Economic and Environmental Benefits of Increasing Airspace Efficiency in the Pearl River Delta

INTRODUCTION The airspace in the Pearl River Delta (PRD) region is characterized by a number of airspace constraints, which have an acute negative impact on efficient arrival and depar-ture procedures at Hong Kong International Airport, as well as other major airports in the area.

The purpose of this document is to assess the economic and environmental benefits that can be accrued for Hong Kong by removing airspace constraints surrounding Hong Kong International Airport. The study is based on an analysis of all aircraft operations at Hong Kong International Airport, which comprises of over 100 airlines, operating to around 180 destinations and, in 2012, 355,000 air traffic movements.

BACKGROUND

The Pearl River Delta region consists of 5 airports: Hong Kong Chek Lap Kok International Airport, Shenzhen Baoan International Airport, Guangzhou New Baiyun In-ternational Airport, Macau International Airport and Zhuhai Airport. The region is comprised of 3 major airspace territories – Guangzhou Airspace, Zhuhai Airspace and Hong Kong Air-space (See Figure 2.1). Macau airport traffic operates within both Hong Kong and Zhuhai airspace, depending upon the direction of the flight, while Shenzhen airport traffic operates within Zhuhai airspace.

The Zhuhai airspace is highlighted in red in Figure 2.1. Its lateral dimensions extend to the sea boundary of Southern Mainland China, located immediately north of Hong Kong International Airport, and its vertical dimensions extend from ground level to 15,000 feet. Aircraft departing and arriving at Hong Kong are required to remain clear of the Zhuhai airspace and this causes sub-optimal arrival and departure flying routes resulting in more flying miles (See Figure 2.2 and 2.3).

As flights arriving from the north are not allowed to enter Zhuhai airspace, they are required to fly further south, past HKIA, descending below 15,000 feet over the China Sea thereby allowing enough time to slowly descend and land at HKIA.

Flights departing and flying to the north of Hong Kong are not allowed to enter Zhuhai airspace and are therefore required to initially fly south over the China Sea in order to climb to 15,000 feet and fly above the Zhuhai airspace.

Figure 2.1 Guangzhou, Zhuhai and Hong Kong Airspace

Airport runways

Figure 2.2 Sample current and ideal arrival tracks at Hong Kong

Airport runways Current arrival track to HK

Ideal arrival track to HK

Starts descending from 15,000 feet

Starts descending from 15,000 feet

Figure 2.3 Sample current and ideal departure tracks at Hong Kong

Airport runways Current departure track from HK

Ideal departure track from HK

Aircraft altitude at 5,000 feet

Aircraft altitude at 15,700 feet

If a revision to PRD airspace arrangements can be made it will also permit departures from both runways at HKIA (see Figure 2.4).

As illustrated below, a revision to the PRD airspace arrangements would permit a significant improvement in the flight profiles of aircraft, as they arrive at and depart from HKIA, resulting in significant reduction in fuel burn and CO2 emissions, as well as savings in time. In the following section, a full analysis on these benefits will be demonstrated.

IMPACT ANALYSISIn determining the benefits that would accrue from revised PRD airspace arrangements, it was necessary to make a series of technical assumptions regarding probable changes in flight profiles following an airspace revision. This change in the flight profiles of aircraft, as they arrive at and depart from HKIA, would result in reduced fuel burn, reduced CO2 emis-sions and savings in time.

Significant economic and environmental benefits can be generated from removing airspace inefficiencies around Hong Kong International Airport, namely:

• Reduction in carbon dioxide (CO2) emissions

• Time savings for passengers

• Improved efficiency in airline operations

• Boost to GDP, employment and consumer well-being

• Improved competitiveness of Hong Kong as a business location

• Airport operations efficiencies in Shenzhen, Macau and Zhuhai

REDUCTION IN CO2 EMISSIONS

A study by Cathay Pacific Airways quantified the scale of fuel savings possible, for all airlines operating in and out of HKIA, at approximately 267,000 tCO2 per year.

To quantify the degree of CO2 emission reduction associated with the removal of airspace inefficiencies, study shows that 267,000 tCO2 is equivalent to the emissions of around 1,000 flights from Hong Kong to western Europe.

The environmental benefits from reducing PRD airspace inefficiencies will support the climate change policies of the Hong Kong Special Administrative Region (HKSAR). Fol-lowing the announcement of a voluntary national target to reduce carbon intensity by the Central People’s Government (CPG) in November 2009, the HKSAR committed to making early preparations to meet the challenges and announced a proposed aggressive target for reducing carbon intensity1 by 54-60% by 2020, as compared to 2005 levels. In order to achieve this target, the HKSAR must achieve an actual reduc-tion of greenhouse gas (GHG) emissions by 19-33%. As CO2 emissions are responsible for more than 90% of the 6 main GHG’s, a reduction of CO2 emissions resulting from removing the PRD airspace inefficiencies will directly assist the HKSAR in achieving this aggressive target.

