The Great City Challenge
Many suggestions have been made in recent decades for how to develop Hong Kong as “Asia’s World City” and a leading city in China. These have sparked a lively debate on what makes a city great, and how this greatness can be enhanced.
This paper details my analysis on one key requirement for a world-class metropolis, and whether Hong Kong has such a requirement.
Many key factors determine a city’s wealth and influence. These include geographical location, proximity to natural resources, culture, religion and tradition, fiscal and monetary policies, tourism attractions, and availability of human resources etc. All of these are important, but they alter in relative importance over time to reflect social, political, cultural and technological developments.
In fact, many of these factors might not be the single determining feature. Historical heritage and centres of religions are not necessarily the only pillars for the greatest cities on earth today. Cities with plentiful resources are not necessarily places with many travellers, or great cities. Population size is certainly not the key factor in measuring a city’s greatness and influence. Geographically, London, New York and Amsterdam are not most favourably located cities. Even many capital cities, political centres of sizeable nations, are not amongst the top cities.
And Seattle poses the question of the role of corporate headquarters. It may boast many headquarters of world class corporations — Microsoft, Expedia, Nordstrom, Costco, Starbucks, Paccar, MOD, Boeing, Amazon, Redfin, Alaska Airline , etc.— but as a city it does not compare with New York, Chicago or Los Angeles.
From Silk Road
History offers a number of strong clues as to what makes a city great. About six to seven centuries ago, Venice prospered as it dominated the lucrative trade routes from Europe to the Middle East and Asia. The same could be said a millenium ago of the Chinese city of Changan (now Xian) owing to the Silk Road. It was a hub between the west and China. Two millenia ago, it was Rome – with the Romans expanding their empire to ensure “all roads lead to Rome”.
Closer to our time, Malacca, Goa, and Macau were major trading ports in Asia before Singapore was developed. It was not fertile land or natural resources that were key to these cities’ success but their positions on the main trade routes of the time. They grew as these trade and travel routes boomed. And as trade routes changed with the development of new transport technologies, these cities declined.
This particular component in the development of great cities – their relationship with transportation routes – is a key focus of this paper. The issue is often overlooked yet its continuing significance is still very much evident.
With the rise of air travel, it is notable that the foremost commercial and business centres are all major aviation hubs. Obvious examples are London, Singapore, Hong Kong, Tokyo, Dubai and New York.
People may debate what comes first: a great city or the transport links that support it. Yet, in the last 50 years, fostering strong aviation links has gone hand in hand with developing modern-day great cities as focal points for trade, finance, services, travel and tourism. The ease of getting to and from these aviation hubs has provided a key pillar for economic development. Strong aviation links have enabled cities to grow in wealth, influence and population.
The Contribution of Home Carriers
One common strand links leading aviation centres: they all have strong international home carriers. This is not just an argument for Cathay Pacific and Hong Kong; it applies with equal force to British Airways and London, Singapore Airlines and Singapore, Emirates and Dubai, and United Airlines and Chicago.
The advantages of having a strong home carrier are self-evident. A strong home carrier will promote its base aggressively as a travel, tourism, service and business centre. It is in its natural self-interest to do so. An overseas carrier has its own set of loyalties to its home base.
A strong international home carrier makes a significant contribution to the local economy. It is typically a major foreign exchange earner. Roughly three-quarters of Cathay Pacific’s revenue was from overseas. The ratio for Singapore Airlines is roughly comparable. The airlines – especially those from small home bases – are essentially exporting empty seats and getting foreign exchange. And it is a huge amount of foreign income. In many countries the airline’s “export function” and its role as a foreign exchange earner are crucial.
Further, a home carrier has a wide range of high value-added headquarter operations in its home economy, as well as a range of support operations such as pilot, cabin crew and other training, sophisticated IT, catering, ground services, cargo logistics, purchasing and aircraft maintenance.
