1

I. INTRODUCTION

Air cargo is typically defined as the sum of freight, packages, and mail. It is often used

interchangeably with air freight. Figure 1 shows how air cargo is segmented, from documents or

smaller parcels to heavy/outsized pieces or larger parcels:

Air Cargo refers also to the use of an air carrier as a transport vessel for shipment purposes. It is

growing in popularity as the medium of choice when it comes to shipping goods that are high value,

time-sensitive and perishable from one destination to another. Air Cargo can get shipment to its

overseas destination within a day and it has become an integral part of the global logistics network

chain.

In the past, cargo used to be merely a by-product of passenger airlines and a means for transporting

emergencies and critical products or medical products. In today’s world, air cargo plays a more

important role, as it supports trade and investment, promotes connectivity, and improves efficiency

and competitiveness among several industries and nations.It enables the movement of commercial

goods and freight in the international trade market. It offers a fast and relatively safe mode of

transport for low volume, low weight but high value products. 1

1 An Entry Strategy for a Pure Freighter Company, Borlongan, 2007

Examples of these products are

FIGURE 1: AIR CARGO DEMAND SEGMENTATION

Source: Hoppin, D (2005). Air Cargo Industry Supply Issues. Washington DC: Merge Global.

2

electronics, computer components, precision equipment, medical supplies. Although trade by air is

quite small in terms of volume, averaging at 2% to 3% of global trade movements, the volume and direction of

air cargo business is driven primarily by economic growth and supported by opportunities created by liberal air

cargo policies.2

Types of products shipped by air include: (1) high value products; (2) fast selling or “hot” products such as

clothing, toys and electronics; (3) high obsolescence products such as laptops, cellular phones and software;

and (4) critical products.

3 Majority of air cargo being exported out of Asia, however, consists of electronics,

while imports consist mainly of electronic parts and finished consumer goods.4

The following are characteristics of air cargo: (1) air cargo does not fly return; (2) air cargo is a heterogeneous

good and comes in numerous shapes, weights and values; (3) three in-flight-products suffice to satisfy the

demands of most airline passengers; (3) cargo customers are concentrated with a limited number of forwarding

agencies accounting for the major share of air cargo demand, whereas individuals and companies purchase

passenger tickets; (4) numerous companies can be involved in realizing the air cargo transport chain to fulfill

the required transport, handling, warehousing and customs tasks; and (5) unlike passenger airlines, air cargo

carriers do not have individual customer relationships.

5

The air cargo industry is considered to be a part of the services sector. In the traditional cargo chain, there are

two (2) types of flows that are taken into consideration:

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(1) the transportation of the cargo, which includes

functional communication with the various participants; and (2) the commercial communication, which

includes communication flows that are emphasized on the three main parties, the shipper or consignee, the

cargo forwarder the airline. Figure 2 shows the types of flows in the traditional cargo chain.

2 Center for Research and Communication, 2007 3 M c Ki nn on , 20 11 4 R a a ga s , 2 00 4 5 Von Vilet, 2010 6 Ibid.

3

FIGURE 2: TYPES OF FLOWS IN THE TRADITIONAL CARGO CHAIN

Source: http-//dspace.ou.nl/bitstream/1820/3705/1MWNSCvVlietmei2010

There are a number of carriers that offer cargo services at present. These airlines are dedicated to air cargo

transport, however a number of commercial passenger airlines have separate divisions offering cargo services.

Some of these air cargo companies are said to be feeder services for larger express delivery companies and

merely work under contract.

4

The air cargo process is a time-definite endeavor that requires the collaboration and coordination of

multiple parties, namely: shippers, freight forwarders, trucking companies, shipping companies,

customs, warehousing agents, airport terminals, airlines, and consignees.

II. STRUCTURE AND PROCESS: AIR CARGO INDUSTRY

7

Source: “The Airfreight Industry”, Peterson, 2007

Airports were defined as

infrastructure providers charging landing fees and stand rentals or parking fees to airlines, who are

their main customers, and rent to service companies for passenger reception terminals, retail and

catering outlets offices, cargo transit sheds, air craft maintenance work shops and other services.

Airlines were defined as the suppliers of air cargo capacity into and out of a country. The general

overview of the entire process can be summarized in the Figure 3.

FIGURE 3: THE AIR CARGO PROCESS

The process begins with the shipper or consignor, the party or entity who needs service in

transporting cargo. Second, the freight forwarder arranges for the transportation of cargo from the

shipper’s warehouse, delivers it to the departing airport, prepares the necessary paperwork, picks it

up at the arriving airport, after delivery by the carrier and delivers it to the consignee. Third, the

carrier provides the air delivery of cargo from the origin airport to the destination airport. Upon 7 Fung, 2005

5

arrival at the destination airport, the ground handler physically handles the freight and endorses

cargo to the freight forwarder, who finally sends the goods to the consignee or the receiving party.

The world’s air cargo delivery system is comprised of two networks. The first (1) is essentially the

same as the passenger network, which can either be legacy or those pertaining to large aircraft, and

the low cost carrier. In this system, passengers are carried above and cargo is carried below in the

belly of the aircraft, utilizing space not needed by baggage—hence the name “belly cargo”. These

flights are routed and scheduled for the convenience of the passengers. While the passenger airlines

are generally willing to sell this otherwise unused space, they have not always wanted to bother

with the ground operations of pick-up and delivery and loading the belly containers. With this,

there are indirect carriers called the “forwarders” who has fulfilled this function. Until the Air

Cargo Deregulation Act of 1977the United States of America, these forwarders could not operate

their own aircraft, although one large forwarder, Emery, organized a fleet of leased aircraft totally

dedicated to its service.

The second (2) network in the air cargo delivery system utilizes aircraft that carry purely cargo

Aside from the said 2 networks, there is also a third kind of carrier, called (3)

.

These dedicated cargo aircraft sometimes referred to as the “freighters” or all-cargo aircraft come in

all sizes from a small, propeller-driven aircraft to a giant Boeing 747s configured to carry only

cargo. This network is less extensive than the passenger network, but has over the years carried a

growing proportion of total air cargo. The belly cargo was said to cover 90% of the total cargo and

10% is contributed by the all-cargo network. These all-cargo aircrafts generally fly at night and are

scheduled for the convenience of shippers.

integrators. These

integrators oversee the entire process and act as the forwarder and the carrier. Throughout the

history of air cargo, the primary integrators remain the big three: FedEx, DHL, and UPS.8

It was

noted that the big three have indicated a movement away from small packages and documents to

larger freight. As industry leaders, new processes or trends initiated by them have profound impacts

which affect other players, as they hold a greater share of large cargo transported.

8 Achard, 2009

6

FIGURE 4: THE AIR CARGO TYPES

Source: Hoppin, D (2005). Air Cargo Industry Supply Issues. Washington DC: Merge Global.

In terms of the Air Cargo types, of the 3 different types of carriers mentioned in this study, the focus

shall be given to combination carriers, since belly lift accounts for approximately 50% of global

inter-con capacity9

Carriers offer both local and international services, depending on the needs of the client.

.

10

9 Air Cargo Process, Hoppin, 2005 10 Ibid.

The

identified seven domestic services, namely: (1) Same Day or Next Flight or over-the-counter

airfreight services, which are allotted for packages with limited weight and which must be brought

to the ticket counter or a special desk at the airline where it moves in the baggage system rather than

the freight system; (2) Overnight services, which involve freight that is delivered the next business

day; (3) Express services, which are usually offered by integrators, which involves freight moving

in their own network or aircraft; (4) Forwarder services, who usually follow 5:00 PM delivery

deadlines; (5) Second Day services, which involve freight that is delivered 5:00 PM on the second

business day following pickup; (6) Deferred services, which take 3 to 5 business days domestically,

depending upon the distance.; and (7) Charter services, which involves forwarders who assist their

clients to charter an entire aircraft. Moving onto international services offered by air cargo

companies, these are: (1) Consolidation services, which involve shipments from different shippers

which are grouped together and tendered to the airline as one shipment, with the forwarder

becoming the shipper in the eyes of the airline; and (2) Direct IATA services, which are employed

when the shipper needs to send an international shipment with a forwarder to a point not serviced

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by a weekly consolidation. If the forwarders concerned are approved IATA agents, they act as

agents for both shippers and airlines, therefore, fill out all airline paperwork required.

In terms of market share, scheduled air cargo traffic accounts for approximately 90% of all world

air freight (The Boeing World Air Cargo Forecast, 2010-2011), since most shippers use this type of

service in order to meet their transport requirements. The remaining world air freight traffic is

provided either by charters or express carriers, in order to meet urgent or special needs. Generally,

charter freight share rises during times of strong world air cargo growth and, conversely, falls

during times of slow or negative traffic growth. In keeping with this general trend, world charter air

freight fell 18.4% in 2009, but world scheduled air freight declined at a slower rate of 10.7% 11

11 The Boeing World Air Cargo Forecast, 2010-2011

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Source: Hoppin, D (2005). Air Cargo Industry Supply Issues. Washington DC: Merge Global.

III. GLOBAL TRENDS AND PERFORMANCE : AIR CARGO INDUSTRY

As mentioned in the earlier part of this research paper, cargo used to be merely a by-product of

passenger airlines and a means for transporting emergencies and critical products. Globally, the

industry grew very rapidly during the 1960s, faster than passenger growth over the same period

(UK Air Freight Study Report). To date, cargo demand continues to grow faster than passenger

traffic resulting in a “growth gap,” as manifested in Figure 5. As a result, it is expected that more

freighters will be required to handle the demand brought about by said growth:

FIGURE: 5 INTERCONTINENTAL PASSENGER –CARGO GROWTH GAP Freight Traffic Index based on freight-tonne kilometers (FTKs) Passenger Traffic Index based on revenue passenger-kilometers (RPKs)

9

This became an opportunity for airline companies to recognize the income value of air cargo and

therefore, introduced all-cargo services. The growth of all-cargo airlines continued in the 1970s,

primarily due to increasing freedoms to operate outside bilateral agreements and growing

deregulation of freight operations to and from the USA, UK and other European countries.12

According to the Bureau of Transportation Statistics, US Department of Transportation, freight is

generated by economic activity and the industry tends to respond to fluctuations in this activity,

along with the level of trade among nations. This is the reason why the global economic downturn

in 2008 and 2009, caused by the collapse of major financial markets and decline in U.S.

merchandise trade with partners around the world, highly affected the air cargo industry. At that

time, an 8.8% decline in world industrial production and manufacturer shipping was reported.

However, as fuel price increased and economic recession took place in the mid to late 1970s, airline

companies were hit badly.

The UK Air Freight Study Report recognizes the most significant revolution in the industry to be

the development of the express sector. Federal Express, more popularly known as FedEx, was the

first to introduce express services. The company also integrated new features such as door-to-door

and overnight transport. During the 1980s, the express sector boomed and companies following

Federal Express’ example set up their own airline operations, as well. By the 1990s, integrators had

emerged. US integrators include United Parcel Service or UPS, Emery Worldwide and Airborne

Express, while European integrators were DHL and TNT.

13 By

the second quarter of 2009, financial liquidity problems and fluctuations in energy prices affected

all modes of freight transportation, including all sectors of the industry.14 Economic recovery only

began in the second half of 2009 and it was only in the third quarter of the same year when

industrial and manufacturing activity, particularly in Asia, began to accelerate.15 Prior to the series

of events that took place in 2008 and 2009, the industry’s primary challenge was growth in

merchandise trade and freight flow that strained system capacity.16

In general, The Boeing World Air Cargo Forecast, 2010-2011 Issue reported that developing

economies suffered less from the downturn; hence, they are expected to lead growth for the forecast

period. Africa, Asia, the Middle East, and Latin America are expected to have an average GDP

growth of 4% or greater through 2029, with GDP growth in North America, Europe, and Japan

12 UK Air Freight Study Report 13 The Boeing World Air Cargo Forecast, 2010-2011 14 Bureau of Transportation Statistics, US Department of Transportation, 2010 15 The Boeing World Air Cargo Forecast, 2010-2011 16 Bureau of Transportation Statistics, US Department of Transportation, 2010)

10

slower than the world average. Moreover, forecasts show that world industrial activity shall expand

at approximately 4% per year for the next two decades, which in turn supports the long-term

outlook for continued world air cargo traffic growth. Forecasts are based on historical data, as

shown in Figure 6, which presents historical data for a period of 10 years, from 1999 to 2009

FIGURE 6: RECORD OF WORLD INTERNATIONAL AIR FREIGHT (1999-2009) (in Millions of Metric Tons)

Source: Hoppin, D (2005). Air Cargo Industry Supply Issues. Washington DC: Merge Global. In spite of the fact that developing economies suffered less from the economic downturn, logistics

costs are usually higher in these countries as compared to logistics costs in developed countries due

to factors such as poor quality of infrastructure, weak institutions and greater inefficiencies in the

logistics system. On the average, logistics costs account for 10-15% of the final cost of the finished

product in the developed world. Based on studies conducted in the United States, these costs

include transportation costs which amount to 7-9% of the cost of the final product, warehousing

costs in the range of 1-2% and inventory holding costs which are 3-5% of the final product cost.17

17 Center for Research and Communication, 2007

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It was also reported that the World Air Cargo traffic will triple over the next 20 years, averaging 5.9

% annual growth, compared to 2009 levels. The number of airplanes in the air freight fleet will

increase more than two thirds over the same period.

FIGURE 7: PERFORMANCE OF WORLD AIR CARGO FREIGHT

Source: World Air Cargo Forecast, 2010-2011

FIGURE 8: WORLD AIR CARGO TRAFFIC

Source: World Air Cargo Forecast, 2010-2011

This is a very good indication that there are a lot of opportunities in Air Cargo. With the reported

5.9% growth per year, there is so much future in the said industry.

12

The Asian region has become a big player in the world air cargo market, with the highest growth

rates for airfreight as compared to any other region, ever since the 1980s. There are more than 40

countries of various economic levels located in the Asia-Pacific region, with the Asian region being

segmented into two main parts namely: (1) Intra-Asia region or Northeast & Southeast Asian

regions and Southwest Asia, which comprises the Eastern Pacific Rim - Japan, China, Taiwan,

Korea, Singapore, the Philippines, Indonesia, Malaysia and Thailand; and (2) the southwest region,

which includes India, Pakistan, Bangladesh, Sri Lanka, Maldives, Nepal, Bhutan and Afghanistan.

IV. TRENDS AND PERFORMANCE IN ASIA: AIR CARGO

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Asia has the opportunity to lead the world, since the demand for air cargo in the Asian region is

massive, as a result of its high population density, strong economic growth and development,

raising per capita income, improving political stability and wide spread adoption of open skies

policies.

19

As can be seen in Figure 7, Asia dominates the fastest growing air freight markets, based

on a 6-year period:

FIGURE 9: INTERCON MARKWTS (2004-2009) Traffic in Thousands of Metric Tons Per Year

Air cargo markets linked to Asia, especially the Pacific Rim countries, will lead all other

international markets in average annual growth between 2009and 2029.

18 Senguttuvan, 2006 19 Senguttuvan, 2006

Source: Hoppin, D (2005). Air Cargo Industry Supply Issues. Washington DC: Merge Global.

13

FIGURE 10: PERFROMANCE OF ASIA MARKETS

Source: World Air Cargo Forecast, 2010-2011

Because of growth forecasts in air cargo, several countries in the Asian region are exerting efforts to

augment their existing airport systems, so that they can hold on to the growing demand of air cargo

traffic and compete with regional hubs. What radically transformed Asian regions are the

comprehensive forces of liberalization and globalization, particularly ASEAN countries, who have

adopted a policy of moving toward open skies in recognition of the important role played by the

aviation sector in linking export-oriented economies with the global economy.20

The most recent report published by the Association of Asia Pacific Airlines or AAPA last January

30, 2012 recorded that Asian air freight demand fell 4.8% year-on-year in 2011, reflecting weak

worldwide economic conditions.

21 AAPA Director General Andrew Herdman added, “Air cargo

demand weakened significantly compared to the restocking surge experienced in 2010, reflecting

cautious management of supply-chain inventories in the expectation of weaker growth prospects for

the major developed economies.” On the contrary, he pointed out that “Asian airlines continue to

remain optimistic about longer-term growth prospects, as evidenced by ambitious fleet plans,

ongoing service enhancements and the launch of innovative new business ventures”.22

20 Tham, 2008

It was also reported that China's cargo market will lead the global industry. Chinese carriers will add +/‐300

freighters by 2028, almost quadrupling its total freighter fleet size (Boeing)

21 http://www.eimportexport.com/ 22 Ibid.

14

FIGURE 11: FORECAST OF GDP

V. PHILIPPINE AIR CARGO INDUSTRY

A. Structure of the Industry

The Philippine Air Cargo delivery system in the Philippines consists of two networks. (1) The first

network is same as the passenger network. These are the legacy planes such Philippine Airlines and

low cost carriers such as Cebu Pacific and Air Phil Express. In this network, passengers are carried

above and the cargo is carried at the belly of the aircraft, usually called belly cargo

(2) The second network which operates in the Philippines is the

. The cargo in

these aircrafts are dependent on the scheduled flights of the passengers. In the Philippines, these

airlines partner with freight forwarders who in turn handle pick-up and delivery of the cargo upon

arrival at the airport.

pure cargo or what is called the

all-cargo aircrafts. However, in the Philippines this is used interchangeably with the integrators

These are dedicated aircrafts just for cargo alone but they also act as carriers and forwarders.

Examples of these are Federal Express (FedEx) and that of UPS. The former used to have its hub in

Subic where it brings in a lot of cargo in the country. However, due to insufficient cargo traffic

volume in the country, FedEx decided to transfer its operations to Guangzhou in China, where it

was said to have lower taxes and high cargo traffic volume. One reason why it left the Philippines is

because Subic runway was also unable anymore to support their expanded needs, including flying

higher-capacity planes. FedEx also mentioned that at the time, everyone had to be in China with

the sheer size of its domestic market plus the fact that Shenzhen was closer to center point

15

compared to the Philippines.23 There have been reports that FedEx is thinking of bringing back a

portion of their operations back to the Philippines due to the fact that they are experiencing

difficulty engaging in business with China. United Parcel Service (UPS) on the other hand, still has

its warehouse and operations in Clark, Pampanga. However, from seven aircrafts with two flights a

day before, they are down to having just one aircraft with 2 flights a day landing in Clark daily

bringing in cargo to Manila and flying it out to different Asian destinations. UPS is known as the

world’s largest package delivery who used to have its operations in Clark as what was mentioned

above, however it relocated its air hub to Shenzhen, China since it is speeding up its expansion into

the fast growing Chinese market. Shenzhen and neighboring Hong Kong would provide much more

volume than the Philippines. China has also five times bigger volume than Clark and that it has an

improving foreign trade which is driving demand for freight and logistics services. Another reason

for transferring its hub from Clark to China is that UPS is directly competing with DHL’s Hong

Kong and Fed Ex’s Guangzhou hubs. 24

B. Key Players in the Industry: Its Performance and Market Share

B1. Domestic Air Cargo25

23 BOI Interview with FedEx 24 BOI Interview with UPS 25 Port Calls Asia, May 22, 2012 (data from CAB)

The Philippine Domestic Air Cargo decreased slightly in 2011 due to the slow economic activity.

The volume shipped by the country’s top 5 airlines, namely Cebu Pacific, Philippine Airlines, Air

Phil Express, Zest Air and Seair declined 0.09% from 183.477 million kilograms in 2010 to

183.312 million kilograms (kgs) for the whole of last year. This year, the Philippine Air Cargo

Shipments handled by the country’s top 5 airlines increased 4.9% in the 1st quarter of the year to

45.74 million kilograms (kgs) from 39.80 million kilograms (kgs) in the same period last year.

In terms of the market share of the top 5 airlines in the Philippines carrying cargo, it can be seen

that Cebu Pacific got half of the pie share. With its aggressive operations it has overtaken the

performance of Philippine Airlines in terms of cargo volume.

