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China air travel booms, airports
struggle
By David Fullbrook
Despite the boom in air travel, only a
handful of Chinese airports are making profits
right now. Foreign investors and consultants are
already at work, but much of the change could
simply come from new local-government owners
learning the ropes, seeking profits and arranging
better national and international
connections.
With financial pressures
growing daily, change is unavoidable. Reports say
airports earned 17% of Chinese aviation's 8.7
billion yuan (US$1.05 billion) profit in 2004.
However, much of that came from only a handful of
airports.
"I think there are only about 10
airports in China that are profitable, and some of
them only in terms of cash flow," says Peter
Harbison, managing director of the Center for Asia
Pacific Aviation, a consultancy based in Sydney.
Construction costs are one factor.
Over-investment in new airports is not uncommon.
"That partially depends on how expensive they are,
how much they cost to build. It's very hard to
determine. The only airports we really know
[about] for sure are Shanghai's new airport and
the new airport in Guangzhou," says Jim Eckes,
managing director of consultancy Indoswiss
Aviation in Hong Kong.
That said, many of
the 170 airports nationwide are old, their costs
long forgotten. With good management to whip their
operations into shape and fast-growing traffic,
steady, though not spectacular profits might not
be too difficult to achieve. "Overall, Chinese
airports have pretty good potential to make some
money," says Eckes.
Managers have their
work cut out for them. Lucky ones will be
overseeing new airports. China will open 50
airports by 2010, making the total of 220.
However, Russia has 1,500 airports and Taiwan has
dozens, suggesting there is room for many more
airports in China.
Ahead lie turbulence
and many bumps, though none of them are terribly
difficult if the savvy and will are there. Retail
is embryonic. Shanghai's shiny white Pudong
airport, for example, hints at a retail marvel
inside similar to Hong Kong International Airport
(HKIA). However, the reverse is true: prices are
sky-high, choice limited, quality wanting.
Most airports need to renovate their
terminals or build larger ones. Domestic transfer
desks must open. Currently passengers transferring
between domestic flights must exit the terminal,
then re-enter to check in again. This absurd
arrangement contributes to the long queues typical
at major airports. It cannot continue when the
numbers of passengers are rising rapidly - 38%
last year, to 120 million.
Aerobridges,
restaurants, advertising, parking, runway lighting
and navigation are just some of the many areas
with scope for huge improvement. Developing retail
is crucial, because airports can only borrow so
much, and their income from fees will likely fall
in time as industry liberalization continues.
Competition may force them into offering airlines
rebates and other incentives, gnawing at the
bottom line.
Growing competition in an
increasingly open and bubbling industry is giving
foreign airport operators and consultants cause
for glee. Foreign firms combined can own more than
half the shares in an airport, as long as the
largest single shareholder is Chinese.
"Airports won't come in for a big stake.
The typical shareholding these airports want is
very small - they just want enough to demand a
management contract and to participate in the
profits," says Harbison of the Center for Asia
Pacific Aviation in Sydney.
French airport
operator Aeroports de Paris is playing a major
role in the huge expansion of Beijing Capital
International Airport (BCIA), after buying a 9.9%
share in 2000. Sir Norman Foster, architect of
HKIA, is designing a signature terminal for BCIA,
which is preparing for a huge passenger surge
during the 2008 Olympics.
Copenhagen
airport picked up 20% of Hainan's Meilan Airport
in 2002. Meilan plays an important role in the
Hainan island province's attempts to stoke its
tourism industry, which will not get very far if
many more airlines do not add flights to "China's
Hawaii".
HKIA's owner, Airport Authority
Hong Kong (AAHK), recently expressed interest in
taking a stake in Hangzhou International Airport.
Wealthy Hangzhou, near Shanghai, is popular with
Chinese tourists and a haunt for the Yangtze River
Delta's rich. It can also compete with airports at
nearby Nanjing, Ningbo and Shanghai.
With
only one airport in Hong Kong, AAHK is champing at
the bit to cut deals in China. That will be easier
as it moves from government agency to corporate
organization on the road to privatization during
the next few years.
Foreigners, however,
will earn more money and play a bigger role in
Chinese airport modernization through supplying
equipment and technology. "Probably the best way
to get in is to be a supplier of the products
Chinese airports need, in design work and
materials. It's probably a much more active way of
getting involved than as a consultant," says
Eckes.
As airports grow they are going to
become catalysts pushing regulators to cut red
tape. "They'll start to become a force for change,
for regulatory change allowing domestic and
international airlines to operate more freely,"
says Harbison.
One or two, with perhaps
BCIA's owner Beijing Capital Aviation Group the
leading contender right now, will almost certainly
emerge as international players, eyeing
opportunities in other developing countries where
air travel is growing rapidly, particularly India,
Indonesia and Vietnam.
Last year the Civil
Aviation Administration of China (CAAC) gave the
70 airports under its control to local
governments, because it wants to be a pure
regulator, similar to the European Joint Aviation
Authority. That followed the transfer of airlines
to other government departments, and their partial
privatization.
"This reform [makes] a
better market environment for aviation. Before
that, CAAC [controlled] both airlines and
airports, like a father who has two sons. This
relationship is very harmful for fair competition
between the different airlines," says Li Wei,
deputy fleet planning director at Shenzhen
Airlines.
It is unclear whether airport
transfers included debts. Just how big they are,
and where they exist, is a matter for speculation.
Moving the airports to local control is akin to
privatization. New owners enjoy more freedom. Most
want more flights, because this generates revenue
and, they hope, brings investors in while helping
to ship exports out.
In densely populated
parts of central and eastern provinces, airports
rub shoulders, in effect functioning as secondary
airports for neighboring cities. With roads and
railways improving fast, cutting journey times,
their catchment areas are growing.
It is
inevitable that they will end up competing. In the
Pearl River Delta, foundry for China's capitalism,
airports are already stepping on one another's
toes. "You have a unique situation: two great
airports in Guangzhou and Hong Kong, an
interesting one in Shenzhen, an under-utilized one
in Macau, and a beautiful but hardly used one at
Zhuhai" in Guangdong, says Eckes of consultancy
Indoswiss Aviation in Hong Kong.
These
airports have been saying sweet things to one
another over the past few years, but little has
come of it. Guangzhou's gleaming new hub, which
opened last year, is a serious cut-price
competitor for HKIA, where fees reflect its US$5
billion price-tag. "The new airport in Guangzhou
is going to really take some traffic from Hong
Kong, once they get up to speed in a year or two,"
says Eckes.
However, beyond the Pearl
River Delta lies a different China. Airports did
not come with manuals, or instructions on where to
drop oil and apply grease. At this juncture, there
is more head-scratching and chin-rubbing as the
airports' new owners work out how these
money-making machines work. But action is probably
just around the corner.
"I've got no doubt
they will be learning very quickly. There'll be
growing pressure from the airlines, from their own
budgets and from each other," says Harbison.
(Copyright 2005 Asia Times Online Ltd. All
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on sales, syndication and republishing.) |
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