Hong Kong and Fiji show little enthusiasm to renegotiate bilateral air services agreement

While Australia was keen to discuss adding extra capacity to those agreements, Borthwick told a conference on Wednesday the governments of Hong Kong and Fiji had shown little enthusiasm for restarting talks in recent times.

“From a departmental point of view we continue to prioritise negotiations with Fiji, Hong Kong and Qatar,” Borthwick told delegates at the CAPA – Centre for Aviation airport innovation summit in Brisbane.

“I think it is fair to say that Fiji and Hong Kong have so far declined the opportunity for further negotiations with us.

“In relation to Qatar, I would have expected negotiations to have happened by now. Unfortunately, we had a recent election which put all of our bilateral air services negotiating talks on hold.”

Currently, there is no more available capacity under the Australia-Hong Kong bilateral air services agreement for any additional flights to the country’s four major gateways – Brisbane, Melbourne, Perth and Sydney – for Hong Kong-designated carriers.

The available capacity to the major gateways has been fully utilised by Cathay Pacific, which flies 74 times a week to Australia.

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Therefore, any increase in capacity will have to come through larger aircraft and not additional flights, such as Cathay’s 2015 move to upgauge some Airbus A330-300 services to Sydney with the larger Boeing 777-300ER.

Hong Kong Airlines – a part of Virgin Australia shareholder HNA Group – started flights to points not covered by the cap with a three times weekly service to Queensland via a Hong Kong-Gold Coast-Cairns-Hong Kong routing.

Australian carriers are not similarly constrained, with Virgin recently securing the necessary traffic rights to mount flights to Hong Kong that were due to launch in June 2017 as part of an alliance with HNA.

Qantas too has been able to grow its Hong Kong operation with extra flights between Sydney and Hong Kong during peak periods.

However, its efforts to expand operations in Hong Kong have been stymied by a lack of available slots at the busy Chep Lap Kok Airport.

“You might have open access or more access in the bilateral but if you don’t have the slots it is academic,” Qantas chief executive Alan Joyce said in September 2015.

“Unfortunately until the third runway is built in Hong Kong it means there is limited growth opportunities for Australian carriers compared to Hong Kong-based carriers and that needs to be recognised in any bilateral discussions.

“We’ve got plenty of room to grow in the current bilateral, the trouble is we can’t get the slots to grow.”

Borthwick said having available traffic rights was meaningless if capacity constraints at the likes of Hong Kong and Beijing meant airlines were unable to mount services.

“Notwithstanding that there’s available capacity under liberalisation, in practical terms if an airline can’t get a slot, then the agreement isn’t liberal,” Borthwick said.

“There are some infrastructure impediments that can’t be addressed by any bilateral air services agreement.”

Borthwick’s slide presentation showed there was still sufficient available capacity for foreign carriers to expand their presence in Australia from other markets in line with forecast growth.

“While the table indicates we are tracking well, it is only a snapshot in time,” Borthwick said.

“Markets in particular are continuing to evolve, particularly the Chinese market and the Malaysian market.”

On China, Sydney Airport executive director for aviation services Shelley Roberts said the recent growth from Chinese carriers meant that they were already on course to get close to the limit during peak travel periods.

“We are actually tapping on the door of being nearly full again in terms of bilateral capacity over this next peak season,” Roberts told delegates at the conference.

“It’s really one of these things that we have to stay on top of. Almost as soon as you’ve renegotiated the agreement, we need to be thinking about the next one because clearly there’s that latent capacity in the market.”

Australia and China expanded their bilateral air services agreement in January 2015, effectively nearly tripling the amount of available seats for carriers of both nations over the following two years.

Meanwhile, Australian airlines also gained expanded rights to fly beyond China, including to Europe, and to China via intermediate points.

Borthwick said another focus of the department’s negotiations centred on expanding codeshare arrangements for Australian carriers, particularly given Australia’s two major carriers Virgin Australia and Qantas had extensive partnerships with foreign airlines to serve destinations they did not fly to with their own aircraft.

There was also a push for unrestricted entitlements for cargo only services, “noting the importance of trade in goods to the Australian economy but also to complement Australia’s broader trader initiatives in developing free trade agreements”, he said.