Local airlines also provide significant employment. Cathay Pacific and its subsidiaries, employ some 26,000 people in Hong Kong. The Singapore Airlines group employs similar numbers in their own home cities. Compare these figures to the number of people that airlines employ overseas. For instance, Cathay Pacific typically carries around a million passengers to Japan but only has less than 300 people based there. British Airways, Qantas, Thai Airways, Singapore Airlines and Canadian Airlines are all important players in the Hong Kong market but employ a hundred people or less for their operations here.
Home carriers also generate a large proportion of high-skill quality jobs in their home bases. Airlines’ headquarter functions create a pool of value-added jobs around their own industry that enhances the home base economy’s workforce. Examples include aircraft maintenance, planning, management, operations, finance, customer service, computer technology, and cargo logistics.
A strong international home carrier is frequently amongst a country’s major universally recognised brands. The carrier acts as de facto ambassador and influences perceptions of its home base. It can be a source of national pride. Ask an individual to name any five leading companies in a foreign country, and the national airline is invariably mentioned.
Strong home carriers also help to boost tourism. In pursuing market share, airlines actively pursue passengers and bring them to their home cities. Every visitor that is brought to a city will spend money and support other industries such as restaurants, retail shops and hotels. In turn that creates employment and benefits not merely to tourism and trade, but also the directly related industries, like retail and land transportation. The multiplier effect of this industry on the economy is substantial.
The outbreak of SARS in 2003 and Covid in 2020 had huge global impacts. They also underscored the importance of tourism to Hong Kong’s economy. Aviation and people flow in a city are like bloodflow in the body. A city’s economy becomes sluggish without meaningful aviation and travel activities.
Home carriers have an obligation to its home base. When Hong Kong was suffering from the aftermath of 9-11, Cathay Pacific launched the World’s Biggest Welcome and gave away 10,000 free roundtrip tickets. That was the first of such grand campaigns. After SARS, local airlines continued to work closely with local tourism, retail and food industries and launched the “We Love Hong Kong” campaign in order to encourage Hong Kong people to spend money and support their home. Furthermore, CX maintained Hong Kong’s link to the world by continue to operate, even without profit. The Covid recovery was equally active. During and after these difficult periods, local airlines everywhere were willing to work for the overall benefit of their home cities/countries.
Developing the Hub
Yet the most significant way the base airline can help the home city is to build up the latter as a global hub. Home carriers contribute directly to the development of the hub’s network by carrying business travellers and tourists to and from their primary hub via the route network.
In other words, the airline is not just carrying a passenger from to and from Hong Kong, but through Hong Kong to elsewhere. This vastly expands the market beyond the home city to encompass the whole world.
Casual observation alone will reveal how much a traveller’s routing is affected by an airline’s network. A traveller from Mexico to Mainland China, for example, is unlikely to travel via Hong Kong if he or she is travelling on a Japan Airlines ticket. A traveller from Australia to Europe holding a Malaysian Airlines or Singapore Airlines ticket is unlikely to go through Bangkok or Hong Kong. And the foreign revenue goes elsewhere. By the same token, if Cathay Pacific has a strong network, this is more likely to attract the passenger to go via Hong Kong, thus bringing all the related benefits to Hong Kong, and further enhance Hong Kong’s status as a world aviation hub. In this sense, the airlines and their hubs are competing for international business on a global stage.
Competition in international aviation is increasingly determined by “network strength”. The strength of an aviation hub is determined by the multiplying effect of connecting routes that radiate from its centre. Maximising the connectivity offered by a hub requires high service frequency, competitive offers and schedule co-ordination that only a strong home carrier can deliver.
The Hong Kong to Colombo service is a good example. The number of end-to-end passengers between Hong Kong and Sri Lanka is quite limited and could not justify a regular scheduled service. However, by offering strategic connections via Hong Kong, Cathay Pacific attracts passengers from Mainland China, North America, Japan, Korea, the Philippines and even Australia to go via Hong Kong to Colombo. As a result, Hong Kong people now enjoy regular direct flights to Sri Lanka. Cathay Pacific, for obvious reasons, is keen to develop the end-to-end market. That has to be good for tourism and trade in both places.
