soaring to new heights in the greater bay area
TRANSCRIPT
Soaring to new heights in the Greater Bay Area:Opportunities and market potentials for the aviation industry
Soaring to new heights in the Greater Bay Area:
Opportunities and market potentials for the aviation industry
Content1. Strengths of the aviation industry in the Greater Bay Area 3
from a macro perspective
2. Optimise airport infrastructures to scale the development of the industry 5
3. Cultivate growth of related industries through marketisation of airlines 9
4. Achieve efficient allocation of aviation resources through a comprehensive 12
transportation system
5. Logistics capacity as a growth enabler for aviation leasing 14
Conclusion 17
Contact us 18
2
Soaring to new heights in the Greater Bay Area:
Opportunities and market potentials for the aviation industry
1. Strengths of the aviation industry in the Greater Bay Area from a macro perspective
3
Soaring to new heights in the Greater Bay Area:
Opportunities and market potentials for the aviation industry
1. Strengths of the aviation industry in the GBA from a macro perspective
In February 2019, the Central Committee of the Communist Party of China and the State Council officially published the “Outline Development Plan for the Guangdong-Hong Kong-Macao Greater Bay Area”. It stated clearly the national-level strategic plan for developing the Guangdong-Hong Kong-Macao Greater Bay Area (hereinafter referred to as Greater Bay Area or GBA for short), with the aim to position it as one of the world’s top four bay areas comparable to Greater New York, San Francisco Bay Area and Greater Tokyo Area.
With a total area of 56,000 km2, GBA is home to a population of over 70 million from nine municipalities and two Special Administrative Regions. In 2018, the region’s GDP exceeded RMB 10 trillion, making it the largest and most dynamic economic region in China and the world.
The Greater Bay Area is a hub that integrates manufacturing, technology and financial services –incorporating the strategic positioning of the other three global Bay Areas. The Guangdong province has been a major manufacturing cluster since China’s economic reform and opening-up, with Dongguan and Foshan renowned for being the centre of world-class manufacturing “world’s factory” in particular.
Shenzhen is now a leading global technology and internet industry, while Hong Kong and Macao earned their fame respectively as a world-renowned financial centre and the “Las Vegas of the East”. With Hong Kong and Macao located at the forefront and governed under the “One Country, Two Systems” principle, 9+2 city cluster of Greater Bay Area will enjoy huge potential in fostering its developments.
We believe that high mobility of the population and free flow of capital and goods are essential to the development of an economy. Hence, an efficient transportation system is crucial in facilitating economic growth. And in the modern era, aviation is an integral part of a leading-edge transportation systems.
4
GDP of the Greater Bay Area in 2018
(100 million yuan)
Macau
3,607
Guangzhou
22,859
Zhaoqing
2,202
Dongguan
8,279
Foshan
9,936
Huizhou
4,103
Jiangmen
2,900
Shenzhen
24,222
Zhongshan
3,633
Hong Kong
24,006
Zhuhai
2,915
Source:CEIC、National Bureau of Statistics,PwC
Soaring to new heights in the Greater Bay Area:
Opportunities and market potentials for the aviation industry
2. Optimise airport infrastructures to scale the development of the industry
5
Soaring to new heights in the Greater Bay Area:
Opportunities and market potentials for the aviation industry
2. Optimise airport infrastructures to scale the development of the industry
Currently, there are ten civil airports in operation in the
GBA. Of those, Hong Kong International Airport,
Guangzhou Baiyun International Airport and Shenzhen
Bao’an International Airport together form an
international aviation hubs boasting a combined
passenger traffic of nearly 200 million and cargo of over
8 million tonnes in 2018. Hong Kong International
Airport is particularly outstanding, with air traffic of 70
million passengers (ranked eighth) and 5.12 million
tonnes of cargos ranked first in the world. Driven by a
strong demand, there is a huge potential for the
development of the aviation industry in the GBA. Air
traffic passengers and freight demands in the GBA are
estimated to reach 233 million passengers and 10
million tonnes, respectively, by 2020.
The three major international airport hubs serve as
global gateways, playing a leading role in the overall
development of airport infrastructure in the GBA. Macao
International Airport and Zhuhai Jinwan Airport have
reached the level of “ten-millions transportation”.
