”

By Jeffrey Lee

Asia Cargo News | Hong Kong