If, however, this route is denied to Cathay Pacific or if the economics (such as high aviation costs or oversupply) make it undesirable, the whole network connectivity offered by the Hong Kong hub would suffer—not just the direct route between the two cities.
Contrary to the views expressed by some, a strong home carrier does not “crowd out” other carriers. In reality, it tends to attract more airlines to come to the hub. Foreign airlines still want to fly to Frankfurt, for example, where Lufthansa has 55% of airport movements, or to Singapore, where the strong home carrier has 40% of the flights. Other cities that many airlines want to go to include London, New York, and Tokyo – all crowded airports. Developing a strong home carrier establishes the core of the hub, attracting more airlines to serve routes that broaden the network.
Even though a city might enjoy an excellent geographical location, and even a distinguished history, without a strong airline it will struggle to attract the necessary critical mass of international air routes and struggle to become a great city. Take Brussels: located at the heart of western Europe and housing the headquarters of NATO and the European Commission, and with interesting historical sights and tourism attractions, Brussels lacks a strong home carrier. People travelling to Belgium will often go via other great cities such as London, Amsterdam or Frankfurt that offer better frequencies and connections.
The opposite is also true. London and Amsterdam, although geographically much less central to the European continent than Brussels, are better developed today than Brussels. The strength of their respective airlines, BA and KLM, has supported their ongoing development. Amsterdam has maintained its position as a trading centre with the help of KLM, not to mention its continued success as one of the world’s leading seaports.
The significance of the home carrier’s contribution to the local economy is clearly apparent in the efforts of home carriers, home governments, local airports, regulatory authorities, and aviation authorities to ensure a hub can deliver its maximum economic value. The capital-intensive nature of airport infrastructure and related projects and airline operations make it necessary that all parties work together.
Singapore is an excellent example. Its government has built one of the best airports in the world in a country of less than six million people. As far back as 1972, then Prime Minister Lee Kuan Yew identified the economic returns of a strong airline: “Singapore runs an airline…for plain economic benefit.” Several ministers have further elaborated on the same theme. When Singapore was still a newly independent country, facing a lot of challenges, with a small population, yet the big vision on aviation was set. It is no surprise to find the image of Singapore Airlines adorning the back of old Singaporean $20 and $100 bank notes. Even today, the Singapore Airlines image appears on TV when the national anthem is played.
Home Carriers and Technological Change
Technological change can alter trade routes and erode a city’s greatness. History provides numerous examples. New and faster sailing ships meant new routes between Europe and Asia. Venice, Xian, Goa, and Malacca all declined as the trade routes they once dominated lost significance.
In aviation, technological developments have given aircraft greater range. This has meant airlines no longer needed to make as many transit stops on the way to their final destinations. Shannon and Honolulu do not appear in route maps anymore. Once aircraft can operate non-stop long-haul, many cities in between could suffer a similar fate.
However, Dubai in the Middle East proves that this need not be the case. With the assistance of a strong and vigorous home carrier, transit hubs can remain strong despite technological change. In the 1970s airlines flying between Europe and Asia would typically make a transit stop in the Middle East, most often in Bahrain. In the 1980s, advances in airline technology meant airlines could fly direct to their destinations with no need to stop in the Middle East. This threatened to deprive cities like Bahrain and Dubai of their roles as air transport hubs. Yet the strength and rapid growth of the Dubai-based airline Emirates has ensured the city remains an important global aviation hub. Today Abu Dhabi and Doha play the same game and have been enjoying various levels of success.
The Role of Cargo
In discussing the role of trade and transport routes, we must mention the important role of air cargo. Air cargo growth has been substantial and is rapidly taking on an increasingly important role in the economic development of many countries. In this region, airline profitability often depends on air cargo, from which many Asian airlines derive 20% to over 40% of their income.
Much cargo is carried in the bellies of passenger aircraft. Policies to promote aviation centres should therefore not overlook the impact of cargo. It would be dangerous to treat air cargo as a separate industry when we talk about air traffic – it is often a vital component in ensuring the viability of passenger services to both new and existing destinations.