16

FIGURE 12: DOMESTIC CARGO MARKET SHARE AS OF 1Q 2012

50%

29%

13%

8% 0%

CEB

PR

Air Phil

Zest Air

Seair

Source: Civil Aeronautics Board It was reported that Cebu Pacific (5J) has a cargo volume of 89,435,447 tons, PAL (PR) has 53,

975,550 tons, its sister company Air Philippines (2P) was next with 24,497,898 tons, Zest Air (Z2)

was fourth with 15, 233,210 tons and last was Seair (DG) with 170,574 tons.

In the above data from the Civil Aeronautics Board, it can be seen that Cebu Pacific (5J) has 50%

market share in terms of Domestic Cargo Key Players. Philippine Airlines is at the second slot with

29% of the market share. PAL’s sister company, Air Phil Express is at 3rd slot with 13% of the pie.

Zest Air comes in at 4th with 8% of the market and Seair with les than 1 % of the market.

According to the Civil Aeronautics Board, Scheduled Domestic Cargo Statistics show that from

2006 until 2007, PAL has been doing good in terms of cargo volume. During that time PAL

sustained its position to be the number one airline in the country. But from 2008 until the present it

could be seen that Cebu Pacific has been slowly making its way to the first spot. At present, Cebu

Pacific has 22.82 million kilograms in terms of cargo while PAL has only 12.513 million

kilograms.

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TABLE 1: SCHEDULED DOMESTIC CARGO STATISTICS (1Q 2012)

1. Cebu Pacific (CEB)

Cebu Pacific Cargo started its operations in January 2000 with a vision to be the preferred and dominant air

cargo carrier in the Philippines and in the region, linking islands together through the exchange of goods, in

contribution to the economic growth of the nation. It is now the largest domestic cargo carrier which provides

competitive, fast, flexible and straightforward air cargo service to individual shippers and cargo agents within

the country and overseas.26

Services Offered:

27

CEB offers the best value for money as it provides the following services: (1) CEB-X - it is the fastest and

most efficient way to get urgent and rush cargo to its destination. (2) Blocked Space Arrangement(BSA) – this

is an arrangement for clients who require a fixed and guaranteed space arrangement. (3) ATR Charters – this

includes the chartered services to its clients using ATR 72-500 aircraft. (4) Plastic Jack-Wrap Services – This

26 Cebu Pacific Cargo Website 27 Ibid.

18

service is for all flights from Manila to a destination in Luzon, Visayas and Mindanao. This protects and

ensures efficient cargo handling protecting shipments and preventing them from getting wet or damaged. (5)

Transit Shipments (Tran-shipments) – CEB has four major hubs (Manila, Cebu, Clark, Davao) that allow

efficient and seamless inter-island connections. This allows the movement of the cargo shipments to onward

destinations with no direct flights from the point of origin. (6) Cargo Interline – For cargo to and from Europe,

Africa and the Americas to all other cities in the world, CEB has 15 interline partners. These are Air Astana,

China Airlines, Continental Airlines, Emirates Sky Cargo, Singapore Airlines, Etihad Airways, Gulf Air, Delta

Air, Nippon Delta Cargo Airlines, Lufthansa, Northwest Airlines, Qantas Airways, Qatar Airways, Royal

Brunei and Saudi Arabia Airlines

CEB Performance and Market Share:28

Cebu Pacific Cargo transported more domestic cargo than other airlines in the 1st quarter of 2012 according to

the Civil Aeronautics Board. CEB carried 22.1 million kilograms of cargo for the 1st quarter. It was said to be

even higher than the combined cargo load of Philippine Airlines and Air Phil Express. It was quoted from

CEB’s Vice President for Marketing and Distribution, Candice Iyog, that they have captured 48% of the

domestic cargo market in the 1st quarter of 2012. This highlights Cebu Pacific’s extensive domestic network.

She also mentioned that they have multiple daily flights to most key cities in the Philippines. Cargo forwarders

and shippers trust CEB to bring their valuable cargo in the soonest possible time. It was reported also that CEB

also led the domestic cargo market in 2011 with close to 89.5 million kg carried for the full year. From this we

can see that CEB is really very aggressive in its growth and development. The airline was said to have

increased domestic capacity in Q1 of 2012, with the arrival of one more brand new Airbus 320 aircraft this

January. At present, CEB operates 52 routes to 32 domestic destinations. This is believed to be the most

extensive network in the Philippines.

29 As part of their network expansion plans, there are three more Airbus

320 aircraft to arrive in the second half of this year. It was reported as well that they will be launching four

times in a week flights from Davao to Kalibo and Davao to Puerto Princesa. Ms Candice Iyog further shares in

the report that CEB at present services more than 2000 accounts, tailor-fitting cargo products to their clients’

domestic and international cargo needs. This includes express cargo service, seamless transshipment and 16

interline partnerships for worldwide reach. CEB currently operates 10 Airbus A319. 20 Airbus A320, and 8-

ATR 72500 aircraft. Its fleet of 38 aircrafts with an average age of 3.6 years is the largest aircraft fleet in the

Philippines. It was reported that between 2012 and 2021, Cebu Pacific will take delivery of 22 more Airbus

A320 and 30 Airbus A321 neo aircraft.30

28 Civil Aeronautics Board (CAB) 29 Manila Times.net (validated as well by the author with the interview with CEB cargo sales representatives) 30 Ibid.

19

CEB Fleet: FIGURE 13

CEB Routes: FIGURE 14

20

2. Philippine Airlines (PAL)

Philippine Airlines is Asia’s first Airline and the Philippine’s foremost flag carrier. They are the only

Philippine carrier that offers the following: Non-stop flights between Manila and USA, Extensive Philippine

domestic destinations, Strong presence in Asia and four destinations in Western Canada and USA, utilizing a

wide-body aircraft in its international and Philippine domestic flights.

Services Offered:31

a. Special Cargo – Commodities that require special or advance arrangement, packing, handling and in

certain cases, documentation. Acceptance of these type of cargo are subject to specific regulations.

Special Cargo includes, Baggage and special effects that are treated with special care and stored at

special location and Perishables, which are shipments which are so labeled and are stored under

specific temperature.

(1) Express Service – Rapid Handling of Urgent Shipment. Their airport to airport express service is handled

with the highest priority, guaranteed uplift once booking is confirmed with money back guarantee and

shipment is released within 3 hours upon arrival at destination. All cargoes within the minimum weight

requirement and brought in 2 hours before the scheduled departure time and tender the goods in 2 hours before

the flight.

Cargo Classification:

b. Valuable Cargo – these are shipments with very high commercial value.

c. Restricted Articles or Dangerous Goods – These are inflammables, explosives, radioactive materials

and corrosive substances like acids that may endanger the safe operations of the flight.

d. Livestock, Live Animals and Plants – these are shipments that need special attention and care.

e. General Cargo – these include all articles or materials that are not included in the list of Special Cargo.

31 Philippine Airlines Cargo Website

21

PAL Performance and Market Share:32

Type

Philippine Airlines accounted for 12.51 million kilograms or 27.3% of the market in year 2011. PAL came in

only as second compared to Cebu Pacific. PAL has been only on the second spot starting 2008 until the

present.

PAL Fleet:

Table 2: PAL Fleet

Power Speed Capacity Number

Boeing 777-300ER 2GE90-115Bl 482 knots / 555mph 370 Passengers and

28 tons of Cargo

3

Boeing 747-400 4 CF6-80C2B1F 488 knots / 562

mph

391/425/427

Passengers and 24

tons of Cargo

5

Airbus A340-300 4 CFM56-5C4 480 knots / 533

mph

264 Passengers and

23 tons of Cargo

4

Airbus A330-300 2 CF6-80E1A2 480 knots / 553

mph

302 Passengers and

22 tons of Cargo

8

Airbus A320-200 2 CFM-56-58 458 knots / 528

mph

150/156 Passengers

and 7 tons of Cargo

15

Airbus 319-100 CFM-56-5B6/P 503 knots / 579

mph

134 Passengers and

6.7 tons of Cargo

4

32 Civil Aeronautics Board (CAB)

22

PAL Routes: FIGURE 15

3. Air Phil Express

Air Phil Express is known to be the sister company of Philippine Airlines. Air Phil was created to answer to

the growing need of a low cost carrier. Due to the popularity of Cebu Pacific, PAL came out with its own Air

Phil Express. The mission of Air Phil Express is to provide customers with safe and reliable air transportation

with the best service at the least cost. It also provides employees with career development and job satisfaction,

and lastly it provides stockholders with fair return on investment.

Services Offered:

(1) Valuable Cargo – these are cargo with very high commercial value (2) General Cargo / General

Commodity – these are all materials and articles that are not included in the list of Special Cargo and (3)

Commodity Cargo

Air Phil Express Performance and Market Share:33

33 Civil Aeronautics Board (CAB)

PAL’s sister company budget airline handled 13.3% 0r 6.09 million kilograms (kgs) in the first quarter of 2012.

23

Air Phil Express Fleet:

Table 3: Air Phil Express Fleet

Airbus A320 Airbus A320 has been redefined to provide

exceptional levels of comfort with optimized seating,

legroom and elbowroom and substantial stowage

space. Considered as the safest narrow-body aircraft

equipped with advanced avionics systems. Air Phil

Express operates the youngest fleet of brand new

Airbus A320s in the Philippines.

Bombardier Q300 It can take-off and land on short runways that is

perfect for most airports in the archipelago. This is

nicknamed as the “quiet one” as it provides a jet like,

soft and quiet ride because of its state of the art Noise

and Vibration Suppressing System.

Bombardier Q400 Known as the world’s fastest turbo-prop in the 70-

seater category, is a pilot favorite because of its speed

and comfort like a jet. It is faster, more efficient and

friendly to the environment.

Air Phil Express Route: FIGURE 16

24

4. Zest Air

Zest Airways Inc. formerly Asian Spirit is an airline based in the Asian Aeronautics hangar in the General

Aviation Area in Pasay City. It operates scheduled domestic and international tourist services, mainly feeder

services linking Manila and Cebu with 24 domestic destinations in support of the other trunk route operations

of other airlines.

Services Offered:

(1) Valuable Cargo – these are cargo with very high commercial value., (2) General Cargo / General

Commodity – these are all materials and articles that are not included in the list of Special Cargo, and (3)

Commodity Cargo.

Zest Air Performance and Market Share:34

Zest Air has reported a big improvement in the efficiency of its cargo operations due largely to the automation

of its system. Automation enabled the company to offer better and faster cargo services.

35

Zest Air Fleet:

According to its

President and CEO, “ Processing of airway bills is now faster and transaction time has been greatly reduced

since we automated our cargo system.” Zest Air was able to ship about 15.2 million kilograms of Cargo in

2011 because of its more efficient cargo operations.

In the first quarter of 2012, it was reported that Zest Air carried 4.97 million kilograms as it comes in at 4th slot

in the country’s major airlines. 36

A320 / A319

Table 4: Zest Air Fleet

This airbus is the world’s pioneering fly-by-wire

jetliner. It has a commodious cargo hold equipped

with large doors to assist in expedient loading and

unloading of goods. It provides customers with added

space and comfort, reduced noise levels and allows

Zest Air to operate a more cost efficient and reliable

34 Philippine Daily Inquirer, January 10, 2012, Civil Aeronautics Board (CAB) 35 Zest Air CEO and President Alfredo M. Yao (article in PDI, January 10, 2012) 36 Zest Air Website

25

fleet.

Number: 9-A320 aircraft / 1-A319 Aircraft

Capacity: 162-168 Passengers and +37.4 cu.m. cargo

space – A320

144 Passengers + 37.4 cu.m. cargo space – A319

MA60 It is an advanced 50-60 seat class regional turboprop

aircraft developed by Xi’an Aircraft Company of

China aviation Industry Corporation. It can meet the

demanding needs of modern transport and offer

operators with the greatest operating benefits.

Number: 3 aircrafts

Capacity: 56 Passengers +9.5 cu.m. cargo space

5. Seair

South East Asian Airlines was set up in 1994 to provide a safe, reliable and economical air transportation for

travelers in the Philippines. Known as Seair Inc., it is the second locator in Clark and registered in SEC and

Clark Economic Zone Development. It is a private corporation that is majority owned by a Filipino, German

and American Managers. It was awarded as the “Best Airline of the Year” for two consecutive years, 2002 and

2003 by the Philippines’ largest Consumers Excellence Award.

Services Offered:

(1) Valuable Cargo – these are cargo with very high commercial value, (2) General Cargo / General

Commodity – these are all materials and articles that are not included in the list of Special Cargo and (3)

Commodity Cargo.

Seair Performance and Market Share:37

Seair comes in at the 5th slot with 67,631 kilograms (kgs) of cargo.

Seair Fleet:

Seair operates the youngest fleet of aircraft in their segment of the industry. Its fleet is made up of 3 Dornier

328 and 9 LET 410 UVP-E aircraft for use in chartered and scheduled flights.

37 Civil Aeronautics Board (CAB)

26

B2. International Air Cargo38

38 Port Calls Asia, Feb 22, 2012 (data from Civil Aeronautics Board)

The Philippine International Air Cargo Volume increased by 20% in 2011 due to the import sector’s

strong performance. Throughput reached 282,497 million kilograms (kgs) compared to the previous

year’s 234, 635 million kilograms (kgs). Inbound Cargoes and mail reached 144.309 million

kilograms (kgs) and comprised the bulk of the total outbound air cargoes hit 138.188 million

kilograms (kgs)

Philippine Airlines was the country’s top cargo carrier in 2011 handling 24.57% of the aggregate at

69.412 million kilograms (kgs). Of this, 65.723 million kilograms (kgs) were booked at PAL’s

Manila Terminal and 3.689 million kilograms (kgs) were booked in Cebu.

Cargoes shipped were electronics (70%), Tuna (20%), Garments, Spare Parts and Live Animals

(10%).

Hong Kong based airline, Cathay Pacific was the country’s second biggest cargo in 2011. It

handled 36.678 million kilograms (kgs) with 29.548 million booked in Manila and 7.13 million

kilograms booked in Cebu.

Third was Singapore Airlines with 20.822 million kilograms (kgs), followed by Korean Air with

18.631 million kilograms (kgs) and at the 5th slot is Gulf Air at 11.932 million kilograms (kgs)

Below are the top 10 International Air Cargo Players.

(1) Philippine Airlines (PAL),

(2) Cathay Pacific,

(3) Singapore Airlines,

(4) Korean Air,

(5) Gulf Air,

(6) United Parcel Services (UPS),

(7) Eva Air,

(8) Thai Airways,

(9) The Emirate.

(10) Qatar Air

27

TABLE 5: INTERNATIONAL SCHEDULED AIR CARGO STATISTICS

In this table, we can see that Philippine Airlines leads the international air cargo volume with 69,

412,675 kgs. The data for Foreign Carriers, at 213,085,262, has no breakdown.

In terms of the relationship of Air Cargo to Economic Development

C. Performance of the Industry 39, it is not just a trade

facilitator; it is a trade creator that contributes to the competitive advantage of nations. Air cargo

enables nations, regardless of location, to efficiently connect to distant markets and global supply

chains in a speedy, reliable manner. Thus, in the new fast-cycle logistics era, nations with good air

cargo connectivity have competitive trade and production advantage over those without this

capability. Such advantage, as Michael Porter40

When compared dynamically with changes in trade and GDP, air cargo emerges as the catalyst and

leader for growth. Even with such strong long-term growth, the aviation market in recent years has

experienced difficulties; challenges triggered by turbulence and uncertainty in world events such as

the tech bust, terrorism, SARS, and rising jet fuel costs. Historically, however, air cargo traffic,

and others have documented, is fundamental to

economic development, the latter typically measured by gross domestic product (GDP), in the

aggregate or on a per capita basis. A strong statistical relationship therefore exists between levels of

air cargo volume and both GDP and GDP per capita.

39 http://www.aerotropolis.com/files/2005_07_AASL.pdf “ Air Cargo, Liberalization and Economic Development” bu J. Kasarda amd D. Sullivan, 2005 40 M. Porter, “The Competitive Advantage of Nations” (New York: Free Press 1990).

28

when subjected to downturns impacting the aviation sector, has typically recovered at a much

quicker rate than passenger flows; as it has from the most recent aviation downturn. In fact, air

cargo is increasingly being viewed as an important lead indicator of the direction the larger

economy will be going.

C1. Gross Domestic Product (GDP)

Based on the recent study conducted by the International Air Transport Association (IATA) last

February 29, 2012, the local aviation sector contributes 2.4% to GDP. Direct output of the aviation

industry contributes P35.5 billion or 0.4% to the Philippine economy. Majority of the sector’s

contribution to GDP can be attributed to its support for tourism. Aviation Industry’s catalytic

benefit from tourism is worth P 156.7 billion.

C2. Employment

Another contribution of the industry to the Philippine economy is its generation of employment and

its substantial contribution to public finances. As of the first quarter of 2012, the industry employed

123,000 doing highly productive jobs at airlines, airports, ground services, and the supply chains.

Of these, majority are working directly and indirectly with the aviation sector’s supply chain. In the

same study of IATA, it was noted that employees of the said industry generates P865, 000 gross

value added annually, which is almost 3.8 times higher than the Philippine average.

C3. Public Finances

The industry’s contribution to public finances is over P 26 billion. This comprises: P 7 billion from

employees’ income taxes, social security contributions, and in corporate taxes on profits, P 17

billion from travel tax, alien head tax and VAT, P1.4 billion from aviation sector’s supply chain,

and P 1.2 billion from spending of employees and its supply chain.

Oxford Economics estimated that the industry facilitates P575 billion-worth of consumer benefits,

which includes 27 million visiting friends and relatives to 596,000 tonnes of freight travel to, from,

and within the country, which is worth P 81 billion.

C4. Volume

According to the 2006-2011 scheduled cargo statistics provided by the Civil Aeronautics Board,

domestic air cargo has been continuously increasing at 7.5% growth rate. The increase in domestic

air cargo statistics maybe attributed to the increasing number of fleets and destinations across the

country. While on the other hand, International cargo in the Philippines has been underperforming

with an average decline of 2.62% annually.

29

FIGURE 17. DOMESTIC VS. INTERNATIONAL CARGO STATISTICS

Source: Civil Aeronautics Board-Planning and research Division

C5. Connectivity

With the implementation of the Airline Liberalization Act in the Philippines, there has been a

significant improvement in the country’s connectivity. As stated in the Oxford Economics, ‘in

2010, there were 56 routes connecting major airports in the Philippines to urban agglomerations

around the world. On an average there were 4 outbound flights per day along these routes’. Number

of flights are higher to the most economical destinations such Cebu and Davao Domestic Airports

and Hong Kong and Singapore International Airports.

The increasing connectivity of Philippine cities with major destination around world has brought

benefits to users of air transport services. Identified benefits include: reducing time spent in transit,

shorter waiting time, increased frequency of service, improved quality of service in terms of

reliability, punctuality and quality of the travel experience.

Such contribution is felt as Philippine-based businesses are forced to continuously enhance their

products and services to compete in an increasing market. With the improvements of connectivity,

it gave domestic firms increased access to both domestic and international markets, it also brought

in foreign competition, which forces firms to specialize in areas where they possess a comparative

advantage. Given the increased competition, domestic customers enjoy more affordable prices and

better quality of goods and services.

Another economic benefit that can be attributed to the improvement in connectivity is the fact that it

opens doors for both foreign and domestic investors to expand their market, making it easier for

firms to invest outside their home country and opening opportunities for foreign companies to

invest in the Philippines.

30

This is further supported by the studies conducted last 2005 and 2006 by Oxford Economic

Forecasting, EUROCONTROL, and InterVISTAS Consulting Inc., which found (using the lowest

estimate among the said studies) that, ‘a 10% improvement in the Philippines’ connectivity (relative

to GDP) would see a P 5.1 billion per annum increase in long-run GDP’.

C6. The Geography of Freight Movement

Domestic

As shown in figure 2, from 2006 to 2010, the main operation of the cargo industry is mainly

concentrated in NCR. All major trade mostly occurs in NCR followed by Region 11 (Davao City)

and Region 7 (Cebu City).

