Various leading players in the aviation industry and at government level are calling on Hong Kong to adopt an ‘open skies’ policy or run the risk of progressively losing its status as a leading aviation hub.

If China continues to sign more ‘open skies’ agreements following last year’s historic agreement with Australia, this could “seriously degrade” the value of Hong Kong as a hub for Chinese long-haul travellers, warned Ellis Taylor, Asia Finance Editor at aviation intelligence provider FlightGlobal. As other countries get greater access to China, they would likely overfly Hong Kong, especially as capacity in places like Shanghai, Beijing and Guangzhou expands, he predicted.

Taylor then compared Hong Kong to other regional aviation hubs, “Looking at the wider Asia-Pacific market, Hong Kong competes with other transit hubs like Singapore and Dubai for passengers on long-haul markets, and both of those countries have much more liberal air services policies. Although they also rely on having a dominant home carrier, Singapore is less reliant on that one carrier and has opened up a full aviation sector as a result. That should be instructive for Hong Kong.”

Australia is one country that is particularly keen to sign a free trade agreement with Hong Kong. Steven Ciobo, Australian Minister for Trade, Tourism and Investment, was recently reported in the South China Morning Post making strident representations to the Hong Kong government for an ‘open skies’ deal between Australia and Hong Kong.

Some commentators suggest the primary beneficiary of the present air traffic rights arrangements is Hong Kong’s major carrier, Cathay Pacific. Swire Pacific holds 45% of this airline’s total share value, followed by Air China’s 30% ownership. These two major owners of the main Hong Kong airline trace their parent companies to the UK and China, respectively.

Taylor pointed out that Cathay Pacific uses all the available capacity to the major Australian cities, which has effectively blocked Hong Kong Airlines from entering the Australian market. He believes such moves harm the development of the low-cost sector, and this has stalled Hong Kong from “tapping into a vibrant and fast-growing segment of the aviation industry that could deliver hundreds more jobs for the region.”

However, in a bid to take on the two major carriers who operate between Australia and Hong Kong, Cathay Pacific and Australia’s national airline Qantas, Virgin Australia is reportedly collaborating with Hong Kong Airlines on alternative options. They plan to create new slots between various major Australian cities and Hong Kong, starting with a recently announced direct route to Melbourne. The major difficulty will be securing available slots, but given the projected rise in tourist visitors to Australia, Virgin Australia is working hard to secure rights and remains confident it will do so.

The calls to free up the market for the distribution of slots is longstanding, as is the warning that failure to do so will inhibit Hong Kong’s attraction as a regional air hub. Taylor stated that Hong Kong is already losing market share to other Asia Pacific hubs, and faces further challenges from places like Tokyo, Incheon, and Taipei and elsewhere.

Reform of the Hong Kong air sector would attract more passengers, and the resulting belly capacity should add competitive pressures to the air cargo market.

He then clarified how reform would aid the logistics sector, “It could also open up new city-pairs, meaning quicker shipping times to some clients, or through lower-cost facilities. Any reforms are likely to bring more freedom for all-cargo services as well. This could allow more foreign carriers to operate more ‘fifth freedom’ services beyond Hong Kong, which again could open up new city-pairs while adding supply to the market. It would also allow Hong Kong Airlines to be more competitive in a market dominated by Cathay Pacific Cargo.”

Taylor believes there is a lack of political will to liberalise the sector, but this means lost revenue for the airport, the city, and ultimately jobs migrating elsewhere. Another major impediment is the lack of capacity with the third runway “long overdue”.

He concluded, “The mainland has allowed cargo carriers to open up a number of air services there in recent years, Hong Kong could miss out if the recent recovery in the air cargo market can be sustained in the coming years.”

However, the fact that Hong Kong has thrived without an ‘open skies’ agreement is one counter argument recently articulated in the South China Morning Post by Albert Cheng King-hon, a well-known former Hong Kong legislator. He stated that the main priority to maintain Hong Kong’s position as an international air hub is to improve air traffic quality. It was recently announced that 7000 new Hong Kong air slots are to be made available, and this, even without a third runway, should free up air capacity, he states. Furthermore, a general ‘open skies’ agreement subject to Hong Kong would produce fierce international competition, forcing home grown carriers to make drastic cost savings without protected domestic routes to fall back on.