Yet cargo alone is not enough for the city’s greatness. Consider the highest volume sea and air cargo ports in the USA, Europe and Asia. Few are considered the world’s greatest cities.
Opportunities for Hong Kong
Some have suggested that Hong Kong needs a new approach to become a successful aviation hub. Let’s be clear: Hong Kong is currently one of the world’s leading aviation hubs. It occupies an enviable role as a great city and an important trade centre. Hong Kong is amongst the top airports in terms of international passenger throughput – 75 million international passenger throughput a year before the pandemic. In terms of international air cargo, Hong Kong is the undisputed leader. Even though Hong Kong has a population of merely seven million, the Hong Kong International Airport ranks as one of the world’s best.
There is no cause to believe that Hong Kong is inadequate or substandard as our aviation centre. The remarkable growth we have enjoyed over many years is the envy of the region. A great deal of credit must go to the Central Government’s consistent implementation of the “One Country, Two System” principle and its continuous support to the Hong Kong SAR Government, with 14th Five Year Plan’s declaration that Hong Kong should be an international aviation hub and the Greater Bay Area vision promulgated several years back. The farsighted policy by the Government and the hard work of everyone in the aviation industry certainly matter. But there is no shortage of competitors and, in order for Hong Kong to maintain its pre-eminence, we must concentrate on enhancing the factors which have contributed to our stunning success.
To stay at the top, we need to consider the following key questions:
- How can we improve our air transport facilities and infrastructure?
- How can we enhance and strengthen the role of our home carriers?
- How can we complement and reinforce the growth of our aviation industry with related industries?
Let us examine each of these three points briefly:
- Infrastructure
The old airport at Kai Tak did not allow room for growth and frustrated the local airline industry’s ambition for expansion. The new airport in 1998 was a tremendous infrastructure gain for Hong Kong. The additional capacity has been put to good use. Today, the new 3rd runway and the many impressive new facilities and services at the Hong Kong International Airport provides the best stage for aviation development. It is a world-class airport. Residents, visitors, transit passengers and cargo would find the Hong Kong airport a desirable airport to use.
Aviation costs must be competitive and reasonable. High costs discourage airlines, especially home carriers. All governments must remember the multiplier effect of increased passenger numbers and not overlook the overall benefit to the economy. This is competition on a global level. Many airports, including Hong Kong, are well aware of this, and are competitive on this front.
Having a good airport alone is not sufficient to guarantee the development of a hub. Sharjah, Jeddah, Kuala Lumpur and Zhuhai all have stunning airports, but their future development will depend significantly on the successful performance of their respective home carriers. Kuala Lumpur has a wonderful airport, but many people go to Singapore, probably to take another flight out of Singapore. The truth is that the Singapore Airlines’ network is a much stronger network, and it can attract traffic from Malaysia to the Singapore hub.
- Hong Kong must enhance its airline industry
The Government has a role to play in ensuring that airlines in Hong Kong are provided a level playing field and have the market access required to compete effectively with foreign competitors.
Although this is an industry laced with politics and diplomacy, and with very large and specialised capital investments, there can be no question of our government granting subsidies or “special treatment” for home carriers, as I am afraid some other counties continue to do. That has never been the Hong Kong way. Subsidies kill business motivation. However, business-friendly Government policies would enhance the competitiveness of Hong Kong and the industry while upholding free-market principles.
The aviation industry is entirely different from local transportation businesses. It is – as said earlier – competing with other global players. The airlines’ interests and the Government’s vision and policies must be in sync in order to generate synergy for the benefit of Hong Kong, and China.
Some have argued we should allow unlimited access for any foreign airline to mount services to, from and beyond Hong Kong. They say this would lead to additional flights and wider customer choice. Hong Kong is never afraid of competition, and we should welcome other airlines flying to Hong Kong. Yet we need to bear in mind that the prime motivation for overseas airlines is to draw traffic back to their own home hub. States and airlines that lobby for unilateral concessions from Hong Kong very rarely reciprocate by granting our own requests for more market access. In an industry still dominated by government-to-government agreements, unilateral concessions equate to a slow death for the local airline industry and the shrinking of the hub.