Airports in Zhanjiang, Foshan, Huizhou, Jieyang, and
Meizhou are also in the midst of rapid development.
There are numerous projects in the pipeline such as the
Third Runway Passenger Building of the Hong Kong
International Airport, the opening of T2 at Guangzhou
Baiyun International Airport and T3 expansion plan,
commissioning of T2 at Baiyun Airport and the planning
of T3, as well as the construction of Yuexi International
Airport. The developments of the civil aviation
infrastructures are moving at speed and reaching new
heights.
Meanwhile, with the support of government
departments in fostering logistics, ports, business
services, manufacturing, and other relevant industries
and functions, the GBA has seen an effective boost in
its economic development and further acceleration in
the connectivity and mobility of its population, capital
and goods. The GBA is expected to become China’s
largest cluster of air transport and aviation industry in
the near future.
Source:2018 Statistical Bulletin of Civil Aviation Industry Development, CEIC
6
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
0
20,000,000
40,000,000
60,000,000
80,000,000
100,000,000
120,000,000
Number of passengers 2018
Number of passengers 2017
Number of passengers year-on-year growth
Top 10 airports by number of passengers
Soaring to new heights in the Greater Bay Area:
Opportunities and market potentials for the aviation industry
2018 Top 10 airports by air traffic movements
0.00.51.01.52.02.53.03.54.04.55.0
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
Air traffic movements 2018 Air traffic movements 2017 起降架次 year-on-year growth
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
0
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000 Cargoes and airmails throughput (Tonnes) 2018
Cargoes and airmails throughput (Tonnes) 2017
Cargoes and airmails throughput (Tonnes) year-on-year growth
2018 Top 10 airports by cargoes and airmails throughput(Tonnes)
7
Source: 2018 Statistical Bulletin of Civil Aviation Industry Development, CEIC
Source: 2018 Statistical Bulletin of Civil Aviation Industry Development
Air traffic movements
year-on-year growth
Soaring to new heights in the Greater Bay Area:
Opportunities and market potentials for the aviation industry
0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 90,000
2013
2014
2015
2016
2017
2018
Guangdong province spans over 800 km from east to west, with Guangzhou-Shenzhen-Hong Kong located at its
centre measuring a distance of about 400km to the east, west and north border of the province. The decentralised
locations of small and medium-sized airports alleviate to some degree the pressure of domestic flights on the three
international airport hubs. It also creates a conducive atmosphere for the growth of regional airlines. Currently, the
small and medium-sized airports in the GBA have a relatively lower usage rate and lack the presence of domestic
flag carriers. With the government’s tremendous support in employing ARJ21 regional carriers, the GBA is well-
poised to nurture the growth of the regional aviation market.
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来源:2018年民航机场生产统计公报
PwC’s point of view
Local governments and regulatory authorities must join hands to optimise the policy
environment continuously
The aviation development in the GBA requires local policy support and effective regulation that are
specific to local needs. Local governments at all levels, industrial and commercial management
authorities, financial and taxation departments, and civil aviation authorities all contribute a direct
impact on the industry. A strong regulatory system is critical to the development of civil aviation
services, which underpin public safety and national security. As one of the driving forces for the local
economic growth, the fiscal and commercial policies should be directed to promote a high degree of
economic vibrancy for the industry. The policy environment should continue to evolve and mature
through exploration and experimenting in tandem with the overall economic development.
Absolute GDP per capita (Yuan)
Soaring to new heights in the Greater Bay Area:
Opportunities and market potentials for the aviation industry
3. Cultivate growth of related industries through marketisation of airlines
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Soaring to new heights in the Greater Bay Area:
Opportunities and market potentials for the aviation industry
3. Cultivate growth of related industries through marketisation of airlines
In line with the positioning and functions of the airport
hubs, the three leading airports in the Greater Bay Area
are home to some internationally renowned flag
carriers, including Cathay Pacific, China Southern
Airlines and Shenzhen Airlines with an extensive
network of worldwide routes.
In response to a diversified customer base and market
segmentation, air transport services in the GBA are
becoming more market-oriented. We see that Air China,
China Eastern Airlines, and HNA Group have
penetrated the most destinations in the GBA, further
enriching the route coverage connecting the GBA and
domestic destinations. Through code-sharing practices,
airline alliance can fully utilise their logistics resources.