Removing airspace constraints will also contribute to achieving the climate change goals adopted for international civil aviation, that is an annual average 1.5% fuel efficiency improvement by 2020, the stabilisation of net CO2 emissions from 2020, and the reduction by half of net aviation CO2 emissions by 2020 relative to 2005 levels.

TIME SAVING FOR PASSENGERS A study by Cathay Pacific quantified the potential for annual flight time savings by removing airspace inefficiencies, for all arriving and departing flights at Hong Kong International Airport, as 13,243 flight hours. With an estimated 82.7% of all flights being commercial passenger flights with an average of 202 passengers2, it is estimated that over 2.2 million per-son hours are lost annually due to this inefficiency. Using the values of passenger air travel time from the latest Eurocontrol standard inputs for Cost Benefit Analysis, it is estimated that the total value from time savings is HK$ 1,041 million per year. Table 3.1 below provides a summary of this analysis.

1Carbon Intensity is defined as total Greenhouse Gas (GHG) emissions per unit GDP. Source: Environmental Protection Department.2 This analysis assumes an average passenger load factor of 80% for flights at Hong Kong airport.

Figure 2.4 Sample possible departures from both runways at HKIA

Estimates of flight hours lost 13,243

Passenger ATM movements, % 82.7%

Cargo ATM movements, % 14.5%

Avg. number of passengers on a flight 202

Total person hours lost, mil 2.2

Eurocontrol recommended value per hour in travel time savings (in 2012 HKD) 470

Total annual saving HK$ 1,041 million

Sources: Cathay Pacific (estimate for flight hours lost); Hong Kong airport statistics 2012 (ATM movements); SRS analyzer (avg. size of aircraft); Eurocontrol standard inputs for Cost Benefit Analysis (travel time savings).

Table 3.1

IMPROVED EFFICIENCY IN AIRLINE OPERATIONS

The study by Cathay Pacific also quantified total jet fuel sav-ings of 28 million gallons, which would translate to an annual cost saving of about HK$ 656 million, based on estimates of prevailing fuel prices at HKIA in 20123. In addition, the time saving for more efficient flight operations would also result in cost savings on non-fuel related operating expenses. The lat-est Eurocontrol standard inputs for Cost Benefit Analysis, for assessing planned aircraft ownership costs that are incurred during inefficient operations, have been used4. This non-fuel related operating cost adds an additional cost saving of HK$293 million. Total annual savings in operating costs, for all airlines operating into Hong Kong, amount to HK$ 949 million.

BOOST TO GDP, EMPLOYMENT AND CONSUMER WELL-BEING

The decrease in the cost of operating passenger and freighter services will result in lower travel and air shipment costs. Given the price elasticities estimated for the passenger and freighter markets in Hong Kong5, it is expected that there will be an increase in demand for these services. As summarised in Table 3.3, it is expected that annual international passenger flows will rise by about 50 thousand (arrivals and departures) and air freight volumes will increase by almost 7 thousand tonnes. In addition, it is expected that the number of connecting pas-sengers will rise by 9.6 thousand.

This increased demand for air transport will positively impact the airline and airport operators serving the Hong Kong market. This impact will also ripple throughout the broader economy along the air transport supply chain, through the tourist sector and via increased wage spending from industry employees on goods and services they consume privately, as well as lead to improved competitiveness in air freight opera-tions.

As presented in Table 3.4, the industry’s overall contribution to GDP would rise by about HKD$ 322 million per year and an additional 531 jobs would be supported in Hong Kong6. In addition, consumers of air transport would also be better off as a result of the cost reduction.

3 Jet fuel price at Hong Kong airport is estimated based on inputs from IATA Fuel Team. It is estimated that the in-to-plane jet fuel prices are on average 10 cents above Means of Platts Arab Gulf for 2012.

4 The Eurocontrol recommended standard inputs are based on a May 2004 study from the University of Westminster. “Evaluating the true cost to airlines of one minute of airborne or ground delay” and subsequently updated also by the University of Westminster in March 2011 “European airline delay cost reference values”

5 Elasticities of demand used are from Oxford Economics modelling based on Itervistas/IATA Study “Air Travel Demand” 2006.6 Estimating GDP benefits using the input-output tables assumes a ‘counterfactual’ economy with unemployed resources, so all jobs and GDP created from improved operating

efficiency are additional and do not crowd out existing employment. We consider this a valid assumption given the seasonally adjusted unemployment rate of 3.3% combined with an underemployment rate of 1.6% estimated for June 2013 by the Census Statistics Department of Hong Kong.

Fuel Savings, gallons mil 28

CO2 savings, tCO2 thousands 267

Avg. estimated fuel price per gallon in HKG 2012, US cents 304

Avg. estimated fuel price per gallon in HKG 2012, HKD 23

Total fuel related savings in annual operating cost, HKD mil 656

Maintenance per flight hour, HKD 8,640

Crew per flight hour, HKD 5,040

Aircraft ownership per flight hour, HKD 8,460

Total non-fuel related savings in annual operating costs, HKD mil 293

Total annual savings in operating cost HK$ 949 million

Sources: Cathay Pacific study (flight hours lost) jet fuel volume savings; IATA Fuel Team (jet fuel price); Eurocontrol standard inputs for Cost Benefit Analysis (non-fuel operating costs).