But above all – and this is a point ignored by many commentators – Hong Kong already has a liberal aviation industry. Hong Kong could not have grown to become one of the world’s leading international airports by being closed. There are plenty of airlines linking Hong Kong to hundreds of destinations. This emphasises the benefits of the prudent bilateral policy pursued by the Government over the last several decades.
One vital factor for ensuring the future role of Hong Kong as a leading aviation centre is Mainland China. The Chinese mainland is already a large market and an important aviation hinterland for Hong Kong and its importance will only grow. The number of Chinese flying, and the fleet sizes of mainland airlines have a lot of room for growth relative to the US today. China’s high growth rate means we must continue to enhance Hong Kong-Mainland China links. This will depend on the effective role the Hong Kong Government, the home carriers, the strength of the hub, and the interests of the travelling public.
- Developing related industries
Firstly, tourism and visitor events and attractions are essential for attracting passengers. More resources are welcome on that front. Yet events and attractions on their own are not enough to draw visitors. Petra, Angkor Wat, Machu Pichu, and Agra Taj Mahal all have plenty of attractions, but how does one get there? In fact, the number of visitors to some of these lifelong ‘dream’ destinations is far less than that to some “boring” cities! The reason, again, is because the “boring cities” are hubs and have a better home carrier network.
There are also many other important ways to encourage tourism. Appropriate and effective marketing is vital – and efforts are being made in this area. Visa requirements are also a consideration. As seen in many countries, once entry formalities are simplified, more people would enter.
One would also think about retail, food and beverage and hotel industries as related to aviation. But there are many more. One might count the direct suppliers to aviation – materials, maintenance, catering, entertainment, procurement, etc. Yet a more significant sector is the service industries related to aviation. London is a global shipping centre because of the supporting businesses – legal services, financing, insurance, arbitration and mediation, registry, design, sourcing, IT…the list goes on. There is no reason why Hong Kong cannot develop these, especially when China (and Hong Kong) can expect rapid growth in aviation.
Hong Kong as an Aviation Centre
Hong Kong is blessed by a favourable geographical position. A radius of five hours flying time from Hong Kong encompasses Mainland China, Japan, Korea, Southeast Asia and much of India. It also reaches northern Australia. All major cities in Asia and half of the world’s population are covered. The five-hour living circle includes seven of the eight countries or territories with the highest foreign reserves. Many would agree that this five-hour living circle region also covers the areas of the highest economic growth potentials.
Asians will no doubt travel in much greater numbers in future. The current ratio of travellers in the Asian countries is relatively low. If we look at the United Kingdom, the Netherlands, or Germany, 35-40% of the population take an international air trip every year. In Asia, the ratio in Japan was only around 12%. In Korea it was about the same. The ratio in Mainland China might be much lower today. Yet think what will happen with growing affluence. Who would have predicted the economic growth in Mainland China and other Asian countries 50 years ago?
Hong Kong will be a beneficiary of Asia’s growth. We must aggressively and proactively seize the opportunity. Get the travellers to or via Hong Kong!
Hong Kong is truly at the “Heart of Asia”. The history of Hong Kong’s many achievements needs no elaboration, but the more important issue is how we can ensure that this success is enhanced.
Continued greatness on the global stage in this new century is inextricably linked to the strength of our aviation links. That, in turn, is dependent on the vision of the Government and the strength of the local airline industry with its indelible commitment to making a success of the Hong Kong hub.
Hong Kong stands to gain tremendously from the increase of Asian air travel. There will be ups and downs, but foresight, tenacity and determination are what working towards a grand vision is about.
With the renowned “Spirit of Hong Kong” – the hard work, innovation and dynamism of Hong Kong people – coupled with appropriate government policies, and the efforts of the home carriers, I am confident Hong Kong will continue to enhance its role as an aviation centre and remain one of the world’s great cities.