Research Report Is Uploaded Onto the Website of the Policy Innovation and Co- Ordination Office (PICO) for Public Reference

Public Policy Research Funding Scheme

公共政策研究資助計劃

Project Number : 項目編號： 2016.A4.032.17A

Project Title : Maintaining Hong Kong aviation-hub position under the 項目名稱： ASEAN-China Air Transport Agreement (ATA) 在東盟─中國航空運輸開放協議下對維持香港航空樞紐地位的政策建議

Principal Investigator : Dr YUEN Chi Lok, Andrew 首席研究員：袁志樂博士

Institution/Think Tank : The Chinese University of Hong Kong 院校／智庫：香港中文大學

Project Duration (Month): 推行期 (月) ： 21

Funding (HK$) : 總金額 (HK$)： 481,491.00

This research report is uploaded onto the website of the Policy Innovation and Co- ordination Office (PICO) for public reference. The views expressed in this report are those of the Research Team of this project and do not represent the views of PICO and/or the Assessment Panel. PICO and/or the Assessment Panel do not guarantee the accuracy of the data included in this report.

Please observe the “Intellectual Property Rights & Use of Project Data” as stipulated in the Guidance Notes of the Public Policy Research Funding Scheme.

A suitable acknowledgement of the funding from PICO should be included in any publication/publicity arising from the work done on a research project funded in whole or in part by PICO.

The English version shall prevail whenever there is any discrepancy between the English and Chinese versions.

此研究報告已上載至政策創新與統籌辦事處（創新辦）網站，供公眾查閱。報告內所表達的意見純屬本項目研究團隊的意見，並不代表創新辦及／或評審委員會的意見。創新辦及／或評審委員會不保證報告所載的資料準確無誤。

請遵守公共政策研究資助計劃申請須知內關於「知識產權及項目數據的使用」的規定。

接受創新辦全數或部分資助的研究項目如因研究工作須出版任何刊物／作任何宣傳，均須在其中加入適當鳴謝，註明獲創新辦資助。

中英文版本如有任何歧異，概以英文版本為準。

Project No. : 2016.A4.032.17A

Maintaining Hong Kong aviation-hub position under the ASEAN-China Air Transport Agreement (ATA)

在東盟 – 中國航空運輸開放協議下對維持香港航空樞紐地位的政策建議

Executive Summary

Hong Kong’s aviation industry (about 7.6% contribution to Hong Kong’s GDP in 2013) is playing a very important role in Hong Kong economy. Facing the competition from airports in the neighboring cities, how to maintain the hub position of Hong Kong International Airport (HKIA) has become a pressing policy issue in Hong Kong. In 2014/15, South East Asia and Mainland China were the top two markets for HKIA (26% and 22% for South East Asia and Mainland China respectively, in terms of passengers.)

Some recent developments for the two aviation markets pose threats as well as opportunities for HKIA and the aviation industry in Hong Kong. In 2015, the ASEAN started to integrate its aviation market within the 10 Member States. More importantly, an Air Transport Agreement (ATA) was also signed between ASEAN and China, which was implemented in 2011. However, Hong Kong was excluded in this Agreement.

Abstract of the Research

Overall, the empirical findings of this study regarding the impact of the ASEAN-China ATA on the three studied aviation markets are largely consistent with the prior literature: The ASEAN-China ATA and those designated routes of Chinese airports covered in Protocol 2 in the ATA reduced airfares, increased flight frequencies and air passenger volume of the ASEAN-China aviation market. In addition, the impact of the ASEAN- China ATA on airfares and air passenger volume of the ASEAN-Hong Kong aviation market are not substantial but flight frequencies or airline seat capacity between the ASEAN destinations and Hong Kong maintained growth during the study period. For the Hong Kong-China aviation market, fewer scheduled flights operated from Hong Kong to those designated routes of Chinese airports covered in Protocol 2.

Layman Summary on the Policy Implications and Recommendations

1. Pressing needs to have strategic approaches to improve and maintain HKG’s role as mainland gateway and leading international air cargo hub; 2. Improving the coordination in the Multiple Airport Region at the Greater Bay Area (GBA); 3. Improving ground transportation to attract air travel demand from the hinterland of Hong Kong airport; 4. Increasing airport capacity and improving utilization efficiency; 5. Improving airport service quality; 6. More proactive air liberalization policy in the long run; 7. Having measures attracting visitors by air to Hong Kong and transit passengers 8. Cultivating more talents for Hong Kong’s aviation industry.

行政摘要

航空業（2013 年的 GDP 貢獻值約 7.6％）在香港經濟中扮演著非常重要的角色。面對鄰近城市機場的競爭，如何維持香港國際機場的樞紐地位已成為香港迫切的政策問題。在 2014/15 年度，東南亞及中國內地是香港國際機場的兩大市場（東南亞及中國內地乘客分別佔總乘客量的 26％及 22％）。

這兩個航空市場最近的一些發展可能會為香港國際機場和航空業帶來威脅和機遇。 2015 年，東盟開始將其 10 個成員國的航空市場融合。更重要的是，東盟與中國簽署了航空運輸協定（ATA），該協定於 2011 年實施，其覆蓋範圍不包括香港。

研究摘要

本研究關於《東盟 ‐ 中國航空運輸協定》對三地航空業影響的實證研究結果如下：《東盟 ‐ 中國航空運輸協定》和《第二協定》所涵蓋的中國機場指定航線機票價格下降、來回東盟及中國航班班次增加及航空客運量上升。此外，《東盟 ‐ 中國航空運輸協定》對東盟 ‐ 香港航空市場機票和航空客運量的影響不大，東盟航點與香港之間的航班班次及航空公司載客量在研究期間保持增長。至於香港 ‐ 中國航空市場，從香港到《第二協定》所涵蓋的中國機場指定航線的定期航班減少。

研究項目對政策影響和政策建議的摘要:

1. 儘快採取戰略方法來改善和維持香港作為大陸門戶和領先的國際航空貨運樞紐的地位; 2. 改善大灣區機場群的協調; 3. 改善地面交通，以吸引香港機場腹地的航空旅行需求; 4. 提高機場容量，提高利用效率; 5. 提高機場服務質素; 6. 長遠而言，應採取更加積極主動的航空開放政策; 7. 採取措施吸引遊客乘飛機前往香港及以香港為中轉站; 8. 為香港航空業培養更多人才。

Prepared by

Dr. Andrew Yuen Chi Lok (Principal Investigator)

Department of Decision Sciences and Managerial Economics, CUHK Business School, The Chinese University of Hong Kong

Prof. Michael FUNG

Department of Decision Sciences and Managerial Economics, CUHK Business School, The Chinese University of Hong Kong

Dr. LAW, Cheung Kwok

Hong Kong Institute of Asia-Pacific Studies, The Chinese University of Hong Kong

Prof. Alan Khee-Jin Tan

Faculty of Law, National University of Singapore

This research project (Project No. 2016.A4.032.17A) is funded by the Public Policy Research Funding Scheme from Policy Innovation and Co-ordination Office of the Hong Kong Special Administrative Region Government.

The authors are grateful to all the participants at the Transport Economics Workshop, organized by the Department of Logistics and Maritime Studies, the Hong Kong Polytechnic University and at the 2018 Annual Conference of the Air Transport Research Society (the Society) in Seoul, South Korea. Finally, the authors are thankful for the research assistance of Ms. Phoebe Yuen and Mr. Sumair Hussain.

Contents Section 1 Introduction ...... 1 Section 1.1 Hong Kong ...... 1 Section 1.2 China ...... 14 Section 1.3 ASEAN ...... 27

Section 2 Objectives of the study ...... 38

Section 3 Interaction among the Regional Aviation Markets ...... 39 Section 3.1 Interaction between Hong Kong and China Aviation Markets ...... 39 Section 3.2 Interaction between Hong Kong and ASEAN Aviation Markets ...... 44 Section 3.3 Interaction between China and ASEAN Aviation Market ...... 52

Section 4 Overview of ASEAN‐China ATA ...... 56

Section 5 Impacts of ASEAN‐Chinese ATA on Hong Kong’s Hub Competitiveness ...... 59 Section 5.1 Literature Review ...... 62 Section 5.2 Methodology and Data ...... 64 Section 5.3 Research results and findings ...... 67 Section 5.3.1 Empirical Analysis ...... 67 Section 5.3.2 Discussion ...... 75

Section 6 Policy Implications and Recommendations ...... 79

Section 7 Details of the Public Dissemination ...... 84 Section 8 Conclusion ...... 85 References ...... 90

Section 1 Introduction

During the fourth ASEAN-China Summit held in Singapore in November 2000, China first brought up the initiative to strengthen transport cooperation between ASEAN and China. The framework was later agreed upon as well as China proposing to establish an ASEAN-China Transport Ministers Meeting mechanism back in November 2001 during the fifth ASEAN-China Summit. In September 2002, the first ASEAN-China Transport Minister meeting was held, resulting in the common consensus of furthering ASEAN- China transport cooperation. Later in 2004, a Memorandum of Understanding was signed between Member Countries of ASEAN with China, stating and agreeing upon enhancing cooperation in all means of transportation, mainly Maritime and Aviation transportation. For Aviation transportation, primarily to increase Air Service Agreements between member countries of ASEAN with China and increased cooperation between national airlines including utilization or resources and business management (ASEAN, 2004).

Section 1.1Hong Kong

(a) Importance of Hong Kong’s Aviation Sector to Hong Kong Economy Hong Kong’s aviation industry (about 7.6% contribution to Hong Kong’s GDP in 2013) plays a vital role in the Hong Kong economy. Facing competition from airports in the neighboring cities, maintaining the hub position of Hong Kong International Airport (HKIA) has become a pressing policy issue in Hong Kong. In 2014/15, South East Asia and Mainland China were the top two markets for HKIA (26% and 22% for South East Asia and Mainland China respectively, in terms of passengers.)

Table 1‐1 Economic Contribution by Hong Kong Aviation Industry (2010‐2013)

Aviation Unit: HK$ Benefit 2010 2011 2012 2013 subsectors Million

VA 60,658.0 54,334.0 54,875.0 54,875.0 Direct Air transport and benefit incidental services Share of GDP 3.54% 2.90% 2.77% 2.62%

VA 11,587.3 15,113.6 15,467.9 16,377.0 Tourism Share of GDP 0.68% 0.81% 0.78% 0.78%

VA 61,586.2 77,508.5 78,975.9 79,672.3 Trade services Share of GDP 3.60% 4.13% 3.98% 3.80%

VA 2,798.6 2,569.6 2,825.9 3,456.0 International Indirect courier services benefit Share of GDP 0.16% 0.14% 0.14% 0.16%

Land transports VA 4,488.4 4,104.7 4,233.4 4,408.7 that support air cargo Share of GDP 0.26% 0.22% 0.21% 0.21%

Miscellaneous VA 649.3 770.1 840.7 983.6 services that support air cargo Share of GDP 0.04% 0.04% 0.04% 0.05%

VA 141,767.8 154,400.5 157,218.9 159,772.5 Overall Share of GDP 8.28% 8.24% 7.92% 7.62%

GDP (Basic price, at current market price) 1,711,878.0 1,874,589.0 1,984,155.0 2,097,517.0

Source: Hong Kong Census and Statistics Department (2015)

Hong Kong’s aviation industry contributed about 7.6% of GDP in 2013 (employment accounted for 6.4%) (

Table 1‐1). The free flows of people and information, together with air cargo operations, promote Hong Kong’s trade and other service activities and enhance economic and social interactions internationally. In fact, all global financial and services centers, such as

London, New York, Tokyo, Hong Kong, Frankfurt, and Singapore, are well-established aviation hubs as well. The aviation sector also supports more high-tech employment (Lall, Stough, Trice, & Button, 1999; Irwin & Kasarda, 1991). Air cargo is essential for Hong Kong’s aviation industry, comprising more than 30% of Hong Kong’s international trade by value and accounting for about 30% of total revenue of major airlines in Hong Kong.

(b) Overview of Aviation Industry in Hong Kong In 2017, Hong Kong International Airport (HKIA) served 72.9 million passengers, 5.05 million tonnes of cargo and recorded 420,630 number of flights (Airport Authority Hong Kong, 2018a). With more than 100 airlines connecting to about 220 destinations worldwide (including 50 to Mainland China), HKIA is a leading international and regional aviation hub.

All the critical parameters of the HKIA have indicated moderate growth in the past decade except for the period of the global financial crisis.

Figure 1‐1 Passenger Traffic of HKIA, 2005‐2018

Source: Airport Authority Hong Kong (2018b)

The passenger traffic of the HKIA has grown steadily in the past decade. Stagnant growth has been observed during 2007-2010 probably due to the global financial crisis. After recovering from the financial crisis since 2010, the average growth rate has reached 6.84% until it came to a halt in 2015. The passenger traffic has grown more slowly in the past few years.

Figure 1‐2 Cargo Throughput of HKIA, 2005‐2018

Source: Airport Authority Hong Kong (2018b)

The growth of cargo throughput fluctuated over the years. A drop is observed in 2007- 2009 due to the global financial crisis. It then reached the peak in the year of 10/11 which was followed by a decline and a slow recovery period. Stronger growth was recorded in 2015-2018 with a growth rate of 21.4%.

Figure 1‐3 Air Traffic Movements of HKIA, 2005‐2018

Source: Airport Authority Hong Kong (2018b)

The growth pattern of air traffic movements resembles that of passenger traffic. The growth is very steady except for the drop of ATMs during the global financial crisis.

Competitiveness of Hong Kong International Airport (HKIA) In terms of financial performance, HKIA reached 140% growth during 2007 and 2016. Its return on asset ratio increased while the debt to asset and equity ratios decreased. The above ratios indicate less leverage for HKIA.

Table 1‐2 Financial Performance of Hong Kong International Airport (2007 & 2016)

Debt Debt Net Return Operating Current to to Operating EBITDA on Margin Ratio Asset Equity Income Assets Ratio Ratio 2007 675.66 675.66 0.63 0.63 0.10 0.32 0.47 2016 1,65300 1653.00 0.69 2.48 0.22 0.23 0.23 Remark: N/A denotes no information is available. Source: ATRS (2009; 2018)

Table 1-3 presents three key indicators of airport revenue performance (revenue per employee, revenue per passenger, and revenue per aircraft movement) and non- aeronautical revenues of HKIA in 2007 and 2016. All the indicators increased. The increase in revenue per aircraft movement reached nearly 60% for HKIA. Non- aeronautical revenues have significantly increased by 12% during the periods.

Table 1‐3. Airport Revenue per Employee, Passenger and Aircraft Movement and Non‐ Aeronautical Revenues of Hong Kong International Airport (2007 & 2016)

Non- Rev/ Rev Rev/ Concessi Parking Aero Rev Emply /Pax Movt on (%) (%) (%) 2007 930,627 22.0 3,592 64 52 N/A 2016 1,236,317 34.0 5,853 76 49 N/A Remark: N/A denotes no information is available. Source: ATRS (2009; 2018)

HKIA was used as a benchmark to measure airport productivity and cost competitiveness in the ATRS Benchmark Report. The tables have shown that the passenger per gate ratio, the passenger per terminal size ratio and movement per runway ratio of HKIA increased during the 10 years’ time, indicating improved productivity. Also, labour cost per passenger and variable cost per passenger increased during the period. The figures would be more meaningful when compared to other airports’ performance.

Table 1‐4 The Partial Factor Productivity of Hong Kong International Airport (2007 & 2016)

Passenger Labour Soft cost input Passenger/ Movt/ /Terminal productivity Productivity Gate Runway size 2007 1.0 1.0 611,250 69 150,000 2016 1.0 1.0 783,333 83 205,000 Remark: Benchmark with Hong Kong International Airport (HKG =1). N/A denotes no information is available. Source: ATRS (2009; 2018)

Table 1‐5 Cost Competitiveness of Hong Kong International Airport (2007 & 2016)

Unit Labour Variable Variable cost Cost variable cost/passenger Input price per passenger competitiveness cost 2007 1.6 1.0 1.0 8.2 0.0 2016 4.1 1.0 1.0 10.6 0.0 Remark: Benchmark with Hong Kong International Airport (HKG =1). N/A denotes no information is available. Source: ATRS (2009; 2018)

Table 1‐6 shows the capacity of HKIA in 2007 and 2016. HKIA did not build any new runways but expanded its terminals by 20%.

Table 1‐6 Capacity of Hong Kong International Airport (2007 & 2016)

Runway Runway numbers numbers Number of (>=3000m) (<=3000m) Gates Terminal Size (m2) 2007 2 0 80 710,000 2016 2 0 90 850,000 Source: ATRS (2009; 2018)

Forecast About a decade ago, Airport Authority Hong Kong (AAHK) had commissioned the International Air Transport Association (IATA) Consulting to forecast the air traffic demand up to 2030. The result can be found in AAHK’s “Hong Kong International Airport Master Plan 2030”. Globally speaking, IATA Consulting forecasts that air traffic to and from the Mainland will reach nearly 2.1 billion trips by 2030, while cargo traffic will reach 44 million tonnes. Located within the Pearl River Delta (PRD), HKIA will possibly benefit from this fastest growing region in China. IATA Consulting estimates that the aviation market in the Greater PRD (including the PRD, Hong Kong, and Macau) will grow to 387 million passenger trips and 18 million tonnes of cargo by 2030. Having considered the growing capacity of airports within the PRD, IATA Consulting forecasts that there would still be a significant unfulfilled demand for air services both in the medium term up to 2020 and in the long term up to 2030.

According to the GDP regression-based forecasting model, and the various aspects of HKIA’s market environment, IATA Consulting has estimated that air traffic demand forecasts for HKIA will fall within the range of 89-105 million passengers and 8-9.8 million tonnes of cargo by 2030, growing at respective compound annual growth rates (CAGR) of 2.8% - 3.6% and 3.7% - 4.6% between 2008 and 2030. Flight movements will reach about 550,000 – 650,000, growing at a CAGR of 2.8% - 3.6%.

Figure 1‐4 HKIA Air Traffic Movement Projection (Up to 2030)

Figure 1‐5 HKIA Passenger Traffic Projection (Up to 2030)

Figure 1‐6 HKIA Cargo Traffic Projection (Up to 2030)

Comparing to these forecasts which have been done almost ten years ago, the current situation of air traffic movement and cargo traffic falls within the 2017 estimates. Yet, the passenger traffic has already surpassed the 2017 estimation, showing stronger growth than the previous expectation.

Capacity and constraints and the Three-runway System (3RS) According to the “Hong Kong International Airport Master Plan 2030” (Airport Authority Hong Kong, 2011), National Air Traffic Services (NATS) was commissioned to study the practical maximum capacity of HKIA’s then two-runway system. NATS concluded that the practical maximum runway capacity of HKIA was 68 ATMs per hour, remaining fully in compliance with the International Civil Aviation Organization (ICAO)’s safety and minimum separation requirements. On the basis of 68 ATMs per hour, NATS assessed that the practical maximum daily movements was about 1,200 per day. The practical maximum daily movements of 1,200 could be translated into the practical maximum annual movements of 420,000, which were expected to be reached sometime between 2019 and 2022. However, it has been reached in the past year (Year 2017/18).

