Early this year, Hong Kong Airlines formed a new wholly owned subsidiary: Hong Kong Air Cargo (HKAC). Established in 2006, Hong Kong Airlines had its roots in Hong Kong where it maintains its global vision, building up a fleet of 34 aircraft (consisting of five freighters and 29 passenger aircraft), a network of 41 major cities in Asia Pacific cities and a respected reputation within ten years. As of 2016, the freighters cover 11 freight routes and 13 destinations; and cargo volume exceeded 327,500 tonnes, which accounted for 7% of Hong Kong International Airport’s overall throughput. Th e cargo business has experienced consistent year-on-year growth since the introduction of the first A332F freighter aircraft in 2010.
Today, both the passenger traffic and cargo volume of Hong Kong Airlines ranks second in the Hong Kong market. The formation of HKAC is all part of a strategic expansion to build a comprehensive supply chain model. HKAC aims to develop its warehousing, ground handling, and cold chain businesses – having complete control over the whole supply chain and having their own customers. Chief commercial officer of Hong Kong Air Cargo, Jeffrey Zhang said, “We are not just focusing on air freight as the air cargo industry is becoming saturated. In a traditional air cargo model, customers are just the forwarders or cargo agents and we are unable to get in direct contact with the final customer.”
Hong Kong Airlines Freighter Network
“Given the rapid development of electronic providers nowadays, I believe in the near future, consumer behaviour will undergo a huge change. Today, this is especially evident in a lot of shopping malls being overtaken by online retailers like Alibaba, Taobao and Amazon.” Zhang projects that this will happen within a span of five to eight years, as is evident from the opportunities arising in Hong Kong.
In April, HKAC was granted the Air Operator’s Certificate (AOC) from the Civil Aviation Department; marking the first time in 12 years that a new Hong Kong carrier off ering scheduled services was granted the certificate. Th is milestone in Hong Kong’s aviation industry will see HKAC materialising plans to progress in the future. Zhang says that obtaining the AOC was all part of the airline’s strategic expansion that the carrier had planned and worked toward many years ago. “Working towards having a stronger hold over the supply chain has been on the cards since the conceptualisation of Hong Kong Airlines. However, at that time, they were all simply plans to establish our own air cargo company, air cargo terminal, and stance on every business along the supply chain. Th ere is no actual timeframe set for these plans due to the many policies and regulations present in Hong Kong.”
Recent developments
Th e Civil Aviation Department (CAD) in Hong Kong has been monitoring the movement of fuel prices and reviewing the regulation on fuel surcharges. A consultancy study on the regulation of fuel surcharges reported that there is a global trend of deregulating fuel surcharges. With oil prices rising by almost 80% from January 2016 to January 2017, CAD implemented a time-limited arrangement of allowing airlines to impose cargo fuel surcharge for flights originating from Hong Kong – which HKAC supports. The carrier regards cargo fuel surcharges as necessary in promoting sustainable industrial development, and believes that this move will improve the freighter business environment.
In February, Hong Kong Airlines and Jet Airways entered a codeshare partnership in a move that will significantly enhance connectivity between India and the Asia Pacific region. The codeshare will provide opportunities for boThairlines to expand their reach and cater across the region. This will greatly improve connectivity from Mumbai and Delhi to multiple destinations via Hong Kong.
In April, Hong Kong Airlines also entered into a codeshare partnership with Asiana Airlines that will see daily flight services between Hong Kong and Seoul. By connecting the hubs of both airlines, the codeshare will benefit customers travelling between Hong Kong and Seoul. The agreement will also enable customers to seamlessly transfer between flights operated by both carriers, to and from other destinations.
Strategic location riddled with opportunity
Hong Kong International Airport’s air cargo throughput has ranked first in the world since 2010, reaching 4.52 million tonnes in 2016. With the region’s unique geographical location and environment, the air cargo industry in Hong Kong greatly benefits from China’s Belt and Road initiative, the Guangdong-Hong Kong- Macau Big Bay Area development plan and a series of large-scale transport infrastructure projects like the Hong Kong-Zhuhai-Macau Bridge, the Guangzhou-Shenzhen-Hong Kong Express Rail Link, and the 3-runway system at the Hong Kong International Airport.
The industry in Hong Kong has tremendous opportunities for further development, especially with the newly introduced Great Bay Area plan; which sees a deepened integration between Hong Kong and the mainland. The plan is designed to create a region as competitive as other bay areas, allowing Hong Kong to further cement its position as the gateway and hub of the Pearl River Delta economic zone, as it continues to serve as the bridgehead for the mainland’s foreign trade and transportation. The Pearl River Delta economic zone- consisting of Guangzhou, Shenzhen, Dongguan, Foshan, Zhongshan, Zhuhai, Jiangmen, and parts of Huizhou and Zhaoqing – has been the most economically dynamic region of Mainland China since the launch of China’s reform programme in 1979.
