High Times For Hong Kong's Airport

A public offering could help it fend off competition from mainland rivals

Opening day at Hong Kong International Airport six years ago was a fiasco. Despite the facility's $4.6 billion price tag, baggage went missing, elevators stalled, and foul smells wafted from the bathrooms. Worse, within 24 hours the freight handling system collapsed, and cargo operations had to be shifted back to the old airport for six weeks. Today, though, all that is just a bad memory as the new airport's fortunes are taking off. Passenger traffic stands at a record high, cargo volume jumped 19% this year, and profits hit $63 million in 2003.


Now, city officials want to cash in on that success by floating the airport's shares. Although no details have been set, the government in November began a three-month consultation period on the issue. A sale of 25% of the airport's stock, the amount analysts say is being discussed, could raise $1 billion or more. That would help offset the $5.5 billion deficit the city is expected to amass this year, though officials deny that raising money is their goal. "The main benefit of the proposed privatization would be to subject the airport to even stronger market and commercial discipline," says Howard Lee, an assistant secretary in Hong Kong's Economic Services Bureau.

That newfound discipline might come in handy as the airport faces growing competition from the mainland. In August, Guangzhou's $2.4 billion Baiyun International Airport opened just 110 miles to the north. It could become a major cargo hub for the legions of manufacturers in the Pearl River Delta. And Shanghai's Pudong Airport is trying to establish itself as China's primary passenger gateway. Even closer, Shenzhen airport is mounting a challenge for freight, while Macau is emerging as a favored center for budget airlines. In a study this year for Hong Kong's Airport Authority, consultant GHK forecast that while Hong Kong airport's cargo volume will nearly double by 2020, its share of the Delta's total will slide from 90% to less than half. Hong Kong will have to make do with "taking a smaller share of a larger pie," says GHK Managing Director Jonathan Beard.

The challenge for Hong Kong is keeping its neighbors from eating too much pie. Hong Kong already has some strategies in place. Ferry services now feed cargo and passengers to the airport from mainland cities. And Hong Kong officials are negotiating to acquire stakes in the Shenzhen and Zhuhai airports to strengthen their hand in China. Hong Kong's airport has come a long way in six years. Making it a private company may give it the edge it needs.

By Simon Cartledge in Hong Kong

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