Table 3.2

Input-Output model built for IATA by Oxford Economics

Impact on air transport cost and volumes

Passenger (OD for HK market)

Avg. return international airfare (incl. fuel surcharge estimate), HKD 8,176

Avg. ticket tax estimate, HKD 120

Estimated decrease in travel cost in round trip fare, % 0.15%

Elasticity of demand (OD for HK market) -0.7

Increase in traffic, % 0.1%

Annual increase in international passenger traffic, passengers 49,600

Air freight

Avg. freight charge per tonne, HKD 12,210

Estimated decrease in cost, % 0.15%

Elasticity of demand (air freight market HK) -1.2

Increase in air freight handled by Hong Kong 0.2%

Annual increase in air freight tonnes handled 6,734

Table 3.3

Source: Input-Output model built for IATA by Oxford Economics

Impact on economy

Additional annual contribution to GDP HK$ 322 million

Additional employment, jobs 531

Table 3.4

IMPROVED COMPETITIVENESS OF HONG KONG AS A BUSINESS LOCATION

Hong Kong has historically been a premier location for doing business. Global companies have selected Hong Kong for its business friendly environment, favourable institutional framework and strategic geographic location at the door step of world’s most dynamic region. These features have enabled Hong Kong to develop as a regional and global business centre. However, some reports suggest that Hong Kong’s historic dominance is giving way to other regional and global locations.

The World Bank 2013 Doing Business report concludes that Singapore has emerged as the number one place to do business. While there are studies that rank Hong Kong more favourably in some aspects, its dominance as the top location for doing business is no more as clear as it once was.

The attractiveness of Hong Kong is driven by many factors, one of which is the existence of well-developed and efficient air transport links. Hong Kong (as well as Singapore) has one of the best rated air connectivity measures, according to IATA’s connectivity index, which contributes to the attractiveness of Hong Kong as a top business location. However, inefficient airspace arrangements in Hong Kong reduce efficiency and lead to time losses for users of air transport, which partially erodes Hong Kong’s competiveness as a business location.

A survey by Oxford Economics, commissioned by IATA, of business largely representative7 of the Hong Kong economy found that 70-80% of the firms surveyed stated that measures that reduce travel time were vital or very important to their businesses. Similarly, over 75% of firms in China reported that they expect to become substantially or somewhat dependent on air transport services over the next decade. The survey also found that, in general, 63% of firms stated that air transport is a vital or very important factor in determining where a company makes an investment8. This survey confirmed that businesses place importance on efficient air transport and pointed to the likely growing importance of efficient air links in future.

IMPROVED AIRPORT OPERATIONS EFFICIENCY IN SHENZHEN GUANGZHOU, MACAU AND ZHUHAI

Although the Cathay Pacific study was based on air traffic operations at Hong Kong International Airport, removing ineffi-ciencies in the PRD region would generate similar efficiencies for other PRD airports, most notably Shenzhen Baoan Interna-tional Airport and Guangzhou New Baiyun International Airport, as well as Macau International Airport and Zhuhai Airport, by co-ordinating aircraft movements over the whole PRD area.

CONCLUSION

Removing airspace inefficiencies in the PRD region will generate significant economic and environmental benefits for Hong Kong:

• Reduction in carbon dioxide (CO2) emissions:

- Reduced CO2 emissions of 267 thousand tonnes per year

• Time savings for passengers:

- Benefits to passengers valued at HK$1014 million per year

• Improved efficiency in airline operations:

- Reduced fuel related operating costs of HK$656 million and non-fuel operating expenses of HK$293 million per year

• Boost to GDP, employment and consumer well-being:

- An increase of HK$322 million in overall contribution of the aviation industry to GDP, per year

- 531 additional jobs supported

- Consumer benefits as a result of cost reductions.

• Improved competitiveness of Hong Kong as a business location

• Improved airport operations efficiency in Guangzhou, Shenzhen, Macau and Zhuhai

As illustrated in this paper, there are substantial and mostly quantifiable benefits associated with the removal of airspace inefficiencies around Hong Kong International Airport, both economically and environmentally. The total quantifiable benefits to passengers and airlines from time savings and more efficient use of airspace is estimated at about HKD 2 billion per year. There would also be an associated rise in Hong Kong GDP estimated at HKD322 million.

The Aviation Authorities in Hong Kong, Macau and the Mainland have been working for a number of years on removing the airspace inefficiencies and a plan has been agreed with target dates of around 2020 for a reorganized airspace. Given the importance of the airspace reorganiza-tion to Hong Kong, and also the greater Pearl River Delta airports, the HKSAR Government is urged to extensively review the issue and assess measures, which could be tak-en as soon as possible and certainly before 2020, to realize the potential benefits and to uphold Hong Kong’s position as one of the most successful aviation hubs in the world.

7Business targeted by the survey operate in traditional manufacturing, high tech manufacturing and services, financial and business services and other services.8 ‘Airline Network Benefits’, IATA, 2006.