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July 4th, 2011:

Runways required

Jul 4th, 2011
by Editor.
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http://www.economist.com/node/18744513/print

Private investors can make airports bigger, but not big enough

WITH their crowds, delays and “retail opportunities”, airports

impart feelings that range from irritation to despair. The experience
is likely to get worse. Over the next 20 years the number of jets circling
the planet is set to double, but investment in airports probably
won’t. In Europe twice as many passengers are expected to
squeeze through 41% more capacity.
One reason why airports are grim is that many are state-owned. Of the world’s 30 busiest ones,
19 are state-owned and most of the rest are public-private
partnerships. In the past they were “administered rather than managed” to serve state-owned
airlines, says Andreas Schimm of Airports Council International (ACI), an umbrella body.
Governments now try to run airports on commercial lines, but few do it well. Privatisation could
help.
Incheon and Cheongju airports in South Korea are likely to seek private investors soon. So are
Munich, Moscow’s two smaller airports, France’s regional airports and a host of others. Even in
America, where complicated federal rules discourage either selling or buying airports, a scheme
to privatise Chicago Midway and four other airports is picking up speed again. In Brazil, however,
an effort to woo private cash to spruce up shabby airports before the football World Cup is
stalling.
An airport ought to be a sound investment. BAA, which runs Britain’s biggest airports, has coined
it. Eyebrows were raised when Macquarie, an Australian bank, bought Sydney airport in 2002.
But it quickly boosted revenues and profits. The “release value” of taking public assets private
can be enormous, says Peter Morris of Ascend, a consultancy.
Investors could now be more wary, however. Empty public coffers might encourage governments
to demand too high a price. The liberalisation of air travel has increased competition between big
hubs, especially in Europe and the Gulf. And the soaring growth of low-cost airlines has added to
the pressure. Budget carriers are far more flexible and ruthless than their full-fare competitors. If
business sags or landing fees rise, they will drop an airport as surely as a baggage-handler will
drop a bag marked “fragile”.
Privatisation can improve efficiency and service quality. But passengers may face other torments.
Airports earn just 18% of their revenues from airlines, according to ACI. The rest comes from
passenger fees, parking charges, rent from retailers and so on. Rather than squeezing airlines,
which can fly away, it is more tempting to go after passengers, who are hemmed in by metal
detectors and armed police.
Airlines grouch that landing fees always rise at privatised airports. Giovanni Bisignani, the boss of
IATA, a group that represents airlines, argues that the best airports are those with good
managers and tough regulators, and that ownership matters less. But regulations will surely have
to weaken to attract private money.
By some estimates $1 trillion of new investment will be needed over the next two decades to
match airport capacity to flight plans. Yet there are barely a dozen airport groups that might be
tempted to bid for the terminals and runways on the block. They are unlikely to raise enough
cash to keep pace with the rising volume of passengers. The queues will only grow longer.

WITH their crowds, delays and“retail opportunities”, airportsimpart feelings that range fromirritation to despair. The experienceis likely to get worse. Over the next20 years the number of jets circlingthe planet is set to double, butinvestment in airports probablywon’t. In Europe twice as manypassengers are expected tosqueeze through 41% morecapacity.One reason why airports are grimis that many are state-owned. Ofthe world’s 30 busiest ones, 19 are state-owned and most of the rest are public-privatepartnerships. In the past they were “administered rather than managed” to serve state-ownedairlines, says Andreas Schimm of Airports Council International (ACI), an umbrella body.Governments now try to run airports on commercial lines, but few do it well. Privatisation couldhelp.Incheon and Cheongju airports in South Korea are likely to seek private investors soon. So areMunich, Moscow’s two smaller airports, France’s regional airports and a host of others. Even inAmerica, where complicated federal rules discourage either selling or buying airports, a schemeto privatise Chicago Midway and four other airports is picking up speed again. In Brazil, however,an effort to woo private cash to spruce up shabby airports before the football World Cup isstalling.An airport ought to be a sound investment. BAA, which runs Britain’s biggest airports, has coinedit. Eyebrows were raised when Macquarie, an Australian bank, bought Sydney airport in 2002.But it quickly boosted revenues and profits. The “release value” of taking public assets privatecan be enormous, says Peter Morris of Ascend, a consultancy.Investors could now be more wary, however. Empty public coffers might encourage governmentsto demand too high a price. The liberalisation of air travel has increased competition between bighubs, especially in Europe and the Gulf. And the soaring growth of low-cost airlines has added tothe pressure. Budget carriers are far more flexible and ruthless than their full-fare competitors. If0Airport privatisation: Runways required | The Economist Page 1 of 2http://www.economist.com/node/18744513/print 04-Jul-11About The Economist online About The Economist Media directory Staff books Career opportunities Contact us Subscribe [+] Site feedbackCopyright © The Economist Newspaper Limited 2011. All rights reserved. Advertising info Legal disclaimer Accessibility Privacy policy Terms of use Helpfrom the print edition | Businessbusiness sags or landing fees rise, they will drop an airport as surely as a baggage-handler willdrop a bag marked “fragile”.Privatisation can improve efficiency and service quality. But passengers may face other torments.Airports earn just 18% of their revenues from airlines, according to ACI. The rest comes frompassenger fees, parking charges, rent from retailers and so on. Rather than squeezing airlines,which can fly away, it is more tempting to go after passengers, who are hemmed in by metaldetectors and armed police.Airlines grouch that landing fees always rise at privatised airports. Giovanni Bisignani, the boss ofIATA, a group that represents airlines, argues that the best airports are those with goodmanagers and tough regulators, and that ownership matters less. But regulations will surely haveto weaken to attract private money.By some estimates $1 trillion of new investment will be needed over the next two decades tomatch airport capacity to flight plans. Yet there are barely a dozen airport groups that might betempted to bid for the terminals and runways on the block. They are unlikely to raise enoughcash to keep pace with the rising volume of passengers. The queues will only grow longer.