Regions I, II, III, V, & XII are the non-performing areas in the country. These said areas were not

performing as much as the other regions because there are limited goods for trade and these areas

were not the identified major routes in the country.

Major destinations in the country such as, NCR, Region IV, VI, VII, VIII, IX, X, and XI are where

the most trading activities happen. NCR has been a major route for most international trade while

regions VII and XI dominates domestic trade in the country.

31

FIGURE 18: DOMETIC FLIGHT MOVEMENT Source: CAAP

International

Against other modes of transport, air freight is said to be the fastest and the most reliable over great

distances, used mostly to deliver goods that are light, compact, perishable and those that have a high

unit value.

Using Oxford Economics’ global data as of 2006, as illustrated in Figure 3, air transport only

carries 0.5% of the total volume transported globally but of this given volume, it contributes 34.6%

of the value of global trade.

32

Figure 19: PROPORTION OF GLOBAL TRADE BY AIR

Source: Oxford Economics 2006

Figure 20: REGIONAL DISTRIBUTION OF PHILIPPINE AIR FREIGHT(tonnes)

Source: Oxford Economics 2006

As illustrated in Figure 19, measured in terms of tonnage carried to and from the Philippines, 82%

is linked to trade with its neighboring countries in Asia Pacific region, 10% of its trade were

destined for North America, a total of 5% share for Middle East and Africa, and 4% share for

Europe.

33

Before moving forward, however, it is likewise essential to define what cargo airline hubs are. A

cargo hub is where cargo comes in to be sorted and dispatched to other countries from a central

location.

VI. DEFINITION OF AIR CARGO LOGISTICS HUB

41

In general, logistics centers or hubs are important in reducing transport and logistics costs for global

manufacturing firms, as hubs can serve as transshipment points for semi-finished and finished

goods of producers or as host facilities where production segments or assembly work and storage

can be done.

Cargo planes fly-in and fly-out, but no aircraft is left on the ground for more than a day

or a few hours. An airline hub, on the other hand, is somewhat like the motor pool of aircraft where

an entire fleet is garaged and maintained when not being operated.

42 Aside from the fact that manufacturing facilities can locate in these logistics hubs

with excellent infrastructure, they can also outsource their logistics activities to logistics firms that

locate in hubs where the facilities, easy connectivity and infrastructure provide timely and speedy

access to inputs and finished goods markets.43

Economies seeking to build hubs usually start with

developing their major airport in order to attract airlines to locate therein.

Indeed, the development of Asia's aviation infrastructure is remarkable, as can be manifested from

the development of Asia's airports, which are setting world standards for efficiency and security. If

Asian Countries want to continue in expanding their economy, they must complete the investment

in the aviation port, which requires world-class air traffic infrastructure. As demonstrated by Asia's

airlines and airports, this region has the capability to lead the world in air traffic infrastructure.

41 Raagas, 2004 42 Center for Research and Communication, 2007 43 Ibid.

34

Entities such as The International Air Cargo Association or TIACA, The International Civil

Aviation Organization or ICAO, the United Nations Conference on Trade and Development or

UNCTAD and the Organization for Economic Cooperation and Development or OECD are major

international aviation associations and trade forums that stress the critical importance of aviation

liberalization, customs reform and lower corruption for economic development.

VII. IDEAL AIR CARGO LOGISTICS HUB

In the study of Senguttuvan, it was identified that there are 5 general factors that determine airport

competitiveness, namely: (1) spatial factors or increasing of the regional development around the

airport impact to create International Trade Zones, Logistic and Convention Centers, Economic

Free Trade Zones, Aviation-related industrial complexes and other facilities, in order to enable the

growth of an airport; (2) facility factors or the level of airport facilities and expandability of

facilities at existing airports to augment the capacity in air cargo handling; (3) demand factors or the

level of Origin-Destination demand of traffic volumes for “Hub-Spoke” network development; (4)

service factors, which consist of level of services made available to users, types of airport

operations and level of airport charges; and (5) managerial factors or economical considerations

such as airport operating costs, productivity and revenue structure.

McKinnon (2004), on the other hand, identified specific features pertaining to airport

competitiveness, as follows: (1) location - airports located closer to shippers have cost and time

advantages; (2) airport infrastructure, which includes runway capacity, terminal setup and transport

connections; (3) airport charges; (4) customs rules and charges; (5) congestion and lack of slot

availability; (6) choice and quality of freight forwarders; (7) environmental restrictions such as

noise limits and night curfews; and (8) regulatory restrictions.

44

In another study,

Lee (2007) narrowed down and defined the factors for a cargo hub as follows: (1) Location -

geographical location B747-400 nonstop flight range, local logistics infrastructure; (2) Demand -

market size and growth potential, flag carriers, logistics service providers such as Fedex, UPS,

DHL; (3) Cost - airport user charges, such as landing fee, parking charge, cargo service charge,

labor cost and land price; (4) Facilities - runway capacity, expandability of terminal area,

technology, labor quality and labor peace; and (5) Government - open skies agreement, free trade

zone or FTZ, tax incentives and political stability.

Out of the key features identified in all the studies presented, this study will use the version of Lee.

44 Mc Kinnon, 2004

35

The Centre for Asia Pacific Aviation & AAHK summarized the evolution of the world’s top 10

cargo airports in chart-form, from the year 2000 to 2010, as follows:

TABLE 6: TOP 10 CARGO AIRPORTS

These Cargo Airports are considered to be the most efficient and those

which rated high in the criteria and factors mentioned above. It can be seen that only Hong Kong

and Singapore are consistent as part of the top cargo Airports from the year 2000 until 2010. Hong

Kong Cargo Airport was consistent at second place for the past 10 years but in 2010, it took the first

slot from Memphis Cargo Airport.

This strategy paper will determine the current performance of the Philippine Air Cargo sector as

well as how it is compared to its neighboring countries. This study will show what are the “need

to’s or the to-do’s” of our local air cargo sector in order to be at par with the mentioned efficient

and successful hubs. This study will also evaluate the sector and look into the different strategies on

how it can regain its competitiveness of being an air cargo logistics hub in Asia.

In this study, it is important to take note of the leading cargo airports, as these facilities play an

important role in attracting fast-growing, high value-added industries. Only Asian hubs plus that of

Dubai, however, will be taken into consideration, in line with the said objectives of this study.

Indeed, there is an ongoing competition among different airport hubs in the region and these hubs

continue to improve their facilities to entice major developing logistics companies.

All air cargo hubs considered in this study belong to the Asian Region. These are that of (1) Hong

Kong, (2) Shanghai, (3) Shenzhen, (4) Guangzhou, (5) Singapore, (6) Malaysia, (7) Thailand. In

this study, Dubai will also be studied since it is one of the most promising and successful hubs that

the Philippines can model herself to. These are the hubs that were considered in this study, since

they are part of the world’s top 10 air cargo hubs except for Malaysia and Thailand.

36

Malaysia and Thailand were included since these are the two most realistic model hubs that the

Philippines can pattern herself to given the numerous improvements it has to do before it can regain

back its competitiveness in this sector.

Based on recorded figures from the Airport Councils International, the succeeding table shows a

comparison of the 6 air cargo hubs taken into consideration in this study over a 5-year period, in

terms of their world ranking and total cargo in metric tonnes:

TABLE 7: WORLD RANKING IN TERMS OF CARGO VOLUME

Source: Airports Council International

Above is the recent list compiled by the Airports Council International showing the top 50 airports

in the world. Hong Kong last 2010 was at first place with 4.168,394 tons of cargo while Memphis

went down with only 3,916,937 tons of cargo. It can be seen also from the above table that aside

from Hong Kong, some of the airports that will be studied in this research is also part of the top 50.

These are Shanghai, Dubai, Singapore, Bangkok, Guangzhou, Shenzhen and Shanghai. Manila is

on the 49th place with 419, 659 tons of cargo.

37

TABLE 8: WORLD RANKING OF CHOSEN COUNTRIES IN TERMS OF CARGO VOLUME

YEAR HONGKONG SHANGHAI

DUBAI SINGAPORE MALAYSIA THAILAND

PHILIPPINES**

2011 3,968,397 (1)

3,103,030 (3)

2,270,000 (6)

1,898,850 (11)

N/A N/A 282,497,937

2010 4,168,394 (1)

3,227,914 (3)

2,270,498 (8)

1,841,004 (11)

697,015 (29)

1,310,146 (20)

295,139,893

2009 3,385,313 (2)

2,543,394 (3)

1,927,520 (8)

1,660,724 (11)

601,620 (28)

1,045,194 (20)

280,712,657

2008 3,660,901 (2)

2,602,916 (3)

1,824,992 (11)

1,883,894 (10)

667,495 (27)

1,173,084 (20)

296,793,211

2007 3,773,964 (2)

2,559,310 (4)

1,688,505 (13)

1,918,159 (11)

NA NA 310,230, 934

** CAB, in Kilograms

Above is a compilation of six out of the eight airports to be studied with its cargo volume from

2007 until last year. Hong Kong was still reported to be the top airport in terms of cargo volume.

Shanghai is at 3rd place as it is seen to be the center of trade in the coming years.

38

VIII. DIFFERENT AIR CARGO HUBS IN ASIA

Considering the fact that Hong Kong’s and Shanghai’s air cargo hubs are in China, it is noteworthy

to consider a short historical background of air cargo operations in China. In the past, the industry

has been fragmented, highly protected and regulated and also dominated by state-owned enterprises

or SOEs, due to prevalent local protection, and rigid functional demarcations.

A. Air Cargo in Hongkong

Hong Kong retains its dominant role as an air cargo gateway, serving Southern China, with the

Beijing gateway taking over air cargo that originates in Northern China and the Shanghai gateway

handling cargo from Eastern and Central China.

45 These became

barriers to foreign participation in China’s air cargo sector. A further constraint on the growth of

foreign companies in the country is heavy government involvement. In spite of this, foreign

companies remained attracted by the huge potential of China’s air cargo logistics market. China’s

accession into the World Trade Organization after almost 15 years of negotiations, resulted in trade

liberalization. The effect onto the industry was the liberalization of trading and distribution rights

for foreign companies and relaxed ownership restrictions on logistics services providers, thus

creating opportunities for foreign direct investment. In 1999 China and the U.S. implemented an

expanded air services agreement, which included a fourth carrier from each side and an increase in

weekly services from 27 to 54. Together with FedEx, the addition of UPS further stimulated

competition in China’s air cargo market. In 2002, foreign investors have been allowed to take stakes

of up to 49% equity stakes, for as long as no single investor holds more than 25%, as compared

with the maximum 35% allowed under the earlier regulation. In July 2004, China and the U.S.

signed a far more liberal ASA, thereby resulting in five more carriers.46

The Hong Kong International Airport or HKIA is the world‘s busiest international cargo airport

responsible for more than a third of Hong Kong‘s external trade. Since it was opened in 1998, the

number of aircraft takeoffs and landings have increased by 82% (McKinnon, 2011). HKIA

continues to set new records for air freight and in 2010 became the world’s largest cargo airport,

handling 4.17 million tonnes of air cargo (British Chamber of Commerce, 2011). In March 2011,

the International Air Transport Association forecasted that Hong Kong will be the world’s fastest-

growing air cargo market, “growing at 12.2% annually over the next two years” such that cargo

A1. Hong Kong International Airport (HKIA)

45 Air Cargo Operations, Fung 2005 46 Ibid.

39

volumes will increase to 5.3 million tonnes in 2014 (British Chamber of Commerce, 2011).

Furthermore, based on HKIA predictions on air cargo, tonnage is expected to reach 8.9 million

tonnes a year by 2030, as compared to 4.17 million tonnes in 2010 (Air Cargo World, February

2012 Issue).

HKIA currently enjoys a ‘preferred’ status among freight forwarders, agents, logistics service

providers, airlines and even other businesses because of the fact that it is a free trade port with a

favorable tax regime47

47 Mc Kinnon, 2004

(McKinnon, 2011). Mc Kinnon adds that Hong Kong‘s pre-eminent position

in world air cargo handled is also due to the success of its airport facilities. Four main cargo

operators based in HKIA are: (1) Hong Kong Air Cargo Terminals Ltd; (2) Asia Airfreight

Terminal Company Ltd; (3) DHL‘s Central Asia Hub; and (4) Hong Kong Post‘s Air Mail Centre.

In order to maintain its number one position, key recommendations were given by the British

Chamber of Commerce, with regard to the support that must be given from the government. These

are: (1) support for immediate approval for construction of the third runway at HKIA; and (2)

government involvement and support for further adoption of e-commerce in the air cargo sector.

Consequently, a new cargo terminal is expected to open in 2013, boosting annual cargo handling

capacity by 2.6 million tons. Another noteworthy investment is Cathay Pacific's dedicated cargo

handling terminal, also due to open in 2013 and which will provide new facilities and increase total

cargo handling capability at HKIA to 7.4 million tonnes per year, increasing healthy competition

for the private sector and benefiting airport users with more choices (British Chamber of

Commerce, 2011). In the 2011/2012 Budget Speech, the importance of HKIA and the air cargo

industry to Hong Kong‘s prosperity was further highlighted, as follows: “Further reinforcing Hong

Kong‘s position as an international and regional transport hub is vital to our economic development

... In 2010, the passenger volume and cargo tonnage of the Hong Kong International Airport

reached an all-time high of over 50 million and 4 million respectively. We will continue to invest in

transport infrastructure projects and optimize our highly efficient multimodal transport services,

with a view to promoting the development of air, sea and land transport and logistics. Much of the

strong growth in air cargo in Hong Kong is due to the booming Pearl River Delta Region. The

International Air Services Transit Agreement has not been ratified by China but applies to Hong

Kong as a carry-over from British rule. It enables contracting States to agree to certain freedoms of

the air including the privilege to fly across a territory without landing and the privilege to land for

non-traffic purposes.”

40

In November of 2011, however, HKIA registered a 6.6% drop in throughput, owing largely to a

10% slump in exports (Air Cargo World, February 2012 Issue). Its total for the first 11 months of

2011 showed a drop of 3.4% in tonnage (Air Cargo World, February 2012 Issue). Then again,

following a three-month public consultation on its Master Plan 2030, airport authority still

confirmed its intention to push through with the construction of a third runway, as the existing two

runways are projected to reach capacity by 2020 (Air Cargo World, February 2012 Issue). Air cargo

throughput fell in December 2011 by 4.3% to 346,000 tonnes year-on-year

(http://www.eimportexport.com/). The Hong Kong Airport Authority attributed cargo decline in

December to the 7% year-on-year drop in exports and 5% contraction in imports. Likewise, HKIA

handled 3.9 million tonnes cargo, down 4.6% year-on-year in January, as mentioned in a Hong

Kong Government statement.

A2. Hongkong Air Cargo Terminals Ltd. (HACTL)

In a study by Peterson in 2007, it was identified that the Hong Kong Air Cargo Terminals Ltd. or

HACTL should be a model for how a cargo facility should operate, because of its “technologically-

advanced features.” The Super-Terminal 1 at HACTL is the world’s largest stand-alone air cargo

handling facility, with a land area of 170,000 square meters. Opened in 1976, the Super-Terminal 1

opened after an investment of more than $1 billion, with an annual capacity for 2.6 million tonnes

of capacity. While many successful cargo facilities have implemented information technology in

their operations, HACTL’s system is still considered to be the model for major hub facilities

(Peterson, 2007). According to the Air Cargo World February 2012 Issue, HACTL currently

handles about 80% of the airport’s cargo throughput and shall boost its capabilities with the

introduction of a new IT system valued at HK $240 million. Since the HACTL facility is considered

as a model for how a cargo facility should operate, a deeper study of its operations are key in

determining the important components of a world-class hub.

The China Market was identified to have excellent connectivity and accessibility considering the

Pearl River Delta Region, with sufficient cargo capacity of the Super-Terminal 1 and its automated

cargo handling system as HKIA’s strengths, and its geographical location drawback (B747-

400F:85-90% payload to Anchorage or Frankfurt), uncertain future after China’s entry into WTO,

China-Taiwan relations and low transit as its weaknesses.

41

The Airport has various facilities, namely: (1) Bulk Cargo Operation System - six stacker systems

in two operation areas, which runs automatically for bulk cargo storage and retrieval, due to

high-tech control and operating devices, the system; (2) ULD Operation System - operated by 2

elevated transfer vehicles or ETVs and used for storage, retrieval and transfer; (3) Area for

Cargo Build-Up or Break-Down; (4) X-Ray Machines - a total of 16, operated by trained

professionals of an independent security company; (5) Over 120 vehicles equipped for cargo

operation and transportation; (6) Facilities for cargo cooling and freezing; (7) Dangerous goods

B. Air Cargo in Shanghai

As mentioned in the early part of this study, air cargo in China is shipped primarily in passenger

aircraft, resulting in activities which are concentrated in major cities such as Beijing, Shanghai, and

Hong Kong, where passenger demand is among the highest. It was also mentioned that the

Shanghai gateway handles cargo from Eastern and Central China, as Hong Kong serves Southern

China and Beijing serves Northern China. Air Cargo in Shanghai ranks 3rd among the world’s top

airports in terms of Cargo volume. It was said that Shanghai is one of the best options to be a

regional hub in Asia.

B1. Shanghai Pudong International Airport

Shanghai Pudong International Airport is the largest airport serving Shanghai. It was opened in

1999 and is a major hub for airlines including: (1) Air China; (2) China Eastern Airlines; and (3)

Shanghai Airlines. Reports consider Shanghai to be a good bet in the race to build a regional hub in

Asia, expecting 100 million air travelers to pass through its terminals each year by 2015. Just

recently, the Civil Aviation Administration of China or CAAC signed a Strategic Cooperation

Agreement with Shanghai municipal government, which aims to speed up Shanghai's Civil

Aviation Development, by setting the goal of developing Shanghai Pudong International Airport to

be the number one international cargo hub worldwide by 2015. Both entities have come to an

agreement regarding the targets for the development of the civil aviation industry in Shanghai

during the 12th Five-Year Plan period from 2011-2015, which includes: continued safety of air

transportation, sustained enhancement of air transportation guarantee, an assembling

development of air service, the shaping of a manufacturing and research center for jumbo jets, a

sharp rise in its international competitiveness, as well as a quickened construction of Shanghai

as an aviation hub center and an improvement in the quantity and quality of air service. By then,

it is expected that the Shanghai Pudong International Airport will become a crucial linking airport

in the global aviation network which can handle up to 100 million passengers, as well as 5.5 million

tons of cargo and mail.

42

storage house; (8) Vulnerable and valuables room or Strong room; (9) Live animals room; (10)

CCTV system; (11) Security Build Up Area - the terminal is the first to introduce dedicated

warehouse space within its facilities to forwarding agents for palletising. The forwarding agent

extension is equipped and supervised b PACTL, providing basically the same security, safety and

handling equipment for cargo acceptance and build up, as used by PACTL itself. The advantage

of this "shared use concept" lies in speed, as cut off times for BUPs are lowered to 120 minutes;

and (12) T-Cargo Area, to speed up the import process.

Shanghai Pudong International Airport has taken the following measures to reduce environmental

impact, primarily to reduce energy consumption and CO2 emission: (1) designing of their

warehouse with a very efficient aeration system which can bring fresh air into warehouse and

take turbid air out continuously to make good environmental condition for our warehouse staff;

(2) use of tail gas cleanup units for trucks and forklifts as the device is capable to reduce other

harmful gas; (3) practice of other measures to use less resources.

In January 2012, however, the Shanghai International Airport Co., Ltd. reported that the Shanghai

Pudong International Airport experienced a sharp fall of 22.37% in air cargo volume to 199,900

tonnes. More particularly, freight volume on domestic services dropped 27.69% to 23,500 tonnes,

while international cargo fell 19.83% to 150,400 tonnes.

The strengths of Shanghai Pudong International Airport were identified to be its big market size and

growth potential, FTZ in Pudong Area resulting in tax incentives and low labor cost and land

price. On the other hand, government regulations such as protective trade policy, low labor quality

and lack of logistics infrastructure were, on the otherhand identified as Shanghai Pudong

International Airport’s weaknesses.