Figure 1‐7 Forecast Air Traffic Movements to Reach the Two‐Runway Capacity between 2019‐2022

Source: Airport Authority Hong Kong (2011)

Given the limited capacity, a third runway is under construction to meet the growth target. NATS estimated that the practical maximum capacity of the 3RS is 102 ATMs per hour, which could be translated into 1,800 ATMs per day and about 620,000 ATMs per year. The Airport Authority estimates that the airport will handle about 100 million passengers and nine million tonnes of cargo annually by 2030 (Hong Kong Government, 2018a). There could be potential to further increase the runway capacity in the future with enhancements in aircraft and air traffic control technology and management of the Pearl River Delta airspace. The construction work of the 3RS started in 2016 and is expected to be completed in 2024, with the commissioning of the new runway in 2022 (Airport Authority Hong Kong, 2016a).

Airspace The airspace issue has long been discussed among the PRD aviation departments. The PRD Air Traffic Management Planning and Implementation Working Group was established by the Civil Aviation Department of Hong Kong, the Civil Aviation Administration of China and the Macao Civil Aviation Authority in 2004 to discuss measures to enhance the PRD airspace capacity (Hong Kong Government, 2010).

Hong Kong, Macau and the Mainland China signed a memorandum of cooperation on 13th July 2017 to initiate modeling and simulation of the airspace and air traffic in the Guangdong-Hong Kong-Macau Bay Area. It can provide analysis for planning and formulating air traffic management procedures and measures. This analysis would provide data and technical support in airspace optimization for the construction of the third runway at HKIA, and the development of other airports in the region (Mok, 2017). Officials from the three sides met in November 2017 again in Chengdu to exchange views on measures to enhance the Pearl River Delta airspace and minimize flight delays to review their cooperation so far. Gradual progress was achieved on the exchange of operational information and coordination on air traffic flow management measures. Better planning on the use of airspace will consummate the 3RS of HKIA and achieve the ultimate target runway capacity of 102 air traffic movements per hour (Hong Kong Government, 2017).

Connections to hinterland HKIA provides extensive intermodal connections to the PRD region by land and sea. During 2017, its SkyPier recorded 90 daily ferry trips with Guangzhou’s Nansha and Lianhuashan, Shenzhen’s Shekou and Fuyong, Dongguan’s Humen, Zhongshan, Zhuhai’s Jiuzhou and Macao’s Maritime Ferry Terminal and Taipa. Apart from this, 550 daily coach trips took passengers between the airport and about 110 PRD cities and towns, while cross-border limousines operated around 580 trips every day (Hong Kong Government, 2018a).

Higher connectivity will be enabled by the opening of the Hong Kong-Zhuhai-Macao Bridge. The bridge will link up the western and eastern side of the Pearl River. More convenient traffic will foster the cooperation of airports in Hong Kong, Zhuhai, and Macau. HKIA can attract passengers from Zhuhai and Macau, whose international routes are somewhat limited. The two cities can help relieve the air cargo demand in HKIA.

The constructing Liantang/Heung Yuen Wai Boundary Control Point will reduce the transport time between HKIA and Huizhou by at least 30 minutes. Passenger flow and cargo flow can then gain access to HKIA more easily. This will be critical to the aviation and logistics development of Hong Kong (馮永業, 2018).

Airlines There are four Hong Kong-based commercial airlines, namely Cathay Pacific Airways, Cathay Dragon, Hong Kong Airlines and Hong Kong Express Airways, accounting for 63.32% of share in the Hong Kong aviation market.

Table 1‐7 Percentage share of airlines in Hong Kong aviation market in 2017

Airlines % Share of airlines by seat capacity Cathay Pacific 34.77% Cathay Dragon Air 14.98% Hong Kong Airlines 9.66% HK Express 3.91% Total 63.32% Source: Hong Kong Tourism Board (2018)

Established in 1946, Cathay Pacific was the first Hong Kong-based airline. The business expanded rapidly in the 1960s to 1970s. The airline has been ranked top 3 as best airlines worldwide by Skytrax during 2001-2009. Re-entry of Cathay Pacific in the China market marked a significant route development milestone in 2003. The passenger services to Beijing were resumed. In 2006, Cathay Pacific signed an agreement that brought Dragonair into the Cathay Pacific Group as a wholly owned subsidiary. The Dragonair deal created real synergies by bringing together Cathay Pacific’s international network with Dragonair’s extensive network of more than 20 cities in the Mainland China (Cathay Pacific, n.d.).

Hong Kong Dragon Airlines was established as a wholly owned subsidiary of Hong Kong Macau International Investment Co. in 1985. In its early years, it provided

12 passenger service to Southeast Asia and charter services to the Mainland China. In 1990, CITIC Pacific, the Swire Group and Cathay Pacific purchased an 89% stake in Dragonair. Since then, Dragonair had co-operated closely with Swire Cathay Pacific in areas like ground handling services, cargo services, flight kitchen services, etc. In 2006, Dragonair became a wholly owned subsidiary of Cathay Pacific Airways (Cathay Pacific, n.d.). It was rebranded as “Cathay Dragon” in 2016 (Jiang, 2016).

In 2017, Cathay Pacific Group (including both Cathay Pacific and Cathay Dragon)’s passenger revenue was HK$66,408 million. The Group’s cargo business benefited from robust demand in 2017, with cargo revenue increasing by 19.1% to HK$23,903 million (Cathay Pacific, 2018).

Cathay Pacific’s main competitors are Hong Kong Airlines and Hong Kong Express Airways; the latter is the only low-cost carrier in Hong Kong, both belonging to HNA Group. The local market share of the two companies’ combined is 17% (鄭寶生, 2017).

CR Airways was renamed as Hong Kong Airlines in 2006 after HNA group bought 45% stake of the company. CR Airways was initially established in 2001 and provided helicopter services within the Pearl River Delta region (Hong Kong Government, 2002). Later, seeing the expanding market of China tourism, CR Airways looked into the potential of becoming a commercial airline. It underwent transformation after the HNA group became one of the primary stakeholders. The routes have extended from the Mainland China and Southeast Asia to many cities around the world over the years. The passenger traffic has reached 5.61 million in 2015 (Hong Kong Brand Development Coucil, n.d.).

Hong Kong Express was formerly known as 港聯航空公司 in Chinese, established in 2004. Targeting the burgeoning economy of China, Hong Kong Express aimed at attracting passengers who were transferring from international flights to the Mainland, particularly business travelers arriving from the United States and Europe (Airport Authority Hong Kong, 2005). In 2006, HNA Group, the parent company of Hainan

Airlines, acquired 45% holdings of Hong Kong Express and changed its Chinese name to 香港快運 (Apple Daily, 2017). The company announced its official transformation into a low-cost airline in 2013 and expanded its routes to Southeast Asia, the Mainland China, Japan, and Korea (HK Express, 2013). It flew over 3,787,000 passengers across its route network by 2017’s end, representing a 30% increase compared with the same period of the previous year (HK Express, 2018).

Section 1.2 China Overview of China Aviation Industry In 2017, there were 229 licensed civil airports in total in China’s mainland, among which there were 228 airports with scheduled flights. A total of 224 cities were connected by scheduled flights. According to the annual report of the Civil Aviation Administration of China (2018a), the total passenger traffic of all airports in China was 1147.867 million in 2017. Among which 1036.146 million passengers were transported by domestic routes while 111.721 million passengers were transported by international routes. The total amount of cargo and mail handled reached 16.177 million tons with 10.001 million tons were transported by domestic routes and 6.176 million tons by international routes. Air traffic movements in 2017 were 10.249 million in total, among which 9.38 million movements were by domestic routes, and 869,000 movements were by international routes.

Importance of the aviation sector to the economy According to an IATA report (IATA, 2016), Airlines, airport operators, airport on-site enterprises (restaurants and retail), aircraft manufacturers, and air navigation service providers employed 1.3 million people in China in 2014. The air transport industry is estimated to have supported a US$73 billion gross value-added contribution to GDP in China in 2014. Spending by foreign tourists supported a further US$15 billion gross value-added contribution to the country’s GDP. This means that 0.8 percent of the country’s GDP is supported by the air transport sector and foreign tourists arriving by air.

Figure 1‐8 Passenger Traffic at Airports in China, 2006‐2017

Source: Civil Aviation Administration of China (2018b)

The passenger traffic of civil transport airports in China has grown significantly in the past decade, almost tripling the volume 10 years ago. Even in times of financial crisis, the passenger traffic did not cede to grow; strong impedance is observed though. The average growth rate from 2006 to 2017 is 12%.

Figure 1‐9 Cargo Throughput of Airports in China, 2006‐2017

Source: Civil Aviation Administration of China (2018b)

The performance of cargo and mail throughput is not as resilient towards the economic crisis as the passenger traffic. The growth was much slower during 2007 and 2009, but it bounced in 2010. After that, the growth becomes somewhat steady. The average growth rate during 2010 and 2017 is 5.29%.

Figure 1‐10 Aircraft Movements of Airports in China, 2006‐2017

Source: Civil Aviation Administration of China (2018b)

The growth pattern of air traffic movements resembles that of the passenger traffic. The rapid growth reflected a boom in the civil aviation market. No signs of impact by the global financial crisis are observed, probably due to China’s strong domestic market. The average growth rate in the past decade is 10.3%.

Airport Competitiveness In 2017, there are 10 airports in China had reached the 30 million passenger traffic benchmark. The five leading airports are Beijing Capital International Airport, Shanghai Pudong Airport, Guangzhou Baiyun Airport, Chengdu Shuangliu Airport and Shenzhen Baoan Airport (Civil Aviation Administration of China, 2018c). Among the five airports, those in Guangzhou and Shenzhen are closest to Hong Kong. There are higher chances of cooperation and competition between Hong Kong and the two airports. Therefore, in this study, the two airports’ competitiveness parameters were looked in detail.

In terms of the financial performance of Guangzhou Airport (CAN) and Shenzhen Airport (SZX) in 2006 and 2017, the net operating income of CAN increased by 300%

17 and SZX increased by 200%. The return on asset ratio increased for CAN but not SZX. Both experienced increase in the debt to asset and equity ratios. The ratios indicate more leverage for the two airports.

Table 1‐8 Financial Performance of Guangzhou Airport and Shenzhen Airport (2007 & 2016)

Debt Debt Net Return Operating Current to to Airport Year Operating EBITDA on Margin Ratio Asset Equity Income Assets Ratio Ratio 2007 78.15 N/A 0.22 0.36 0.07 0.38 0.60 Guangzhou 2016 306.00 306.00 0.36 0.58 0.12 0.44 0.82 2007 101.84 N/A 0.62 4.18 0.20 0.09 0.10 Shenzhen 2016 125.00 125.00 0.27 1.67 0.07 0.14 0.16 Source: ATRS (2009; 2018)

Table 1‐9 presents three key indicators of airport revenue performance (revenue per employee, revenue per passenger, and revenue per aircraft movement) and non- aeronautical revenues of CAN and SZX in 2007 and 2016. All the indicators increased for both airports and CAN’s performance is very impressive. The increase in revenue per aircraft movement reached doubled for CAN but just nearly 60% for SZX. Non- aeronautical revenues for CAN and SZX have dropped by 49% and 13% respectively during the periods.

Table 1‐9 Airport Revenue per Employee, Passenger and Aircraft Movement and Non‐ Aeronautical Revenues of Guangzhou Airport and Shenzhen Airport (2007 & 2016)

Rev/ Rev Rev/ Non-Aero Concession Parking Airport Year Emply /Pax Movt Rev (%) (%) (%) 2007 138,363 9.7 933 73 4 2 Guangzhou 2016 147,340 14.3 1,975 24 15 N/A 2007 43,009 7.9 900 36 N/A N/A Shenzhen 2016 87,441 10.9 1,442 23 N/A N/A Source: ATRS (2009; 2018)

Using HKIA as a benchmark airport to measure airport productivity and cost competitiveness of CAN and SZX, CAN’s labor productivity decreased while SZX’s increased slightly between 2007 and 2016. In terms of the soft cost input productivity index, both CAN and SZX showed decline (see Table 1‐10). Furthermore, Table 1‐11 shows the gross and residual variable factor productivity (VFP) indices for both airports. Both the gross and residual VFP indices fell for CAN and SZX. Table 1‐12 showed the cost competitiveness of both airports. Comparing with HKIA, the cost competitiveness indices of CAN and SZX are negative, meaning that both airports are more cost competitive compared with HKIA during the periods.

Table 1‐10 The Partial Factor Productivity of Guangzhou Airport and Shenzhen Airport (2007 & 2016)

Soft cost Labour Passenger/Ga Passenger/Te Movt/ Airport Year input productivity te rminal size Runway Productivity 2007 0.3 1.4 418,358 97 130,414 Guangzhou 2016 0.1 0.4 574,347 51 144,333 2007 0.1 2.0 374,894 136 181,450 Shenzhen 2016 0.1 0.4 676,958 93 158,400 Remark: Benchmark with Hong Kong International Airport (HKG =1). N/A denotes no information is available. Source: ATRS (2009; 2018)

Table 1‐11. The Gross and Residual Variable Factor Productivity Indices of Guangzhou Airport and Shenzhen Airport (2007 & 2016)

2007 2016 Airports Gross Residual Gross Residual VFP VFP VFP VFP Guangzhou 0.84 0.78 0.25 0.24 Shenzhen 0.50 0.41 0.21 0.20 Remark: N/A denotes no information is available. Source: ATRS (2009; 2018)

Table 1‐12 Cost Competitiveness of Guangzhou Airport and Shenzhen Airport (2007 & 2016)

Variable cost Labour Unit variable Variable Cost Airport Year per cost/passenger cost Input price competitiveness passenger 2007 3.5 0.9 0.7 6.3 0.1 Guangzhou 2016 4.2 2.1 0.5 9.2 -0.3 2007 2.1 0.7 0.4 3.4 0.0 Shenzhen 2016 3.2 2.0 0.4 7.9 -0.2 Remark: Benchmark with Hong Kong International Airport (HKG =1). N/A denotes no information is available. Source: ATRS (2009; 2018)

Table 1‐13 shows the capacity of CAN and SZX in 2007 and 2016. Both airports have built new runways. In addition, CAN and SZX increased their terminal sizes by nearly 3 times, respectively.

Table 1‐13 Capacity of Guangzhou Airport and Shenzhen Airport (2007 & 2016)

Runway Runway Airport Year numbers numbers Number of Terminal Size (>=3000m) (<=3000m) Gates (m2) 2007 2 0 74 320,000 Guangzhou 2016 3 0 104 1,181,700 2007 1 0 68 152,000 Shenzhen 2016 2 0 62 451,000 Source: ATRS (2009; 2018)

Growth Forecast Boeing (2017a) expected China to become the largest domestic air travel market in the world in the next 20 years, increasing 6.1 percent annually and surpassing North America.

While in the domestic market, point-to-point travel has been the fastest growing segment in the last five years, with 17 percent growth annually. In addition to the domestic market, growth regionally has been strong. China now has more than 55 percent share in all flights between China and the rest of Asia.

For long-haul travel, the Chinese market has continued to evolve during 2012-2017. In 2012 the majority of flights were out of major hubs: Beijing, Shanghai, Guangzhou, and Hong Kong. Today more airlines continue to look for new opportunities, especially in China’s secondary markets. The number of routes serving Europe and North America in the previous five years has quadrupled, from 9 in 2012 to more than 40 routes served by 13 different airlines.

In addition to the opening of secondary markets within China, flights out of China using non-major hubs have increased. The number of these routes has doubled in the last five years, from more than 25 to more than 50. Long-haul travel is expected to continue to grow above world trend levels. Traffic is forecast to grow 5.6 percent annually to and from Europe and 5.4 percent to and from North America.

Figure 1‐11 Projection of China’s aviation traffic flow and share of world fleet in 2036

Source: Boeing (2017b) The middle class in China has more than tripled in the past ten years and is expected to double in the next ten. Because of this, the Chinese aviation market has become one of the most dynamic travel markets in the world.

Figure 1‐12 Projection of Chinese middle class population

Source: Boeing (2017b)

Future Development During the 12th Five-Year Plan period (2011-2015), the support capability of civil aviation was continuously strengthened, with the numbers of transport airports, general airports, and transport aircraft respectively reaching 207 (not including three commuter airports), 310 and 2,650. The strategic importance of civil aviation increased as evidenced by a more significant share in the integrated transport system and the acceleration of integrated development between the civil aviation industry and regional economies.

Policy (Civil Aviation Administration of China, 2017) The recently developed 13th Five-year Plan for China’s Civil Aviation Development (hereinafter referred to as the Plan) specifies five main tasks for civil aviation development in the “13th Five-year Plan” period (2016-2020), which include ensuring sustained safety of civil aviation, building a national integrated airport system, comprehensively improving aviation service capability, strengthening support and service

23 quality of air traffic management and speeding up transition through reform and innovation.

The Plan lays out a range of targets for civil aviation development during the “13th Five- year Plan” period. One of which is to enhance the strategic role of civil aviation to continuously raise its contribution to the national economy and further increase the proportion of air transport in the integrated transport system: the ratio of passenger turnover will reach 28%, and the total transport turnover, passenger traffic and cargo & mail traffic will reach 142 billion ton-km, 720 million passengers and 8.5 million tons respectively, up by 10.8%, 10.4% and 6.2% respectively annually.

Another target is to enhance the support capability of civil aviation comprehensively. A well-planned and efficient airport network consisting of about 260 transport airports will be built. Airspace capacity constraints will be alleviated, and the support capability of air traffic management will be steadily improved, with the ability to offer support for 13 million aircraft movements per year.

In addition to the above, the Chinese government also want to vigorously promote the development of general aviation by building more infrastructure, putting in place a standard system, continuously improving the operating environment and expanding service areas. There will be over 500 general airports and over 5,000 general aircraft, with the total flight hours reaching 2 million.

Infrastructure China has outlined a blueprint to build 74 new civil transport airports by 2020, according to the Civil Aviation Development 13th Five-Year Plan (2016-2020) released by the Civil Aviation Administration of China (CAAC) (Ge, 2017).

The Plan says there will be 30 airports under construction and 44 newly-built in the period, which will then bring the total number of civil transport airports to about 260 by 2020. The airports will be built mainly in the mid-Western China where express railway

24 will be less cost-effective due to the traffic flow and the landscape. Besides, 139 airport expansion projects are planned. "These projects would make trips to China's third-tier cities (generally the medium-sized cities of each province) much easier," the CAAC said.

Constraints Although new airports are under construction, there will still be constraints in the short- term as the airports in cities like Beijing and Shanghai have already reached their maximum capacity in the busiest hours. Besides, China might have a prospering domestic market, but its global competitiveness is not as high as its counterparts in the Middle East, which is backed by the low oil price. The airspace issue is a critical one as well. As most of China’s airspace is controlled by the military, the development of civil aviation market will be restricted if not more space is freed up (DBS Bank, 2018).

Airlines The aviation market in China is dominated by the “Big Three”, namely Air China, China Eastern Airlines and China Southern Airlines, and Hainan Airlines. These four big players along with subsidiaries and associates hold 90% of the market. According to Fitch Ratings’ Chinese Airline Sector Blue Book released in June 2017 (Toh, 2017), there was limited room for private airlines and new entrants to compete against the state- owned carriers since they dominated most prime routes. In 2002, the Chinese government merged the then existing nine major airlines into the current Big 3 to ease over- competition (DBS Bank, 2018).