Hong Kong International Airport Master Plan 2020

Jul 4th, 2011
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Download PDF : MP2020

Let investors pay for airport plan

Jul 4th, 2011
by Editor.
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Philip Bowring says that if the financial projections for the third runway are to be believed, then the private sector and aviation industry should be willing to bear the risk  www.scmp.com

3 July 2011

Before legislators get carried away on the public relations wave created by the Airport Authority and Cathay Pacific  in support of spending HK$100 billion or so of public money on a new runway, they should consider the government’s abysmal records both in forecasting and infrastructure planning.

The nearest comparison to the airport proposal is container terminals. Remember how long the government insisted that new terminals at Tsing Yi/northwest Lantau were essential to keep up with trade growth and to retain Hong Kong’s position as the world’s top port? Of course, if planning by bureaucrats consists of drawing straight lines on graphs, that is the result. As late as 2008, it was still insisting on the need for CT 10 despite the massive container development across the border. It wasted a way-over-budget HK$3.7 billion on Stonecutters Bridge, which was justified on the grounds of developments that never happened. Hong Kong has now lost out to Shenzhen and Shanghai in container port throughput but do we now care that we missed out on more of these low-wage, polluting activities? Of course not.

There are plenty of other examples of wasted investment by bureaucrats with their straight-line growth charts.

Some aspects of aviation are high-value business compared with container handling, but not all. Simply acting as an interchange hub is of limited value-added, and, for low-end travel, Hong Kong should not try to compete with Pearl River Delta airports with their plentiful land and access to government largesse. The pollution issue is as serious for aviation as it is for shipping.

The government should also be reminded that the Airport Authority was supposed to be partly privatised and face the same financial disciplines and return expectations as other listed and privately owned or operated airports such as those in Beijing, Sydney, Frankfurt and London. So let’s see such a move in supposedly free-market Hong Kong before any decision is made on expansion. That would provide a sterner test of the claims in the authority’s financial and overall economic projections. If this is such a good deal, why not try to raise, say, HK$35 billion from an offering of new shares, giving outside investors a 50 per cent or so stake and the company an equity base of HK$70 billion, and borrow the rest as and when needed?

Meanwhile, one must wonder about returns on a much enlarged equity when, even now, its profits are hardly spectacular – HK$4.03 billion in 2010/11 on equity of HK$36.38 billion, or 11.1 per cent. The airport is little used at night and flight frequency is constrained by air traffic issues out of Hong Kong’s control. The ability to keep raising fees in line with inflation with a huge increase in capacity is also debatable, given the regional competition and the fact that Hong Kong’s charges are already high – suggesting that maintaining its position as a premium airport is more important than going after volume.

The authority’s overriding requirement is to “maximise value” for Hong Kong’s benefit. That means maximising its returns, not putting out contentious claims about its contribution to gross domestic product. That may justify expansion but let the private sector, and the aviation industry itself, bear the risk and reward.

The government’s so-called planning is no more than knee-jerk responses to particular vested interests – including those of its own departments. In total, the airport, express railway and bridge to Zhuhai and Macau constitute spending of about HK$200 billion at today’s prices. Officials justify them all not by the rate of return but by the general benefits of improving links with the mainland and the outside world.

Yet, quite extraordinarily, there is no logical connection between the three. The bridge links to the airport but, being only a road bridge, does not link to the existing airport rail line – another expensive, money-losing piece of publicly financed infrastructure. The ultra-expensive high-speed railway goes nowhere near the airport but, for reasons best known to vested interests, to the dense heart of Kowloon, a shopping and residential area more than a business district. It will take the high-speed train 20 minutes to reach the border – compared with 25 minutes by car from Central via the western tunnel – and only be of use to travellers going to middle-distance cities. The problem of border controls is brought up to support expanding Chek Lap Kok rather than making more use of delta airports, but the same argument is never used to show the futility of high-speed trains which cannot reach very high speeds over such a short distance.

Other mega projects sponsored by interest groups are already consuming large sums of money for pouring concrete. One is the cruise liner terminal, which will serve a tiny percentage of visitors at huge opportunity cost in terms of harbourfront land. Another is the sports stadium when the existing Hong Kong Stadium is only filled once a year. But with this government and its cronies, big vanity projects always take precedence over sports facilities for schools and the public.

Economics is about choosing how to use scarce resources. Unfortunately, Hong Kong’s HK$1.2 trillion reserves are not scarce enough to be used prudently or efficiently. They are now the plaything of officials and vested interests. Legislative Council, wake up to this fact. There may be justification for the new runway, but let investors decide. Aviation does not merit implicit public subsidy.

Philip Bowring is a Hong Kong-based journalist and commentator

Bus pollution After embarrassment over the additional NO2 produced by the particulate filter traps on buses Govt is now going to pay for SCR which should have been mandatory in the first place

Jul 4th, 2011
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Download PDF : LCQ18Busespollution