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C. Air Cargo in Shenzhen

Air Cargo in Shenzhen ranked 24th in the 2010 top airports with 809,363 tons of cargo. It is one of

the busiest airport in China next to Shanghai and Guangzhou.

Shenzhen Bao'an International Airport formerly named Shenzhen Huangtian Airport is located near

Huangtian and

C1. Shenzhen Bao’an International Airport

Fuyong villages in Bao'an District, Shenzhen, Guangdong, China. It is 32 km

northwest of the city center. It is the hub forShenzhen Airlines, Shenzhen Donghai Airlines, SF

Airlines, Jade Cargo International and a focus city for China Souther Airlines and Hainan Airlines.

The airport also serves as an Asian-Pacific cargo hub for UPS Airlines. The airport is undergoing

major expansion with a new terminal under construction. A second runway was also recently

completed. It is one of the three largest airport hubs serving southern China, alongside Hong Kong

International Airport and Guangzhou Baiyun International Airport.

The airport was opened on 12 October 1991. It occupies an area of 10.8 kms. Its runway is 3400 m

long and 45 m wide, and it has 53 parking spaces on its apron. The airport also has ferry routes

to Hong Kong International Airport, where passengers can transit without going through

immigration and custom checks, akin to transit between two flights. Its current terminal covers an

area of 152,000 sq meters and consist of 24 jet-ways.

Shenzhen airport handled 26,713,610 passengers in 2010, according to Civil Aviation

Administration of China, making it the fifth busiest in China. The airport was also China's 4th

busiest and world's 24th busiest airport in terms of cargo traffic, registering 809,363 tonnes of

freight. In terms of traffic movements, Shenzhen airport was the 5th busiest airport in China in

2009.

In comparison with Hong Kong International Airport, Shenzhen International Airport offers greater

connectivity to domestic Chinese cities at a cheaper ticket price but is less convenient for Hong

Kong residents. Also, international traveler suffers from, on comparative terms, low levels of

spoken English.

There are three main terminals at Bao'an Airport:

§ Terminal A - for domestic flights

§ Terminal B - for domestic flights

§ Terminal D - for international and Taiwan flights

44

Since the beginning of 2008 the 1.6 km long terminal 3 is being built. This new terminal will be

between the current runway and another runway currently being built. A second runway running

parallel to the west of the current runway will also be built. The new runway will be built on

reclamation land extending out towards the Pearl River Delta, with a length of 3600 meters and 60

meters wide. The second runway was completed in June, 2011 and started operations in July 2011

but capacity will be restricted until the new terminal is opened since air movements will need to

cross the existing runway to access the older terminals to the east.

45

D. Air Cargo in Guangzhou

Guangzhou is ranked at 21st among the top airports in the world in terms of cargo volume. It was

also said that Guangzhou is one of the busiest airports when it comes to cargo operations. This is

also known to be the hub of FedEx.

Guangzhou Baiyun International Airport is the main airport of

D1. Guangzhou Baiyun International Airport

Guangzhou, the capital of Guangdong province, China. Both airport codes were inherited from the old airport, and the IATA code reflects Guangzhou's former romanization Canton. The airport is the main hub of China Southern Airlines and a focus city for Shenzhen Airlines and Hainan Airlines.

In 2011, Guangzhou Baiyun International Airport was China's 2nd busiest and world's 19th busiest airport in terms of passenger traffic, with 45,040,340 people handled. As for cargo traffic, the airport was the 3rd busiest in China and the 21st busiest worldwide. Guangzhou airport is also the 2nd busiest airport in terms of traffic movements in China.

The opening of the New Guangzhou Baiyun International Airport had relieved most of the controversies of the older and deteriorated airport because of the limited space, overcrowding and lack of expansions. Its opening allowed it to overcome curfews and restrictions and begin a 24 hour operation. This meant that China Southern Airlines could highly utilize their intercontinental routes by flying overnight. Other airlines have this benefit too.

The airport is served by the Airport South Station on Line 3 of the Guangzhou Metro.

In August 2008, the airport's new expansion plan was approved by the National Development and Reform Commission of China. The airport will build a third runway located 400 metres east of the existing east runway. The new runway will be 3800 metres long and 60 metres wide. Other elements of the expansion plan include a 531,000-square-metre Terminal 2, a new indoor car park and an outdoor car park, a transportation centre, and a metro station which will serve Terminal 2. The total cost of the project will be ¥14.036 billion. Construction of the third runway is estimated to start in 2011 and finish in the first half of 2013. When the whole project is finished by the end of 2015, the airport will be able to handle 75 million passengers and more than 2.17 million tonnes of cargo a year.

§ Runways: 2—3,800 metres (12,500 ft) and 3,600 metres (11,800 ft) § Aircraft parking bays: 173 (passenger apron and cargo apron) § Current passenger capacity: 45 million passengers per year § Planned passenger capacity in 2020: 75 million passengers per year

§ Current cargo capacity: 1 million tonnes § Planned cargo capacity in 2010: 2 million tonnes § Planned cargo capacity in 2020: over 2.17 million tonnes

46

E. Air Cargo in Dubai

Dubai is firmly established as a regional center for re-export, retail, leisure, aviation, IT and

finance. Moreover, Dubai has been a strategic trading post for more than 15 centuries, throughout

which it was chiefly a unique location on the Persian Gulf that was recommended to shippers and

manufacturers. Because of the United Arab Emirates or UAE’s excellent infrastructure and pro-

business environment, Dubai is an ideal gateway to the dynamic Middle Eastern, African and

Southeast Asian markets. Unprecedented development of the region in the last 50 years, as well as

its modern facilities, sunny weather, wide sandy beaches, luxurious hotels, top-ranked sporting

events and liberal business climate, have underscored the importance of its location, not just to the

UAE or the Middle East, but to Africa and the Orient as well. In his study, Kasarda (2006) pointed

geographical accident as a major factor in Dubai’s success. As a result, both the Dubai International

Airport and the Dubai World Center have emerged as intermediary hubs for the Asia-Europe

trade. It was further enumerated that the advantages of Dubai in relation to its success in the

industry, include: (1) Dubai’s location along the east-west Asia to Europe trade routes; (2)

Dubai’s access to inexpensive, imported labor and capital to invest in facilities; and (3) Dubai’s

stable government and liberal commercial environment, which played a role in its growth by

deciding to modernize and expand the air cargo terminal at Dubai Airport and to grant “open

skies” rights to passenger and cargo airlines. The open skies put air cargo in Dubai on a rapidly

rising trajectory. (Air Cargo World, March 2012 Issue).

Several multinational companies have chosen Dubai as an area to locate their headquarters, because

of the creation of the Dubai Airport Free Zone or DAFZ, a 1.2 million sqm. area, developed to

accommodate technology-driven industries and goods with high value-to-weight ratios. The DAFZ

also offers companies the benefits of 100% foreign ownership, a tax-free status for up to 15 years,

which is renewable for a second 15 years, the right to use other facilities such as the modern

airport and the Dubai Cargo Village, both located outside the zone, freedom to move capital and

no personal income tax. Other incentives of the DAFZ are a research center that will contain

information on free-zone activities around the world, a Service Center that will handle

paperwork and interface with the local government, an employment service for people looking

for jobs within the DAFZ and other auxiliary services such as banks, pharmacies, restaurants,

and shops. Often known as the “gateway between East and West,” Dubai is home to one of the

fastest growing cargo hubs in the world.

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The Oxford Economics Report (2011) defines the Dubai’s aviation sector as the airport operator,

Dubai Airports, involving aircraft ground handling and the passenger and cargo services. Figure 21

shows how Dubai’s Aviation Model is structured:

FIGURE 21: DUBAI AVIATION OWNERSHIP STRUCTURE

Source: Department of Civil Aviation

E1. Cargo Mega Terminal

In 2007, as a result of the Department of Civil Aviation’s restructure program, the Dubai Airports,

an entity responsible for the development and management of Dubai’s airports and Dubai’s Civil

Aviation Authority, was formed. Dubai Airports is serviced by over 130 airlines flying to more than

220 destinations across 6 continents. More than 35 cargo airlines have offices at the Dubai

Airports Cargo with 17 air cargo parking slots for freighters. The cargo warehouse has a total of

56 truck docks for import, export and perishable cargo, and seven docks dedicated to sea-air

traffic, the storage facility includes small warehouse pallets with 902 positions, regular 1,698

positions, large 1,126 positions and mini shipments 760 (single positions), as well as 18 positions

for storing perishables.

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Dubai Airports Cargo has won over 25 awards since 1991, including Air Cargo News UK’s Best

Cargo Airport in the Middle East, and the Asian Freight and Supply Chain Awards (AFSCA) for

Best Airport for 15 consecutive years. Since opening its doors to the world in February 2008,

Dubai Airports’ Cargo Mega Terminal, built on a 43,600 sqm. site and with a capacity of 1.2

million tonnes per year, handles all types of cargo from one central location. The Cargo Mega

Terminal has fully-automated workstations and is one of the most technologically advanced cargo

terminals in the world. At present, the Cargo Mega Terminal has increased its capacity to 2.5

million tones. For special cargo, general cargo and unit load devices, the facility accommodates: (1)

special cargo such as perishables, live animals, valuables, human remains and dangerous goods

including radioactive materials; (2) general cargo; (3) intact unit load devices; and (4) intact unit

load devices with perishable cargo. The Cargo Mega Terminal has a state-of-the-art cargo

commercial and terminal handling system called the “skychain,” which integrates all processes

across network and global operations, in real-time. Here, information is transparent to both internal

and external players across the global supply chain through industry-standard messaging or web

interfacing. As Dubai rapidly transformed itself into one of the world’s key re-export hubs, DCGs

terminals and sea-air cargo centre recorded consistent double-digit growth and facilities expanded

to meet demands. Dubai Airports is currently the world’s fastest expanding airport.

E2. Dubai International Airport (DIA)

In 1959, The Dubai International Airport or DIA was established, consisting of a compacted

runway, an apron area, a terminal building and a fire station within a 1,800m. area. The DIA is

connected to over 220 destinations across six continents through some 130 scheduled airlines and is

comprised of 3 terminals. A year after its establishment, the airport was opened, capable of

handling aircraft up to the size of a DC-3, which can accommodate 9 airlines and serve a total of 20

destinations in 1969. In 2000, the opening of the Sheikh Rashid Terminal or Terminal 1 built as part

of the first phase of the general expansion project, thereby increasing the Airport’s capacity from 10

Million to 25 Million. Two years after, the DIA was ranked the second fastest growing airport in

the world according to the Airports Council International’s traffic statistics. The facility handled

around 18 million passengers in 2003 and was established as the aviation hub of the Middle East. In

2007, the Dubai International Terminal 3 was built exclusively for the Emirates Airline. The award-

winning Emirates Terminal 3 is acknowledged in the industry as the most successfully launched

terminal of its size and expanded the DIA’s capacity to 60 Million at that time .

The opening of the world’s largest single terminal, the DIA was the fastest growing airport for

international passengers in 2009 and continues to be one of the busiest airports in the world in terms

of international passenger and cargo traffic. Because of this, UAE’s leaders have already

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constructed a second airport, the new Jebel Ali International Airport (Air Cargo World, March 2012

Issue), an example of the Airport City model. Consistent with Dubai’s liberalized aviation

environment, the new airport allows airlines to self-handle cargo and manage their own terminal

space within the DFZ (Air Cargo World, March 2012 Issue).

An increase in air cargo volume in the DIA in February of 2012 continues to provide hope for the

industry, as evidenced by an increase of 6.5% to 157,492 tonnes as compared to the previous year’s

147,937 tonnes. In March 2012 the airport handled 186,417 tonnes of cargo compared to 185,921

tonnes in March 2011, a year-on-year increase by 0.3%.

With regard to the different carriers in the Middle East, industry players enjoyed a 9.4% rise in

demand in 2011, much of it generated by Emirates Airline and Etihad Airways. According to David

Kerr, Vice President of cargo for Ethiad, "Etihad Airways' cargo operations saw outstanding

performance in 2011 and volumes are continuing to grow in 2012 in line with capacity increases

and network expansion. Cargo operations accounted for 20% of Etihad Airways' overall revenues,

with average monthly loads of 25,000 tonnes. In the first quarter of 2012, we have seen a

comparably strong performance. We expect March volumes to be very good as operations into and

out of China pick up. European and American demand has also been strong and we forecast strong

performance into the second quarter." In support of his vision, Pradeep Kumar, Senior Vice

President of cargo revenue at Emirates Airlines added, “the recovery is being driven by high-end

freight. We are seeing strong performances into Africa, South America, especially Brazil, and Asia,

mainly in areas such as temperature-sensitive [pharmaceutical] cargoes and mobile phones. Other

areas may remain under pressure until the second half, but then we see growth consolidating."

The importance of DIA as a vital, regional and global cargo hub was again recognized at the

annual Supply Chain and Transport Awards or SCATA held in Dubai on May 01, 2012, where it

was named Air Cargo Hub of the Year, the same award it won the previous year. Dubai Airports,

which is planning to launch the new concourse 3 at Dubai International in 2013, has embarked on

an operational readiness and airport transition (ORAT) programme. Concourse 3 is expected to

increase the airport's capacity to 75 Million passengers every year. Dubai Airports has also

embarked on the first phase of the $7.8 Billion Strategic Plan 2020, which will increase Dubai

International's annual capacity to 90 Million passengers by 2018. (Air Cargo World, May 2012

Issue).

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E3. Dubai World Central Airport (DWC)

Strengthening Dubai’s position as a leading aviation and logistics hub, the Dubai World Central or

DWC is a strategic initiative of the Dubai Aviation City Corporation and the Government of Dubai

and chaired by H.H. Sheik Ahmed bin Saeed Al Maktoum (http://www.dwc.ae/about-dwc/). The

DWC is a multi-phased urban infrastructure development, designed to meet the present and future

needs of aviation, air transport, commercial and logistics businesses. The DWC is a multiphase

development of 6 clustered zones, namely: Dubai Logistics City or DLC, Commercial City,

Residential City, Aviation City and Golf City Dubai Aviation City Corporation. Spanning 140

sqkm. and strategically located in the fast-growing logistics corridor of Dubai, the development is

another tangible proof of Dubai’s ongoing commitment to the diversification and sustainable

growth of its economy.

Dubai Airports launched cargo operations at DWC on June 27, 2010 as part of the first phase of the

project, which includes a single A380 compatible runway, a passenger terminal with capacity of 5

million passengers per annum (mppa) expandable to 7 million passengers per annum, a cargo

terminal building with a capacity of 250,000 tonnes per annum expandable to 600,000 and a 92m.

air traffic control tower. Once completed, the DWC will have up to 4 passenger terminals, which

will accommodate up to 160 mppa; 5 parallel runways at 4.5km long, each separated by a minimum

of 800m; an Automated People Mover connecting passengers to different terminals and moving

staff to all key points in the development; and an internal road network for all key airport operations

(http://www.dwc.ae/about-dwc/). Lastly, within the vicinity of the Jebel Ali Port and Free Zone, the

DWC will make air-sea connectivity achievable in 4 hours.

Emirates Airlines became the first carrier to land its aircraft on Dubai World Central-Al Maktoum

International, as part of final preparations prior to the official launch of the airport. After the

airline’s test operation, an extensive array of system, process and documentation checks, tests and

trials took place. The construction of the Dubai World Central-Al Maktoum International increased

the airport capacity of Dubai to accommodate the expected 48% increase in cargo volumes from

1.9 Million to the 3 Million tonnes anticipated by 2015. It is also expected to serve as a multi-modal

logistics hub for 12 Million tonnes of freight and a global gateway for the 150 million passengers

per annum that are expected to pass through Dubai by 2030.

The newly constructed DWC handled 89,729 tonnes of air freight in 2011, with 36 airlines using

the new facility for cargo charter operations. The DWC has reported a 382% rise in cargo volumes

during the first quarter of 2012, as compared to the previous year’s 10,381 tonnes, according to the

quarterly traffic report by Dubai Airports. Moreover, air traffic movements also rose 313.3% to

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3,513 movements in the first quarter, up from 850 in the earlier period. In support of this, Dubai

Airports CEO Paul Griffiths said that despite the fact the global cargo industry remains under

pressure, DWC continues to ramp up as new operations are introduced. He adds, "increasingly

airlines are recognizing that the DWC, although still in its infancy, has a unique value proposition,

that is, its bonded link to the Jebel Ali port. Dubai Airports' total cargo volumes are expected to top

3 Million tonnes by 2015 and an increasing portion of that growth is expected to spill over to

DWC."

Overall, the global downturn in 2010-2011 was a historical event for the Middle East, as it

experienced its very first decline in Asian exports, likewise resulting in the very first year-on-year

decline in cargo volume at the DIA by 1.5% since the site pushed into the upper echelons of the

World’s Largest Freight Airports in the 1990s. The increase in volume year-over-year across the

DIA and DWC could be attributed to the growth of sea-air traffic, under bond via the port of Jebel

Ali, good working relations between truck feeders between the two Dubai Airports, as well as the

introduction of additional charter and scheduled services over the previous year, according to Paul

Griffiths, CEO of Dubai Airports (http://www.thenational.ae/thenationalconversation/industry-

insights/aviation/dubai-international-airports-air-cargo-volume-soars).

According to the Oxford Economics Report (2011), the success of Dubai’s aviation sector derives

from a number of strengths, which are the product of strategic decisions that the government of

Dubai and the aviation sector have taken in the past, including: (1) the government’s demonstration

of its awareness of the importance of aviation for enabling growth in key sectors of Dubai’s

economy, as manifested in Dubai’s strategic plan and decision-making that is consensus based,

timely and effective; (2) open competition among airlines, as reflected in over 150 airlines that

operate out of Dubai International; (3) Dubai’s liberal aviation policy that has pushed for greater

freedoms for all airlines to enable them to operate without undue restrictions on their commercial

decisions and competitive airport charges; (4) a consensus-based approach to investment that has

helped Dubai Airports and Emirates expand together, supporting each other’s growth; and (5) focus

on growth and underserved markets that has enabled the airport to increase the number of

passengers it handles from 12 Million to 47 Million over the past decade.

To date, Dubai’s aviation sector continues to invest heavily in its infrastructure, aircraft fleet and

staff. The UAE currently has a large order book for new aircraft, with published orders for 75

A380s, for 70 A350s and for 48 B777s in 2011, some of which will be to replace their existing fleet

of aircraft as these are withdrawn from service. (Oxford Economics, 201). On this basis, Emirates

fleet is projected to grow to 249 by 2020, while its cargo fleet expected to grow from 9 to 23 units

of aircraft over the same period. In line with this, Andrew Walsh, Vice President of Cargo and

Logistics at Dubai Airports, said “at Dubai Airports, we continually strive to build on the

52

advantages of our geocentric location at both Dubai International and Dubai World Central – which

allows us to tap in to global trade flows – by providing the best service possible to our customers,”.

Although land around the airport for Singapore is tight, Changi continues to take a proactive

approach in the airport master planning process, taking into consideration long-term needs of its

clients. As a response to environmental issues, Changi pursues initiatives to ensure sustainable

growth of the airport and fulfills corporate social responsibility to the local community. As a

F. Air Cargo in Singapore

Singapore according to the Airports Council International is top 11 out of the top 50 airports in

terms of cargo volume.

F1. Changi Airfreight Center (CAC)

The Changi Airfreight Centre is a 46-hectare free trade zone developed in 1981, when the Changi

Airport first came into operation. It has nine airfreight terminals, with a combined handling capacity

of $3 million per annum. All niche forms of cargo are handled at the centre, including an airmail

transit centre and a quarantine centre for the inspection of imported plants and animals. A 24-hour

customs checkpoint is also available for cargo operations. The CAC is managed by the air cargo

division of the Civil Aviation Authority of Singapore. As previously stated, last March 2011, the

CAC ranked 11th largest by volume.