Air China was founded in 1988, headquartered in Beijing. It underwent reform to merge with China Aviation Corporation and China Southwest Airlines in 2002 to facilitate the development of civil aviation market. Air China holds a majority stake in Air China Cargo, Shenzhen Airlines, Dalian Airlines, Beijing Airlines, Air China Inner Mongolia, Air Macau, Air China Import & Export, Chengdu Falcon Aircraft Engineering Service and Air China Shantou Air Supplies. Air China also owns a stake in Cathay Pacific and Shandong Airlines and is the largest shareholder of the latter. It is also a joint venture partner in many other aviation-related companies. Air China operated a total of 420

25 passenger routes, including 101 international routes, 16 regional routes (to Hong Kong, Macau and Taiwan) and 303 domestic routes, serving 185 destinations in 40 countries/regions, of which 66 were international destinations, three regional destinations, and 116 domestic destinations (Air China, n.d.). According to the company’s annual report (Air China, 2018), the air passenger revenue of RMB 105,125 in 2017. 67.5% was contributed by the Mainland China region while 5.02% came from Hong Kong, Macau and Taiwan. Its air cargo and mail revenue in 2017 was RMB 10,225, contributed mainly by the Europe and North America business.

China Eastern Airlines was established in 1995, headquartered in Shanghai. In 2010, China Eastern Airlines merged with Shanghai Airlines, allowing it to move closer to Air China in terms of scale (DBS Bank, 2018). China Eastern serves nearly 80 million travelers annually and ranks among the world's top 5 airlines in terms of passenger transportation volume (China Eastern, 2016). CEA has interests in a number of airlines including controlling stakes in CEA Jiangsu, CEA Wuhan, CEA Yunan, Shanghai Airlines and China United Airlines. In 2016, the Group’s passenger revenues amounted to RMB 83,577 million with RMB 54,137 million of it from domestic routes. The Group’s cargo and mail traffic revenues amounted to RMB 5,977 million in 2016 (China Eastern, 2017).

China Southern Airlines (CSA) was founded in 1989 and is based in Guangzhou. China Southern operates more than 2000 daily flights to 224 destinations in 40 countries and regions across the world. China Southern transported more than 126 million passengers in 2017 (China Southern, n.d.). China Southern Airlines Company Limited has 16 branches, including Beijing and Shenzhen and six majority-held civil aviation subsidiaries, including Xiamen Airlines, Shantou Airlines, Zhuhai Airlines, Guizhou Airlines, Chongqing Airlines, and Henan Airlines (China Southern Airlines, 2018). The passenger revenue in 2017 is RMB 112,791million. The cargo and mail revenue is RMB 9,082million (China Southern Airlines, 2018).

Hainan Airlines was founded in 1993 and is based in Hainan Province. By the end of 2017, Hainan Airlines and its holding subsidiaries had over 400 aircraft in operation and 24 bases/branch companies established in Beijing, Tianjin, Xi’an, Chongqing, Kunming, Guangzhou, Shenzhen, Haikou, Hangzhou, Changsha, Urumqi and other points. Together, they are operating on 1800 domestic and international routes to over 220 cities worldwide (Hainan Airlines, n.d.). The company’s passenger revenue in 2017 is RMB 55,207million. The cargo and mail revenue is RMB 1,404million (Hainan Airlines, 2018).

Forecasts According to Boeing (2018)’s forecast, the annual growth rate of passenger traffic within the China market is 6.1% for the coming 20 years, with RPKs reaching 2357.2 billion in 2037.

Section 1.3 ASEAN

ASEAN consists of 10 countries from Southeast Asia namely Indonesia, Malaysia, the Philippines, Singapore, Thailand, Brunei Darussalam, Vietnam, Lao PDR, Myanmar, and Cambodia. There are 259 airports in the region. From Figure 1‐13, we see that there is a great disparity between the countries in terms of air passenger throughput. Indonesia and Thailand’s superior performance can be attributed to the large population and hence a robust domestic market.

Figure 1‐13 Air Passenger Throughput of ASEAN countries, 2014

Source: Inter VISTAS Consulting (2015)

According to Boeing (2018)’s forecast, the annual growth rate of passenger traffic within the Southeast Asia market is 6.9% for the coming 20 years, with RPKs reaching 871 billion in 2037.

Economic Contribution The tables below have shown the direct and indirect economic impact of air transport activities in ASEAN countries. Despite Singapore is having a smaller market, the productivity of its aviation and related industries outperformed all the other countries. Its flag carrier airline, Singapore Airlines, and airport, Changi International Airport, were both ranked best among their counterparts in 2018.

Table 1‐14 Direct Jobs and GDP by Country, 2014

Country Direct Direct GDP (USD Billions) % of National GDP Jobs Indonesia 160,900 $5.80 0.65% Thailand 110,700 $3.40 0.83% Malaysia 96,100 $1.50 0.43% Singapore 83,500 $9.20 2.99% Philippines 69,800 $1.00 0.36% Vietnam 47,800 $0.70 0.38% Cambodia 5,900 $0.04 0.25% Myanmar 4,600 $0.04 0.06% Laos 2,400 $0.03 0.25% Brunei 240 $0.30 0.25% Source: Inter VISTAS Consulting (2015)

Table 1‐15 The Total of Direct, Indirect and Induced Economic Impacts by Country, 2014

Country Total Jobs Total GDP (USD Billions) % of National GDP Indonesia 401,000 $8.50 1.00% Thailand 309,500 $5.90 1.50% Malaysia 229,700 $3.70 1.10% Singapore 171,500 $17.10 5.60% Philippines 202,800 $1.90 0.70% Vietnam 111,600 $1.00 0.50% Cambodia 13,100 $0.10 0.40% Myanmar 10,100 $0.10 0.10% Laos 5,600 $0.0 0.30% Brunei 4,100 $0.40 2.40% Source: Inter VISTAS Consulting (2015)

Figure 1‐14 Passenger Volume and Contribution to GDP forecast of ASEAN countries, 2014‐2035

Source: PwC (2018)

ASEAN Single Aviation Market Development One of the drivers for the robust growth of aviation market in ASEAN is the ASEAN Single Aviation Market (ASAM) which aims at establishing a limited “open skies” arrangement for 3rd/4th and 5th freedom operations within the Member States in 2015. These goals are being pursued through two multilateral agreements that have already been adopted—the 2008 Multilateral Agreement on Air Services (MAAS) and the 2010

Multilateral Agreement on the Full Liberalization of Passenger Air Services (MAFLPAS). The development of the ASAM is expected to enhance the overall performance of the ASEAN air transport sector. This could enable ASEAN to leverage its location at the crossroads of Northeast Asia, South Asia, and Oceania to enhance ASEAN’s strategic significance in Asia (Tan, 2012).

Airport Among the 259 airports in ASEAN, five were ranked top 100 by Skytrax in 2018. They are Singapore’s Changi International Airport (1st), Thailand’s Suvarnabhumi Airport (36th), Malaysia’s Kuala Lumpur International Airport (44th), Indonesia’s Soekarno–Hatta International Airport (45th) and Vietnam’s Noi Bai International Airport (82nd) (Skytrax, n.d.).

According to Airport Council International (2018a), Singapore’s Changi International Airport and Indonesia’s Jakarta Airport are on the top 20 busiest airports list with passenger traffic of 58.7 million and 58.2 million respectively in 2016. While for air cargo performance, only the Changi Airport can make it to the top 20 list in 2016 with cargo volume of 2 million metric tonnes (Airport Council International, 2018b).

To meet with the growing demand of both the domestic and international market, expansion plans and plans for new airports has been carried out in recent years.

Table 1‐16 Airport expansion and construction plans in ASEAN countries

Country Airport construction and expansion plans Cambodia Cambodian government has approved plan to build a new airport in in south-eastern Kandal province in early 2018 (The Straits Times, 2018). Indonesia - Acquiring land for a third runway at the Soekarno-Hatta International Airport (The Jakarta Post, 2018a) - Kertajati Airport in West Java opened in May 2018 (The Jakarta Post, 2018b) Laos Completed an expansion project in the Wattay International Airport in Aug 2018 (Kishimoto, 2018). Malaysia - Langkawi airport would have an upgraded terminal (Chong , 2017) - the Kota Bahru, Penang, Kuching and Kota Kinnabalu airports will also undergo an expansion and upgrading phase - Malaysia Airports Holding is discussing with the Malaysian government about the possibility to build a new airport in Central Malaysia Myanmar A 4th international airport in the country will be built outside Yangon, the construction will finish by 2020 (Kim, 2018). Philippines The government of Philippines and China had signed MoU to build an airport in Sangley Point which is expected to be finished by 2021 (Hananto, 2017). Singapore - Changi Airport opened Terminal 4 in October 2017 (Aviation Week - Third runway is expected to be in operation by early 2020s Network, 2018) - A plan to be Terminal 5 which is expected to open in 2030 Thailand - Suvarnabhumi Airport’s expansion is expected to be complete 2021 (Reuters, 2018) - Construction of second airports for Chiang Mai and Phuket had been approved. The construction work is expected to be finished by 2025 (Bangkok Post, 2018)

Airlines

Figure 1‐15 Leading Southeast Asian airline groups in 2017

Source: Flight Airline Business (n.d.)

Singapore Airlines (SIA) had outdone its counterparts in the region, generating 11.69 billion USD in 2017. It has been ranked World’s Top 3 Airlines by Skytrax for twelve consecutive years. The carrier started operation in 1947, then known as the Malayan Airways Limited. In its early years, SIA operated routes mainly within Southeast Asia. The first transcontinental journey was made in 1971, heading to London. In 1981, SIA shifted its base from Paya Lebar Airport to the then brand-new Singapore Changi Airport. In the 1980s, the carrier developed more routes to Europe and North America. In the 2000s, SIA served routes to China and Hong Kong as well (Singapore Airlines, n.d.).

SIA’s subsidiaries include Singapore Airlines Cargo, SilkAir (an airline based in Singapore, serving mainly the Southeast Asia market) and Scoot (a Low Cost Carrier (LCC) wholly owned by SIA) (Singapore Airlines, n.d.). In the financial year 2017-18, the three airlines had carried 33,658,910 passengers. They operated routes to 136 destinations in 37 countries. The passenger revenue was SGD 428 million (equivalent to HK$2,452 million) (Singapore Airlines, 2018).

Figure 1‐16 LCC Market in ASEAN Air Travel

Source: DBS Group Research (2018)

Apart from the full-service airlines, LCCs are doing fine as well. The market share of LCCs has maintained at over 50% within the ASEAN market since 2013.

Figure 1‐17 LCCs in ASEAN Countries

Source: Shamasundari (2017)

Figure 1‐18 Market share of airlines in Southeast Asia in the week of April 25, 2016, based on percentage of seats offered on domestic flights

Source: Website (www.airlineleader.com) (n.d.)

The Lion Air Group (parent company of Lion Air, Wings Air, and Batik Air) operated the largest fleet in Southeast Asia, followed by the AirAsia Group (CAPA, 2018).

Lion Air was established in 1999, headquartered in Jakarta, Indonesia. It was the first LCC in Indonesia. The LCC flies 183 routes in total. The primary destinations include cities within Indonesia, other Southeast Asian countries and the Middle East. It had been banned in the European Union during 2007 (Davies, 2013) and 2016 due to poor safety record (Gizauskas, 2018).

AirAsia was established in 1993 and started operation in 1996, based in Malaysia. The airline was heavily in debt in the early years but overcame the difficulties in the 2000s. It boomed in the 2000s by operating new routes to destinations in Asia, including Indonesia, Macau, China, Philippines, Vietnam, and Cambodia, and setting up subsidiaries in other ASEAN countries. It later developed routes to Europe and Australia via its sister airline, AirAsiaX (AirAsia, 2011). The AirAsia Group (including subsidiary airlines operating outside ASEAN) carried 65.5 million passengers in 2017. It flies 293 routes to 119 destinations in 21 countries (AirAsia Group Berhad, 2018).

Constraints Although agreements have been signed, ASEAN lacks a supranational framework like the European Commission that can exert authorities upon the Member States, with different interests and at different levels of development, to accept a common regional goal. For example, the biggest economy and aviation market—Indonesia—is reluctant to accept the Agreements due to its carriers’ concerns that they may lose market share to stronger carriers from the other ASEAN Member States. Thus, some member states continue to exercise more restrictions than others.

Additionally, ASAM has been criticized as incomplete as it excluded total freedom of market access and in relaxation in ownership and control rules (Tan, 2010; 2012). There were also comments that the ASEAN ATAs resulted in disadvantaging their airlines vis- à-vis competitors from larger unified markets such as China (Tan, 2012). However, similar results also existed in the initial stage of EU-US open skies development (Tan, 2012).

Besides, many high-speed rails are under construction or planning in response to China’s Belt and Road Initiative. This will intensify the competition in short-to-mid-haul routes. The cases of Korea and Taiwan have already shown the impacts on aviation market by the introduction of the express rail link (PwC, 2018).

Figure 1‐19 Rails linking China and Southeast Asia under planning

Source: PwC (2018)

Forecasts According to Boeing (2018)’s forecast, the annual growth rate of passenger traffic within Southeast Asia market is 6.9% for the coming 20 years, with RPKs reaching 870.9 billion in 2037.

Section 2 Objectives of the study

The study aims at:

(i) undertaking an economic assessment of ASEAN-China Air Transport Agreement, upon Hong Kong’s, ASEAN’s and Mainland China’s aviation industry; (ii) examining factors affecting Hong Kong’s aviation-hub position, given the development of ASEAN-China Air Transport Agreement; and (iii) providing policy recommendations for Hong Kong government to formulate the strategies of further aviation liberalization in ASEAN-Hong Kong and Mainland China- Hong Kong markets.

Section 3 Interaction among the Regional Aviation Markets

Section 3.1 Interaction between Hong Kong and China Aviation Markets According to the statistics of Tourism Commission Commerce and Economic Development Bureau (2018), the weekly number of direct flights between Hong Kong and China as on the last week of December 2017 is 860. Figure 3-1 has shown the number of Mainland Chinese visitors arriving Hong Kong by air in the past decade. Significant growth has been observed during 2009 and 2015. The number has surpassed 5 million in 2014. The average growth rate over the years is 10.91%. In 2017, the number of Mainland Chinese visitors by air accounted for 37.6% of total visitors visiting Hong Kong by air.

Figure 3‐1 Mainland China visitors arriving Hong Kong by air, 2008‐2017

Source: Hong Kong Tourism Board (2009; 2010; 2011; 2012; 2013; 2014; 2015; 2016; 2017; 2018)

There are 9 airlines based in Mainland operating routes between Hong Kong and Mainland China. They accounted for 5.42% share in the Hong Kong aviation market in 2017.

Table 3‐1 Percentage share of airlines in Hong Kong aviation market in 2017

Airlines % share of airline by seat capacity Air China (CA) 1.49% China Eastern Airlines (MU) 1.93% China Southern Airlines (CZ) 0.36% Juneyao Airlines (HO) 0.12% Shanghai Airlines (FM) 0.33% Shenzhen Airlines (ZH) 0.36% SichuanAirlines (3U) 0.12% Spring Airlines (9C) 0.30% Xiamen Airlines (MF) 0.41% Total 5.42% Source: Hong Kong Tourism Board (2018)

Air Services Arrangement between the Mainland and the Hong Kong Special Administrative Region After Hong Kong’s reunion with China in 1997, the first air service arrangement was finally signed in Beijing in 2000 (Hong Kong Government, 2000). Air transport between Mainland China and Hong Kong had mainly been provided by regular charter flights before the arrangement was signed. Scheduled flights were greatly increased after the arrangement was signed. New destinations and routes were set up. Air cargo services was also enabled.

The real breakthrough came in early 2004 when Closer Economic Partnership Arrangement (CEPA) was signed between Hong Kong and Mainland China. After a thorough review, later in 2004, new air services arrangement has been signed. In this new

40 arrangement, the routes between Hong Kong and Mainland China which allowed only one airline from each side to operate would increase to two from each side. The lift of capacity limit first covered ten routes and extended to all routes in 2006. A new route and code-share arrangement were also included in this air service arrangement (Hong Kong Government, 2004).

To further liberalize the aviation market between Hong Kong and Mainland China, another arrangement was signed in 2006 and 2007. According to the 2006 arrangement, each side could designate three airlines to operate passenger flights and two airlines to operate all-cargo flights on most of the routes by the end of 2007. In addition to the 45 then existing routes, 11 new routes were added to the arrangement (Hong Kong Government, 2006).

The Memorandum of Understanding (MoU) signed in 2007 took one step forward to liberalize both sides’ aviation market. The restriction on the number of designated airlines on most routes had been removed. While for Beijing, Shanghai, Guangzhou, Shenzhen, Kunming, Dalian and Chengdu routes, the number of designated airlines from each side increased from three to four. Capacity restrictions in most of the routes had also been eliminated. Full liberalization of all-cargo services had been achieved as capacity limit in all routes was lifted (Hong Kong Government, 2007).

The latest MoU was signed in February 2018. It enables airlines of both sides to launch intermodal code-sharing services with sea and land transport operators, which expands the transport network of Hong Kong and the Mainland. Air passengers, using the same air ticket, can enjoy more convenient connection to the neighboring cities. The cities covered include Shenzhen, Guangzhou, Zhongshan, Dongguan and Zhuhai (Hong Kong Government, 2018b).

Aviation Cooperation in the Guangdong-Hong Kong-Macao Greater Bay Area There are five major airports in the Greater Bay Area (GBA), namely Hong Kong International Airport (HKIA), Guangzhou Baiyun Airport (CAN), Shenzhen Baoán Aiport (SZX), Macau International Airport and Zhuhai Jinwan Airport (ZHA). They set

41 up the “Pearl River Delta A5 Forum” in 2001 as a platform to explore the potential of cooperation and share experience. Since then, meetings were held regularly to review the aviation development in the region and plans of coordination.

Figure 3‐2 Locations of the A5 airports

The airplane icons from top to bottom: Guangzhou Baiyun International Airport, Shenzhen Bao’an International Airport, Hong Kong International Airport, Macao International Airport and Zhuhai Jinwan Airport.

Source: Wen wei po (2011)

One significant achievement of the A5 forum is the co-commissioning by Airport Authority Hong Kong and Zhuhai Airport Authority including a consultant study on air- cargo joint venture between the two airports in 2002 (Sit, 2003). Hong Kong-Zhuhai Airport Management Co. Ltd (HKZAM), a joint venture between Airport Authority Hong Kong and the State-owned Assets Supervision and Administration Commission of Zhuhai Municipal People's Government, has managed the Zhuhai Airport since 1 October 2006 (Airport Authority Hong Kong, 2007). Zhuhai Airport (ZHA) had experienced drastic growth in terms of both passenger and cargo volume in the years following. Hong Kong International Airport also expanded its catchment area by partnering with ZHA.

In 2009, the A5 airports signed the “Action Agenda for Greater PRD Region Airports to Implement the Framework for PRD Region’s Development and Reform Planning” and reached consensus over six aspects such as A5’s development and positioning and the expansion of PRD’s airspace.

