Thursday, March 19, 2015

Cathay Pacific pushes for airport to self-fund runway

Hong Kong carrier Cathay Pacific Airways executives stress that while a new runway is vital for Hong Kong International Airport, raising user fees to pay for construction could be detrimental to the airport’s competitiveness versus other hubs.
                                                                       
The Hong Kong Executive Council this week approved plans for a third runway, which is estimated to cost HK$141.5 billion ($18.2 billion). The airport has also unveiled a funding proposal that includes a new passenger charge and increased landing fees for airlines.

However, Cathay Pacific and airline groups have been mounting a campaign to urge the airport authority to fund the new runway from existing revenue and lending sources, rather than by hiking fees before the runway opens. The airlines note that the Hong Kong airport is among the most profitable in the world.

One of the main reasons behind the airport’s financial improvement over the past decade is that it has kept its landing fees fairly stable during that time, Cathay chairman John Slosar said during the airline’s annual earnings presentation. This has created a powerful “volume effect” of more flights and more passengers using the airport.

Cathay CEO Ivan Chu said the relatively low landing charges have driven many airlines to start or increase service. For the airport’s success to continue, “lower charges [will] attract more airlines flying to Hong Kong,” Chu said. Conversely, raising fees could deter some airlines or passengers.

Chu stressed that Cathay supports the principle of user fees, but this should apply after the runway is opened and not pre-fund runway construction.

The third runway—along with terminal expansion—will provide a local economic boost, Chu said. Other airports in the region are seeking to capture more connecting market share, but “if we have the infrastructure, Hong Kong can compete very well,” Chu noted.
 
The airport authority has said that in addition to increased user charges, it will also rely on increased borrowing and its own operational surplus to fund construction. The authority noted that the Executive Council had some concerns about passenger charges, and it “will look into further adjustments and determine whether they are feasible.” Construction could begin next year and is expected to last eight years. 

Meanwhile, the Cathay group—including Dragonair—reported a net profit of HK$3.15 billion for 2014, up 20.2% from the previous year. Most of the gain could be attributed to cargo-business improvements during the second half of the year.

Fuel hedging losses totaled HK$911 million for the year. Cathay executives signaled they are not changing their hedging policy and will continue to hedge where opportunities arise. Such an opportunity arose in January, when further hedges were placed after fuel prices plunged.
 
Slosar said 2015 will be a “watershed” for Cathay—it will complete large Boeing 777-300ER and Airbus A330-300 orders that have made it among the world’s largest operators of both types. Cathay is due to receive six 777s and three Airbus A330s this year: Of these, it has already received one A330 and two 777s. The airline expects to receive the first of its Airbus A350 orders in early 2016.

(Adrian Schofield - ATWOnline News)

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