HKIA moved 38.3 million passengers last year, and 3.1 million tonnes of cargo

But the Airport Authority (AA), which runs the city's state-of-the-art facility at Chek Lap Kok, is acutely aware of rising competition and is working on a string of new developments which should reinforce its position as the prime gateway to China.

"I think they are being very proactive and doing it from a position of strength. They are not resting on their laurels," said Jonathan Beard, managing director of logistics and economic development consultancy GHK Hong Kong.

On turning seven in June, the airport underscored its huge contribution to the city by releasing figures for the year to March 31 which showed revenues surging 29 per cent to HK$6.5 billion (US$865 million), and profits jump 265 per cent to HK$1.4 billion (US$180 million)

During the year the airport moved 38.3 million passengers - up 38 per cent - and 3.1 million tonnes of cargo - up 15 per cent - with a total of 242,000 aircraft movements. That made HKIA the world's fifth busiest international passenger airport and the busiest air cargo facility.

World's best airport

Hong Kong International Airport, consistently voted the world's best airport, is a state-of-the-art facility that is fast becoming a destination in its own right

"There is no doubt that the mainland's exponential economic growth and China's accession to WTO have brought us enormous opportunities," said airport CEO David Pang. "But we should not be blinded by that as the progressive market liberalisation has caused severe competition to arise from our counterparts."

One way the AA is meeting the challenge is through improvements to infrastructure. In December, an adjacent exhibition and convention centre AsiaWorld-Expo will open, giving the global business community yet another reason to visit Hong Kong.(Read Asia's trade fair capital powers into top gear) Interconnections mean travellers will be able to walk right off the plane into the new exhibition centre.

Secondly, next year will see the opening of the airport's SkyPlaza which will include a second passenger terminal with customs, immigration and quarantine facilities. But there will be much more including 377,000 square feet of retail, dining and entertainment outlets, with even a theatre and spas, making a visit to the airport a great trip in itself.

Great infrastructure and more

AA recognises that great infrastructure alone is not enough to keep it ahead. "As the major growth engine of the global economy, China has become a de facto domestic market emerging next to us," Mr Pang said.

"However, a boundary has separated us from the major source of passenger and cargo flows, making our traffic increase at a rate that is disproportional to the domestic economic growth in the mainland."

The AA has a number of ideas for getting around the border problem. One innovation which the authority and the Hong Kong government are working on with Beijing is to allow mainland customs and immigration officials to operate at the airport. That would mean that overseas travellers could pass through mainland formalities in Hong Kong before boarding flights into China which would become "domestic", cutting out the additional layer of hassle.

Transport links between the airport and the mainland are also being improved. Besides 200 buses arriving from 10 different cities in the Pearl River Delta (PRD) each day, there are an increasing number of ferry services linking with 10 ports, with passengers now able to check in and receive their boarding passes before they leave the mainland.

"During the past year, the number of passenger using our cross border transportation services has increased by 77 per cent," Mr Pang said.

Catchment area expands

While tens of millions of potential passengers are in the PRD catchment area, the AA is also investing in selected mainland airports further afield so they become "feeders" into Hong Kong's international flights which serve 100 different locations.

In April, the AA signed a HK$1.9 billion (US$244 million) deal to buy a 35 per cent stake in Xiaoshan airport, Hangzhou, capital of the commercially thriving Zhejiang province on China's eastern seaboard. Flights between the two airports are expected to double from five to 10 a day. A second such deal is expected to be signed with Zhuhai in the near future with the AA scouting for more opportunities.

"To ensure sustainable growth and enhance our status as the major traffic hub, we are determined to extend our home market into the mainland," says Mr Pang.

"Our strategy to build a mainland airport system under the 'air bridges' concept is a proactive way to connect Hong Kong with China's major economic regions."

One further challenge for the AA on the passenger side is striking the right balance amid the rise of low cost carriers in the region. So far HKIA has thrown out a cautious welcome and seven budget airlines have set up shop, representing 2 per cent of revenues in the last financial year.

Mr Pang said he hopes to lift that rapidly to 14 per cent by 2010, but he also has to take care not to undermine the airport's premium pricing structure which last year saw it raise return on assets from 1 per cent to an impressive 4 per cent.

First choice for cargo

Despite Hong Kong and the mainland being separated by a border, the city's airport has been extraordinarily successful in attracting cargo flows from mainland manufacturers. The latest figures show that cargo throughput at HKIA rose 12.7 per cent year-on-year in June over, reaching 280,000 tonnes, due to strong demand for exports from the US and Europe.

Neighbours have been improving their infrastructure but "the key component for cargo shippers who prefer to route through Hong Kong is the service quality is so much better," says GHK's Mr Beard.

One particularly important point is being able to clear customs in less than a day. Rivals take at least twice as long, says Mr Beard, making many just-in-time manufacturers prefer routing through Hong Kong. As a free port, Hong Kong customs officials are only interested in detecting illegal shipments, but customs at neighbouring facilities also have a revenue-raising function which can add to delays and red tape.

The AA is looking to further improve efficiency by introducing a pre-clearance system for trucks before they reach the border. HKIA has such critical mass in terms of shipping cargo that it tends to suck in even more business.

"There is concentration of freight forwarders to help get stuff on and off flights. A lot of people say the costs are very expensive in Hong Kong but that is not always true," Mr Beard said.

Hong Kong's mature economy means there is plenty of worthwhile cargo to be shipped back for the city's consumer sector once the outgoing flights turn around. This makes Hong Kong a better-balanced venue for cargo airlines.

While the AA is right to keep lifting their already formidable game they can also take comfort from Mr Beard's conclusion that "all this competition among airports is happening against a backdrop of dramatic growth".

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