The 2008-20 plan, released by China’s National Development and Reform Commission, is designed to boost the Pan-Pearl River Delta as a centre of advanced manufacturing and modern service industries; and for international shipping, logistics, trade, conferences and exhibitions, and tourism. Goals include the development of two to three new cities in the region, the development of ten new multinational firms and an expansion of road, rail, seaport and airport capacities by 2020. They include the construction of the 31-mile (50 km) Hong Kong – Zhuhai – Macau Bridge linking Hong Kong, Macau and the Pearl River Delta. Th e construction of 1,864 miles (3,000 km) of highways in the region was completed in 2012, and rail expansions of 683 miles (1,099 km) also in 2012 and 1,367 miles (2,200 km) by 2020.
At the end of this year, the Hong Kong-Zhuhai-Macao Bridge will be completed and will significantly shorten the time needed to travel between Hong Kong International Airport and cities on the West Bank of the Pearl River and Guangxi, when opened. Chief Executive of the Hong Kong Special Administrative Region CY Leung said, “To seize the opportunity to develop Hong Kong’s aviation leasing business, the Government has submitted to the Legislative Council a draft amendment to the Inland Revenue Ordinance to provide profits tax concessions to eligible aircraft lessors and leasing agents. Th is is to promote Hong Kong’s off shore aircraft leasing activities in order to enhance Hong Kong’s status as an international financial centre and aviation hub.”
Hong Kong Airlines Cargo Turnover (2006-2016)
Logistics network within the Hub
The emergence of HKAC will see the launch of new aircraft and a series of supporting infrastructure – boosting the airline’s market competitiveness. Plans to deploy B747 or B777 freighters to reach a double-digit fleet size over the next five years have been made to further enhance the logistics network where Hong Kong is the hub. HKAC also plans to make use of its new capacity to launch new routes in Asia, to Japan and India, as well as long-haul routes to Europe and America. With future land transport and maritime shipping services, the carrier is in talks to gradually build up its own comprehensive sea, land and air logistics transportation system.
In March, Hong Kong Airlines had entered into Sales and Purchase Agreements with SATS HK Limited and Asia Airfreight Terminal (AAT). The agreements will see Hong Kong Airlines acquiring 51% shares of SATS and 35% shares of AAT, and is subject to the approval of regulatory authorities and third party consents. More cooperation between the carrier and the two companies is expected in the future, which will support HKAC’s increasing ground and cargo handling needs for freighters and belly cargo. Plans are in place to establish a Pan-Pearl River Delta Customs’ Bonded Truck network to sustain HKAC’s development of air cargo service to and from Hong Kong Airport.
Zhang said that HKAC has to have its own cargo terminal/airport terminal in order for them to service forwarders, agents and direct customers better. Toward the end of 2016, HKAC will be making the move to AAT where an independent warehouse will be available for HKAC’s use. This warehouse will be a logistics and or distribution warehouse catered for new businesses in the form of cold chain, e-commerce and others.
Cargo played an important role for Hong Kong Airlines since its establishment in 2006. Tonnage uplifted has experienced robust growth evident from its continuous growth in cargo traffic which reached 1.49 million tonnes over the past decade. The acquisitions of SATS HK and AAT will bring a synergy to HKAC’s increasing scale of operations and establishments in the Hong Kong International Airport.
On the digital front
Zhang reckons that digitisation is slow to develop due to inconsistencies in terms of regulation and data representation. In order to go digital, he agrees that there is a need for standardisation. “Our current network primarily covers the Asian region and customs are slow to develop, or are incapable of providing digital services just yet, (or both). For example, even though we have a lot of routes in Mainland China, the regulations and policies are essentially the same with special regulations for each airport or capital.” Flights within the region are still using paper documents and air waybills.
HKAC has a system that can provide customers with a digitised experience for long haul fl ights. Customers will be able to track cargo shipment and air waybills via an app. Even for trucking, it is possible for digitisation to be implemented, as long as there are tracking numbers with all regulations adhered to.
“We are currently using the Cargospot cargo management system to manage bookings from forwarders and agents, reservations, ULD management and for accounting purposes. Although the system mainly supports carriers, it has a function to provide forwarders and agents with information,” Zhang says.
The emergence of HKAC has brought about plans to create a customer booking interface within a timespan of two years. Th e carrier’s goal is to ultimately be able to do bookings via its website and apps. With Cargospot’s system as a backbone, HKAC will develop on the frontline to provide better user experience.
In January this year, Hong Kong Airlines was awarded the ISO 9001 Quality Management System Certificate for its ground operations and IT departments. Presently, a total of nine departments within the company are certified – including commercial, finance, procurement, human resources and administration, corporate governance and development, service delivery, and cargo departments. Th e ISO 9001 provides a framework for sustainable operation and serves as a platform for the carrier to achieve higher development goals.
Moving forward, HKAC will gradually add B747 and B777 wide-bodied longhaul freighters into its fleet over the next five years, reaching a double-digit fleet size. The carrier will also invest in the integration of last mile deliveries and upgrade its cargo services from ‘airport to airport’ to ‘door to door’ – a solution that has long been a challenge for Hong Kong cargo carriers to successfully implement.