The privately-owned Donghai Airlines is based in
Shenzhen and connected to international destinations;
9 Air has successfully established itself in a more
fragmented low-cost airline market in just a few years.
SF Airlines and Longhao Airlines have become an icon
of private-owned cargo airlines. The flag carrier airlines
in GBA altogether own a fleet of aircrafts of more than
1,200.
10
Source: https://www.hongkongairport.com/iwov-resources/file/airport-authority/publications/annual-and-interim-
reports/tc/18_19/AR1819_Chi_Airlines-and-Destinations.pdf
In order to supplement the large-scale public air
transportation, the operational volume of business jets
and helicopters is considerable in the GBA. Well-known
general aviation companies such as BAA Jet
Management and CITIC Offshore Helicopter are both
based in Shenzhen. The robust economic foundation of
the region has brought concrete demand for, it is
predicted that business private flights. As such, Hong
Kong, Macao and Shenzhen are key aviation nodes for
domestic and international business routes.
Airlines typically operate in capital and technology-
intensive industry, with a long operations chain and
many complementary businesses. The numerous
airlines in the GBA and their development will drive
growth in the region through many ways. First, it will
gather passenger flow and cargo logistics to address
the demand in transportation and thus create
consumption. Secondly, there will be more investment
and financing opportunities to enhance capital flow.
Also, it will create employment opportunities in different
fields and improve the technical skills of the workforce;
and lastly, it will promote the development of related
services and manufacturing.
Number of airline routes from Hong Kong Airport to Mainland China in 2018
Beijing Jinjiang Tianjin
Changchun Kaohsiung Wenzhou
Changsha Kunming Wuhan
Chengdu Meixian Wuxi
Chongqing Nanchang Wuyishan
Dalian Nanjing Xiamen
Datong Nanning Xian
Dunhuang Ningbo Xuzhou
Fuzhou Qingdao Yancheng
Guangzhou Sanya Yangzhou
Guilin Shanghai / Hongqiao Yantai
Guiyang Shanghai / Pudong Yinchuan
Haikou Shenyang Yiwu
Hangzhou Shijiazhuang Yuncheng
Harbin Taichung Zhangjiajie
Hohhot Tainan Zhanjiang
Hualien Taipei Zhengzhou
Jinan Taiyuan
There are 53 routes from Hong Kong Airport to Mainland. The specific route destinations are as follows:
Soaring to new heights in the Greater Bay Area:
Opportunities and market potentials for the aviation industry
Collaboration of flag carrier airlines will optimise the allocation of aviation resources
The three major airport hubs in GBA are internationally renowned. Each flag carrier may compete with
each other, yet it is inevitable they build an in-depth collaboration within the industry. International and
domestic intermodal transportation calls for stronger collaboration between airlines to achieve higher
efficiency and convenience. The increase in passenger and cargo capacity will be essential to the
economic growth of the GBA as well as the business expansion of the airlines.
11
PwC’s point of view:
Passenger and cargo throughput at Hong Kong International Airport in 2018
Region: Hong Kong Special Administrative Region of China
Frequency: Year-end December
Source: Civil Aviation Department
427,766 units
Departure &
landing
5017,854 tons
Air Cargo
74,359,829
person
Passenger Traffic
Soaring to new heights in the Greater Bay Area:
Opportunities and market potentials for the aviation industry
4. Achieve efficient allocation of aviation resources through a comprehensive transportation system
12
Soaring to new heights in the Greater Bay Area:
Opportunities and market potentials for the aviation industry
4. Achieve efficient allocation of aviation resources through a comprehensive transportation system
Hong Kong International Airport has the most international destinations among the three major airport hubs in the Greater Bay Area, while Guangzhou Baiyun International Airport and Bao’an International Airport have a route network essentially covering the entire country. Under the overall development plan of the Greater Bay Area, the collaboration and coordination between the three airport hubs will further enhance the connectivity between China and the rest of the world. The continuous development of the transportation system in the GBA through highways, high-speed rail, shipping, cross-sea traffic ways, aviation and ferries also foster connections between cities and add to the convenience of transportation in the region. Passenger and cargo flow can be effectively directed to international destinations through airports in Hong Kong, Shenzhen, and Macao, while channeling more international arrivals to Mainland China via the GBA aviation hub. Hong Kong will strengthen its role as an international gateway; Baiyun and Bao'an Airports can capitalise on their high domestic coverage to cater to routes going to broader destinations in China.