During the 2015 meeting, the “A5 Technology Application Sharing Professional Committee” was setup in order to promote the application of information technology to enhance airport efficiencies and, more importantly, co-operation among the A5 airports on fostering technological development.

A memorandum of understanding (MoU) was signed in 2016 during the Greater Pearl River Delta A5 Chairmen’s meeting. All the airports committed to implementing goals set by the “A5 Technology Application Sharing Professional Committee” set up in 2015 (Airport Authority Hong Kong, 2016b).

Competition in the Pearl River Delta Region However, the area also faces intensive competition especially among HKIA, CAN and SZX. The latter two airports’ development subjects to the national planning. In the 12th and 13th Five-Year Plan, CAN and SZX were positioned as international hub airports. They had extensively developed international routes and enhanced their capacity by building new runways and terminals. The overlapping destinations will hinder the development of respective airports. Alongside with CAN and SZX’s increasing

43 connection with the world, HKIA would gradually lose its unique position as the transfer hub to the hinterland.

Section 3.2 Interaction between Hong Kong and ASEAN Aviation Markets

Negotiating HK-ASEAN Free Trade Agreement (FTA) —Framework Leading to HK-ASEAN ATA After China started its implementation of FTA with ASEAN in 2010, Hong Kong government attempted to conclude a similar agreement with ASEAN, under the support of the Mainland government. Hong Kong commenced the first round of FTA negotiation with ASEAN in July 2014. The negotiations were concluded in September 2017 after ten rounds of negotiations. The HK-ASEAN FTA will promote Hong Kong’s full potential as a bridge for trade and investment between ASEAN and Mainland China.

The Trade and Industry Department of the Hong Kong Government issued a consultation document in May 2014, in order to obtain “comments and inputs on other matters relating to services trade with ASEAN” to assist in the formulation of strategies and positions in the FTA negotiation with ASEAN. According to the document, ASEAN was Hong Kong’s 4th largest services trading partner in 2012. Bilateral services trade amounted to HK$110b, representing 8% of HK’s total international trade in services. The average growth rate was 6.8% between 2008 and 2012. Transport, travel and other business services constituted the major services exports, as well as imports from ASEAN.

In 2017, ASEAN was the second largest market of Hong Kong's goods, accounting for 18% of Hong Kong’s total domestic exports. The table below has shown that Vietnam, Singapore and Thailand were the top three markets for Hong Kong products among ASEAN Member States in 2017. Besides, ASEAN was Hong Kong’s second largest supplier for goods in 2017. 15% of Hong Kong’s total imports were sourced from ASEAN (Hong Kong Government, 2018c).

Table 3‐2 Hong Kong's Merchandise Trade with ASEAN and Individual Member States in 2017

Hong Kong's Merchandise Trade with ASEAN and Individual Member States in 2017 Ranking Member Value of Value of Value of Value of States Total Imports Domestic Exports Re-exports Trade (in HK$ million) (in HK$ million) (in HK$ million) (in HK$ million) 1 Singapore 349,130 288,107 2,406 58,617 2 Thailand 143,777 89,641 1,060 53,076 3 Malaysia 143,539 114,877 957 27,705 4 Viet Nam 141,277 61,645 2,429 77,203 5 The 104,730 76,275 430 28,026 Philippines 6 Indonesia 41,783 19,363 502 21,919 7 Cambodia 9,143 2,011 67 7,065 8 Myanmar 2,959 700 19 2,240 9 Brunei 212 53 28 131 Darussalam 10 Laos 207 35 3 169 ASEAN 936,756 652,706 7,901 276,149 (11.4%) (15.0%) (18.2%) (7.2%) All trading partners 8,232,902 4,357,004 43,455 3,832,443 Source: Hong Kong Government (2018c)

HK-ASEAN Aviation Interactions Since the ASEAN-China Free Trade Agreement (FTA) took effect in 2010, Hong Kong has played a more significant role in trade and investment between ASEAN and Mainland China. In recent years, ASEAN was Hong Kong’s second largest trading

45 partner, ahead of the US and EU, only behind Mainland China. In 2013, total bilateral trade of goods between Hong Kong and ASEAN exceeded US$96b. Five ASEAN economies have been among Hong Kong’s top 20 trading partners. Additionally, more than 10% of trade between ASEAN and China, at a value of about US$45b, was routed through Hong Kong (Hong Kong Government, 2014).

At end-2016, ASEAN was the sixth largest source of external investment in Hong Kong. Hong Kong’s role as Sino-ASEAN’s entrepot for trade should not be underestimated. In 2017, around HK$258.4 billion of the Mainland's import of goods from ASEAN were routed through Hong Kong. Re-exports of Mainland origin goods to ASEAN through Hong Kong exceeded HK$200.3 billion (Hong Kong Government, 2018c).

Hong Kong’s aviation industry is playing a crucial role in promoting trade, tourism, and investment with ASEAN. ASEAN is the largest aviation market and source of tourism for Hong Kong, other than Mainland China. There are about 912 flights (see

Table 3‐3) between Hong Kong and ASEAN weekly (about 8.86% of Hong Kong’s total number of flights per week) in 2017. The total number of visitors from Southeast Asia by air was about 2.2 million in 2017 (25.8% of all non-Mainland visitors by air to Hong Kong). ASEAN low cost carriers (including Air Asia, Cebu Pacific Air, Jetstar Asia, Orient Thai, Scoot, Thai AirAsia, Tigerair) developed very rapidly to serve the Hong Kong market in the last five years. Air cargo is also an important component, given the increasing trade volume. It is essential for Hong Kong to promote and enhance these HK- ASEAN aviation interactions.

Table 3‐3 Weekly Number of Flights between Hong Kong and ASEAN Member States (as of December 2017)

ASEAN Country Weekly Number of Direct Flights to/from Hong Kong

Brunei 7

Cambodia 42

Indonesia 82

Laos 0

Malaysia 115

Myanmar 15

Singapore 149

Thailand 240

The Philippines 163

Vietnam 99

Total 912

Source: Tourism Commission Commerce and Economic Development Bureau (2018)

Figure 3‐3 ASEAN visitor arriving Hong Kong by air, 2008‐2017

Source: Hong Kong Tourism Board (2009; 2010; 2011; 2012; 2013; 2014; 2015; 2016; 2017; 2018)

Figure 3‐3 has shown that the number of visitors by air from ASEAN countries rose significantly during 2009 and 2011. While in the subsequent years, the growth patterns of the ASEAN countries differed. Number of visitors from Indonesia, Malaysia, Vietnam and Thailand stagnated. Performance of both the Philippines and Singapore fluctuated during 2011 and 2015, failing to exceed 500,000 visitors in a year. The Philippines was the only country persisted in growing after 2014. In 2017, the number of visitors from South and Southeast Asia by air accounted for 18.1% of total visitors visiting Hong Kong by air.

There are more than 20 airlines based in ASEAN member states operating routes between Hong Kong and Southeast Asia. They accounted for 10.82% share in the Hong Kong aviation market in 2017.

Table 3‐4 Percentage share of airlines in Hong Kong aviation market in 2017

Airlines % share of airline by seat capacity AirAsia (AK) 0.80% AirAsia Zest (Z2) 0.13% Cambodia Angkor Air (K6) 0.04% Bangkok Airways (PG) 0.18% Cebu Pacific Air (5J) 1.61% Garuda Indonesia (GA) 0.46% JC Airlines (QD) 0.08% Jetstar Asia Airways (3K) 0.27% Jetstar Pacific (BL) 0.17% Lanmei Airlines (LQ) 0.02% Malaysian Airlines (MH) 0.44% Malindo Air (OD) 0.12% Myanmar National Airlines (UB) 0.07% Philippine Airlines (PR) 1.22% Royal Brunei Airlines (BI) 0.17% Singapore Airlines (SQ) 1.72% Thai AirAsia (FD) 0.66% Thai Airways (TG) 1.75% SCOOT (TR) 0.45% VietJet Air (VJ) 0.13% Vietnam Airlines (VN) 0.33% Total 10.82% Source: Hong Kong Tourism Board (2018)

Among the visitors from South and Southeast Asia, 20%-30% of them had chosen flights operating by airlines based in Hong Kong in 2016 and 2017. Airlines based in ASEAN member states are also popular choices among visitors.

Figure 3‐4 Airlines used by visitors from South and Southeast Asia in 2016 and 2017

Source: Hong Kong Tourism Board (2018)

Section 3.3 Interaction between China and ASEAN Aviation Market

ASEAN-China Development in 13th Five-Year Plan of PRC --- Possible Impacts on Pearl River Delta’s Aviation Development In the National 13th Five-Year Plan (13-5) released in March 2016, some emphasis has also been placed on ASEAN. China aims to fully implement the ASEAN-China Free Trade Area Upgrading Protocol signed in December 2015 during 13-5. Guangxi is positioned as an international gateway to ASEAN countries, and Yunnan will be a center from which radiate outwards into South and Southeast Asia. In Guangdong Province’s 13th Five-Year Plan, the development of Guangdong-Hong Kong-Macao Big Bay Area

52 will promote the growth of Central-south and Southwest China, and radiate outwards to South and Southeast Asia.

Critically, one of the National 13-5’s goals is to build world-class airports in Jing-Jin-Ji, Yangtze River Delta and Pearl River Delta (PRD). Apart from Beijing, Shanghai and Guangzhou, the already vital international aviation hubs, seven cities across the country, including Shenzhen, are directed to develop into international hubs during 13-5. Besides, in their respective five-year plans, Guangzhou will strengthen its role as an international aviation hub, while Shenzhen aims to be an international aviation hub by 2020.

Meanwhile, in its 13-5 released in April 2016, Shenzhen will participate in the ASEAN- China Free Trade Area Upgrading Protocol, and explore business opportunities in Southeast Asia, Bangladesh, India, Myanmar, etc., in particular encouraging its dominant information industries to cooperate with ASEAN countries. Shenzhen also plans to build a major logistical pathway to ASEAN, so that the city can be an essential hub for ASEAN-China trade. To achieve this, Shenzhen will support the growth of civilian airlines’ launch of cargo routes to develop its international air freight market. During 13- 5, Shenzhen will also participate in the construction of ASEAN Information Port.

Since the implementation of the original Air Traffic Agreement in 2010, there had been a significant jump in the number of visitors from China to ASEAN countries as shown below:

Table 3‐5 Visitors arriving ASEAN countries from China (in thousands)

2008 2009 2010 2011 2012 2013 2014 2015 Brunei 28 16 25 33 27 40 39 37 Cambodia 130 128 178 247 334 463 560 695 Indonesia 337 373 422 574 618 807 927 1,261 Lao PDR 106 128 162 151 200 245 422 511 Malaysia 944 1,020 1,130 1,251 1,559 1,791 1,613 1,677 Myanmar 98 102 114 62 71 91 809 2,103 Philippines 164 155 187 243 251 426 395 491 Singapore 1,079 937 1,171 1,578 2,033 2,270 1,722 2,106 Thailand 937 816 1,122 1,761 2,761 4,610 4,624 7,935 Viet Nam 650 528 905 1,417 1,429 1,908 1,947 1,781 TOTAL 4,473 4,203 5,416 7,317 9,283 12,651 13,058 18,597 Source: ASEAN (2017a)

Looking at the data, one may notice that for countries like Myanmar and Cambodia, the jump in visitors was not as significant immediately after 2010. Since the agreement requires a written notification on ratifying the agreement before the agreement for that specific contracting party will be in force, some of these increase in visitors from China may have been delayed. However, if we only consider the total arrivals by Chinese visitors, there was a major increase after 2010 with year on year increase growing as much as 42% from 2014 to 2015.

According to a study by the China Tourism Academy (2018), Chinese visitors had come first on the lists of number of international visitors in many countries. Four of which were member states of ASEAN.

Table 3‐6 Number and share of Chinese visitors traveling to ASEAN countries in 2017

Country Chinese visitor in 2017 (million) Share of international visitor Thailand 9.8 28% Vietnam 4.0 25.6% Cambodia 1.2 21% Indonesia 2.06 14.95% Source: China Tourism Academy (2018)

The same report had shown that out of the 15 most desired countries in 2017, seven were in ASEAN, namely Thailand (No.1), Singapore (No.3), Vietnam (No.4), Indonesia (No.5), Malaysia (No.6), the Philippines (No.7), and Cambodia (No.11) (China Tourism Academy, 2018).

As for China, according to the Chinese Statistical Yearbook of 2016, the growth in visitors from ASEAN countries have not experienced the same level of increase as experienced by ASEAN countries and have more or less remained constant in early years after the ATA was signed. Yet, in 2016, the number of visitors from Myanmar and Vietnam burgeoned. Table 3-7 has shown the number of visitors from seven of the ASEAN member states during 2008 and 2016.

Table 3‐7 Visitor Arriving China from Several ASEAN countries (in Ten Thousands)

2008 2009 2010 2011 2012 2013 2014 2015 2016 Indonesia 42.63 46.90 57.34 60.87 62.20 60.53 56.69 54.48 63.29 Malaysia 104.05 105.90 124.52 124.51 123.55 120.65 112.96 107.55 116.39 Myanmar 50.90 60.77 49.34 19.10 20.59 13.47 13.28 14.44 242.81 Philippines 79.53 74.89 82.83 89.43 96.2 99.67 96.79 100.40 113.47 Singapore 87.58 88.95 100.37 106.30 102.77 96.66 97.14 90.53 92.19 Thailand 55.43 54.18 63.55 60.80 64.76 65.17 61.31 64.15 74.90 Viet Nam 74.35 82.86 92 100.65 113.72 136.54 170.94 216.08 316.73 Source: China National Tourism Administration (2017)

Forecasts According to Boeing(2018) (Boeing, 2018)’s forecast, the annual growth rate of passenger traffic between China and Southeast Asia market is 6.3% for the coming 20 years, with RPKs reaching 488.1 billion in 2037.

Section 4 Overview of ASEAN‐China ATA

In 2010, in order to further facilitate free trade between ASEAN and China, an Air Transport Agreement was signed between ASEAN member countries and China in November 2010. ASEAN countries involved in the agreement includes Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam.

According to the 2010 agreement, contracting parties can designate more than one airline, in which the contracting party has substantial ownership and effective control in. The designated airlines from each contracting party will have the following rights:

1) the right to fly across the territory of other contracting parties without landing, along the routes prescribed by the aeronautical authorities of the other contracting party 2) the right to make stops in the territory of other contracting parties for non-traffic purposes

Or essentially, the third and fourth freedom traffic rights between contracting parties. Scheduled flights are not limited to any point of origin or destination within the contracting parties of ASEAN as well as any point of origin or destination within China, with the exception of Hong Kong, Macau and Taiwan due to their special administration region status. Additionally, cooperative arrangements between designated airlines are allowed, which includes but not limited to code sharing and joint ventures. Furthermore, in conjunction with existing air service agreements between contracting parties, the more liberal and less restrictive air service agreement prevails. Finally, a depositary of written notification must be received from China and at least two ASEAN contract parties in

56 order for the Air Transport Agreement to come in force and only for contract parties who have submitted the written notification (ASEAN, 2010).

According to ASEAN, as of Sep 2017, all countries have ratified the Air Transport Agreement since in November 2010 and could be considered in force as shown below (ASEAN, 2017b).

Table 4‐1 Date of ratification of ASEAN‐China ATA by member states – Protocol 1

Member states Date Ratified Brunei 9 April 2013 Cambodia 2 November 2016 Indonesia 12 April 2016 Laos 24 August 2017 Malaysia 24 June 2011 Myanmar 20 June 2012 Philippines 7 February 2017 Singapore 9 June 2011 Thailand 13 September 2011 Vietnam 9 November 2011

In December 2013, an extension to the original ASEAN-China Air Transport Agreement was signed, granting fifth freedom traffic rights to several designated point and routes. There are four parts of the agreement:

1) full fifth freedom traffic rights, with no limit to frequency and aircraft type from 10 named points in ASEAN, via any ten named points in ASEAN to any 28 name points in China and beyond to any ten named points in ASEAN and vice versa. 2) fifth freedom traffic rights for up to 14 weekly passenger and/or cargo services, with no restriction on aircraft type from 10 named points in ASEAN, via any point outside of China and ASEAN to 10 named points in China and beyond to any point outside of China and ASEAN and vice versa

3) full fifth freedom traffic rights, with no limit to frequency and aircraft type from 29 named points in China, via any 10 named points in ASEAN to any 10 named points in ASEAN and beyond to any 10 named points in ASEAN and vice versa. 4) fifth freedom traffic rights for up to 14 weekly passenger and/or cargo services, with no restriction on aircraft type from 10 named points in China, Evian any point outside of China and ASEAN to 10 named points in ASEAN and beyond to any point outside of China and ASEAN and vice versa.

According to the agreement, 10 named points in ASEAN include Bandar Seri Begawan, Preah Sihanouk, Mataram, Luang Prabang, Kota Kinabalu, any one point in Myanmar except Yangon, any one point in Philippines except Manilla, Singapore, Chiang Mai and any one point in Vietnam except Ha Noi and Ho Chi Minh City.

As for the 28 name points in China include Changchun, Changsha, Chengdu, Chongqing, Dalian, Fuzhou, Guilin, Guiyang, Haikou, Harbin, Hohhot, Kashgar, Kunming, Lanzhou, Lhasa, Sanya, Shenyang, Nanning, Ningbo, Urumqi, Wuhan, Xi’an, Xiamen, Xining, Xishuangbanna, Yanji, Yinchuan and Zhengzhou. Where Changsha, Chengdu, Chongqing, Guilin, Kunming, Nanning, Urumqi, Xi’an, Xiamen, Fuzhou, and Zhengzhou make up the ten name points in China for the restricted fifth freedom traffic rights involving points outside of China and ASEAN.1

So far, most parties have agreed to an extension of the original Air Traffic Agreement. However, Brunei and Indonesia have yet to ratify this agreement as shown below (ASEAN, 2017b).

1 http://asean.org/wp-content/uploads/images/2015/December/asean-transport- ministers-meeting/CTC%20of%20AC-ATA-Protocol-2.pdf

Table 4‐2 Date of ratification of ASEAN‐China ATA by member states – Protocol 2

Date Ratified

Brunei - Cambodia 2 November 2016 Indonesia - Laos 24 August 2017 Malaysia 11 February 2015 Myanmar 23 June 2015 Philippines 26 May 2017 Singapore 21 January 2015 Thailand 9 June 2015 Vietnam 3 December 2015

Section 5 Impacts of ASEAN‐Chinese ATA on Hong Kong’s Hub Competitiveness

Together with the ASEAN-China FTA, an Air Transport Agreement (ATA) was signed between ASEAN and China in November 2010 and implemented in 2011. Protocol 1 of the ATA abolished all capacity restrictions on direct point-to-point (3rd and 4th freedom) passengers operations. The subsequent Protocol 2 attempted to advance liberalization further by freeing up 5th freedom operations for airlines on both sides. However, Protocol 2 only covered a finite list of cities through which 5th freedom rights could be exercised. These are mostly secondary cities which rendered the formation of profitable 5th freedom operations highly impossible. Furthermore, it also falls short of allowing the ASEAN carriers to operate between another member state and China. By 2012, Mainland China, Myanmar, Singapore, Malaysia, Thailand, and Vietnam had ratified the parent agreement and Protocol 1 of the ASEAN-China ATA (we have not been able to obtain the latest information on the subject yet).