To date, several developments have taken place in CAC, largely driven by market growth and

changing industry needs. For instance, the Changi Megaplex, a multi-tenanted warehouse facility,

was developed in the 1990s, following extensive consultation with the freight forwarding

community, mainly to cater to the rapidly changing needs of the forwarding industry. The launch

of the Airport Logistics Park of Singapore or ALPS in 2003 is another development and an

example of how the Changi Airport has adapted to changing industry trends. ALPS is a 26-hectare

logistics park, strategically located within the airport’s free trade zone, thereby enabling quick

turnaround, value-added logistics and regional distribution activities. Some of the value-added

logistics activities available at ALPS include postponement, configuration, sub-assembly, returns

and repairs and vendor-managed inventory for time-sensitive products. These factors have

attracted many global companies to establish regional distribution centers or RDCs in ALPS, in

order to serve their growing Asia-Pacific clientele from Singapore. The development of TNT’s

Singapore Regional Hub in 2009 and the establishment of SATS’ Coolport at Changi in 2010 also

exemplify how Changi Airport caters to the changing needs of the industry.

53

company, CAC has a clear environmental policy, with efforts focused on five major areas:

emissions, energy efficiency, waste management, noise management and water management

(http://www.evaint.com). Some of its key initiatives at the airport include: (1) facilitating the

introduction of CNG tractors to be used by the ground handlers; (2) using energy-efficient lighting

and installation of motion sensors at the airport; (3) promoting the use of recycled materials for

construction; and (4) rainwater harvesting and the use of water efficiency tools

(http://www.evaint.com). As a result of its efforts, Changi’s Terminal 3 was awarded the Green

Mark Gold in October 2009, which is a “national green building rating system” to evaluate a

building for its environmental impact and performance. In addition, CAC has also supported the

country in its development of its solar-powered mobile chillers -temperature-controlled

infrastructure installed at the airport’s tarmac to keep perishables at the right temperature while in

transit at Changi. For its green efforts, CAC has been awarded the Best Green Service Provider –

Airport at the Annual Asian Freight and Supply Chain Awards in 2010 and 2011

(http://www.evaint.com).

CAC handled 1.81 million tonnes of air freight movements in 2010, recording an 11% year-on-

year growth. Likewise, it also performed well for the first five months of 2011, growing by 3%

year-on-year. As regards air freight performance in 2011 so far, CAC expects cargo volumes to

recover back to pre-crisis levels. On average, air cargo generally grows at a rate which is about half

that of GDP growth. With Singapore’s long term GDP growth projection at about 4-6% per year at

a steady state, CAC expects long-term air freight growth in the range of about 2-3% per year

(http://www.evaint.com).

CAC is competing from a position of strength as a leading global logistics hub and international

cargo airport. It is one of Singapore’s critical success factors as a leading global logistics hub in

Asia. More importantly, the growth of North Asian markets, more particularly, China and

Hongkong, signify Singapore’s role as a cargo hub. Based on The World Bank Logistics

Performance Index (LPI) 2010 Study ranking 155 countries on logistics performance, Singapore

was listed as the first in Asia and second globally after Germany. Singapore has consistently ranked

well in key parameters such as efficiency of cargo clearance, quality of trade and transport

infrastructure, timeliness of international shipments and competence of logistics service

providers (http://www.evaint.com).

According to the Air Cargo World May 2012 Issue, the Changi Airport Group has launched a S$15

million initiative to boost airfreight volumes in the region. The Changi Airport saw freight gains

last year amounting to 1.87 million tonnes of cargo, translated to a 2.8%, year-over-year increase, a

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figure only at par with 2008 figures (Air Cargo World, May 2012 Issue). In January, however,

airfreight demand dropped to 7.1% compared to the same month a year earlier to 136,800 tonnes of

cargo handled (http://www.eimportexport.com/).

Kuala Lumpur International Airport or KLIA is the main airport and gateway to Kuala Lumpur,

G. Air Cargo in Malaysia

Kuala Lumpur ranked 28th among the top 50 airports in terms of cargo volume according to the

Airports Council International.

Malaysia Airports Holdings Berhad or MAHB is a privatized entity that manages and operates all

the airports in the country, with the exception of the Senai Airport in Johor and the Kerteh Airport

in Terengganu. The MAHB was incorporated in 1991, when the Malaysian Parliament passed a bill

to separate the Department of Civil Aviation or DCA into two entities with different

responsibilities. To date, DCA remains as the regulatory body for the airports and aviation industry

in Malaysia while MAHB focuses on the operation, management, and maintenance of airports.

From 1991 until 2005, Malaysia spent a total of RM63 Billion for the development of transport

infrastructure in the country, the total of which was divided into competing demands on

infrastructure development, from rail, road and the development of the Kuala Lumpur

International Airport. By 2007, Malaysia had 45 airports, including 6 international airports, 19

domestic airports and 20 STOLports. Today, the 5 largest airports in Malaysia – Kuala Lumpur

International Airport, Kota-Kinabalu International Airport, Kuching International Airport, Penang

International Airport and Miri Airport, handle over 43 Million passengers a year and over 805

thousand tonnes of freight (Oxford Economics, 2011).

Currently, there are 2 cargo complexes in Malaysia - one operated by the MAS and the other by the

KLAS.

G1. Kuala Lumpur International Airport (KLIA)

Malaysia and one of the largest airports in Southeast Asia, operated by the MAHB. It is located at

the top of the southern corridor of Peninsular Malaysia, bordering the states of Selangor and Negeri

Sembilan. It is a unique airport because it has within its boundaries all that is needed for business,

entertainment and relaxation. The airport is part and parcel of the Multimedia Super Corridor or

MSC where placement of high technology industries are being actively pursued.

55

The KLIA is the result of a visionary strategy to meet the needs of new large aircraft and the traffic

demand of the 21st century, as it has pioneered the use of state-of-the-art technology in airport

management known as Total Airport Management Systems or TAMS, managed by Malaysia

Airport (Technologies) Sdn. Bhd. Located in Sepang the KLIA hosts domestic, regional and

international passenger and cargo services for over 40 airlines and is a hub for airlines including

Malaysia Airlines, AirAsia and AirAsia X. For 3 consecutive years from 2005-2007, the KLIA won

the Airport Service Quality (ACI-ASQ) Award for the World’s Best Airport in the 15–25 million

ppa category. It was also voted the Best Airport Worldwide and Best Airport in the Asia Pacific

region in the same award. Its Low-Cost Carrier Terminal-KLIA or LCCT-KIA, however, was

named by the Center for Asia Pacific Aviation or CAPA as the Low Cost Airport of the Year in

2006.

Cargo at KLIA is transported not only in the aircraft belly but also on freighters operated by

airlines, without restrictions or ban on passenger and cargo flights at night nor any

environmental issues, unlike some airports in the West.

The KLIA was conceptualized in the early 1990s to be a world-class hub airport for the Asia-

Pacific region, as part of Malaysia’s national development strategy whereby sustained investment

in infrastructure is made to ensure the timely and adequate supply of facilities that can meet the

development requirements of the country. The construction of KLIA was needed as Subang

International Airport had experienced growth of 14–15% per annum from 1990 to 1995, resulting in

the airport reaching its designated capacity of 5,454 passenger movements per hour by the mid-

1990s. With 10,500 hectares of land, KLIA’s development costed US$2.8 Billion. Its development

spanned several phases: (1) the first phase was completed on June 30, 1998, resulting in the

construction of 1 main terminal and 1 satellite building; (2) the second phase begun in 2008 and is

expected to last until 2015, initially consisting of a temporary Low Cost Carrier Terminal or LCCT,

located about 20 kilometers from the KLIA Main Terminal Building with the capacity of handling

10 Million passengers a year. The current facilities will be upgraded to handle up to 15 million

passengers per year by 2015, increasing the total capacity at KLIA to 40 million passengers per

year; (3) the third phase, programmed to run from 2010 to 2015, under the 10th Malaysia Plan,

takes into account the construction of the new and permanent LCCT, to accommodate 25 Million

passenger capacity and increase the overall capacity of main terminal and new LCCT to 50 Million

passengers, as well as the construction of second satellite terminal which will also increase

passenger capacity to possibly 75 Million; and (4) the construction of the second terminal that

would increase capacity to 100 Million passengers.

56

The KLIA2 or the new terminal, is described as a “showpiece” of the next generation hub

concept, expected to be completed by the end of 2012 or spring 2013. This project, which was built

to cater to LLCs, particularly Malaysia’s AirAsia, has met with opposition from the airline which

alleged that the project was considerably delayed and the costs had escalated. In spite of this,

however, the KLIA has been trying aggressively to increase both passenger and cargo traffic at the

airport, in order to strengthen its position in Southeast Asia and match the traffic of neighboring

Singapore’s Changi International Airport of Singapore or Bangkok’s Suvarnabhumi. In fact,

according to Tan SriBashir Ahmad, Managing Director and Chief Executive of MAHB, “Our

tourism and business traffic may be lower than Singapore and Bangkok, but we have been

recording good growth. Even as most regions of the world were mired in the economic crisis of

2009, we experienced strong growth, mainly, because of tourism and business traffic.”

KLIA is the flagship of a world-class airport system and it intends to maintain and elevate its

status in the industry. In fact, during the World Cargo Symposium in Kuala Lumpur, Tony Tyler

acknowledged Malaysia as a country which has always seen aviation as a strategic component of its

development. The “Air Cargo Makes it Happen” campaign is one of the steps that Malaysia is

currently taking in order to raise the profile. Another program launched in the industry in 2010 is

the first IATA Secure Freight pilot initiative, which evaluates the strength of a nation’s aviation

security infrastructure and works with the civil aviation authorities to ensure that cargo has come

from either a known consignor or regulated agent and has been kept sterile until it is loaded. It

identifies the gaps within a security regime, and helps to seal this process upstream which will

prevent bottlenecks at the airport.

According to the MAHB Annual Report (2006), an aggressive marketing strategy was launched for

the period 2006 to 2010 to promote KLIA as part of its 5-Year Transformation Strategy, which

included among others, the extension of the Airline Incentive Program to attract more foreign

airlines to fly into KLIA as well as the other 4 international airports managed by MAHB.

Incentives given under the Program include free landing and parking charges as well as free office

rental space for 6 months and marketing support funds for new foreign airlines. As part of its

promotional strategy, MAHB also attends major aviation-related forums all over the world in its

marketing and promotional efforts.

Aside from the different programs intended to maintain and elevate KLIA’s status in the industry,

the government invests in infrastructure and controls airline competition, and he government also

implemented some specific policies to promote KLIA as a regional hub, such as the KLIA Hubbing

Development Committee set up in December 2000, that meets once a year to: (1) examine 3 areas

for the development of KLIA - traffic facilities, connectivity through MAS service, and

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marketing; and (2) set performance and services standards for KLIA based on world’s best

practices. A Free Commercial Zone was also set up to facilitate the handling of cargo at KLIA,

which uses the paperless environment concept with value-added activities such as trading, break

bulking, grading, sorting, re-packing and re-labeling. Lastly, a one-stop center was also provided to

expedite the process of cargo clearance with additional support services such as multi-banking

services, clinics, food and beverage and also postal services. Overall, the government invests

highly in infrastructure to boost the competitiveness of airports, a similar strategy that is used by

other major airports in ASEAN (Abu Bakar, 2009).

In spite of the improvements in the performance of KLIA as an international airport, it is by no

means a regional hub. Therefore, MAHB has focused the importance of KLIA as the regional hub

due to the emergence of Changi Airport of Singapore and Bangkok. Nonetheless, since KLIA is

increasingly becoming more competitive, the attainment of a hub status will enable the country to

capture gains from airport services as well as improve the returns to its investment in the airport. To

date, there is an emergence of new generation airlines or “NGAs” which include low cost carriers

within and outside the country (Abu Baka, 2008).

In 2010, the KLIA recorded 674,902 metric tons of cargo, up 15.5% from 584,559 tons the previous

year. International cargo traffic accounted for 614,400 metric tons, while domestic cargo at KLIA

amounted to 60,502 metric tons.48

Penang was already a mini-hub owing to its position as a semi-conductor manufacturing center

but needed a modern, state-of-the- art integrated air cargo terminal with the capacity to handle

G2. Penang International Airport

In 2009, government officials from the Malaysian island of Penang have urged MAHB to push for

the federal government funding to build an integrated air cargo terminal to accommodate future air

cargo growth on the island. Penang’s Chief Minister Lim Guan Eng referred to the terminal as a

“worthwhile investment as it will bring in more cargo flights to Penang.” He added, “we really

need an air cargo hub here so that we will be ready for a bigger market share of the cargo

industry when the economy picks up.”

48http://www.logisticsdigest.com/inter-news/inter-corporates-news/item/7616-malaysian-airport-

holdingsgroup-builds-klia2-to-cater-to-lccs.html.

58

additional volumes of freight. For such reason, the Penang International Airport was expanded in

2001. Penang International Airport’s expansion is a component of the Northern Corridor Economic

Region or NCER blueprint, which enables the airport in Bayan Lepas to become the premier air

cargo hub within the Indonesia-Malaysia-Thailand Growth Triangle, supporting industrial parks and

creating premium overseas markets for perishable high-value products. According to the blueprint,

the planned expansion of the airport's facilities will include developing new passenger and cargo

terminals and the addition of a new runway to cater for increased traffic. In line with this, Northern

Corridor Implementation Authority or NCIA’s Senior Vice President for manufacturing and

industry, Chris Tan said, "We are very happy with this announcement since it helps us with

efforts to transform Penang into a logistics hub. Once the project is completed, Penang will not

only be able to boast of superior airport infrastructure to transport its high-technology exports,

but also perishable food like high-value seafood items and agriculture products from the

northern states. In expanding air links to bring in more international visitors into the NCER, the

airport expansion can also accommodate the needs of low-cost carriers.”

59

On September 28, 2006, His Majesty the King Bhumipol Adulyadej, conferred the name

Suvarnabhumi Airport, which means “The Golden Land” and presided over the foundation stone

laying ceremony of the passenger terminal. It is also known as the New Bangkok International

Airport or NBIA and Second Bangkok International Airport or SBIA. Designed by Helmut Jahn of

H. Air Cargo in Thailand

According to the Airports Council International, Bangkok is at the 20th place in terms of cargo

volume among the other top 50 airports.

Thailand has international airports in 5 big cities which are Bangkok, Phuket, Chiang Mai, Hat Yai,

and Chiang Rai (Center for Research and Communication, 2007. The 3 main airports are: Bangkok

International Airport, Chiang Mai International Airport and Phuket International Airport, which

accommodate the transport both of passenger traveling and air cargo.

The Airports of Thailand Public Company Limited or the AOT is the agency that manages the

country’s airports. As a member of ASEAN, Thailand joined the ASEAN Air Services Agreement

that aims to support the Open Sky Policy on cargo and passenger air services which will be fully

implemented by 2015, enabling airlines of ASEAN countries to operate air-cargo services with no

restrictions on capacity, frequencies and international routes. Consistent with this policy, there is no

limit to the volume of traffic and the airlines may avail themselves of this opportunity to serve any

intermediate points en route as agreed upon. Moreover, Thailand also allows every state having

more than one designated airline to operate air-cargo services into the country.

Thailand's economy rapidly expanded in the 1980s, largely due to the huge growth in the nation's

import and export sectors (Center for Research and Communication, 2007). The products with the

highest export value include the following: computers, parts and components, automobiles and auto

parts and components, electrical-circuit boards, plastic granules, para-rubber, precious stones and

ornaments, ready-to-wear garments, radio and television sets and components, chemical products

and canned and processed seafood. Thailand’s major export markets are the ASEAN, the United

States, Japan and the European Union, which account for 59.4% of all exports (Center for Research

and Communication, 2007). On the contrary, following Thailand’s recovery from the economic

crisis, the value of imports increased. Most imported products were capital goods, semi-processed

raw material and fuel, all of which were essential for the country’s manufacturing sector (Center for

Research and Communication, 2007).

H1. Suvarnabhumi Airport

60

Murphy/Jahn Architects, this airport has the world's tallest control tower and the world's third

largest single-building airport terminal. The Suvarnabhumi Airport replaced Don Muang Airport

as the main Bangkok International Airport. It is currently the main hub for Thai Airways

International, Bangkok Airways, Orient Thai Airlines and Thai Air Asia.

Don Muang was an important hub of Asia and the hub of Thai Airways International prior to its

closure to commercial flights, as it served the most air traffic in Thailand, with 80 airlines operating

160,000 flights and handling over 37 million passengers and 1,130,000 tons of cargo in 2005

(Center for Research and Communication, 2007). At that time, it was then the 18th busiest airport in

the world (Center for Research and Communication, 2007). Congestion and structural problems at

the new Suvarnabhumi Airport have led to pressures to reopen Don Muang to allow for repairs to

be conducted there, especially from low-cost airlines (Center for Research and Communication,

2007). Airports of Thailand resisted the move and the government's Department of Aviation

initially rejected the plan but eventually, the government decided not only to reopen the airport to

commercial flights, but also to do so permanently and to allow for international flights, allowing

Bangkok to be served by two international airports (Center for Research and Communication,

2007). For that reason, Don Muang reopened on March 25, 2007 to serve domestic flights, low-cost

carriers, small private jets, chartered flights, military aircraft and aircraft maintenance. According to

Transport Minister Pongsak Ruktapongpisal, “Don Muang would not be closed entirely. Instead, it

will be used as a maintenance centre and at the same time, it would cater to charter flights and be a

base for Royal Thai Air Force.” After moving air cargo terminal from the congested old airport,

Thailand’s air cargo capacity at the new airport has been increased from 1.2 Million tonnes per

year to 3 million tones per year.

The Suvarnabhumi Airport has an area of 20,000 Rai or 8,000 acres and is situated in Racha Thewa,

the Bang Phli district of Samut Prakan province along the Bangna-Trad Road, 25 km. from

Bangkok. Its initial capacity was 45 Million passengers per year, 76 flights per hour and 3 Million

tonnes of cargo per year. Supachai Kaewsiri, Director of the Information Technology Division of

Thai Airport Ground Services or TAGS, reported that Suvarnabhumi Airport’s cargo warehouse

has served about 10,000 business operators. It has two 60-meter-wide runways, one 4,000 meters

(13,120 ft.) long and the other 3,700 meters, with parallel taxiways to accommodate simultaneous

departures and arrivals.

In 2008, the Suvarnabhumi Airport was reported to move 6 Million tonnes of freight per year and

is on its way to becoming Southeast Asia’s regional cargo hub. With one of the tallest air traffic

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control towers in the world and one of the most automated Air Traffic Control Systems with the

latest in safety equipment, the Suvarnabhumi Airport is poised for the kind of rapid traffic growth

expected in Asia. The government focuses on infrastructure and services development at the airport,

with the aim of Chiang Mai and Phuket Airport to serve as regional gateways and Suvarnabhumi

Airport to be a global gateway (Center for Research and Communication, 2007). The government is

keen in expanding the global route network of these airports and in becoming the Logistics Center

for perishable goods, such as food, fruit, flower and fashion (Center for Research and

Communication, 2007). Its policy to promote Suvarnabhumi Airport as a Center of Aviation,

Passenger and Cargo Transportation paved way for the creation of the Duty Free Zone or DFZ, in

order to facilitate the handling of inbound, outbound cargo and transit cargo with minimum customs

procedure. The main buildings consist of: (1) Thai Airways International Public Company

Limited and WFSPG Cargo Company Limited Cargo handling building; (2) 4 Warehouses; (3) 4

Freight Forwarding Agency Buildings; (4) Office Building for Customs Office and related

government agencies; and (5) Free Trade Zone Administrator Building.

Leading executives are certain that Suvarnabhumi Airport will become Asia’s regional cargo hub,

and as a result, promote trade in the region. The Airport’s ability to handle greater cargo capacity is

seen as a crucial factor in realizing Thailand’s aspiration of Suvarnabhumi Airport becoming the

region’s cargo hub. Similarly, Mr. Serirat Prasutanond, the President of The Airports of Thailand

Public Company Limited or AOT, revealed their vision for the Suvarnabhumi Airport to become

“Asia’s Leading Airport Business“ a world top 10 airport in Airports Council International’s (ACI)

Airport Service Quality ranking program.

