Airline Industry in Hong Kong

Topics: Airline, Cathay Pacific, Supply and demand Pages: 26 (8396 words) Published: May 17, 2007
The Airlines Industry was originally initiated in USA as a fastest and luxury mean of travel in the 30s¡¯. With the tremendous development on technological, we have numerous airlines in the world. Yet, just like any industry, there are always winners and losers in the long run. This paper is use to analyze the factors from an economics perspective that drive the industry prospect and their threats in the recent years.

In the report, we have analyze, based on the data from industries and also their associates, the impact on the followings, 6¦1Supply and demand ¨C regional and global
6¦1Technological advancement leading to economies of supply ¨C reduction in production cost 6¦1Profit maximization ¨C price discrimination vital for the Airlines Industry 6¦1Government intervention ¨C deregulation and liberalization. 6¦1Trends ¨C formation of alliances

Along the process, we have adopted the principles from both microeconomics and macroeconomics in evaluating the influence to the internal (the firms) and the external (whole economy). Based on the analysis, we have observed that the industry environment is changing, from Oligopoly to a more competitive environment (oligopoly still exists but at a lesser effect), gradually even after the evolution of ¡°hub and spoke¡± because of deregulation. In the end, local airlines need the support from the government in dealing with agreement.

II. Introduction

The Airlines Industry has evolved in the past decades. To travel in an airplane from one place to another used to be a big event involving a high sum of money which was only attainable by the privileged few. In contrast, Airlines now are accessible to most levels of society with reasonably affordable fares. Hence the number of air travellers has grown and naturally the number of Airlines has grown too. But some Airlines have survived longer than others. From the surprise collapse of Pan Am in 1970 to the emergence of alliances recently, we continued to be intrigued by this high profile industry that used to be looked upon as a symbol of a nation¡¯s pride.

This paper will analyze and evaluate the recent and future market trends of the Airline Industry in Hong Kong. With the opening of China market and the intense competition between Airlines in the region, what is the trend of the industry¡¯s behaviour in Hong Kong? And what will be the future market trends?

Hong Kong has one of the world's leading international airports, handling 3.09 million tonnes of cargo and 36.3 million passengers in 2004. According to a report commissioned by the Hong Kong Airport Authority, cargo volumes handled at Hong Kong International Airport will grow by an average of 5.6% a year up until 2005, surging by 6% a year between 2006 and 2010. Further development of the Airport is on-going and will target an increase of capacity of 9 million tonnes of cargo and 87 million passengers a year in the long run.

Hong Kong Airport is served by more than 70 scheduled airlines with over 4,500 flights providing services to and from almost 140 destinations worldwide each week.

As a Special Administrative Region, there is no National Airline that belongs to Hong Kong. Instead, there are 7 Airlines using Hong Kong as their base, with Cathay Pacific being most dominant serving both China and a global network, and Dragonair second mainly serving the China market and some regional cities in Thailand and Japan.

Hong Kong has the shortest total distance to all other urban centres in East Asia, making it an ideal location as a regional hub. Most parts of East Asia, covering a population of 2 billion, can be reached within 5 hours of flight time from Hong Kong. In particular, Hong Kong serves as the gateway to the Chinese mainland, with over 40 cities being linked to Hong Kong by scheduled and non-scheduled services.

With the opening of China market, and the robust commitment of the Chinese...

References: 1. Fettered Flight: Globalization and the Airline Industry, Yergin et al, November 2000
2. The Theory and Practice of Revenue Management, Gryzin, 15 October 2003 (
3. The Reality of ¡®open skies¡¯ & its Relevance for Hong Kong research done by HK Policy Research Institute Ltd. By Dr. C K Law and Dr. Raymond Yeung
4. Airline Business dated 24Oct05
5. Airline from Wikipedia last modified 8Nov05
6. Liberalisation Outlook 2005 issued by Centre for Asia Pacific Aviation
7. Report on 2003 Annual Survey of Transport and Related Services, Census and Statistics Department
8. Understanding chaos of Airline Industry by Alex Kons, 2000 (
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