An agreement between ASEAN and China regarding the Fifth Freedom Traffic Rights between the two parties was officially signed in Jakarta on 19 December 2014. According

59 to the agreement, both parties agreed to a full Fifth Freedom Traffic Rights between 10 chosen points within the ASEAN members and 28 different points in China with no restrictions to frequency, types of service (i.e., passenger or cargo) and aircraft type.

Additionally, the agreement stipulates that a maximum of 14 flights per week (regardless of passenger or cargo and aircraft type) from the 10 points within ASEAN are granted rights of traffic to 10 points in China via a point outside ASEAN and China. After the flight reaches China, it can further reach a point outside ASEAN and China under the agreement. The reverse flight departing from 10 points in China is also agreed upon by both parties.

This is one of the reasons leading to an increase in the number of flights between ASEAN and China. New flights connecting the two regions, e.g. Harbin-Wuhan-Bangkok, Guangzhou-Nha Trang, Guangzhou-Vientiane and Urumqi-Lanzhou-Bangkok, were launched in 2015 and early 2016. In the first quarter of 2016, the Civil Aviation Administration of China approved an addition of 32 international flights between China and ASEAN operated by 17 ASEAN-based airlines.

According to this ATA, Hong Kong, Macao, and Taiwan were explicitly excluded, unless otherwise agreed (Section 1 of Annex 1). This came in somewhat of a disappointment to the ASEAN States and their carriers, which had hoped to include the potentially more profitable HK routes in the arrangement (Tan, 2012, p. 37).

Existing restrictions in the ASEAN-China ATA have limited the realization of potential benefits of the Agreement to both sides. It would undoubtedly require a better understanding of the current status of the implementation of the ATA and to provide viable improvement measures to achieve a win-win situation. Naturally, the exclusion of Hong Kong in the ATA could be a major uncertain issue against Hong Kong’s aviation development in the longer term.

Table 5‐1 Flight Cutbacks at Selected US Hub Airports (2007‐2012)

Hub Airport Hub Airline Scheduled Scheduled Percentage Passenger Passenger Change Flights Flights

June 2007 June 2012

Cincinnati Delta 12,781 4,710 -63.1%

Cleveland Continental 9,070 6,684 -26.3%

Memphis Northwest 8,277 5,308 -35.5%

Pittsburgh US Airways 7,462 4,470 -40.1%

St. Louis American 9,503 7,127 -25.0%

Total 5 Hubs 47,043 29,299 -39.8%

There is intense competition among established hubs, especially for connecting traffic, which could be easily relocated elsewhere (Swan, 2007). In the recent US’s experience (Table 5‐1), several hub airlines recorded significant declines (about 40%) in operations in their respective hubs, mainly due to changes in their strategies and economic slowdown. Additionally, Malaysia Airlines experienced a contraction in its international network in recent years, mainly due to a reduction in connecting traffic (Binti Ismail, 2012).

According to a recent discussion with the top management of a local airline, they expressed that more direct flights between ASEAN and Mainland China would weaken Hong Kong’s hub position. In fact, there were 17.5 million transfer passengers in HKIA in 2012 (about 35% of total transfers), and Cathay Pacific accounted for about 50% of it. The possible weakening of Hong Kong’s aviation connectivity should not be taken lightly.

Section 5.1 Literature Review

Since the deregulation of its domestic aviation market in 1979, the United States (US) has started to negotiate with different nations for potential open skies agreement. In 1997, the European Union (EU) formed the single aviation market, which allowed European air carriers to operate flights between any EU member states (Fu, Oum, & Zhang, 2010).

There is a vast literature examined the impacts of different kinds of international aviation liberalization movement [e.g. US (Oum, 1998), EU (Schipper, Rietveld, & Nijkamp, 2002; Graham, 1998), EU-US (European Commission, 2007) and others (Adler & Hashai, 2005)]. The methodologies for the assessment have been well- established in the literature. Fu, Oum and Zhang (2010) summarized economic effects of air transport liberalization. It is found that air liberalization increased the competition. Regulations before air liberalization on pricing, route entry and capacity etc., allow and encourage more competition. Dobruszkes (2009) examined the liberalization of European airspace and found that competition appears to have increased after the liberalization, but it also has led to the creation of many new air routes operated by a single airline. The competition also led to reducing fares and increasing traffic. WTO (Piermartini & Fache Rousova, 2008) estimated the impact of liberalizing air transport services on air passenger flows for a sample of 184 countries. It is found that the volumes of traffic are statistically positive correlated with the degree of liberalization. Button (1998) found that in the period of deregulation in the US (i.e. 1978-1988), passenger traffic increased by 55 percent while scheduled revenue passenger- miles grew by over 60%. Maillebiau and Hansen (1995) estimated traffic growth from liberalization at the transatlantic market is 56%. Adler and Hashai (2005) estimated that the effect of open skies in the Middle East Region. It is found that inter-regional passenger demand flow could increase by upwards of 51% under the assumption of deregulation of the regional air-transport industry. Piermartini and Rousová (2013) found that full adoption of open skies agreements would increase

62 passenger traffic worldwide 5%. Micco and Serebrisky (2006) found that open skies agreements that have been negotiated between 1990 and 2003.

The liberalization of the aviation markets also led to fare reduction. Schipper et al. (2002) found that standard economy fares on fully liberalized routes were, on average, 34% lower than on routes without such liberalization on European interstate routes. Winston and Yan (2015) found that eliminating open skies agreements on US international routes that have been signed between 2005 and 2009 would initially raise fares in all segments both short term and long term.

Given the fare reduction and stimulating travel demand, the liberalization may create significant consumer benefits. Winston and Yan (2015) found the US bilateral open skies agreements have generated at least $4 billion in annual gains to travelers and that travelers would gain an additional $4 billion if the US negotiated agreements with other countries that have a significant amount of international passenger traffic. The liberalization may also increase the productivity and efficiency of airlines. For example, it allows airlines to optimize their networks within and across continental markets (Fu, Oum, & Zhang, 2010).

Other studies considered the impacts of air liberalization on the economy as a whole. The literature suggested that air liberalization led to substantial economic and traffic growth. It is mainly due to increasing consumer benefits, from price reduction and travel demand growth, as well as producing efficiency, as mentioned before. IATA (2009) estimated that each 10% increase in international air services has led to a 0.07% increase in GDP. Similar results are obtained by Oum, Zhang and Fu (2009), which hypothesized that the income elasticity for developed markets should be about 1, and that the income elasticity for developing markets should be about 1.3.

Section 5.2 Methodology and Data

In our study, we would assess (i) the impacts of ASEAN-China ATA on the aviation markets between two regions, and (ii) its impact on the Hong Kong aviation market.

(i) The Impacts of ASEAN-China ATA on the Aviation Market between ASEAN and Mainland China The impacts of ASEAN-China ATA on the aviation markets between China and ASEAN countries will be explored. In particular, air fare, frequency, and passenger volume in the OD markets will be examined. As in the studies in the literature (e.g., (Maillebiau & Hansen, 1995; Gönenç & Nicolett, 2003; Schipper, Rietveld, & Nijkamp, 2002; Cristea, Hummels, & Roberson, 2012; Winston & Yan, 2015), we would examine the following fixed-effect regression models:

k E(ln fareijt )  o  1 ACAT  2 AirportP2  3 ACAT * AirportP2  4 LCCsijt k k  5 ln AirportHHI it  6 ln AirportHHI jt  7 RouteMarketShareijt  8 ln Freqijt

 9 ln(market _ potential)ijt …(1)

k E(ln Freqijt )  o  1 ACAT  2 AirportP2  3 ACAT * AirportP2  4 LCCsijt

 5 ln AirportHHIit  6 ln AirportHHI jt  7 RouteMarketShareijt k  8 ln Aircraftsizeijt  9 ln(market _ potential)ijt ….(2)

k E(ln Paxijt )  o  1 ACAT  2 AirportP2  3 ACAT * AirportP2  4 LCCsijt k  5 ln AirportHHI it  6 ln AirportHHI jt  7 RouteMarketShareijt  8 ln fareijt

 9 ln(market _ potential)ijt …(3)

64 where

• Fare is the average fare for economy class tickets of airline k on the route linking airports i and j at time t • Freq is the total frequency of airline k on this route, measured by the number of scheduled departures in a month • Pax is the no. of passenger of airline K on the route linking airports i and j at period t • ACAT is the dummy for the period of the ASEAN-China ATA • AirportP2 is the route include the Mainland airports covered in Protocol 2 in ASEAN-China ATA • LCCs is a binary variable. It takes a value of 1 if low cost carriers has presence in the market and 0 otherwise • Airport HHI is the HHI at the origin airport i in period t • Route Market Share is the share by scheduled seats of the airline k at the route level • Market potential is measured by the geometric mean of the airport throughput (measured in total scheduled seats) at the OD airports • Aircraftsize is the average number of seats per flight for of airline k on this route

It is noted that there might be endogeneity issues in the model estimation. Thus, instrumental variables may need to be considered.

After controlling the existence of the low cost carriers and the market potential, the empirical results could demonstrate the impacts of ASEAN-China ATA on fare, frequency and passenger volume. It is expected that the ATA could lead to an increase in passenger volume, a reduction in fare, and more flight frequency between the two regions. The impacts would be more significant for those airports in Mainland China, covered in Protocol 2, comparing with their counterparts. The results would shed light on the further liberalization of the aviation markets between the two regions.

(ii) The Impacts of ASEAN-China ATA on the Aviation Market of Hong Kong with ASEAN and Mainland China

As Hong Kong has been serving a regional hub for connecting passenger from other parts of the world, including ASEAN countries, to Mainland China, the strategic advantages of Hong Kong international airport include her geographical location, connectively, liberalized aviation policy, efficient airport management and well- developed tourism and logistics industries. Yet, the ASEAN-China ATA makes the connections at Hong Kong for ASEAN travelers being less necessary, which may hurt the competitiveness of Hong Kong Airport as an international aviation hub.

The objective of this part of study is to look at the impact of ASEAN-China ATA on Hong Kong’s aviation market, as well as the factors affecting the competitiveness of Hong Kong Airport as an international aviation hub. To assess the impact, we will focus on air fare, frequency and passenger volume of the routes between Hong Kong and ASEAN countries. Thus, regression models (1), (2) and (3) will be estimated based on the market data for those routes. It is expected that there will be negative impacts of ASEAN-China ATA on air fare, frequency and passenger volume in those markets for Hong Kong.

The data for the aviation market will mainly come from two sources: (1) OAD Data which contains the international flight information, including origin and destination (OD) cities, flight frequency and schedules, operating airlines, etc (2) data from Sabre, which contains revenue and passenger number for a particular OD route. From the dataset, we could obtain the average fare for each OD route in each quarter. We will also collect the data from World Bank Development Indicators, Hong Kong Census and Statistics Bureau and China’s National Bureau of Statistics and Statistical Bureau of ASEAN countries.

Furthermore, face-to-face in-depth interviews with governments, institutions, corporations and aviation experts in Hong Kong, ASEAN and Mainland China will be

66 conducted. In the interviews, we would communicate the empirical results with the stakeholders to check the robustness of our results. The stakeholders could help us to have a better understanding about the results. From the empirical results, we would also formulate some preliminary policy recommendations for enhancing Hong Kong’s aviation development with ASEAN. Interviewees could provide comments and suggestions for our recommendations.

Section 5.3 Research results and findings

Section 5.3.1 Empirical Analysis

The impact of the ASEAN-China air transport agreement (ATA) on airfares (ln(Fare)), total flight frequency (ln(Frequency)) scheduled by airlines and air passenger volumes (ln(Pax)) between three different markets: (i) between ASEAN and China; (ii) between ASEAN and Hong Kong; and (iii) between Hong Kong and China are empirically estimated and analysed. The empirical results are presented in Table 5-2.

Table 5-2. Empirical results of the impact of ASEAN-China air transport agreement on three markets (January 2008‒July 2017)

ASEAN-China ASEAN-Hong Kong Hong Kong-China Dependent variables ln(Fare) ln(Frequency) ln(Pax) ln(Fare) ln(Frequency) ln(Pax) ln(Fare) ln(Frequency) ln(Pax) Constant 7.664*** -7.882*** -7.882** 8.692*** -7.682*** -11.753* 8.594*** -2.827*** -7.600** ACAT_dummy -0.265*** -0.057 -0.147 -0.109 0.069** -1.197 0.065 0.184*** -0.110 AirporrtP2_dummy -0.518*** 0.223*** 0.576* - - - -0.313 -0.417*** -0.188 ACAT*AirportP2 -0.022 0.004 -0.126 ------Number of LCC -0.097*** 0.099*** 0.047 -0.049*** -0.006 -0.004 0.063 -0.084*** 0.032 ln(Airport HHI_Origin) 0.170** 0.137** 0.730 0.061 -0.240*** 1.234*** 0.341** 1.061*** 0.760*** ln(Airport HHI_Dest) -0.050 -0.159** 0.192 0.062 -0.125 2.064*** 0.028 -0.341*** 0.672 Route Market Share 0.099 0.957*** 1.735*** 0.736** 3.332*** 6.055** 0.323 1.942*** 0.508 ln(Frequency) -0.027 - - 0.053 - - 0.095 - - ln(Seat Capacity) - 0.895*** - - 0.834*** - - 0.925*** - ln(Fare) - - -0.952*** - - -2.846*** - - -0.520** ln(Market Potential) -0.126 0.876*** 1.499*** -0.210*** 0.772*** 2.182*** -0.139 0.766*** 1.506*** GFC_dummy 0.029 0.101*** 0.174 -0.108 0.057 -5.374** -0.230 -0.645*** 0.467** Beijing Olympic Games_dummy 0.025 -0.107*** -0.154 0.026 0.044 0.0484 -0.018 0.255*** 0.109 No. of Observations 10797 10797 10797 3946 3946 3946 6343 6343 6343 Within R2 0.503 0.889 0.901 0.150 0.929 0.205 0.160 0.927 0.051 Remarks: ln denotes logarithmic form. ** p-value < 0.05; ** p-value < 0.01***.

(i) The aviation market between ASEAN and China

This section reports the key findings of the ASEAN and China market. For the ln(Fare) regression model, two key variables of interest, ACAT_dummy and AirportP2_dummy are reported to be statistically significant and negative, which suggest that the signing of the ASEAN-China ATA and those designed routes of Chinese airports covered in Protocol 2 in the ASEAN-China ATA could reduce airfares between the ASEAN and Chinese destinations. It is because the ASEAN-China ATA allows free pricing to airlines as well as the Protocol 2 really advances and benefits the air transport development and liberalization for airline operations on both sides (Tan, 2012; Zhang, Zheng, & Lu, 2018). In addition, LCC activities and operations (number of LCC) led to the drop in airfares in the ASEAN-China aviation market is found with the significant negative coefficient estimate. This empirical study is similar to Liu and Oum (2018), who claimed that the impacts of South East Asian LCC’s penetration into a large number of Chinese major cities enabled by the recent ASEAN-China open skies agreement (OSA) and the majority of the routes between ASEAN countries and the top 80-90 Chinese cities dominated by the ASEAN LCCs. Also, Hanaoka et al. (2014) mentioned that one LCC entry in the ASEAN markets affect airfares, flight frequency and profitability across the whole network, and provide the clear benefit of passengers. Interestingly, under this ATA more airport competition in ASEAN airports helped increase airfares, which is shown by the significant positive variable ln(Airport HHI_Origin) that indicates a possible hub premium enjoyed by the ASEAN airlines in the origin airport (Wang, Zhang, & Zhang, 2018). It should be noted that Fischer and Kamerschen (2003) pointed out that the sign for the route HHI on airfares is theoretically ambiguous. Empirical research also produced mixed results for this variable (Wang, Xia, Zhang, & Zhang, 2018).

For the ln(Frequency) regression model, one of the key variables of interest AirportP2_dummy is reported to be statistically significant and positive, which means that more flight frequencies were scheduled by airlines to those designed routes of Chinese airports covered in Protocol 2 in the ASEAN-China ATA. This supports the study of Liu and Oum (2018), claiming that the ASEAN carriers increased their flight

69 frequency shares from 48.9% in 2014 to 57.3% in 2018. The significant positive variable LCCs (Number of LCC) implies that more no-frill carriers have entered this aviation market and increased their flight frequencies after the signing of the ASEAN-China ATA. Similarly, the significant positive variable ln(Airport HHI_Origin) suggests that more airport competition in the ASEAN that would increase flight frequencies as airlines want to capture more air passenger traffic, whereas the significant negative variable ln(Airport_ HHI_Dest) is reported for Chinese airports. This is similar to the findings of Wang, Zhang and Zhang (2018), which studied the Chinese and Indian aviation markets. Perhaps this particular situation may be due to air traffic data used in this study is one- directional flow. In addition, two other significant positive variables (Route Market Share and ln(Seat Capacity)) being reported, suggesting that increasing market share of scheduled airlines for the ASEAN-Chinese routes as well as more airline scheduled seats to serve this aviation market have positive relationships with flight frequencies (Liu & Oum, 2018). Importantly, the significant positive variable ln(Market Potential) is found to positively increase flight frequencies for the ASEAN-China aviation market, and this finding is reasonable and expected as the increasing market size or air travel demand between the ASEAN and China prompting airlines to increase flight frequencies meeting the expected air passenger traffic growth. In addition, the unexpected positive impact of the variable GFC_dummy is found, and it is somehow against and prior literature, this could be due to air transport liberalization and air traffic growth after the signing of ASEAN-China ATA and that prompted airlines to increase their services to serve this aviation market even during the period of the global financial crisis.

For the ln(Pax) regression model, the significant positive impact of the key variable of interest AirportP2_dummy on air passenger traffic between the ASEAN-China aviation market is reported. This is a reasonable finding because the designated routes of Chinese airports covered in Protocol 2 in the ASEAN-China ATA will likely to generate more air passenger traffic (including tourists) to those designated second-tier Chinese airports/cities. This may support the study of Wang, Xia and Zhang (2017), which claimed that half of the Chinese outbound travellers are originated from the secondary cities in China. In addition, similar to the model of ln(Frequency) above, the significant

70 positive variables Route Market Share and ln(Market Potential) suggest that increasing market shares of scheduled airlines for the ASEAN-China routes and larger market demand would grow air passenger traffic. It should be noted that an increase in airfares reduced air passenger numbers for this aviation market is shown by the significant and negative variable ln(Fare), and this is in line with the finding of Liu and Oum (2018). Furthermore, the negative impact of the variable Beijing Olympic Games_dummy indicates more air passengers or tourists to travel to Beijing to watch Olympic Games but not to other Chinese cities/airports covered in Protocol 2 in the ASEAN-China ATA.