Recent reports show that the Suvarnabhumi Airport is requesting for funds for expansion, as

passenger volumes have already reached its capacity limits after a mere 6 years. The AOT is

equally conscious of the fact that in keeping with future demand, it will also need to add

infrastructure to make its cargo-handling facilities more viable. According to the AOT, total

cargo traffic at the six airports under its management amounted to 1.42 Million tonnes in 2011. Of

this, Suvarnabhumi handled some 1.34 Million tonnes in 2011, with THAI Airways, the national

carrier, as the major provider of cargo traffic. As shown in the July 2011 issue of the Suvarnabhumi

Newsletter, the AOT Board of Directors, headed by Mr. Tirapoal Noparumpa, convened and

endorsed the recommendations resulting from studies conducted by the ICAO and the IATA,

regarding the Suvarnabhumi Airport’s plans to be the single airport for Bangkok. Development will

take place in 3 phases: (1) from 2011 - 2025, construction of a Domestic Terminal, Domestic

Terminal Car Park Building and new and improved connecting roads; (2) from 2025-2029,

construction of a 4th runway, expansion of the Domestic Terminal and International Terminal,

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increase in capacity of APRON, construction of a Midfield Satellite - 2nd and South Tunnel; and

(3) from 2029 to 2033, construction of a 5th runway, South Terminal and expansion of APRON.

The global downturn which affected the global industry, resulted in year-on-year declines in

volumes of cargo, as manifested in a review of the performances of the six air cargo hubs in this

study. However, there is still an optimistic look among industry players, as these hubs are moving

towards the position of becoming leading global logistics hubs and international cargo airports. In

order to do so, each of them are taking steps towards their maintaining or attaining their status, by

improving their airports facilities, as in the case of the Hongkong International Airport and Dubai

International Airport, while Shanghai Pudong International Airport (ranked 3rd or 4th in throughout

the 5-year period from 2007 to 2012 in the list of world’s busiest cargo hubs), has already made

agreements with the CAAC and the municipal government, in order to speed up civil aviation

development in the area. Government investment in infrastructure in order to boost the

competitiveness of their airports is a strategy that is also used by the other major airports in

ASEAN, such as the Kuala Lumpur International Airport, Changi Airfreight Centre and

Suvarnabhumi Airport. All three are all departing from the traditional model of airport

development, whereby the main revenue is derived from airlines through charges for landing and

parking; instead, all three airports have increasingly tapped on non-aeronautical businesses such as

retail outlets, restaurants, entertainment etc that can also cater for non- traveling visitors (Abu

Bakar, 2009).

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IX. Comparison of Air Cargo Hub Operations

Out of the different factors identified in the studies of Senguttuvan, McKinnon, Lee and Raagas,

this study shall focus on 5 factors, which are common in the studies mentioned and which shall be

applied to available data concerning all eight hubs taken from the earlier portions of this study. In

this way, it will be easier to compare and contrast the different hubs, their current status and their

potential to become successful air cargo hubs, most especially since all cargo hubs mentioned in

this study aim to become leading hubs in the industry. In achieving these, all cargo hubs are taking

measures to satisfy the different factors, which are: (1) Location Factors; (2) Facility Factors; (3)

Cost Factors; (4) Demand Factors; and (5) Government Regulations.

The 5 factors discussed in this study are the same factors which were identified by Lee in his study.

These would be the basis of being a competitive and an ideal hub. These factors will also be used

as criteria for evaluating each country’s air cargo sector which in turn will show the gaps where the

Philippines can improve on. This will determine how we can be at par with the successful air cargo

hubs.

(1) Location Factors refer to the geographical location of the hub, if it is within the 4-hour flight

radius, if it is in the presence of a Free Port Zone and the presence of local logistics infrastructure.

Strategic location paves way for operational efficiency, since air cargo is ideally picked up at the

end of the production day and delivered at the start of the day, which takes about 2 hours on the

ground to prepare and sort cargo at its final destination. (2) Facility Factors refer to the runway

capability or capacity, terminal area, more particularly the number and expandability of terminals,

operating system or technology, labor quality and presence of an Air Cargo Terminal or cargo

village. (3) Cost Factors refer to labor cost and airport user charges, such as landing fees, parking

charges, cargo service charges and taxes. (4) Demand Factors refer to the market size and growth

potential, more particularly the number of flights and cargo handled in terms of metric tonnes, as

well as the number of logistics service providers. (5) Government Regulations refer to the

government policies concerning air cargo, such as the Open Skies Agreement, Free Trade Zones

and tax incentives. Also taken into consideration here is the political stability of the country,

presence of customs and government expansion or improvement plans.

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A. Hong Kong

Location: The route from Hong Kong is reported to have the shortest flight time to major markets

in the Asia Pacific making it at the centerpoint and is is within the 4-hour flight radius. The

HKIA is the world‘s busiest international cargo airport responsible for more than a third of

Hongkong‘s external trade. It is located on the island of Chep Lap Kok by land reclamation and

serves Southern China. Much of the strong growth in air cargo in Hongkong is due to the booming

Pearl River Delta Region. It was identified in an Air Cargo Study by Lee in 2007 that the China

Market, excellent connectivity and accessibility considering the Pearl River Delta Region as its

strengths, whereas geographical location drawback (B747-400F:85-90% payload to Anchorage or

Frankfurt), as one of its weaknesses. It is also located within a Free Trade Port.

Facility: In terms of facilitie, Hong Kong‘s preeminent position in world air cargo handled is due to

the success of its airport facilities. The HKIA has 2 runways, 2 terminals and is capable of

handling 63 flights per hour. HKIA’s new cargo terminal has a state-of-the-art material

handling system. In total, it has 7 cargo handling areas, divided into 1st and 2nd tier cargo

handling, with 3 air cargo terminals adjacent to the cargo apron and 34 freighter parking stands. In

terms of 1st Tier Cargo Handling, the Asia Airfreight Terminal Ltd. or AAT has state-of-the-art

fully automated cargo handling system, special cargo handling facilities such as strong/cold

room, freezer, dangerous goods room and radioactive room, as well as a “Chinalink,” which is a

one-stop cargo service to and from PRD. Still in terms of 1st Tier Cargo Handling, the HACTL

also has state-of-the-art fully automated cargo handling system, with special cargo handling

facilities for perishable, livestock, horse, cargo handling, refrigerated and dangerous goods as

well as express items. Because of this, it was awarded with “Technology Asset Protection

Association Certification” or TAPA. It also has a “Superlink China Direct,” a one-stop cargo

service to and from PRD. In terms of 2nd Tier Cargo Handling, the Marine Cargo Terminal or

MCT has round-the-clock operations, providing one-stop multimodal service linking with 17

PRD ports. The Airport Freight Forwarding Center or AFFC, on the other hand, provides cargo

warehousing and logistics operations, enabling freight forwarders to undertake consolidation and

distribution at the airport. Still in terms of 2nd Tier Cargo handling, the Tradeport Logistics Centre

provides a wide range and custom-designed logistics services, such as inventory management, order

processing and postponement assembly. In terms of the facility’s operating system or technology, it

makes use of RFID Technology, the Gentrack Software and E-Freight Project. To date, the so-

called “E-Freight” project is being implemented in Hongkong, which involves extensive IT

application thereby reducing paperwork and ensures high safety and security as well. There is also

sufficient cargo capacity of the SuperTerminal 1 and its automated cargo handling system as its

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strengths. The HACTL currently handles about 80% of the airport’s cargo throughput and is often

seen a model for how a cargo facility should operate, because of its “technologically-advanced

features.” Airport authority confirmed its intention to push through with the construction of a third

runway, as the existing two runways are projected to reach capacity by 2020 (Air Cargo World,

February 2012 Issue). Sufficient cargo capacity, efficient cargo operation and competitive total cost

are the strengths of the HKIA. In terms of labor, the HKIA is committed to nurturing young people

who aspire to work in the aviation industry.

Cost: Hong Kong is not only competitive in terms of standards and reliability but also in terms of

airport charges. Its charges are the lowest compared to Bangkok, Singapore, Guangzhou and

Shanghai. It is the second with lowest charges compared to Taipei and Kula Lumpur. In terms of

charges it is 46th among the top 50 airports. Considering cost factors, it is the Employment

Ordinance in Hongkong that sets minimum entitlements for its employees. Additional incentives

vary depending on the company they are employed with. As for airport user charges, HKIA used

to offer high landing fees but these have been lowered in the past years. In terms of taxes, it has

favorable tax regimes.

Demand: Moving on to demand factors, HKIA is capable of handling 63 flights per hour. In

2011, it handled 3,968,397 metric tonnes of cargo. The HKIA is a hub for Air Hongkong, Cathay

Pacific, Dragonair, Evergreen International Airlines, Hongkong Airlinres, Hongkong Express

Airways and UPS Airlines. It has 95 airlines with 4 main cargo operators therein. It is also the

hub of DHL.

Government Support and Regulations: In terms of government regulations, the Open Skies

Agreement has already been ratified in Hong Kong. The government continues to invest in

transport infrastructure projects and optimize highly efficient multimodal transport services, with

a view to promoting the development of air, sea, land transport and logistics. Although the

International Air Services Transit Agreement has not been ratified by China, it already applies to

Hong Kong as a carry-over from British rule. This enables contracting States to agree to certain

freedoms of the air including the privilege to fly across a territory without landing and the privilege

to land for non-traffic purposes. In terms of customs procedures, there are streamlined and

efficient customs procedures which expedite clearance by providing integrated EDI linkage

between the Customs and Excise Department and the air cargo operators and integrators. Their

customs procedures also allow pre-arrival customs clearance covering all types of cargo down to

‘house’ away bill level, provide ‘priority consignments’ facility, assign default constraint code

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automatically and facilitate authorized providers to provide cross-boundary bonded truck services to

Mainland China.

B. Shanghai

Location: The Shanghai Pudong International Airport is located on the coast of Pudong, about

30km or 19mi east of the city center. It handles cargo from Eastern and Central China and is the

busiest international hub of mainland China. It is forecasted to be the number 1 international air

cargo hub worldwide by 2015. It can be said that it is also within the 4-hour flight radius that is

why China is also a attractive hub for air cargo. However, currently it has a low local logistics

infrastructure but it is said to improve as it moves towards its position of being the busiest and

number 1 hub. Its Free Trade Zone is located in Pudong area.

Facility: With regard to its facilities the Shanghai Pudong International Airport handles an average

aircraft movement of 400 times per day. It currently has 3 runways and 2 terminals. Plans of

expansion include increasing its runways to add 2 more runways. The Shanghai Pudong

International Airport is equipped with the following: (1) Bulk Cargo Operation System - six

stacker systems in two operation areas, which run automatically for bulk cargo storage and

retrieval, due to high-tech control and operating devices; (2) ULD Operation System - operated by

2 elevated transfer vehicles or ETVs and used for storage, retrieval and transfer; (3) Area for Cargo

Build-Up or Break-Down; (4) X-Ray Machines - a total of 16, operated by trained professionals of

an independent security company; (5) Over 120 vehicles equipped for cargo operation and

transportation; (6) Facilities for cargo cooling and freezing; (7) Dangerous goods storage house;

(8) Vulnerable and valuables room or Strong room; (9) Live animals room; (10) CCTV system;

(11) Security Build Up Area - the terminal is the first to introduce dedicated warehouse space

within its facilities to forwarding agents for palletising. The forwarding agent extension is equipped

and supervised by the Shanghai Pudong International Airport, providing basically the same

security, safety and handling equipment for cargo acceptance and build up, as used by the airport, as

well. The advantage of this "shared use concept" lies in speed, as cut off times for BUPs (Build-Up

Areas) are lowered to 120 minutes; and (12) T-Cargo Area, to speed up the import process. The

facility’s operating system or technology include SITA’s common use baggage system, IBM’s

Netfinity servers, 366 intelligent workstations and an OS/2 operating system. Several measures

have also been done to reduce environmental impact, primarily to reduce energy consumption

and CO2 emission: (1) designing of their warehouse with a very efficient aeration system which can

bring fresh air into warehouse and take turbid air out continuously to make good environmental

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condition for our warehouse staff; (2) use of tail gas cleanup units for trucks and forklifts as the

device is capable to reduce other harmful gas; (3) practice of other measures to use less resources.

Cost: Recent reports show that per capita labor cost in Shanghai is much higher than that in

surrounding areas however it is believed to still be low. The land price are also low and there I

the presence of tax incentives. As for airport user charges, these fees are utilized by the central

government of China. Airport Charges in Shanghai are said to be higher than that of Hong Kong,

the leader in airport operations and efficiency.

Demand: With regard to demand factors, the Shanghai Pudong International Airport has an

average aircraft movement of 400 times per day. In 2011, it handled 3,103,030 metric tonnes of

cargo. In his study, Lee (2007) identified its big market size and growth potential as one of

Shanghai Pudong International Airport’s strengths. To date, it serves as the hub for Air China,

China Eastern Airlines, Juneyao Airlines, Shanghai Airlines, Spring Airlines and UPS Airlines.

Government Support Regulations:

(http://www.wcarn.com)

The Open Skies Agreement has already been ratified in

Shanghai. Moreover, the Civil Aviation Administration of China or CAAC signed a Strategic

Cooperation Agreement with Shanghai’s municipal government, which aims to speed up Shanghai's

Civil Aviation Development, by setting the goal of developing Shanghai Pudong International

Airport to be the number one international cargo hub worldwide by 2015. Both entities have come

to an agreement regarding the targets for the development of the civil aviation industry in Shanghai

during the 12th Five-Year Plan period from 2011-2015, which includes: continued safety of air

transportation, sustained enhancement of air transportation guarantee, an assembling

development of air service, the shaping of a manufacturing and research center for jumbo jets, a

sharp rise in its international competitiveness, as well as a quickened construction of Shanghai

as an aviation hub center and an improvement in the quantity and quality of air service

. The FTZ in Pudong Area, resulting in tax incentives and low labor cost

and land price, is also identified by Lee (2007) as one of its strengths. Government regulations

such as protective trade policy, low labor quality and lack of logistics infrastructure, on the other

hand, were identified by Lee (2007) as Shanghai Pudong International Airport’s weaknesses.

68

C. Shenzhen

Location:

Fuyong

Shenzhen Bao'an International Airport formerly named Shenzhen Huangtian Airport is

located near Huangtian and villages in Bao'an District, Shenzhen, Guangdong, China. It is

32 km northwest of the city center. It is one of the three largest airport hubs serving southern China,

alongside Hong Kong International Airport and Guangzhou Baiyun International Airport.

The airport was opened on 12 October 1991. It occupies an area of 10.8 kms. Its runway is 3400 m

long and 45 m wide, and it has 53 parking spaces on its apron. The airport also has ferry routes

to Hong Kong International Airport, where passengers can transit without going through

immigration and custom checks, akin to transit between two flights. Its current terminal covers an

area of 152,000 sq meters and consist of 24 jet-ways.

It is known to have a greater connectivity to domestic Chinese cities and it is also within the 4

hour radius making it also attractive as a cargo hub. Special Economic Zones or Free Trade

Zones were set up to encourage investments.

Facility:

§ Terminal A - for domestic flights

There are three main terminals at Bao'an Airport:

§ Terminal B - for domestic flights

§ Terminal D - for international and Taiwan flights

It also has a major expansion wherein there is a plan of putting up a new terminal. It has plans

of putting up a 2nd runway and it has ferry routes to Hong Kong making it a good location for

trade

Cost: Some of the Low Cost Carriers fly to Shenzhen because it has lower landing fees than Hong

Kong or Guangzhou. It also has a low labor cost and low land price.

Demand: Shenzhen Donghai Airlines It is the hub for Shenzhen Airline, , SF Airlines, Jade

Cargo International and a focus city for China Souther Airlines and Hainan Airlines. The

airport also serves as an Asian-Pacific cargo hub for UPS Airlines.

Shenzhen airport handled 26,713,610 passengers in 2010, according to Civil Aviation

Administration of China, making it the fifth busiest in China. The airport was also China's 4th

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busiest and world's 24th busiest airport in terms of cargo traffic, registering 809,363 tonnes of

freight. In terms of traffic movements, Shenzhen airport was the 5th busiest airport in China in

2009.

Government Support and Regulations:

Pearl River Delta

The airport is undergoing major expansion with a new

terminal under construction as part of government initiatives. A second runway was also recently

completed. Since the beginning of 2008, the 1.6 km long terminal 3 is being built. This new

terminal will be between the current runway and another runway currently being built. A second

runway running parallel to the west of the current runway will also be built. The new runway will

be built on reclamation land extending out towards the , with a length of 3600

meters and 60 meters wide. The second runway was completed in June, 2011 and started operations

in July, 2011. However, there are low protective trade policies.

D. Guangzhou

Location: Guangzhou Guangzhou Baiyun International Airport is the main airport of , the capital of Guangdong province, China. The airport is the main hub of China Southern Airlines and a focus city for Shenzhen Airlines and Hainan Airlines. It is also within a Free trade Zone.

Facility: It has 2 Runways with 3,800 metres (12,500 ft) and 3,600 metres (11,800 ft) It has 173 (passenger apron and cargo apron) aircraft parking bays. It has a 531,000 square meter- Terminal 2 with new indoor carpark, outdoor carpark, transportation center and metro stateion.

Cost: Per capita labor cost in Guangzhou is low as well as the land price. As for airport user

charges, these fees are utilized by the central government of China.

Demand: China's 2nd busiest In 2011, Guangzhou Baiyun International Airport was and world's 19th busiest airport in terms of passenger traffic, with 45,040,340 people handled. As for cargo traffic, the airport was the 3rd busiest in China and the 21st busiest worldwide. Guangzhou airport is also the 2nd busiest airport in terms of traffic movements in China capturing a big market size and making it a hub with a growth potential. It has a current passenger capacity of 45 million passengers per year and a planned passenger capacity in 2020 of 75 million passengers per year. In terms of current cargo capacity, it can accommodate 1 million tonnes. Its planned cargo capacity in 2010 is 2 million tonnes and planned cargo capacity in 2020 is over 2.17 million tones. It is also the hub for Fed Ex.

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Government Support and Regulations:

In August 2008, the airport's new expansion plan was approved by the

The government supported the opening of the New Guangzhou Baiyun International Airport. Its opening had relieved most of the controversies of the older and deteriorated airport because of the limited space, overcrowding and lack of expansions. Its opening also allowed it to overcome curfews and restrictions and began a 24 hour operation. This meant that China Southern Airlines could highly utilize their intercontinental routes by flying overnight. Other airlines have this benefit too.

National Development and Reform Commission of China. The airport will build a third runway located 400 metres east of the existing east runway. The new runway will be 3800 metres long and 60 metres wide. Other elements of the expansion plan include a 531,000-square-metre Terminal 2, a new indoor car park and an outdoor car park, a transportation centre, and a metro station which will serve Terminal 2. The total cost of the project will be ¥14.036 billion. Construction of the third runway is estimated to start in 2011 and finish in the first half of 2013. When the whole project is finished by the end of 2015, the airport will be able to handle 75 million passengers and more than 2.17 million tonnes of cargo a year.

E. Dubai Location: Dubai has been a strategic trading post for more than 15 centuries, throughout which it

was chiefly a unique location on the Persian Gulf that was recommended to shippers and

manufacturers. It is often known as the “gateway between East and West.” Dubai’s location along

the east-west Asia to Europe trade routes was identified as one of its advantages in relation to its

success in the industry. As a result, both the Dubai International Airport and the Dubai World

Center have emerged as intermediary hubs for the Asia-Europe trade. Because of the United Arab

Emirates or UAE’s central position on the world map, excellent infrastructure and pro-business

environment, Dubai is considered as an ideal gateway to the dynamic Middle Eastern, African and

Southeast Asian markets. It serves Dubai and the United Arab Emirates. Unprecedented

development of the region in the last 50 years, as well as its modern facilities, sunny weather, wide

sandy beaches, luxurious hotels, top-ranked sporting events and liberal business climate, have

underscored the importance of its location, not just to the UAE or the Middle East, but to Africa and

the Orient as well. Similarly, Kasarda (2006) pointed geographical accident as a major factor in

Dubai’s success. The DIA Cargo Gateway is strategically located adjacent to DIA in the UAE. Its

Free Port Zone is known as the Dubai Airports Free Zone or DAFZ.

