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November 18th, 2011:

Cathay faces struggle to fill larger cargo holds

South China Morning Post – 18 Nov. 2011

Delivery of 10 freighters, which can carry 16 per cent more, will be delayed and carrier will find it hard to meet bigger volumes amid sluggish demand

Cathay Pacific Airways (SEHK: 0293) is struggling to fill up its cargo space even as its freight capacity is set to increase by 15 to 20 per cent next year.

With the delay in delivery until next year of most of the 10 747-8 freighters it ordered, Cathay will be in the unenviable position of having to fill up even bigger cargo holds – the jumbo 747-8 can hold 16 per cent more than its predecessor B747-400F – even as cargo volume is dwindling amid sluggish demand in Europe and the US. All the new freighters will operate between Hong Kong and North America from next month.

“The worst-case scenario is that we’ll have to park the aircraft, just as we did during the downturn in 2008 and 2009,” Nick Rhodes, cargo director for Cathay, said on the sidelines of the topping out ceremony of its HK$5.5 billion cargo terminal at Chek Lap Kok yesterday.

To help ease the overcapacity, a B747-400F will leave Cathay shortly as part of the four carriers transferred to its cargo joint venture with Air China (SEHK: 0753announcementsnews) earlier this year. Three more freighters will be leased to Air Hong Kong, a joint venture in which Cathay owns a 60 per cent stake.

Still, Cathay’s cargo capacity is expected to rise by up to 20 per cent. Its cargo volume, meanwhile, contracted more than 17.5 per cent year on year last month and load factor – percentage of cargo space occupied – dropped to 66 per cent.

Cathay’s load factor and the cargo division’s profitability would drop next year as a result of weak economic growth in Europe and North America, Rhodes said. “[But] it’s not all bad, imports into Asia, especially for China, is quite strong,” he said.

Cathay is planning new routes to the mainland and India as well as new markets in eastern Europe, and Central and South America to use the additional capacity. It opened a new service to Zaragoza in Spain this month after the rapid growth of retail chain Zara in Asia. It also wants to add more services to Sri Lanka, the garment manufacturing centre for many US fashion brands such as Victoria’s Secret. Intra-Asia trade is seen as a ray of hope amid the uncertainty in the cargo market, given the volume of IT-related cargo flows within the region.

Cathay is also seeking new services into Australia and Mexico via Los Angeles, pending traffic rights talks. It is increasing the five flights a week on its Miami route to seven because of the growth in traffic between Asia and Central and South America.

In the longer term, the International Air Transport Association forecasts global air cargo demand to rise 6 per cent a year in the next decade. Cathay’s capacity in the next three years is to grow 5 per cent to 6 per cent, in line with global forecasts for demand.

The new cargo terminal at Chek Lap Kok, with annual throughput capacity of 2.6 million tonnes, will hire up to 1,800 staff next year. About 1.8 million tonnes of cargo that Cathay, Dragonair and Air Hong Kong carry a year will be moved to the new terminal in phases from Hong Kong Air Cargo Terminals.

Pollution sensors offer some hope

South China Morning Post – Nov. 18, 2011

Officials tend to drag their feet when it comes to measures intended to force people to change their behaviour to help ease pollution. There have been plenty of carrots offered, but few sticks wielded. Now, there is some good news. Starting from 2013, vehicles will be checked while on the road and those found to be exceeding permitted levels will face penalties. Technologically advanced remote sensing devices are to be installed at the roadside to check if vehicles using fuels such as liquefied petroleum gas and petrol are spewing excessive nitrogen oxides and carbon monoxide. Those who are caught and fail to rectify the problem may be deregistered. This step, which will hopefully curb roadside pollution, is long overdue.

The detection scheme was first mooted in 2004. Following a two-year trial, the Environmental Protection Department was, on at least two occasions, on the verge of launching a public consultation. But it was withheld for reasons which are not clear. This time, officials seem to be determined to go ahead, subject to the outcome of a two-month consultation. The measure will come into force in 2013 at the earliest.

The government estimates 45 per cent of public light buses are releasing excessive pollutants. The ratio for taxis running on LPG is even higher, with four in five having such problems. This should not be tolerated. There is a need for an effective deterrent.

However, officials have not shown sufficient determination to bring in such measures when negotiating with the transport industry. The many exemptions included in the ordinance banning idling engines are a good example. The law has been watered down so much that it makes enforcement, due later this year, almost meaningless.

Drivers may well be opposed to the new measure. Some may even seek a legal challenge to the use of the remote sensing technology. The accuracy of using laser guns in detecting speeding vehicles has already been the subject of a dispute in the courts. Under the plan, two sets of equipment will be installed 15 metres apart at each site. Only two readings above permitted limits will trigger enforcement action. But instead of a fixed penalty, vehicles will undergo detailed tests at a designated centre. Only when the problem is not fixed within 12 days will the owner’s registration be revoked. The approach is a measured one and may not be sufficient to deter polluting motorists.

A stick is needed, but carrots can also help. The HK$150 million fund announced in the policy address to help replace catalytic converters in taxis and minibuses will complement the scheme. The two programmes can help identify polluting vehicles while encouraging transport operators to properly maintain their fleet. With better promotion and resolute enforcement there will, hopefully, be cleaner air.