(ii) The market of ASEAN and Hong Kong This section reports the key findings of the ASEAN and Hong Kong market. For the ln(Fare) regression model, only three variables are reported to be statistically significant, including Number of LCC, Route Market Share and ln(Market Potential). The expected significant negative impact of Number of LCC on airfares is found and it is consistent with the prior literature (Liu & Oum, 2018; Wang, Xia, & Zhang, 2017), suggesting LCCs’ negative impact and capacity in reducing airfares for this aviation market. The significant positive variable Route Market Share is reported and it can be interpreted in a similar manner as the ln(Fare) equation for the ASEAN-China aviation market above. In addition, the significant negative variable ln(Market Potential) can be explained as the increasing air travel demand between the ASEAN-Hong Kong could reduce airfares, because the signing of ASEAN-China ATA might reduce air passenger numbers and tourists to visit Hong Kong or stopover Hong Kong to Chinese destination, and thus impacted Hong Kong’s air travel demand from the ASEAN. This view is similar to the study of Tsui, Yuen and Fung (2017) when they studied Hong Kong’s transit hub role for visitors to China via Hong Kong by air transport.

For the ln(Frequency) regression model, the key variable of interest ACAT_dummy is found to have the significant positive impact on flight frequencies for the ASEAN-Hong Kong aviation market, with a statistically significant and positive coefficient estimate. This empirical finding suggests that the signing of the ASEAN-China ATA has no obvious impact on reducing flight frequencies or airline seat capacity from the ASEAN destinations to Hong Kong because Hong Kong is still one of the key aviation hubs in the

Asia-Pacific and the main gateway to China (Tsui & Fung, 2016a; Tsui, Yuen, & Fung, 2017). Interestingly, the significant negative effect of variable ln(Airport HHI_Origin) on flight frequencies from Hong Kong to China reported in this model, and one possible interpretation of this empirical finding is that reduced HHI at the ASEAN airports leads to less flight frequencies or airline seat capacity available for the Hong Kong market. In addition, three significant positive variables Route Share Market, ln(Seat Capacity) and ln(Market Potential) are found. These empirical findings suggest that increasing market share of scheduled airlines and their seat capacity between the ASEAN and Hong Kong have positively associated with the increase in flight frequencies, as well as the rise in air travel demand that prompted more flight frequencies in this market, respectively.

For the ln(Pax) regression model, two competition-related variables ln(Airport HHI_Origin) and ln(Airport HHI_Dest) are found to have significant positive coefficient estimates. These empirical findings support (Wang, Zhang, & Zhang, 2018), which suggested that more competition between airlines at the airports would increase air passenger numbers because fierce airline competition will provide more options to air passengers and facilitate air travel, and Liu and Oum (2018) mentioned that more liberal aviation landscape under the ASEAN-China ATA force airlines to reduce airfares and become more efficient in facilitating air transport and tourism. The reporting of the significant positive variables Route Market Share and ln(Market Potential) are found to have the same coefficient estimates as the ln(Frequency) equation for the ASEAN-China aviation market above, which suggests that the increased scheduled airlines’ market share and larger air travel demand grew air passenger volumes in the ASEAN-Hong Kong aviation market. In addition, the significant negative variable ln(Fare) is found and its negative impact on air passenger traffic is consistent with prior literature (Liu & Oum, 2018). Similarly, the significant negative impact of GFC_dummy on this aviation market is revealed and it is possibly because air travel demand (especially business travel) from the ASEAN to Hong Kong were seriously affected by this event as Hong Kong is the international financial center in Asia (Tsui & Fung, 2016b).

(iii) The market of Hong Kong and China

This section reports the key findings of the Hong Kong and China market. For the ln(Fare) regression model, not surprisingly, the two key variables of interest ATCA_dummy and AirportP2_dummy are reported to be statistically insignificant as expected, while anticipating there is no direct impact of the ASEAN-China ATA on the Hong Kong-China aviation market’s airfares. Among all other variables in the regression model, only one competition-related variable ln(Airport HHI-Origin) is found to be statistically significant and positive. This empirical finding suggests that airport dominance could possibly raise airfares due to hub premium enjoyed by Hong Kong home-based carriers (Yuen, Lei, Chow, & Fung, 2017), given Hong Kong airport is largely dominated by Hong Kong’s home-based carriers (Cathay Pacific, Dragonair, Hong Kong Airlines and Hong Kong Express) with more than half of its market share (Tsui & Fung, 2016a).

For the ln(Frequency) regression model, it is surprising to realize that the significant positive variable ACAT_dummy is reported, and this empirical finding may suggest that airlines served the Hong Kong-China aviation market increased flight frequencies in an attempt to improve their connectivity to Chinese destinations while they considered the challenges of losing China’s inbound passenger traffic and visitors via Hong Kong after the signing of the ASEAN-China ATA (Tsui, Yuen, & Fung, 2017). However, the significant negative variable AirportP2_dummy suggests that airlines in Hong Kong reduced flight frequencies to those designated routes of Chinese airports covered in Protocol 2 in the ATA in avoidance of unnecessary competition. In addition, the likely threat or strong impact of LCC operations (Number of LCC) on scheduled flight frequencies in this aviation market are posited by its significant negative coefficient estimate. In particular, Wang et al. (2017) mentioned that LCCs aim to tap into the high growth aviation market in China. Two airport competition-related variables ln(Airport HHI_Origin) and ln(AirporT HHI_Dest) are found to have a significant positive and negative coefficient estimates, respectively, suggesting that the increased airport competition in Hong Kong prompted airlines to increase flight frequencies to handle more air passengers to Chinese destinations, but not the scenario of the destination

73 airports in China. This interesting finding may be due to air traffic data used in the study is one-directional flow. Moreover, three other significant positive variables Route Market Share, ln(Seat Capacity) and ln(Market Potential) have exerted their positive effects to increase flight frequencies from Hong Kong to Chinese destinations. Again, the reporting of the significant negative variable GFC_dummy is consistent with prior literature considering its negative impact upon Hong Kong’s aviation industry and airline operations (Tsui, Ozer Balli, Gilbey, & Gow, 2014; Tsui & Fung, 2016b). The expected positive impact of the Beijing Olympics Games_dummy on flight operations from Hong Kong to China is found with the significant positive coefficient estimate as more tourists visited Beijing to watch the Olympic Games.

For the ln(Pax) regression model, two key variables ACAT_dummy and AirportP2_dummy are statistically insignificant, but their coefficient signs are correct while taking into account the potential impact of the ASEAN-China ATA on the Hong Kong-China aviation market. The significant positive variable ln(Airport HHI_Origin) suggests that increased competition in Hong Kong airport has the positive impact on air passenger volumes of this aviation market as airlines compete with each other to serve air travellers who travelled to Chinese destinations via Hong Kong with cheaper airfares or better services and products. Similarly, the significant negative variable ln(Fare) shows its negative impact on air passenger traffic between Hong Kong and China, similar to two other aviation markets (ASEAN-China and ASEAN-Hong Kong) as discussed above (Liu & Oum, 2018). In addition, the growth of air travel demand or larger market demand between Hong Kong and China led to increased air passenger traffic, which is shown by the significant positive variable ln(Market Potential). However, the unexpected significant positive variable GFC_dummy is found. This could be due to the fact that air passenger traffic growth between Hong Kong and China could still maintain during the GFC period as the GFC largely affected business travel but not leisure travel (Tsui & Fung, 2016b).

Section 5.3.2 Discussion

The aviation industry plays a vital role in the development of Hong Kong’s economy (Fung, Law, & Ng, 2006; Tsui & Fung, 2016b; Tsui, Yuen, & Fung, 2017). In the face of air transport liberalisation between ASEAN and China as well as the signing of the ASEAN-China ATA, it is important for us to examine how China’s air transport policy with ASEAN countries and this particular ATA affect the competitiveness of Hong Kong as the main gateway to Mainland China and an international aviation hub as well as Hong Kong’s economy as a whole. Therefore, the aim of this study is to empirically investigate the impacts of the ASEAN-China ATA on airfares, flight frequency and air passenger volume of three aviation markets ((i) ASEAN and China; (ii) ASEAN and Hong Kong; and (iii) Hong Kong and China)) from January 2008 to July 2017 using the 2SLS model.

In the study period between July 2017 and March 2019, 8 in-depth interviews were conducted. The interviewees were from various governments, institutions and corporations, including Cathay Pacific, Hong Kong Airlines, Hong Kong Express, Shenzhen Airlines, Beijing Capital International Airport, Singapore Changi Airport, Hong Kong International Airport, China Aviation Administration of China (CAAC), and Sun Yat-sen University. In the interviews, the empirical results were presented to the interviewees and their experts’ opinions were sought to help us have better understanding about the empirical results. They also provided insights about the policy recommendations on the issues. The results were consolidated in this Section and Section 6 Policy Recommendations.

Overall, the empirical findings of this study regarding the impacts of the ASEAN-China ATA on the three studied aviation markets are largely consistent with the prior literature regarding its impact on airfares, flight frequencies and air passenger volumes, respectively (e.g. (Hanaoka, Takebayashi, Ishikura, & Saraswati, 2014; Liu & Oum, 2018)). The ASEAN-China ATA and those designated routes of Chinese airports covered in Protocol 2 in the ATA reduced airfares, increased flight frequencies and air passenger volume of the ASEAN-China aviation market. In addition, the impact of the ASEAN- China ATA on airfares and air passenger volume of the ASEAN-Hong Kong aviation

75 market are not substantial but flight frequencies or airline seat capacity between the ASEAN destinations and Hong Kong maintained growth during the study period. For the Hong Kong-China aviation market, more flight frequencies were scheduled from Hong Kong to China after the signing of ASEAN-China ATA but fewer scheduled flights operated from Hong Kong to those designated routes of Chinese airports covered in Protocol 2. It is worth noting that the expected impacts of the ASEAN-China ATA on airfares and air passenger volumes of the Hong Kong-China aviation market are not apparent, although the negative coefficient estimates are presented.

Looking at the key findings of this study in more detail, our analysis led us to conclude that air transport liberalization between ASEAN and China as well as the ASEAN-China ATA have merely influenced Hong Kong’s aviation market with a small magnitude, or its anticipated impacts on Hong Kong’s aviation market is not prominent, while considering the number of air passengers travelled from the ASEAN destinations to Hong Kong as well as from Hong Kong to China, respectively. Interestingly, airlines at these two aviation markets still offer efficient and convenient air services with more flight frequencies and seat capacity to transport air passengers and tourists. This really supports and sustains the growth of Hong Kong’s air transport and tourism for these two major markets. However, it is evident that airlines at Hong Kong avoided to serve and compete at those designated routes of Chinese airports covered in Protocol 2 in the ATA (e.g. second-tier Chinese airports/cities) that could be due to their smaller market size and limited air travel demand.

As discussed above, our findings have implications for Hong Kong’s aviation industry and provide insight for Hong Kong’s air policymakers to understand the potential threat and impact of this ATA on the future development of Hong Kong’s aviation industry, particularly the growth of transit traffic in the near future from the ASEAN countries to Chinese destinations via Hong Kong. As known, Hong Kong is the main gateway to China, so this is an alarming sign for Hong Kong’s aviation and tourism sectors. More importantly, China’s aviation market has been further liberalized after China concluded the ASA with ASEAN in 2010 and Protocol 2 in 2013, allowing more air access from the

ASEAN airports and permitting more ASEAN carriers including LCCs) to serve Chines destinations (Zhang, Zheng, & Lu, 2018). Thus, more direct flights and airline seat capacity between the ASEAN and Chinese airports will be operated and offered in the near future, and this will eventually affect Hong Kong’s role as the main gateway to Mainland China and an international aviation hub for air passengers to stopover Hong Kong to other places via Hong Kong’s carriers (e.g. Cathay Pacific, Cathay Dragon, Hong Kong Airlines and Hong Kong Express). It should be noted that Protocol 2 allows limited fifth freedom for ASEAN carriers (Zhang, Zheng, & Lu, 2018). Therefore, before too late, to support Hong Kong’s air transport development and tourism, there is a strong need for Hong Kong government and air policymakers to actively negotiate more air traffic rights with foreign countries (e.g. increase in seat capacity and access to more routes and destinations) that allow Hong Kong’s carriers to channel more ASEAN visitors and China’s inbound visitors passing through Hong Kong airport). This perspective has been articulated by the recent study of Tsui, Yuen and Fung (2017). It is worth noting that, like other places, Hong Kong’s air traffic and consequently tourism expenditure could be stimulated through changes in aviation policy (Warnock-Smith & O’connel, 2011).

Another important issue that has emerged is how airline competition resulting from the ASEAN-China ATA affects Hong Kong’s airline industry and operations. To meet ever- changing customer demands, increased airline competition to serve the Chinese markets in the consequence of the more liberal aviation environment between the ASEAN countries and China will push Hong Kong’s carriers to become more efficient and competitive. The effect of OSA on airline competitiveness in the US has been studied and confirmed by Winston and Yan (2015) and Yan et al. (2019). In addition, as discussed above, Hong Kong’s carriers avoided to enter or compete those designated routes of China airports covered in Protocol 2, it is best to have a policy of encouraging Hong Kong’s smaller carriers and LCC (e.g. Hong Kong Express) to serve China’s second-tier cities with a certain population size and market demand, for example, through government subsidies for airlines to operate flights to smaller or under-served Chinese markets. Entry of new airlines and LCC expansion to second-tier Chinese cities stated

77 above would help enhance Hong Kong’s role as the main gateway to China by opening more Chinese markets, and will also support Hong Kong’s tourism to develop as the LCC cases in Europe (Forsyth, King, & Lyn Rodolfo, 2006).

Section 6 Policy Implications and Recommendations

Given the competitive analysis in Section 1 based on ATRS statistics and empirical results in Section 5, the policy implications and recommendations are suggested below: i. Pressing needs to have strategic approaches to improve and maintain HKG’s role as mainland gateway and leading international air cargo hub  The empirical results demonstrated the potential negative impacts of ASEAN- China ATA on Hong Kong’s hub competitiveness in the region. Although the Hong Kong-ASEAN market seems not being significantly affected by the agreement, it is observed that the frequency of flights between Hong Kong-China markets has decreased. It may reflect the declining competitiveness of Hong Kong in competing with hub traffic (i.e. air-to-air) to mainland, so there is an urgency to strengthen and expand Hong Kong airport’s network in mainland China through effective airport marketing which urges Hong Kong and Chinese carriers to increase capacity and flight frequency to destinations in mainland China (e.g. second-tier cities), as well as attracting more Chinese carriers to offer services to Hong Kong airport. Although this study does not specifically investigate the impact of ASEAN-China ATA on Hong Kong’s air cargo sector, similar negative impact on air cargo from ASEAN to mainland China via Hong Kong is expected as air passenger traffic.

ii. Improving the coordination in the Multiple Airport Region at the Greater Bay Area (GBA)  As discussed in Section 1, In the GBA, Guangzhou Baiyun International Airport is positioned as one of the three major international aviation hubs in mainland China, while the 13th Five-Year plan named Shenzhen Bao'an International Airport as one of China’s next international aviation hubs. It is unavoidable to increase competition in the GBA and pose challenges to Hong Kong’s hub competitiveness. It is crucial for the five airports (A5) in the GBA to have a more

efficient mechanism (e.g. regular meetings among aviation decision makers and airport authorities) to foster cooperation among the airports and to avoid unhealthy competition in promoting the aviation and tourism-related industries and economic development in the region.  A current critical issue facing Hong Kong airport as well as other nearby A5 airports is airspace capacity constraint. It is suggested to build a cost-effective and seamless air traffic control (ATC) procedures in order to reduce flight delays and solve airspace congestion. This will offer immense benefits to airline operations, air passenger journey and air cargo transportation. Currently, Hong Kong and other A5 airports belong to different Flight Information Regions (FIRs). When a flight flies from one FIR to another, the current exchange (handover) process will lower the efficiency of air traffic management. Therefore, the Hong Kong SAR Government may take a proactive approach to explore the feasibility to have a unified ATC system in the GBA. Furthermore, the Hong Kong SAR Government should discuss with the corresponding departments of the Mainland Chinese governments in terms of the likelihood to open more airspace for civil aviation. iii. Improving ground transportation to attract air travel demand from the hinterland of Hong Kong airport  Given the keener competition from direct flights between airports included in ASEAN-China ATA and other international airports in the GBA as suggested in Section 5, it is important for Hong Kong airport to improve ground transportation in strengthening its gateway traffic (i.e., air-to-ground/ ground-to-air) from and to the hinterland in the GBA. Both Hong Kong airport and Hong Kong-based airlines should improve seamless connections of multimodal transport (including ferry, train and road) to serve air passenger originating from HKG airport’s hinterland in the GBA. Importantly, Hong Kong should fully take the potential of the Zhuhai-Hong Kong-Macau bridge as well as the High Speed Railway to serve the GBA which has a combined population of over 69 million people and GDP of around US$1.5 trillion.

iv. Increasing airport capacity and improving the utilization efficiency  It is known that one of the critical constraints for Hong Kong airport to expanding her network coverage and improving her hub competitiveness is airport capacity (including runway and terminals). Before the construction of the third runway at Hong Kong airport is completed by 2025, there will not be any significant improvement or a good solution for the issue. Once more slots are available with the new runway in service, it is important for Hong Kong airport to explore and develop a more efficient slot allocation mechanism based on Hong Kong’s unique characteristics and overseas successful examples to maximize the values of the newly added slots from the third runway. Slot auction at the primary market and slot trading at the secondary market may be considered. In the meantime, new technology including AI, Big Data and IoT may be introduced to airport operation in order to increase Hong Kong airport’s capacity and improve utilization efficiency.

v. Improving airport service quality  It is advised that Hong Kong airport could design a more comprehensive and holistic approach to evaluate and assess airport performance from various dimensions, with a focus on users’ experience and satisfaction. There could be a benchmarking exercise with other major international hub airports, including Singapore Changi and Seoul Incheon airports to identify areas or airport performance indicators (API) for continuous improvement, as both airports are considered the best exemplars in the airport industry to exceed customer needs and expectations.  Increased cooperation and ideas exchange between Hong Kong airport and airlines, especially Hong Kong-based airlines, will be important to improve Hong Kong airport’s overall service quality. The cooperation between two parties may include airport design and planning, terminal infrastructure investment, airport operation, airport charges and gateway arrangements. A strong airport-airline

relationship is a key to improve Hong Kong airport’s service quality and competitiveness.  Additional efforts should be in place to improve service and product quality and experience for Hong Kong airport’s passengers during their whole journey; memorable airport experience is a key part of excellent passenger experience (e.g., customer support, WiFi service, shopping and dining, luggage handling, the general airport environment, immigration, perception of security and safety standard, etc.). It is observed that Hong Kong airport has a proactive approach to adopt technology in airport operation, including facial recognition at security checkpoints and automated luggage handling system.

vi. More proactive air liberalization policy in the long run  There is a strong need for the Hong Kong SAR Government and air transport policymakers to actively negotiate more air traffic rights with countries in ASEAN (e.g. increase in seat capacity and access to more routes and destinations of a nation), which allow Hong Kong’s carriers to transport more ASEAN visitors to Hong Kong and channel more China’s inbound ASEAN visitors passing through Hong Kong airport to their Chinese destinations. In particular, the Hong Kong SAR Government should initiate "Open Skies Agreements" negotiation with each of the ASEAN countries.  After the completion of the third runway construction, Hong Kong airport’s capacity constraints may be relived for some time. Given this, Hong Kong airport may encourage Hong Kong’s carriers in exploring new destinations or emerging markets, as well as inviting and attracting more new airlines from emerging markets to operate at Hong Kong airport through a cost-effective airport marketing campaign. In the meantime, given the rising importance of LCCs in this part of the world, the Hong Kong SAR government should have a more active policy in promoting the establishment of LCCs in HK.  The Hong Kong SAR Government may consider granting fifth freedom traffic right to more foreign sovereignties allowing their airlines to fly through Hong

Kong with the new timeslots, thus strengthening the transit hub competitiveness of the Hong Kong airport in the region. vii. Having measures attracting visitors by air to Hong Kong and transit passengers  In order to attract more visitor arrivals by air to Hong Kong, there should be continuous effort by the Hong Kong SAR government, Hong Kong Tourism Board and Hong Kong’s carriers to promote and market Hong Kong as a shopping paradise for inbound tourists and transit passengers who may make a stopover at Hong Kong for shopping and sightseeing. There is clear evidence about the positive relationship and nexus between air transport and tourism demand. Other measures may include: extending the number of countries and territories valid for free-visa/entry permit to Hong Kong for short-stay and transit traveler; particularly, transit passengers who enter or leave Hong Kong by ground transportation.

viii. Cultivating more talents for Hong Kong’s aviation industry  The shortage of talents and/or skilled labour has already become one of the hindrances to enhance the competitiveness of Hong Kong’s aviation industry. On the other hand, the labor cost competitiveness and productivity in Section 1 also indicated that there are strong needs to improve the efficiency of workers in the Hong Kong aviation sector given the high cost. In addition to the newly established Hong Kong International Aviation Academy, the Hong Kong SAR Government, industry practitioners and the education sector in Hong Kong should come together and have a clear strategic vision of talent development and training for future development and growth of Hong Kong’s aviation industry.