The building of joint aviation hubs can enhance occupation rate and utilisation of flights, thereby avoiding duplication of international and domestic routes run by individual each flag carrier airlines. The most optimal aviation resource allocation can be realised with the coordinated, centralised planning of land-air-water transportation resources within the GBA.
Highways and cross-sea traffic form an extensive land transportation system that connects different townships, cities and provinces in the GBA, enabling direct cross-border bus services to and from the three airport hubs. The expanding coverage of high-speed rails and rail transits, coupled with the innovative use of juxtaposed border controls will improve the efficiency of land-air transportation and enhance the development of a comprehensive transportation system.
13
Accelerate the development of a comprehensive transportation system to seamlessly connect
the GBA aviation network
Since its economic reform and opening-up 40 years ago, China’s general aviation industry is still in its initial stage. Given the fierce competition in the global aviation industry, it is imperative to create a high-speed transportation network system – with a seamless connection between destinations and zero-distance transfers as a foundation to further integrate the general aviation industry into the GBA transportation system.
The "Key Construction Project Plan in Guangdong Province 2019" passed by Guangdong Province recently has mandated measures with immediate impact, including investment of more than RMB 10 billion in nine general aviation projects. The General Aviation Network will promote high-quality development of air transport in the GBA, making it one of the most competitive transportation networks in the area.
PwC’s point of view:
Source: http://www.gd.gov.cn/zwgk/sjfb/sjkx/content/post_2600703.html
The total operation mileage of
Guangdong Railway reached
4,630km in 2018, 8.3 times that of
1949.
The total mileage of high-speed rail
hit 2025 km, with an average annual
increase of 23.1% since it started
operations in 2009.
2018 high-speed rail mileage in Guangdong Province
Soaring to new heights in the Greater Bay Area:
Opportunities and market potentials for the aviation industry
5. Logistics capacity as a growth enabler for aviation leasing
14
Soaring to new heights in the Greater Bay Area:
Opportunities and market potentials for the aviation industry
5. Logistics capacity as a growth enabler for aviation leasing
According to the statistics from the Civil Aviation Administration, airlines in Mainland China (excluding Hong Kong, Macao and Taiwan) purchased a total of 426 aircrafts in 2018, of which 72 were bought by China Southern Airlines and 13 by Shenzhen Airlines. In addition, five passenger aircrafts went to Donghai Airlines and 9 Air, and 11 cargo aircrafts to SF and Longhao. The figures show that 23% of the total new fleets are snapped up by airlines in the Greater Bay Area.
Aircrafts are the core operating assets of airlines and account for their largest proportion of capital investment. In order to maintain the timeliness of fleet replacement and ease the pressure of capital flow, aircraft leasing has been widely adopted by domestic airlines. At present, the lease penetration rate of China's commercial fleet is close to the world average of 40%. From the asset owner’s perspective, commercial aircraft has a high degree of global liquidity – priced and traded in USD, with a stable lease return and a high value preservation rate. Therefore aviation leasing has attracted investors from different backgrounds worldwide. With the incentive of FTZ / FTA tax and business policies in the China Free Trade Zone, the bonded aircraft leasing industry has flourished since 2008. Under the special bonded supervision system of “domestic customs clearance”, airlines benefit greatly from relieved pressure on taxation for airlines and hence encouraged the development of the aviation leasing industry.
Guangzhou Nansha Free Trade Zone has an outstanding track record in the Greater Bay Area bonded aircraft leasing industry. More than 120 commercial aircrafts and massive bonded aviation materials were bought in the Guangzhou Nansha FTZ within 5 years..
