"Baoan's future tied to Chek Lap Kok Report finds natural fit between Hong Kong and Shenzhen airports and calls for closer ties and further investment"

Monday, November 22, 2004

Baoan's future tied to Chek Lap Kok Report finds natural fit between Hong
Kong and Shenzhen airports and calls for closer ties and further investment
The South China Morning Post


Shenzhen Baoan International Airport must strengthen ties with Hong Kong
International Airport (HKIA) and invest 20 billion yuan over the next 20
years if it is to keep pace with demand for passenger and freight services,
according to a consultants report commissioned by Shenzhen aviation
authorities and obtained by the South China Morning Post.

The report suggests that Shenzhen airport officials are at least aware of
their facility's natural fit with Chek Lap Kok, given Baoan's extensive
domestic network and Chek Lap Kok's international linkages.

They were also advised to promote Baoan as a centre for low-cost carriers
and services, and to develop it as a cargo gateway to China rather than a
regional hub.

"HKIA and [Baoan] could form a strategic link to optimise their combined
advantage of a strong international network and a moderate domestic network
in the face of growing challenges from [Guangzhou's new international
airport]," the report said.

"For Hong Kong, acquisition of [an equity stake in Baoan] is crucial if it
wants to assuage investors' fears over rising competition ahead of its $6
billion privatisation."

The objective of Baoan officials, the report's authors continued, should be
"to develop [Baoan as] an air cargo gateway to the [Pearl River Delta]
region and [as] the low-cost domestic passenger partner for a dual ...
airport hub [with Hong Kong] serving southern China and the Asia-Pacific
region."

Speaking at the weekend, a senior Airport Authority executive denied media
reports last week that discussion over potential fiscal or operational
co-operation between the two airports had broken down.

"They're still talking," the executive said.

If its recommendations are followed, the report predicted Baoan would handle
62 million passengers and two million tonnes of cargo a year by 2025. With
Hong Kong's aviation authorities slow to capitalise on the rise of low-cost
carriers, part of the strategy appears to take aim at Macau's successful
courtship of budget airlines such as Air Asia.

Suggested projects include two new runways, the construction of a 420,000
square metre domestic passenger terminal by 2009, and new cargo and
express-freight facilities.

"The need for more domestic passenger terminal capacity is expected to occur
by 2009-10 when passenger traffic will exceed 20 million per annum," the
report said.

"A major portion of the [20 billion yuan] capital cost involves the
reclamation of land for the expansion of the airport. This reclaimed land
also is to be used for an expressway connecting Hong Kong, Shenzhen and
Guangzhou.

"It is understood the regional government has agreed to fund the reclamation
and would lease the land back to [the airport's listed vehicle, Shenzhen
Airport Co Ltd]."

More than 10 million passengers passed through the airport in the first nine
months of this year, an increase of 42 per cent over the same period last
year.

It expects 14 million travellers this year and, according to the report,
about 7 per cent of them will come from Hong Kong.

Baoan saw a 28.4 per cent year-on-year surge in freight business over the
first nine months of this year, handling about 365,000 tonnes in the period.

According to the report, its recommended investment of 19.52 billion yuan by
2025 would reap a net economic benefit of 16.32 billion yuan, and Baoan
would see its first positive cash flow - of 760 million yuan - by 2015.

The report was drafted by Australia-based consultants Sinclair Knight Merz,
drawing on an earlier master plan done for Baoan by Netherlands Airports
Consultants.


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