Section 7 Details of the Public Dissemination

The research findings have been shared with stakeholders, academics and the public on various occasions. In 2016, the research proposal was presented at the Transport Economics Workshop, organized by the Department of Logistics and Maritime Studies, the Hong Kong Polytechnic University. The attendees included scholars from the Chinese University of Hong Kong, Hang Seng University of Hong Kong, the Hong Kong Polytechnic University and the University of British Columbia.

The studies were also presented at the 2018 Annual Conference of the Air Transport Research Society (the Society) in Seoul, South Korea. The Society plays a leading role in the development of the aviation industry as one of the most pivotal occasions where aviation academicians get together. The attendees of the conference include academics, government officials, airlines and airports representatives and other stakeholders in the industry.

The study was also shared in the meetings with major stakeholders in the aviation industry in Hong Kong and mainland China.

Section 8 Conclusion

The study investigates the impacts of ASEAN-China ATA on the hub competitiveness of Hong Kong International Airport (HKIA) in the region. It has highlighted the importance of aviation sector in the Hong Kong economy: Hong Kong’s aviation industry (about 7.6% contribution to Hong Kong’s GDP in 2013) plays a vital role in the Hong Kong economy. In the past, Hong Kong serves as a major aviation hub connecting Mainland China and ASEAN markets. In 2014/15, South East Asia and Mainland China were the top two markets for HKIA (26% and 22% for South East Asia and Mainland China respectively, in terms of passengers.) The ASEAN-China ATA may encourage more direct flights between the two markets. As a result, it poses challenges to Hong Kong which serves as the hub for the markets.

Together with the ASEAN-China FTA, an Air Transport Agreement (ATA) was signed between ASEAN and China in November 2010 and implemented in 2011. According to this ATA, Hong Kong, Macao, and Taiwan were explicitly excluded, unless otherwise agreed (Section 1 of Annex 1). Naturally, the exclusion of Hong Kong in the ATA could be a major uncertain issue against Hong Kong’s aviation development in the longer term. The study empirically examined the impacts of the ATA on the three aviation markets: ASEAN-China, ASEAN-Hong Kong and China-Hong Kong. In particular, the changes in fare, frequency and passenger volume before and after the ATA are estimated in the study.

It is found that the ATA and those designated routes of Chinese airports covered in Protocol 2 in the ATA reduced airfares, increased flight frequencies and air passenger volume of the ASEAN-China aviation market. In addition, the impacts of the ASEAN- China ATA on airfares and air passenger volume of the ASEAN-Hong Kong aviation market are not substantial but flight frequencies or airline seat capacity between the

ASEAN destinations and Hong Kong maintained growth during the study period. For the Hong Kong-China aviation market, more flight frequencies were scheduled from Hong Kong to China after the signing of ASEAN-China ATA but fewer scheduled flights operated from Hong Kong to those designated routes of Chinese airports covered in Protocol 2. It is worth noting that the expected impacts of the ASEAN-China ATA on airfares and air passenger volumes of the Hong Kong-China aviation market are not apparent, although the negative coefficient estimates are presented.

The policy implications and recommendations are:

 Pressing needs to have strategic approaches to improve and maintain HKG’s role as mainland gateway and leading international air cargo hub;  Improving the coordination in the Multiple Airport Region at the Greater Bay Area (GBA);  Improving ground transportation to attract air travel demand from the hinterland of Hong Kong airport;  Increasing airport capacity and improving utilization efficiency;  Improving airport service quality;  More proactive air liberalization policy in the long run;  Having measures attracting visitors by air to Hong Kong and transit passengers  Cultivating more talents for Hong Kong’s aviation industry.

Annex 1. Designated Airlines (as of Sept 13, 2018)2

Country Designated Airlines Brunei Royal Brunei Airlines Cambodia Cambodia Angkor Air Sky, Abgkor Airlines, Lanmei Airlines Co. Ltd Indonesia PT Garuda Indonesia Persero, PT Citilink Indonesia, PT Lion Mentari Airlines, PT Batik Air Indonesia, PT Sriwijaya Air Service, PT Indonesia Air Asia, PT Indonesia Air Asia Extra, PT Kalstar Aviation, Cardig Air, Tri MG Airlines, PT Mandala Airlines, PT Merpati Nusantara Airlines, PT Sky Aviation, PT Trigana Air Service, PT Travel Express Aviation Services, Pt Wings Abadi, My Indo Airlines Laos Lao Airlines Malaysia Malaysia Airlines Bhd, MasWings Sdn. Bhd, FlyFirefly Sdn. Bhd, Air Asia Berhad, Air Asia X Sdn. Bhd, Berjaya Air Sdn. Bhd, Malindo Air, Raya Airways Sdn. Bhd., Malaysia Airlines Cargo Sdn. Bhd. Myanmar Golden Myanmar Airlines, Myanmar Airways International, Asian Wings Airways, Myanmar National Airlines Philippines Cebu Pacific Air, Air Philippines Corporation, Philippines Air Asia, Air Asia Inc., Philippines Airline Inc., Southeast Asia Airlines, Pan Pacific Airlines Singapore Jetstar Asia Airways Pte. Ltd, Silk Air Singapore Pte. Ltd, Singapore Airlines Limited, Singapore Airlines Cargo Pte. Ltd, Scoot Tigerair Pte Ltd., Jett8 Airlines Pte. Ltd Thailand Bangkok Airways Company Limited, Thai Airways International Public Company Limited, Thai Smile Airways Company Limited, Thai Air Asia Co. Ltd., Thai Air Asia X Co. Ltd. Vietnam Vietnam Airlines Company Ltd, Jetstar Pacific Airlines Aviation, VietJet Air China West Air Company Ltd, Chongqing Airlines Company Ltd, Yunnan Lucky Air Company Ltd, Beijing Capital Airlines Company Ltd, Spring Airlines Company Ltd, Sichuan Airlines Company Ltd, Tibet Airlines, Juneyao Air, Zhejiang LOONG Airlines, Uni-Top Airlines, Hebei Airlines, China Express Airlines, Okay Airlines, Shenzhen Airlines, Capital Airlines, Tianjin Airlines, Kunming Airlines, SF Airlines, Ruili Airlines, Hainan Airlines, Donghai Airlines, YTO Cargo Airlines Co. Ltd., Guangxi Beibu Gulf Airlines Co. Ltd., 9 Air Co. Ltd.

2 https://asean.org/storage/2017/05/Matrix-Designated-Airlines-13-Sept-2018.pdf

Annex 2. Destination of Designated Chinese Airlines (as of Sept 13, 2018) 3

Airlines Route West Air Company Limited (WAC) China - Thailand China - Singapore Chongqing Airlines Company Limited (CAC) China - Thailand China - Vietnam China - Singapore Yunnan Lucky Air Company Limited (YLA) China - Vietnam China - Malaysia Beijing Capital Airlines Company Limited (CBJ) China - Vietnam China - Thailand Spring Airlines Company Limited (CQH) China - Vietnam Sichuan Airlines Company Limited (CSC) China - Malaysia Tibet Airlines (TBA) China - Thailand Juneyao Air (DKH) China - Vietnam Zhejiang LOONG Airlines (CDC) China - Vietnam China - Thailand Uni-Top Airlines (UTP) China - Thailand China - Malaysia China - Vietnam China - Indonesia China - Singapore Hebei Airlines (HBH) China - Thailand China - Malaysia China - Singapore China Express Airlines (HXA) China - Thailand China - Vietnam Okay Airways (OKA) China - Vietnam China - Thailand Shenzhen Airlines (CSZ) China - Malaysia China - Singapore

3 https://asean.org/storage/2017/05/Matrix-Designated-Airlines-13-Sept-2018.pdf

Tianjin Airlines (GCR) China - Vietnam China - Indonesia Kunming Airlines (KNA) China - Thailand China - Vietnam SF Airlines (CSS) China - Malaysia China - Vietnam China - Philippines Ruili Airlines (RLH) China - Thailand Hainan Airlines (CHH) China - Philippines China - Malaysia China - Brunei China - Indonesia China - Myanmar Donghai Airlines (EPA) China - Thailand China - Vietnam China - Myanmar YTO Cargo Airlines Co. Ltd (HYT) China - Malaysia China - Vietnam China - Philippines Guangxi Beibu Gulf Airlines Co. Ltd. (CBG) China - Malaysia China - Philippines 9 Air Co., Ltd. (JYH) China - Myanmar

References Adler, N., & Hashai, N. (2005). Effect of Open Skies in the Middle East Region. Transportation Research – Part A: Policy and Practice, 39(10), 878‐894. Retrieved from https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2315510

Adler, N., Fu, X., Oum, T., & Yu, C. (2014). Air transport liberalization and airport slot allocation: The case of the Northeast Asian transport market. Transportation Research Part A: Policy and Practice, 62, 3‐19.

Air China. (2018). Air China Limited: 2017 Annual Report. Retrieved from http://www.airchina.com.cn/en/investor_relations/images/financial_info_and_roadsho w/2018/04/24/F238A48A6F4F31EA6ADD4072A0E210C8.pdf

Air China. (n.d.). Company Profile. Retrieved from https://www.airchina.hk/HK/GB/about‐ us/profile/

AirAsia. (2011). Jumpstart Malaysia. Retrieved from https://www.airasia.com/common/pdf/JusmStart‐Malaysia.pdf

AirAsia Group Berhad. (2018). Annual Report 2017. Retrieved from https://ir.airasia.com/misc/ar2017.pdf

Airport Authority Hong Kong. (2005, September 8). Hong Kong Express starts operation from HKIA. Retrieved from Hong Kong International Airport: https://www.hongkongairport.com/en/media‐centre/press‐release/2005/pr_802

Airport Authority Hong Kong. (2007, January 7). Record‐breaking Passenger Traffic at Zhuhai Airport Hong Kong‐Zhuhai Airport Joint Venture Achieves Initial Success. Retrieved from HKIA: https://www.hongkongairport.com/en/media‐centre/press‐release/2007/pr_870

Airport Authority Hong Kong. (2011). Hong Kong International Airport Master Plan 2030. Retrieved from https://www.threerunwaysystem.com/media/1174/mp2030_full_en.pdf

Airport Authority Hong Kong. (2016a, August 1). Construction of Three‐runway System Kicks Off at HKIA. Retrieved from Three Runways System: https://www.threerunwaysystem.com/en/information/press‐release/2016‐08‐01/

Airport Authority Hong Kong. (2016b, December 8). Greater PRD Meeting Focuses on New Trend of Smart Airports. Retrieved from HKIA: https://www.hongkongairport.com/en/media‐ centre/press‐release/2016/pr_1235

Airport Authority Hong Kong. (2018a, March). Hong Kong International Airport Factsheet. Retrieved from https://www.hongkongairport.com/iwov‐resources/file/the‐ airport/hkia‐at‐a‐glance/facts‐figures/HKIA_FactSheet_2018_EN.pdf

Airport Authority Hong Kong. (2018b). Annual Report 2017/18. Retrieved from https://www.hongkongairport.com/iwov‐resources/file/airport‐ authority/publications/annual‐and‐interim‐reports/en/17_18/1718‐full‐report‐eng‐ 2.pdf

Airport Council International. (2018a, January 1). Passenger Traffic 2016 FINAL (Annual). Retrieved from https://aci.aero/data‐centre/annual‐traffic‐data/passengers/2016‐final‐ summary/

Airport Council International. (2018b, January 1). Cargo Traffic 2016 FINAL (Annual). Retrieved from https://aci.aero/data‐centre/annual‐traffic‐data/cargo/2016‐final‐summary/

Apple Daily. (2017, September 29). 【取消黃金周航班】海航為 HK Express 大股東. Retrieved from Apple Daily: https://hk.finance.appledaily.com/finance/realtime/article/20170929/57272903

ASEAN. (2004, November). Memorandum of Understanding between the Governments of the Member Countries of the Association of Southeast Asian Nations and the Government of the People’s Republic of China on Transport Cooperation, Vientiane. Retrieved from https://asean.org/memorandum‐of‐understanding‐between‐the‐governments‐of‐the‐ member‐countries‐of‐the‐association‐of‐southeast‐asian‐nations‐and‐the‐government‐ of‐the‐people‐s‐republic‐of‐china‐on‐transport‐cooperation‐vientiane‐27‐november‐ 2004‐3/

ASEAN. (2010). Air transport agreement between the government of the member states of the Association of Southeast Asian Nations and the government of the People's Republic of China. Retrieved from https://asean.org/wp‐ content/uploads/images/archive/transport/Air%20Transport%20Agreement%20betwee n%20ASEAN+China.pdf

ASEAN. (2017a). ASEAN statistical yearbook 2016/2017. Retrieved from https://www.aseanstats.org/wp‐content/uploads/2018/01/ASYB_2017‐rev.pdf

ASEAN. (2017b, September). ASEAN transport instruments and status of ratification. Retrieved from https://asean.org/storage/2017/10/Ratification‐status‐Transport‐Agreement‐as‐ of‐Sept17.pdf

ATRS. (2009). Aiport Benchmarking Report 2009. Daytona Beach, FL: Air Transport Research Society.

ATRS. (2018). Airport Benchmarking Report 2018. Daytona Beach, FL: Air Transport Research Society.

Aviation Week Network. (2018, February 6). Changi’s Terminal 5 for Future Growth. Retrieved from http://aviationweek.com/singapore‐airshow‐2018/changi‐s‐terminal‐5‐future‐ growth

Bangkok Post. (2018, May 25). AoT board approves second airports for Phuket, Chiang Mai . Retrieved from https://www.bangkokpost.com/news/general/1472705/aot‐board‐ approves‐second‐airports‐for‐phuket‐chiang‐mai

Binti Ismail, S. (2012). Competitive cooperation between MAS and AirAsia: route networks (unpublished MSc thesis). England: Cranfield University.

Boeing. (2017a). Current Market Outlook, 2017‐2036. Retrieved from http://www.boeing.com/resources/boeingdotcom/commercial/market/current‐market‐ outlook‐2017/assets/downloads/2017‐cmo‐6‐19.pdf

Boeing. (2017b). Current market Outlook. Retrieved from https://www.boeing.com/resources/boeingdotcom/commercial/market/current‐ market‐outlook‐2017/assets/downloads/cmo‐2018‐3‐20.pdf

Boeing. (2018). Commercial Market Outlook 2018–2037. Retrieved from https://www.boeing.com/resources/boeingdotcom/commercial/market/commercial‐ market‐outlook/assets/downloads/2018‐cmo‐08‐18.pdf

Button, K. (1998, November 24). Opening U.S. Skies to Global Airline Competition, TradePolicy Analysis. Trade Policy Analysis.

CAPA. (2018, January 23). Southeast Asia airline fleets: Lion Air still #1. AirAsia Group to overtake Garuda, SIA in 2018. Retrieved from https://centreforaviation.com/analysis/reports/southeast‐asia‐airline‐fleets‐lion‐air‐ still‐1‐airasia‐group‐to‐overtake‐garuda‐sia‐in‐2018‐392739

Cathay Pacific. (2018). Cathay Pacific Airways Limited Annual Report 2017. Retrieved from https://www.cathaypacific.com/content/dam/cx/about‐us/investor‐relations/interim‐ annual‐reports/en/2017_annual_report_en.pdf

Cathay Pacific. (n.d.). History. Retrieved from Cathay Pacific: https://www.cathaypacific.com/cx/en_KH/about‐us/about‐our‐airline/history.html

Cathay Pacific. (n.d.). History and milestones. Retrieved from Cathay Pacific: https://www.cathaypacific.com/cx/en_HK/cathay‐dragon‐about‐us/about‐our‐ airline/history‐and‐milestones.html

China Eastern. (2016, September 2). About China Eastern: Company Profile . Retrieved from http://hk.ceair.com/en/content/about‐us/about‐china‐eastern

China Eastern. (2017). World‐class hospitality with eastern charm: Annual report 2016. Retrieved from http://en.ceair.com/upload/2017/5/2617211152.pdf

China National Tourism Administration. (2017). The Yearbook of China Tourism Statistics . Beijing: China Tourism Press.