Facilty: The DIA is capable of handling over 6,000 weekly flights. It has 2 runways, 3 terminals

and plans to increase its runways to a total of 5. Dubai’s investments in facilities was identified by

Kasarda as one of its advantages contributing to its success in the industry. The DIA has state-of-

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the-art equipment for each level and is one of the most technologically-advanced cargo handling

facilities. It is the Middle East’s first cargo handling facility to be awarded with an ISO 9002

Certificate by Lloyd’s Register of Quality Assurance in 1998. There are 17 air cargo parking slots

for freighters at the Dubai Airports Cargo, a cargo warehouse with a total of 56 truck docks for

import, export and perishable cargo, and 7 docks dedicated to sea-air traffic, the storage facility

includes small warehouse pallets with 902 positions, regular 1,698 positions, large 1,126 positions

and 760 mini shipments (single positions), as well as 18 positions for storing perishables. Also

located in the DIA is an express mail center, new facilities for administrative and agents’ offices, a

multi-storey carpark, elevated roadway, a new central utility plant, a mosque and other amenities.

The Dubai Airports’ Cargo Mega Terminal handles all types of cargo from one central location,

with fully-automated workstations. For special cargo, general cargo and unit load devices, the

facility accommodates: (1) special cargo such as perishables, live animals, valuables, human

remains and dangerous goods including radioactive materials; (2) general cargo; (3) intact unit load

devices; and (4) intact unit load devices with perishable cargo. The Cargo Mega Terminal has a

state-of-the-art cargo commercial and terminal handling system called the “Skychain,” which

integrates all processes across network and global operations, in real-time. Here, information is

transparent to both internal and external players across the global supply chain through industry-

standard messaging or web interfacing. Strengthening Dubai’s position as a leading aviation and

logistics hub, the Dubai World Central or DWC is a strategic initiative of the Dubai Aviation City

Corporation and the Government of Dubai and chaired by H.H. Sheik Ahmed bin Saeed Al

Maktoum, bringing together transport and logistics corridor, thereby linking sea, land and air for the

first time in the Middle East. The DWC is a multi-phased urban infrastructure development,

designed to meet the present and future needs of aviation, air transport, commercial and logistics

businesses. It is a multiphase development of 6 clustered zones, namely: Dubai Logistics City or

DLC, Commercial City, Residential City, Aviation City and Golf City Dubai Aviation City

Corporation. Once completed, the DWC will have up to 4 passenger terminals, which will

accommodate up to 160 million passengers, 5 parallel runways at 4.5km long, each separated by a

minimum of 800m; an Automated People Mover connecting passengers to different terminals and

moving staff to all key points in the development; and an internal road network for all key airport

operations. Lastly, within the vicinity of the Jebel Ali Port and Free Zone, the DWC will make air-

sea connectivity achievable in 4 hours. The operating systems and technology being used at the

DIA are: SAAB Sensis Multilateration System and the CEM AC2000 Security Management

System. Aside from its superb facilities, the DIA aims to be equally recognized for the service

quality of its workforce.

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Cost: Considering cost factors, Dubai is reported to have high labor costs for foreign workers. As

for its airport user charges, exemptions are given to royal, diplomatic and state-owned aircrafts.

It has competitive airport charges.

Demand: the DIA handles over 6,000 weekly flights and was reported to handle 2,270,000 metric

tonnes of cargo in 2011. More than 35 cargo airlines have offices at the Dubai Airports Cargo. The

newly constructed DWC has 36 airlines using the new facility for cargo charter operations. It serves

as a hub for Al Rais Cargo, Cargo Plus Aviation, Dubai Royal Air Wing, Emirates, Falcon Express

Cargo Airlines and Flydubai. With regard to the different carriers in the Middle East, industry

players enjoyed a 9.4% rise in demand in 2011, much of it generated by Emirates Airline and

Etihad Airways. With only a few years of Dubai Cargo Gateway’s founding, cargo activity at the

Village outgrew available capacity and the need arose to accommodate rapidly increasing demand.

This increase resulted from: (1) Dubai’s phenomenal growth; (2) determined expansion of

Emirates Airlines; (3) increased popularity of air cargo transportation; and (4) UAE’s central

position on the world map.

Government Support and Regulations: The Open Skies agreement has been ratified in Dubai,

which put air cargo in Dubai on a rapidly rising trajectory. The government is known for its

ongoing commitment to the diversification and sustainable growth of its economy. Dubai’s stable

government and liberal commercial environment has continually played an important role in its

growth. Its decision to modernize and expand the air cargo terminal at Dubai Airport and to grant

open skies rights to passenger and cargo airlines was one of the advantages identified by Kasarda

contributing to its success in the industry. Several multinational companies have also chosen

Dubai as an area to locate their headquarters because of the creation of the Dubai Airport Free

Zone or DAFZ to accommodate technology-driven industries and goods with high value-to-

weight ratios. The DAFZ also offers companies the benefits of 100% foreign ownership, a tax-free

status for up to 15 years, which is renewable for a second 15 years, the right to use other facilities

such as the modern airport and the Dubai Cargo Village, both located outside the zone, freedom to

move capital and no personal income tax. Other incentives of the DAFZ are: a research center that

will contain information on free-zone activities around the world; a service center that will handle

paperwork and interface with the local government; and an employment service for people looking

for jobs within the DAFZ and other auxiliary services such as banks, pharmacies, restaurants, and

shops. According to the Oxford Economics Report (2011), the success of Dubai’s aviation sector

derives from a number of strengths including the government’s demonstration of its awareness of

the importance of aviation for enabling growth in key sectors of Dubai’s economy, as manifested

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in Dubai’s strategic plan and decision-making that is consensus based, timely and effective; open

competition among airlines, as reflected in over 150 airlines that operate out of Dubai

International; Dubai’s liberal aviation policy that has pushed for greater freedoms for all airlines to

enable them to operate without undue restrictions on their commercial decisions and competitive

airport charges; and a consensus-based approach to investment that has helped Dubai Airports

and Emirates expand together, supporting each other’s growth. As Dubai rapidly transformed itself

into one of the world’s key re-export hubs, DCGs terminals and sea-air cargo centre recorded

consistent double-digit growth and facilities expanded to meet demands. Dubai Airports is currently

the world’s fastest expanding airport.

F. Singapore

Location: At present, the growth of North Asian markets, more particularly, China and Hongkong,

signify Singapore’s role as a cargo hub. The CAC is a major hub in Southeast Asia , located in the

East Region. CAC is close to the Port of Singapore and the Jurong Port. The Port of Singapore is

located at the southern part of Singapore, while the Jurong Port is located at the western end of

Singapore. It has a 24-hour Free Trade Zone.

Facility: The CAC has more than 210 flights per week. It has 2 runways, 9 airfreight terminals

and a development policy of always building capacity ahead. All niche forms of cargo are

handled at the centre, including an airmail transit centre and a quarantine centre for the

inspection of imported plants and animals. A 24-hour customs checkpoint is also available for

cargo operations. The Airport Logistics Park has several competitive advantages, such as its

location within the FTZ, direct access to the airfreight center, reduced double handling and

recycle time and allows for 3PL providers. Its Freeport, on the other hand, has integrated

services to handle shipping, storage, display and trade of valuables. Also located in CAC is a

business park has an excellent location and is also accessible via rail and road. To date, several

developments have taken place in CAC, largely driven by market growth and changing industry

needs. The Changi Megaplex, a multi-tenanted warehouse facility, was developed to cater to the

rapidly changing needs of the forwarding industry. The launch of the Airport Logistics Park of

Singapore or ALPS in 2003 is another development and an example of how the Changi Airport has

adapted to changing industry trends. ALPS is a 26-hectare logistics park, strategically located

within the airport’s FTZ, thereby enabling quick turnaround, value-added logistics and regional

distribution activities. Some of the value-added logistics activities available at ALPS include

postponement, configuration, sub-assembly, returns and repairs and vendor-managed inventory for

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time-sensitive products. These factors have attracted many global companies to establish regional

distribution centers or RDCs in ALPS, in order to serve their growing Asia-Pacific clientele from

Singapore. The development of TNT’s Singapore Regional Hub in 2009 and the establishment of

SATS’ Coolport at Changi in 2010 also exemplify how Changi Airport caters to the changing needs

of the industry. The Coolport is the first dedicated facility to handle terminal and transit perishable

cargo within the FTZ. It also has a facility to handle urgent medical cargo. It is important to note

that as Changi continues to take a proactive approach in the airport master planning process, it

considers long-term needs of its clients. As a response to environmental issues, Changi pursues

initiatives to ensure sustainable growth of the airport and fulfills corporate social responsibility to

the local community. CAC has a clear environmental policy, with efforts focused on five major

areas: emissions, energy efficiency, waste management, noise management and water management.

Some of its key initiatives at the airport include: (1) facilitating the introduction of CNG tractors to

be used by the ground handlers; (2) using energy-efficient lighting and installation of motion

sensors at the airport; (3) promoting the use of recycled materials for construction; and (4)

rainwater harvesting and the use of water efficiency tools. As a result of its efforts, Changi’s

Terminal 3 was awarded the Green Mark Gold in October 2009, which is a “national green building

rating system” to evaluate a building for its environmental impact and performance. In addition,

CAC has also supported the country in its development of its solar-powered mobile chillers -

temperature-controlled infrastructure installed at the airport’s tarmac to keep perishables at the right

temperature while in transit at Changi. For its green efforts, CAC has been awarded the Best Green

Service Provider – Airport at the Annual Asian Freight and Supply Chain Awards in 2010 and

2011. Similar to HKIA, the “E-Freight Project” has also been implemented in Singapore, replacing

paper with electronic messages to reduce costs, improve transit time, accuracy and competitiveness

of airfreight. In the same manner, the CAC gives importance to its workforce, as it has implemented

the Quality Management Service Program.

Cost: Rising labor costs have been recently reported in Singapore. On the other hand,

considering airport user charges, rental rebates and cash payouts to air cargo agents have been

given by CAC.

Demand: The CAC has more than 210 flights per week and has handled 1,898,850 metric tonnes

of cargo in 2011. It serves over 90 airlines, operating 4,500 weekly scheduled flights linking

Singapore to 200 cities in 60 countries. The CAC serves as a hub for Jetstar Asia Airways, Jett8

Airlines, Qantas, Scoot, Silkair, Singapore AirAsia, Singapore Airlines, Singapore Airlines Cargo,

Tiger Airways and Valuair.

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Government Support and Regulations: The Open Skies Agreement has already been ratified in

Singapore. Just like its 24-FTZ, CAC has round-the-clock customs clearance, but with minimal

customs formalities. Singapore also provided an Air Hub Development Fund. The Civil Aviation

Authority of Singapore or CAAS also provided rental rebate and cash payout to air cargo agents.

Free trade agreements, avoidance of Double Taxation Agreements and Investment Guarantee

Agreements, as well as comprehensive air, sea and IT infrastructure are some of the initiatives

identified as beneficial to the industry.

G. Malaysia

Location: The KLIA is located at the top of the southern corridor of Peninsular Malaysia,

bordering the states of Selangor and Negeri Sembilan. It is a unique airport because it has within its

boundaries all that is needed for business, entertainment and relaxation. It is also considered as

Malaysia’s main international airport and one of the major airports in Southeast Asia, serving Kuala

Lumpur and West Malaysia. KLIA’s Free Trade Zone is known as the Port Klang Free Zone. It

has an increasing infrastructure develoment and is said to be onw of the largest irports in South

East Asia.

Facility: Cargo at KLIA is transported not only in the aircraft belly but also on freighters operated

by airlines, without restrictions or ban on passenger and cargo flights at night nor any

environmental issues, unlike some airports in the West. KLIA’s operating system or technology

consists of an Air Traffic Control Tower, CAT II Precision Landing ILS, RFID Baggage

Handling System, Airport Management Information System , as well as the KLIA Community

System and DagangNET System by MASKargo. Its workforce is composed of local and foreign

workers. Lastly, the KLIA has a Cargo Village within the vicinity.

KLIA is a result of a visionary strategy to meet the needs of new, large aircraft and the traffic

demand of the 21st century, as it has pioneered the use of state-of-the-art technology in airport

management known as Total Airport Management Systems or TAMS, managed by Malaysia

Airport (Technologies) Sdn. Bhd. Its conceptualization was part of Malaysia’s national

development strategy whereby sustained investment in infrastructure is made to ensure the timely

and adequate supply of facilities that can meet the development requirements of the country.

Malaysia focused on the development of transport infrastructure in the country, the total budget of

which was divided into competing demands on infrastructure development, from rail, road and the

development of the KLIA.

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Cost: The minimum wage law has been recently introduced in Malaysia. In terms of airport user

charges, landing fees continue to be competitive for KLIA. The MAHB Annual Report (2006)

expounded on an aggressive marketing strategy that was launched for the period 2006 to 2010 to

promote KLIA as part of its 5-Year Transformation Strategy, which included among others, the

extension of the Airline Incentive Program to attract more foreign airlines to fly into KLIA as well

as the other 4 international airports managed by MAHB. Incentives given under the program

include free landing and parking charges as well as free office rental space for 6 months and

marketing support funds for new foreign airlines. As part of its promotional strategy, MAHB also

attends major aviation-related forums all over the world in its marketing and promotional efforts.

Demand: KLIA hosts domestic, regional and international passenger and cargo services for over

40 airlines and is a hub for Malaysia Airlines, MASkargo, AirAsia and AirAsia X. To date, there

is an emergence of “NGAs” or new generation airlines which include low cost carriers within

and outside the country (Abu Bakar, 2009). It handles more than 72 flights per hour, has 2

runways, 3 terminals and has expansion plans for a new runway and new satellite building.

Government Support and Regulations: The Open Skies Agreement has already been ratified in

herein. Malaysia Airports Holdings Berhad or MAHB was incorporated when the Malaysian

Parliament passed a bill to separate the Department of Civil Aviation or DCA into two entities with

different responsibilities. The “Air Cargo Makes it Happen” campaign is one of the steps that

Malaysia is currently taking in order to raise the profile. Another program launched in the industry

in 2010 is the first IATA Secure Freight Pilot Initiative, which evaluates the strength of a nation’s

aviation security infrastructure and works with the civil aviation authorities to ensure that cargo has

come from either a known consignor or regulated agent and has been kept sterile until it is loaded. It

identifies the gaps within a security regime, and helps to seal this process upstream which will

prevent bottlenecks at the airport. Aside from the different programs intended to maintain and

elevate KLIA’s status in the industry, the government invested in infrastructure and control

airline competition, and the government also implemented some specific policies to promote

KLIA as a regional hub. The KLIA Hubbing Development Committee set up in December 2000,

meets once a year to: (1) examine 3 areas for the development of KLIA - traffic facilities,

connectivity through MAS service, and marketing; and (2) set performance and services

standards for KLIA based on world’s best practices. A Free Commercial Zone was also set up to

facilitate the handling of cargo at KLIA, which uses the paperless environment concept with

value-added activities such as trading, break bulking, grading, sorting, re-packing and re-

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labeling. Lastly, a one-stop center was also provided to expedite the process of cargo clearance

with additional support services such as multi-banking services, clinics, food and beverage and

also postal services. Overall, the government invests highly in infrastructure to boost the

competitiveness of airports, a similar strategy that is used by other major airports in ASEAN.

H. Thailand

Location: The Suvarnabhumi Airport is located at Bang Phli, Samut Prakan, east of downtown

Bangkok. It serves Bangkok and Thailand. According to the Centre for Logistics Research (2007),

Thailand has developed an extensive air transport network that encompasses 28 commercial

airports, meaning that all Thailand’s regions are about an hour’s flight from Bangkok.

Suvarnabhumi’s Free Trade Zone is known as the Suvarnabhumi Airport Free Zone or SAFZ.

Facilty:

Air Traffic Control Systems

The Suvarnabhumi Airport was designed by Helmut Jahn of Murphy/Jahn Architects,

capable of handling 76 flight operations per hour. It has 2 60-meter-wide runways, one 4,000

meters or 13,120ft. long and the other 3,700 meters, with parallel taxiways to accommodate

simultaneous departures and arrivals, as well as 1 terminal. Expansion plans of building a new

terminal were reported. Recent reports show that the Suvarnabhumi Airport is requesting for funds

for expansion, as the AOT is equally conscious of the fact that in keeping with future demand, it

will also need to add infrastructure to make its cargo-handling facilities more viable. The AOT

Board of Directors, headed by Mr. Tirapoal Noparumpa, convened and endorsed the

recommendations resulting from studies conducted by the ICAO and the IATA, regarding the

Suvarnabhumi Airport’s plans to be the single airport for Bangkok. Development will take place in

3 phases: (1) from 2011 - 2025, construction of a Domestic Terminal, Domestic Terminal Car Park

Building and new and improved connecting roads; (2) from 2025-2029, construction of a 4th

runway, expansion of the Domestic Terminal and International Terminal, increase in capacity of

APRON, construction of a Midfield Satellite - 2nd and South Tunnel; and (3) from 2029 to 2033,

construction of a 5th runway, South Terminal and expansion of APRON. The Suvarnabhumi has

the world's tallest control tower and the world's third largest single-building airport terminal. It

also has one of the most automated with the latest in safety

equipment and makes use of Airprot Management Information System, Airport Cargo

Community System and Electronic Data Interchange as its operating systems or technology.

With these, the Suvarnabhumi Airport is poised for the kind of rapid traffic growth expected in

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Asia. Likewise, continuous and thorough development and distribution of knowledge and abilities

of employees at all levels are being maintained at the Suvarnabhumi Airport.

Cost: Thailand has lower monthly wages as compared to China. In terms of airport user charges,

the Suvarnabhumi Airport has cut a big portion of its landing fees.

Demand: The Suvarnabhumi Airport handles 76 flight operations per hour. In 2011, it was

reported to handle 593,494 metric tonnes of cargo. The Suvarnabhumi Airport is currently the

main hub for Bangkok Airways, Orient Thai Airlines, Thai Air Asia and Thai AIrways

International. It replaced Don Muang as an important hub of Asia, with 80 airlines and 4 cargo

operators. Congestion and structural problems at the new Suvarnabhumi Airport, however, have led

to pressures to reopen Don Muang to allow for repairs to be conducted there, especially from low-

cost airlines.

Government Support and Regulations: As a member of ASEAN, Thailand joined the ASEAN

Air Services Agreement that aims to support the Open Sky Policy on cargo and passenger air

services which will be fully implemented by 2015, enabling airlines of both countries to operate

air-cargo services with no restrictions on capacity, frequencies and international routes.

Consistent with this policy, there is no limit to the volume of traffic and the airlines may avail

themselves of this opportunity to serve any intermediate points en route as agreed upon. Air

transport, both international and domestic, has played an important role in the economic

development of Thailand for many years, especially with the export industry which has the active

support of Government. Thailand allows every state having more than one designated airline to

operate air cargo services into the country. The government focuses on infrastructure and services

development at the airport, focusing on developing Suvarnabhumi Airport to be a global

gateway. It is keen in expanding the global route network of these airports and in becoming the

Logistics Center for perishable goods, such as food, fruit, flower and fashion. Its policy to promote

Suvarnabhumi Airport as a Center of Aviation, Passenger and Cargo Transportation paved the way

for the creation of the Duty Free Zone or DFZ, in order to facilitate the handling of inbound,

outbound cargo and transit cargo with minimum customs procedure. The main buildings consist of:

(1) Thai Airways International Public Company Limited and WFSPG Cargo Company Limited

Cargo handling building; (2) 4 Warehouses; (3) 4 Freight Forwarding Agency Buildings; (4) Office

Building for Customs Office and related government agencies; and (5) Free Trade Zone

Administrator Building.