The aircraft leasing industry in Nanshan took off at a much later time in 2015 compared to other domestic bonded airplane leasing markets such as Dongjiang in Tianjin, Shanghai and Xiamen. Yet it has demonstrated success through innovation by leveraging the export oriented economy of the GBA and tax bond advantages. The government of Nansha District has engaged customs, foreign administration, finance, taxation and other management units to co-create a friendly business environment featuring a series of supportive measures to attract and support aircraft leasing businesses.
The Aircraft Leasing Tax Regime in Hong Kong was introduced in 2017 providing some of the world's best tax advantages for the development of cross-border aircraft leasing. Hong Kong as an international financial centre also contributes to the development of the aviation industry in the Greater Bay Area. In the first half of 2019, the cross-border aircraft financing structure was implemented in the Nansha Free Trade Zone, successfully connecting overseas lessors with the domestic free trade zone through Hong Kong. Domestic airlines also acquire foreign logistics capacity through leasing while enjoying tax concessions in Guangdong and Hong Kong. In addition, homebased airlines in the Greater Bay Area, in their capacity as aircraft operators, also play a decisive role in the development of the aircraft leasing industry. The respective authories in Guangdong and Hong Kong are committed to researching on innovative policy breakthroughs to support the long-term sustainable growth of the aviation industry.
15
Boeing forecast commercial aircraft demand of more than 40,000 new
planes for the next 20 years, with China taking 20% of the pie. As a
leading region of the country’s economic growth, the GBA is also the
headquarters of many large airlines and hence occupying a leading
market share of the aviation capacity.
Soaring to new heights in the Greater Bay Area:
Opportunities and market potentials for the aviation industry
From the investor’s perspective, seizing market opportunity creates competitive advantages.
The aviation leasing tax systems in Nansha and Hong Kong are well constructed, bringing
innovation to the cross-border aviation leasing business. GBA entered into the aviation
leasing business much later than Ireland and Dongjiang in Tianjin and yet it is showing a
promising growth in the business. Investment entities such as aircraft leasing companies,
aviation industry funds, aircraft investment banks, and asset management companies will
benefit from a competitive tax regime and accessibility to global trading brought by the GBA.
PwC’s point of view
Seize the opportunities of growing aviation
cluster and invest in aviation leasing in GBA
16
Soaring to new heights in the Greater Bay Area:
Opportunities and market potentials for the aviation industry
ConclusionAs an integrated hub of manufacturing,
technology and financial services, the aviation
industry in the GBA shows capability,
competitiveness as well as a global network.
The industry has huge sustainable potential and
essential qualities under the economic
foundation of the Greater Bay Area – ten
airports, more than ten flag carrier airlines, over
a thousand aircrafts, and a population of over
70 million with a GDP per capita exceeding
USD20,000.
The Outline Development Plan for the
Guangdong-Hong Kong-Macao Greater Bay
Area emphasises concrete strategies to develop
the aviation industry, such as enhancing air
traffic management capacity, promoting
multimodal transport code sharing and
developing cross-border helicopter services.
The further expansion of domestic and
international aviation networks would be crucial.
17
China has enormous market opportunities and
favourable policy environment. With the
strategic planning of the GBA, we believe there
will be huge potential in the coming years in the
areas of airport infrastructure, transportation
system, aviation leasing and logistic capacity.
With continuous improvement in resources
utilization, the industry is bracing for a brand
new chapter in the history of aviation
development.
Soaring to new heights in the Greater Bay Area:
Opportunities and market potentials for the aviation industry 18
Contact us
Thomas Leung
Mainland China and Hong Kong
Managing Partner
PwC China
+86 (10) 6533 2838 /
+852 2289 8288
Elton Yeung
Strategy and Innovation Leader
PwC China
+86 (10) 6533 8008 /
+852 2289 8008
Johnny Lau
Chief Consultant
PwC Hong Kong
+852 2289 5670
Loretta Fong
Greater Bay Area Taskforce
Hong Kong Customer Relationship Partner
PwC Hong Kong
+852 2289 1314
Victor Cui
Senior Manager
PwC China
+86 755 8261 8875
Clarence Leung
Partner
PwC Hong Kong
+852 2289 3599
Soaring to new heights in the Greater Bay Area:
Opportunities and market potentials for the aviation industry
Soaring to new heights in the Greater Bay Area:
Opportunities and market potentials for the aviation industry
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