China Southern Airlines. (2018). 2017 ANNUAL RESULTS. Retrieved from https://www.csair.com/en/about/investor/yejibaogao/2018/resource/f480996a871298 da764f2a2a98463e91.pdf

China Southern Airlines. (2018). Boosting Up: Annual Report 2017. Retrieved from https://www.csair.com/en/about/investor/yejibaogao/2018/resource/d3a41612260b0c c0cf4482c45f7e8cb3.pdf

China Southern. (n.d.). Company Profile. Retrieved from https://www.csair.com/en/about/gongsijianjie/

China Tourism Academy. (2018, March 1). 中国旅游研究院、携程发布《2017 出境旅游大数据报告》. Retrieved from http://www.ctaweb.org/html/2018‐2/2018‐2‐26‐11‐57‐ 78366.html

Chong , A. (2017, September 25). ROUTES: Malaysia Airports to enter expansion, upgrading phase. Retrieved from Flight Global: https://www.flightglobal.com/news/articles/routes‐malaysia‐airports‐to‐enter‐ expansion‐upgrad‐441479/

Civil Aviation Administration of China. (2017, February 3). CAAC Specifies Five Main Tasks in the 13th Five‐year Plan for Civil Aviation Development. Retrieved from CAAC: http://www.caac.gov.cn/en/XWZX/201702/t20170203_42314.html

Civil Aviation Administration of China. (2018a, April 9). CAAC Issues the Statistics Bulletin of Civil Airports in China 2017. Retrieved from CAAC: http://www.caac.gov.cn/en/HYYJ/NDBG/201804/t20180409_56273.html

Civil Aviation Administration of China. (2018b). 年度机场生产公报. Retrieved from http://www.caac.gov.cn/XXGK/XXGK/TJSJ/index_1216.html

Civil Aviation Administration of China. (2018c, March 7). 2017 年民航机场生产统计公报. Retrieved from http://www.caac.gov.cn/XXGK/XXGK/TJSJ/201803/P020180307509156275144.xls

Commerce and Economic Development Bureau of HKSAR. (2018). Summary of Information about Direct Flights to/from Hong Kong. Retrieved from https://www.tourism.gov.hk/files/direct_flight_info_eng.pdf

Cristea, A. D., Hummels, D., & Roberson, B. (2012, October). Estimating the Gains from Liberalizing Services Trade: The Case of Passenger Aviation. Retrieved from https://economics.yale.edu/sites/default/files/hummels‐130403.pdf

Davies, A. (2013, April 15). This Is Why They Tell You Not To Fly On Airlines From Indonesia. Retrieved from Business Insider: https://www.businessinsider.com/lion‐air‐banned‐ from‐the‐european‐union‐2013‐4

DBS Bank. (2018). China/HK Airlines Sector. Retrieved from https://www.dbs.com.sg/treasures/aics/pdfController.page?pdfpath=/content/article/p df/AIO/012018/180131_insights_entering_a_golden_age.pdf

DBS Group Research. (2018). ASEAN Aviation. Retrieved from https://www.dbs.com/aics/pdfController.page?pdfpath=/content/article/pdf/AIO/0120 18/180131_insights_asean_aviation_pricing_power_to_pick_winners.pdf

Dobruszkes, F. (2009). Does liberalisation of air transport imply increasing competition? Lessons from the European case. Transport Policy, 16(1), 29‐39.

European Commission. (2007). The Economic impacts of an open aviation area between the EU and the US. Final report to the European Commission . Retrieved from https://ec.europa.eu/transport/sites/transport/files/modes/air/international_aviation/c ountry_index/doc/final_report_us_bah.pdf

Fischer, T., & Kamerschen, D. (2003). Measuring competition in the U.S. airline industry using the Rosse‐Panzar test and cross‐sectional regression analyses. Journal of Applied Economics, Vi(1), 73‐94.

Flight Airline Business. (n.d.). Leading Southeast Asian airline groups in 2017, based on revenue (in billion U.S. dollars)*. Statista ‐ The Statistics Portal. Retrieved September 14, 2018, from https://www.statista.com/statistics/575179/southeast‐asian‐airlines‐operating‐ profit/

Forsyth, P., King, J., & Lyn Rodolfo, C. (2006). Open Skies in ASEAN. Journal of Air Transport Management, 12(3), 143‐152.

Fu, X., Oum, T., & Zhang, A. (2010). Air transport liberalization and its impacts on airline competition and air passenger traffic. Transportation Journal, 49(4), 24‐41.

Fung, K. M., Law, J. S., & Ng, W. L. (2006). Economic contribution to Hong Kong of the aviation sector: A value‐added approach. The Chinese Economy, 39(6), 19‐38.

Ge, L. (2017, February 21). China to Build 74 New Civil Airports by 2020: CAAC. Retrieved from China Aviation Daily: http://www.chinaaviationdaily.com/news/60/60893.html

Gizauskas, R. (2018, April 20). BLACK (BOX) LISTED The airlines BANNED from flying into the European Union – but you could end up using them on holiday. Retrieved from The Sun: https://www.thesun.co.uk/travel/6101490/airlines‐banned‐flying‐european‐union‐eu‐ buddha‐iraqi‐air/

Gönenç, R., & Nicolett, G. (2003). Regulation, market structure and performance in air passenger transportation. OECD Economic Studies, 2001(1), 183‐227.

Graham, B. (1998). Liberalization, regional economic development and the geography of demand for air transport in the European Union. Journal of Transport Geography, 6(2), 87‐104.

Hainan Airlines. (2018). 海南航空控股股份有限公司: 2017 年年度报告. Retrieved from http://www.hnair.com/guanyuhaihang/tzzgx/cwbg/201803/P020180323554962768564 .pdf

Hainan Airlines. (n.d.). About Us: Company Profile and Milestones. Retrieved from https://www.hainanairlines.com/HUPortal/dyn/portal/DisplayPage?COUNTRY_SITE=HK &SITE=CBHZCBHZ&LANGUAGE=GB&PAGE=CHAP

Hananto, A. (2017, November 14). Philippines' Next Generation Airport. Retrieved from Good news from Southeast Asia: https://seasia.co/2017/11/14/philippines‐next‐generation‐ airport

Hanaoka, S., Takebayashi, M., Ishikura, T., & Saraswati, B. (2014). Low‐cost carriers versus full service carriers in ASEAN: The impact of liberalization policy on competition. Journal of Air Transport Management, 40, 96‐105.

HK Express. (2013, June 26). Hong Kong Express Airways Limited Transforms into Hong Kong’s Own Low Fare Airline. Retrieved from HK Express: https://www.hkexpress.com/en‐ hk/news/hong‐kong‐express‐airways‐limited‐transforms‐into‐hong‐kong‐s‐own‐low‐ fare‐airline/

HK Express. (2018, January 1). HK Express Sees Passenger Growth in 2017. Retrieved from HK Express: https://www.hkexpress.com/en‐hk/news/hke‐sees‐passenger‐growth‐in‐2017/

Hong Kong Brand Development Coucil. (n.d.). 香港航空. Retrieved from Hong Kong Brand Development Coucil: http://www.hkbrand.org/tc/event/2/page/3/brand/510

Hong Kong Government. (2000, February 2). Air Services Arrangement between the Mainland. Retrieved from Department of Justice: https://www.doj.gov.hk/eng/mainland/pdf/mainland/airservices.pdf

Hong Kong Government. (2002, March 19). 民航處頒發航空營運許可證予新直升機公司. Retrieved from GovHK: https://www.info.gov.hk/gia/general/200203/19/0319154.htm

Hong Kong Government. (2004, September 8). Review of Mainland/HKSAR Air Services Arrangement concluded. Retrieved from GovHK: https://www.info.gov.hk/gia/general/200409/08/0908191.htm

Hong Kong Government. (2006, July 3). Aviation Market between Hong Kong and the Mainland substantially liberalised. Retrieved from GovHK: https://www.info.gov.hk/gia/general/200607/03/P200607030093.htm

Hong Kong Government. (2007, December 27). Aviation market between Hong Kong and the Mainland further liberalised. Retrieved from GovHK: https://www.info.gov.hk/gia/general/200712/27/P200712270122.htm

Hong Kong Government. (2010, January 20). LCQ11: Air traffic in the Pearl River Delta region. Retrieved from news.gov.hk: https://www.info.gov.hk/gia/general/201001/20/P201001200154.htm

Hong Kong Government. (2014, June 5). HK‐ASEAN Pact set to boost markets. Retrieved from news.gov.hk: http://www.news.gov.hk/en/record/html/2014/06/20140605_150716.shtml

Hong Kong Government. (2017, November 22). Pearl River Delta Region Air Traffic Management Planning and Implementation Tripartite Working Group meeting held in Chengdu. Retrieved from https://www.info.gov.hk/gia/general/201711/22/P2017112200746.htm?fontSize=1

Hong Kong Government. (2018a). Chapter 14: Transport. Hong Kong Year Book 2017. Retrieved from https://www.yearbook.gov.hk/2017/en/pdf/E14.pdf

Hong Kong Government. (2018b, February 1). New intermodal arrangement between Hong Kong and Mainland signed (with photos). Retrieved from GovHK: https://www.info.gov.hk/gia/general/201802/01/P2018020100693.htm

Hong Kong Government. (2018c, May). Hong Kong ‐ ASEAN Trade Relations. Retrieved from Trade and Industry Department: https://www.tid.gov.hk/english/aboutus/publications/factsheet/asean.html

Hong Kong Tourism Board. (2009; 2010; 2011; 2012; 2013; 2014; 2015; 2016; 2017; 2018). A statistical review of Hong Kong Tourism. Hong Kong: Insights & Research, Hong Kong Tourism Board.

Hong Kong Tourism Board. (2018). A statistical review of Hong Kong Tourism 2017. Retrieved from

http://securepartnernet.hktb.com/filemanager/intranet/ir/ResearchStatistics/paper/Sta t‐Review/StatRewiew2017/Statistical%20Review%202017.pdf

IATA. (2009). The Impact of. London: InterVISTAS‐EU Consulting Inc. Retrieved from https://www.iata.org/publications/economics/Reports/panama‐report.pdf

IATA. (2016). The Importance of Air Transport to China. Retrieved from https://www.iata.org/policy/Documents/benefits‐of‐aviation‐china‐2017.pdf

Inter VISTAS Consulting. (2015). Asia Pacific Commercial Air Transport: Current and Future Economic Benefits. Retrieved from https://www.iata.org/policy/promoting‐ aviation/Documents/intervistas‐report‐aspac‐dec2015.pdf

Irwin, M., & Kasarda, J. (1991). Air passenger linkages and employment growth in US metropolitan areas. American Sociological Review, 5, 524‐537.

Jiang, S. (2016, April 1). Cathay Pacific set to rebrand Dragonair as ‘Cathay Dragon’ in bid to strengthen corporate identity. Retrieved from South China Morning Post: https://www.scmp.com/business/companies/article/1905776/cathay‐pacific‐set‐ rebrand‐dragonair‐cathay‐dragon‐bid‐strengthen

Kim, S. (2018, February 1). What does Myanmar's new airport mean for travellers? Retrieved from The Telegraph: https://www.telegraph.co.uk/travel/destinations/asia/myanmar/articles/burma‐ myanmar‐to‐open‐new‐international‐airport/

Kishimoto, M. (2018, August 10). Laos airport can now handle 820% more foreign travelers. Retrieved from Nikkei Asian Review: https://asia.nikkei.com/Economy/Laos‐airport‐can‐ now‐handle‐820‐more‐foreign‐travelers

Lall, S., Stough, R., Trice, M., & Button, K. (1999). High technology employment and hub airports. Journal of Air Transport Management, 5, 53‐59.

Liu, S., & Oum, T. (2018). Prospects for air policy liberalization in China as a Result of China‐ ASEAN Open Skies: Changing role of Chinese mega carriers in global scene and anticipated Low Cost Carrier competition. Transport Policy, 72, A1‐A9.

Maillebiau, E., & Hansen, M. (1995). Demand and Consumer Welfare Impacts of International Airline Liberalization: The Case of the North Atlantic. Journal of Transport Economics and Policy, 29(2), 115‐136.

Micco, A., & Serebrisky, T. (2006). Competition regimes and air transport costs: The effects of open skies agreements. Journal of International Economics, 70(1), 25‐51.

Mok, D. (2017, July 14). Hong Kong, Macau and mainland China to work together on air traffic management in Pearl River Delta. Retrieved from South China Morning Post:

https://www.scmp.com/news/hong‐kong/economy/article/2102600/hong‐kong‐macau‐ and‐mainland‐china‐work‐together‐air‐traffic

Oum, T. (1998). Overview of regulatory changes in international air transport and Asian strategies towards the US open skies initiatives. Journal of Air Transport Management, 4(3), 127‐134.

Oum, T., Zhang, A., & Fu, X. (2009). Air Transport Liberalization and its Impacts on Airline Competition and Air Passenger Traffic. International Forum on Shipping, Ports and Airports (IFSPA) 2009 ‐ Post‐Financial Tsunami: The Way Forward for Shipping, Transport and International Trade, (pp. 371‐390). Hong Kong.

Piermartini, R., & Fache Rousova, L. (2008). Liberalization of Air Transport Services and Passenger Traffic. WTO Staff Working Paper.

Piermartini, R., & Rousov, L. (2013). The Sky Is Not Flat: How Discriminatory Is the Access to International Air Services. American Economic Journal: Economic Policy, 5(3), 287‐319.

PwC. (2018). The Future of ASEAN ‐ Time to Act: Transportation. Retrieved from https://www.pwc.com/gx/en/growth‐markets‐centre/assets/pdf/future‐of‐asean‐ chapter‐8.pdf

Reuters. (2018, June 20). Airports of Thailand approves $1.3 bln for Suvarnabhumi expansion plan. Retrieved from https://www.reuters.com/article/airports‐th‐investment/airports‐ of‐thailand‐approves‐1‐3‐bln‐for‐suvarnabhumi‐expansion‐plan‐idUSL4N1TM3F8

Schipper, Y., Rietveld, P., & Nijkamp, P. (2002). European airline reform ‐ An empirical welfare analysis. Journal Of Transport Economics And Policy, 36(2), 189‐209.

Shamasundari, R. (2017, September 26). Southeast Asia soars with low‐cost airlines. Retrieved from The ASEAN Post: https://theaseanpost.com/article/southeast‐asia‐soars‐low‐cost‐ airlines

Singapore Airlines. (2018). Annual Report FY2017/18. Retrieved from http://www.singaporeair.com/saar5/pdf/Investor‐Relations/Annual‐ Report/annualreport1718.pdf

Singapore Airlines. (n.d.). Our Heritage. Retrieved from https://www.singaporeair.com/en_UK/us/flying‐withus/our‐story/our‐heritage/

Singapore Airlines. (n.d.). Our Subsidiaries. Retrieved from https://www.singaporeair.com/en_UK/hk/flying‐withus/our‐story/our‐subsidiaries/

Sit, V. (2003). Forging Asia's global transpark in the Pearl River Delta at Zhuhai. Chinese Geographical Science, 13(4), 300‐309.

Skytrax. (n.d.). World's Top 100 Airports 2018. Retrieved from http://www.worldairportawards.com/awards/world_airport_rating.html

Swan, w. (2007). Misunderstandings about airline growth. Journal of Air Transport Management, 13, 3‐8.

Tan, A. (2010). The ASEAN multilateral agreement on air services: En route to open skies? Journal of Air Transport Management, 16(6), 289‐294.

Tan, A. (2012). The 2010 ASEAN‐China Air Transport Agreement: Placing the cart before the horse? Air and Space Law, 37(1), 35‐50.

The Jakarta Post. (2018a, April 16). Soekarno‐Hatta airport to serve 100m passengers in 2025. Retrieved from http://www.thejakartapost.com/news/2018/04/16/soekarno‐hatta‐ airport‐to‐serve‐100m‐passengers‐in‐2025.html

The Jakarta Post. (2018b, May 22). West Java’s Kertajati Airport starts operation on Thursday. Retrieved from http://www.thejakartapost.com/news/2018/05/22/west‐javas‐kertajati‐ airport‐starts‐operation‐on‐thursday.html

The Straits Times. (2018, January 18). Cambodia plans to build one of world's biggest airports. Retrieved from https://www.straitstimes.com/asia/se‐asia/cambodia‐plans‐to‐build‐ one‐of‐worlds‐biggest‐airports

Toh, M. (2017, June 14). Limited room for consolidation among Chinese airlines: Fitch. Retrieved from Flight Global: https://www.flightglobal.com/news/articles/limited‐room‐for‐ consolidation‐among‐chinese‐airline‐438204/

Tsui, W. K., & Fung, K. M. (2016a). Analysing passenger network changes: The case of Hong Kong. Journal of Air Transport Management, 50, 1‐11.

Tsui, W. K., & Fung, K. M. (2016b). Causality between business travel and trade volumes: Empirical evidence from Hong Kong. Tourism Management, 395‐404.

Tsui, W. K., Ozer Balli, H., Gilbey, A., & Gow, H. (2014). Forecasting of Hong Kong airport's passenger throughput. Tourism Management, 42(C), 62‐76.

Tsui, W. K., Yuen, C. A., & Fung, K. M. (2017). Maintaining competitiveness of aviation hub: Empirical evidence of visitors to China via Hong Kong by air transport. Current Issues in Tourism, 21(11), 1260‐1284.

Wang, K., Xia, W., & Zhang, A. (2017). Should China further expand its high‐speed rail network? Consider the low‐cost carrier factor. Transportation Research Part A, 100, 105‐120.

Wang, K., Xia, W., Zhang, A., & Zhang, Q. (2018). Effects of train speed on airline demand and price: Theory and empirical evidence from a natural experiment. Transportation Research Part B, 114, 99‐130.

Wang, K., Zhang, A., & Zhang, Y. (2018). Key determinants of airline pricing and air travel demand in China and India: Policy, ownership, and LCC competition. Transport Policy, 63, 80‐89.

Warnock‐Smith, D., & O’connel, J. F. (2011). The impact of air policy on incoming tourist traffic: The contrasting cases of the Caribbean Community and the Middle‐East. Journal of Transport Geography, 19(2), 265‐274.

Website (www.airlineleader.com). (n.d.). Market share of airlines in Southwast Asia in the week of April 25, 2016, based on percentage of seats offered on domestic flights. Statista ‐ The Statistics Portal. Retrieved September 14, 2018, from https://www.statista.com/statistics/575133/air‐carrier‐southeast‐asia‐domestic‐ market‐share/

Wen wei po. (2011, March 24). 珠三角五大機場位置圖. Retrieved from http://image.wenweipo.com/2011/03/24/ch11.jpg

Winston, C., & Yan, J. (2015). Open Skies: Estimating Travelers' Benefits from Free Trade in Airline Services. American Economic Journal: Economic Policy, 7(2), 370‐414.

Yan, J., Fu, X., Oum, T., & Wang , K. (2019). Airline horizontal mergers and productivity: Empirical evidence from a quasi‐natural experiment in China. International Journal of Industrial Organization, 62, 358‐376.

Yuen, C. A., Lei, Z., Chow, K. C., & Fung, K. M. (2017). Could market power explain hub premiums? Journal of Air Transport Management, 64, 55‐59.

Zhang, Y., Zheng, X., & Lu, W. (2018). Measuring the openness of Chinese international air transport policy. Transport Policy, 72, 208‐217.

鄭寶生. (2017, June 26). 海航︰旗下香港航空及香港快運打破壟斷帶動減價戰. Retrieved from HK01: https://www.hk01.com/%E8%B2%A1%E7%B6%93%E5%BF%AB%E8%A8%8A/100490/% E6%B5%B7%E8%88%AA‐ %E6%97%97%E4%B8%8B%E9%A6%99%E6%B8%AF%E8%88%AA%E7%A9%BA%E5%8F% 8A%E9%A6%99%E6%B8%AF%E5%BF%AB%E9%81%8B‐ %E6%89%93%E7%A0%B4%E5%A3%9F%E6%96%B7%E5%B8%B6%E5%8B%95%E6%B8%9 B%E5%83%B

馮永業. (2018, January 3). 加強與粵機場合作服務灣區人流物流. Retrieved from Master Insight: https://www.master‐

100

insight.com/%E9%A6%AE%E6%B0%B8%E6%A5%AD%EF%BC%9A%E5%8A%A0%E5%BC% B7%E8%88%87%E7%B2%B5%E6%A9%9F%E5%A0%B4%E5%90%88%E4%BD%9C‐ %E6%9C%8D%E5%8B%99%E7%81%A3%E5%8D%80%E4%BA%BA%E6%B5%81%E7%89% A9%E6%B5%81/

101