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For all the Hubs that were mentioned in the study, the typical airport charges are as follows:

Those that are paid by the airlines are (1) Landing Fee which is approximately $2,000-$6,000; (2)

Lighting Fee, most of which have none except for Guangzhou, Shenzhen and Shanghai which is

$600; (3) Parking Fee, which costs around $1,200, although in Malaysia, Parking and Landing

Fees are free on the 1st six months); (4) Terminal Navigation Fee, which is approximately $1,800-

$4,000, although Shanghai, Guangzhou and Shenzhen has a $4,000 terminal navigation fee while

Thailand has around $3,800; (5) Noise Fee, none of the hubs has this but it costs around$250; (6)

Passenger Fee, Hong Kong has this fee of $2,500; (7) Security Fee; (8) Aerobridge Fee, which is

$700-$1000; (9) Baggage Handling Fee, which is $400-$1,600 but none of the hubs mentioned

have this; and (10) Terminal Building Services Fee, none of the hubs has this too but for some

countries like Taiwan this is around $400.

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X. Summary / Matrix of the Different Hubs

Based on the substantiations above, the following matrix is a summary of the status of the different air cargo hubs in Hongkong, Shanghai,Shenzhen,

Guangzhou, Dubai, Singapore, Malaysia and Thailand, pertaining to location factors, facility factors, cost factors, demand factors and government

regulations and its sub sectors.

TABLE 9: MATRIX OF THE DIFFERENT HUBS

FACTOR HONGKONG SHANGHAI SHENZHEN GUANGZHOU DUBAI SINGAPORE MALAYSIA THAILAND

PHILIPPINES (NAIA)

It is within the 4-hour radius; center point of trade in Asia; Serves Southern China; It is a Cargo Hub for DHL

LOCATION AREAS SERVED

Handles Cargo from Eastern and Central China; has a strategic location

Hub for Shenzhen Airlines, Shenzhen Donghai Airlines, SF Airlines , and Jade Cargo International ; It serves as an Asia Pacific Cargo Hub of UPS

Main Hub for China Southern Airlines and a focus city for Shenzhen Airlines and Hainan Airlines; It also has a strategic location for trade; It is a Cargo Hub for Fed Ex.

Major hub in the Middle East that serves Dubai and UAE; It is a regional center and has a unique location in the Persian Gulf; Gateway between East and West

Major Hub in Southeast Asia

One of the major airports in South East Asia serving KL and West Malaysia

Serves Bangkok

It has a strategic

location and it is within the 4-hour

radius, although

Hong Kong is said to be at

the centerpoint as compared to

the Philippines. It

is located along the

border between

Pasay and Paranaque

Free Port Zone LOCATION FREE PORT ZONE

Free Trade Zone in the Pudong Area

Free Trade Zone

Guangzhou Free Port Zone

Dubai Airport Free Zone (DAFZ)

Free Trade Zone

Port Klang Free Zone

Suvarnabhumi Airport Free Zone

Not within a Free Port

Zone

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FACTOR HONGKONG SHANGHAI SHENZHEN GUANGZHOU DUBAI SINGAPORE MALAYSIA THAILAND

PHILIPPINES (NAIA)

FACILITY

63 Flights per hour

(RUNWAY CAPABILITY; NUMBER OF FLIGHTS)

Average aircraft movements of 400 times per day and has 3 runways

Handles 26,713,610 passengers, 809,363 tonnes of cargo

It has 173 parking bays

Over 6,000 flights weekly

More than 210 flights per day

More than 72 flights per hour

76 flights per hour

45 take off and

landings per hour

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FACTOR HONGKONG SHANGHAI SHENZHEN GUANGZHOU DUBAI SINGAPORE MALAYSIA THAILAND PHILIPPINES (NAIA)

FACILITY

2 Terminals and Expansion for a 3rd Terminal, 2 Runways; It has a 1st tier Cargo Handling Terminal and a 2nd tier Marine Cargo Terminal

TERMINAL AREA (NUMBER OF TERMINALS & EXPANDABILITY OF TERMINALS

2 Terminals and 3 Runways; Expansion to add 2 more Runways

3 Main Terminals; Major Expanison with a New Terminal, It has 2 Runways and a Ferry Route to Hong Kong

It has 2 Runways and 173 parking bays; Expansion includes a 3rd Runway, a 531,000 square meter Terminal 2 with indoor and outdoor Carparks, a Transporatation Center and a Metro Station

It has 3 Terminals; Expansion includes an additional runways to make it 5.

It has 9 air freight Terminals; Continuous Improvement of Airport facilties

It has 3 Terminals and Expansion of a new runway and a new satellite building. It also plans to have KLIA 2 or the new terminal which is a "showpiece" of the next generation hub

It has 1 Terminal and an Expansion of a new Terminal. Construction of a 4th Runway on 2025-2029 and a 5th runway on 2029-2033

It has 4 terminals; Nayong Pilipino Foundation recently turned over 22.3 hectares to support the growth and needs of terminals 2 and 3 however there is no finalization yet about this plan. Currently, NAIA area itself has no more space for expansion

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FACTOR HONGKONG SHANGHAI SHENZHEN GUANGZHOU DUBAI SINGAPORE MALAYSIA THAILAND PHILIPPINES (NAIA)

FACILITY RFID Technology, Gentrack Software, E-Freight Project

OPERATING SYSTEM / TECHNOLOGY

SITA's Common Use Baggage System, Bulk Cargo Operating System, ULD Operating System IBM's Netfinity Servers, 366 Intelligent Workstations and an OS/2 Operating System

Info Talk - This is the world's tri-lingual Enquiry System

Most technologically advanced airport with its state-of-the-art Operational Database and Integration System; It has the Central Integrated Information Management Systems (CIIMS)

Fully Automated Cargo terminal. It uses "Sky Chain which is a state-of the-art cargo and terminal handling system. It uses SAAB or the Sensis and the Multi-lateration Sytem and the AC2000 Security Management System.

E-Freight Project

Air Traffic Control Tower, CAT II Precision Landing ILS, RFID Baggage Handling System, KLIA Community System, and Dagang NET System by Maskargo and Airport Management Information System

It has the world's talles Control Tower, one of the worl's most automated Air Traffic Control Systems, Airport Management Information System, Airpprt cargo Community System and Electronic Data Interchnage

FIDs (Flight Information Displays), Fiber Optic IT Cabling, LCD Monitors, X-Ray Machines

84

FACTOR HONGKONG SHANGHAI SHENZHEN GUANGZHOU DUBAI SINGAPORE MALAYSIA THAILAND PHILIPPINES (NAIA)

FACILITY

HKIA is committed to nurturing young people who aspire to work in the aviation industry

LABOR QUALITY

Low Labor Quality

Low Labor Quality

Low Labor Quality

Recognixed globally for labor service quality

It has the Quality Management Service Program

Promotes multi-cultural Lavor force and provides high labor quality

It has a continuous and thorough development and distribution of knowledge and abilities of all emaployees at all levels

Presence of Labor Disputes and Unions

FACILITY

Super Terminal 1

PRESENCE OF A SINGLE CARGO TERMINAL

T-Cargo Area, Area for Cargo Build Up and Build Down

Cargo Mega Terminal

Changi Megaplex

KLIA Cargo Village

Cargo Village

No Single Cargo Terminal Building

85

FACTOR HONGKONG SHANGHAI SHENZHEN GUANGZHOU DUBAI SINGAPORE MALAYSIA THAILAND PHILIPPINES (NAIA)

COST

Employment Ordinance in Hong Kong sets minimum entitlements for employees such as stautory holidays and long service payments

LABOR COST

Per Capita Labor Cost in Shanghai is much higher than in the surrounding areas; although compared to other countries it still has low labor cost.

Low Labor Cost Low Labor Cost

High labor Cost for Foreign Workers

High Labor Cost

Minimum Wage in Malaysia is being practiced

Lower monthly wages as compared to China

Low Labor Cost

FACTOR HONGKONG SHANGHAI SHENZHEN GUANGZHOU DUBAI SINGAPORE MALAYSIA THAILAND PHILIPPINES (NAIA)

COSTHigh Landing Fees but it was lowered in the past years. Lower than that of Singapore

AIRPORT USER CHARGES + TAXES

Fees are utilized by the central government; Higher than that of Hong Kong

Fees are utilized by the governement

Fees are utilized by the governement

Has Exemptions for Royal / Diplomatic and State-Owned Aircrafts

High Landing Fees, Rental, Rebates and Cash Payouts to Air Cargo Agents

Competitive Landing Fees; First 6 months of landing, parking and office rental fees are free

Has high landing fees

Excessive taxes (Common Carriers Tax, Gross Philippine Billings), found discriminatory by foreign carriers

86

FACTOR HONGKONG SHANGHAI SHENZHEN GUANGZHOU DUBAI SINGAPORE MALAYSIA THAILAND PHILIPPINES (NAIA)

DEMAND 63 flights per hour; 3,968,397 volume handled in 2011

MARKET SIZE AND GROWTH POTENTIAL (NUMBER OF FLIGHTS AND CARGO HANDLED)

Average Aircraft Movements of 400 times per day; 3,103,030 volume handled in 2011

It is the 4th busiest airport in China and the world's 24th busiest in terms of cargo traffic with 809, 363 volume handled,

In terms of cargo capacity , it can accommodate 1 million tonnes and 2.17 million tonnes on 2020

It has over 6,000 weekly flights and 2,270,000 volume handled in 20122

It has more than 210 flights per day amd 1, 898,850 volume handled in 2011

It has more than 72 flights per hour. It handled 669, 840 in volume last 20122

It has 76 flights per hour ; It handled 593,494 volume handled in 2011

It has 45 flight movements per

day and has 355,149 metric tonnes of cargo

handled in 2009

FACTOR HONGKONG SHANGHAI SHENZHEN GUANGZHOU DUBAI SINGAPORE MALAYSIA THAILAND PHILIPPINES (NAIA)

DEMAND

Hub for DHL; Hub for Air Hong Kong, Cathay pacific, Dragon Air, Evergreen International Airlines, Hong Kong Airlines, Hong Kong Express Airways, UPS Airlines

NUMBER OF LOGISTICS SERVICE PROVIDERS

Hub for Air China, China Eastern Airlines, Juneyao Airlines , Shanghai Airlines, Spring Airlines and UPS Airlines

Hub for UPS; Hub for Shenzhen Airlines; Shenzhen Donghai Airlines, SF Airlines a,d Jade Cargo International

Hub for Fed Ex; Main hub of China Souther Airlines

Hub for A1 Rais Cargo, Cargo Plus Aviation, Dubai Royal Air Wing Emirates, Falcon Express Cargo Airlines

Hub for Jet Star Asia Airways, Jett8 Airlines, Qantas, Scoot, Silkair, Air Asia, Singapore Airlines Cargo, Tiger Airways and Value Air

Hub for Malaysia Airlines, MASKargo,Air Asia and Air Asia X

Hub for Bangkok Airways, Orient Thai Airlines, Thair Air Asia and Thai Airways International

hub for Airphil Express, Cebu Pacific, Philippine Airlines, Southeast Asian Airlines, Zest Airways

87

FACTOR HONGKONG SHANGHAI SHENZHEN GUANGZHOU DUBAI SINGAPORE MALAYSIA THAILAND PHILIPPINES (NAIA)

GOVERNMENT REGULATIONS Granted Open

Skies Rights to Airlines

OPEN SKIES AGREEMENT

Granted Open Skies Rights to Airlines

Granted Open Skies Rights to Airlines

Granted Open Skies Rights to Airlines

Granted Open Skies Rights to Airlines

Granted Open Skies Rights to Airlines

Granted Open Skies Rights to Airlines

Granted Open Skies Rights to Airlines

Aquino administration signed an Executive Order authorizing the Civil Aeronautics Board (CAB) and the Philippine Air Agreement negotiating panels to pursue Open Skies policy

GOVERNMENT REGULATIONS Presence of

Tax Incentives

TAX INCENTIVES

Presence of Tax Incentives

Presence of Tax Incentives

Presence of Tax Incentives

Excellent Tax and Incvestment Incentives

Avoidance of Double Taxation Agreements

Low Cost Carrier Terminal (LCCT)allows for lower airport taxes

Customs Tax Regulation Incentive

EO 619 Tax

and Duty

incentives are

provided to

duly registered

businesses that

locate to

special

economic

zones in the

Philippines.

88

FACTOR HONGKONG SHANGHAI SHENZHEN GUANGZHOU DUBAI SINGAPORE MALAYSIA THAILAND PHILIPPINES (NAIA)

GOVERNMENT REGULATIONS

Stremlines and Efficient Customs Procedures

PRESENCE OF CUSTOMS

Presence of Customs Warehouse

Presence of Customs Warehouse

Presence of Customs Warehouse

Dubai International Airport Customs

Round-the-Clock Customs Clearance but with Minimal Customs Formalities

Governed by Customs Regulations

Suvarnabhumi Airport Cargo Clearance Customs Bureau

The industry is governed by the Tariff and Customs Code of the Philippines; Airline companies want misplaced customs personnel at airports re-assigned to revenue-related positions for efficiency

89

FACTOR HONGKONG SHANGHAI SHENZHEN GUANGZHOU DUBAI SINGAPORE MALAYSIA THAILAND PHILIPPINES (NAIA)

GOVERNMENT REGULATIONS

International Air Services Transit Agreement

POLITICAL STABILITY

Strategic Cooperation Agreement between the Civil Administration of China and Civil Aviation Devt.

Strategic Cooperation Agreement between the Civil Administration of China and Civil Aviation Development

Strategic Cooperation Agreement between the Civil Administration of China and Civil Aviation Development

Stable government and Liberal Commercial Environment

Investment Guarantee Agreements

Investment in infrastructure and Control of Airline Competition

ASEAN Air Services Agreement; The government allows every state having more than one designated airline to operate air cargo services into the country

Anti-Open Skies stance by lobbyists

90

FACTOR HONGKONG SHANGHAI SHENZHEN GUANGZHOU DUBAI SINGAPORE MALAYSIA THAILAND PHILIPPINES (NAIA)

GOVERNMENT REGULATIONS

Continuous investment in infrastructure projects and highly efficient multimodal transport services

EXPANSION PLANS

12th Five Year Plan (2011-2015)

Continuous Investment in Infrastructure

Continuous Investment in Infrastructure

Modernized and Expanded the Air Cargo Terminal; It is the world’s fastest expanding airport. It invests heavily on Infrastructure, Aircraft fleet and staff

Air Hub Development Fund

Presence of programs and polciies intended to maintain and elevate KLIA’s status in the industry, invest in infrastructure and control airline competition

Focus on infrastructure and services development; Airport Improvement Plan until 2033

Ongoing renovation of NAIA 1 to include maintenance of toilets, availability of sanitation facilities, installation of misting machines and walkalators, setting up of additional immigration booths, improvement of metal, eletrical, plumbing and fire systems. NAIA Expressway Project is the third project lined up for bidding under the Public-Private Partnership (PPP) Program

91

TABLE 10: CRITERIA CHECKLIST FOR THE DIFFERENT HUBS FACTORS HONG

KONG SHANGHAI SHENZHEN GUANGZHOU DUBAI SINGAPORE MALAYSIA THAILAND PHILIPPINES

(NAIA)

ü LOCATION

Strategic Location ü ü ü ü ü ü ü ü

2 FACILITY

Runway

Capability

3 2 3 2 2 2 2 2

2 FACILITY

Number of

Terminals

2 3 2 3 9 3 1 4

RFID FACILITY

Operating Systems SITAs Info Talk CIIMS SAAB RFID CAT II /

RFID AMIS FIDS

ü FACILITY

E-Freight X X X X ü X X X

ü FACILITY

Cargo Terminal ü ü ü ü ü ü ü X

ü COST

Airport Charges ü ü ü ü ü ü ü ü

High DEMAND

Demand – Cargo High High High High High High High Not Enough

to be a Hub in Asia

92

ü DEMAND

Considered as a

Hub

ü ü ü ü ü ü ü X

ü GOVERNMENT

SUPPORT

Open Skies Policy

ü ü ü ü ü ü ü ü

ü GOVERNMENT

SUPPORT /

LOCATION

Free Port Zone

ü ü ü ü ü ü ü X

ü GOVERNMENT

SUPPORT

Tax Incentives

ü ü ü ü ü ü ü X

ü GOVERNMENT

SUPPORT

Efficient Customs

Operations

ü ü ü ü ü ü ü X

ü GOVERNMENT

SUPPORT

Continuous

Expansion

ü ü ü ü ü ü ü ü

93

XI. Possible Air Cargo Hub in The Philippines;

The Ninoy Aquino International Airport (NAIA) is congested and that there is not much room for growth and

expansion anymore, the question now is, “What is the next potential location for an air Cargo Logistics Hub in

the Philippines?” From the interviews that were conducted there were suggestions that a possible international

airport / logistics hub could be in Davao, Mactan in Cebu or Clark in Pampanga. These areas were suggested

mainly because of the massive land area it has that can accommodate 747 aircrafts. However having a

strategic location should also be considered. The distance of the hub should not be very far from that of NAIA

where the primary airport is.

Below would be features of each of the International Airports in the Philippines. From which, an Air Cargo

Logistics Hub can be developed to increase connectivity and trade with the rest of the world.

XIA. Ninoy Aquino International Airport (NAIA) - Manila

With the current operations at NAIA, we can say that until now the Philippines lacks a modern

international gateway airport. In the interviews that were conducted with Key Players of the Air

Cargo Sector, in the duration of this study it was mentioned by one of the stakeholders that we

should just follow the exact airport model in Thailand or Malaysia. That of Hong Kong and

Singapore are already too advanced for us to replicate.

According to the 2010 Airport Roadmap (Rodolfo, 2010) the first impressions of foreign visitors

arriving at the leading international gateways in Manila, Cebu and Clark are that terminal facilities

are modest (NAIA T-2 and T-3 and Mactan), small, or dilapidated (Clark and NAIA T-1 and

domestic).

It was also mentioned at the roadmap 2010 report that at NAIA, the airport master plan of the early

90s for three new terminals has not been followed. The cargo terminal has yet to be built, while

new domestic (T-2) and international (T-3) terminals were built but have not been used for their

original purposes. The new GOJ-financed domestic terminal that opened in 1999 has been used

exclusively for domestic and international flights of Philippine Airlines despite not being designed

for requirements of international aviation (customs, immigration and lounges).

Full operation of T-3 will require the present taxiway to be closed so that only one runway will be

available to all domestic, international and general aviation flights. A fuel depot and lines must also

be in place. Expansion of NAIA beyond its current area of 600-hectares would require extensive

demolition of business and residential areas.

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Currently, the Ninoy Aquino International Airport (NAIA) is experiencing a slotting problem in terms of

flights. All airlines would want to be in the day time slot due to lack of night capacity in the airport, this is

known as the “sunset limitation”. NAIA should invest in equipment that would ensure safety of the flights.

This was also mentioned by Captain Ben Solis. He said that NAIA is already beyond its capacity, In the study

that he conducted recently it was seen that NAIA can only handle 36 fights, 40 flight movements per day at a

maximum or 44 movements maximum with sophisticated system to be able to eliminate flight delays.

Currently it is doing 47-50 flight movements. Given this, there is no choice but to lower flight movements per

day in NAIA for security and safety operations.

According to Cebu Pacific, this was not anticipated by the government. This is because of the growth in the

number of aircrafts, there would be a number of flights that would add up to the current aircrafts fighting for a

slot during the day time.

NAIA airport also lacks a modern navigation system. It was reported that Air Asia of Malaysia was said to

been having difficulty in slotting their flights due to the renovation of the runway. As a result there would be a

lot of delay in flights. A PAL representative even suggested that small planes or general aviation be transferred

to Sangli Point Aiport in Cavite to reduce air traffic in NAIA.

NAIA at present is renovating one of its runways. Airlines are revising some of their flight schedules to adjust

to the seven-month partial closure of the airport. With the said partial closure of NAIA from January until

August of this year, one (1) domestic and twelve (12) international flights of PAL departing or arriving at

NAIA will be adjusted.

In the US, there is a Communication Navigation and Surveillance System which the Philippines can adopt.

The Philippines can likewise make use of an Air Traffic Management System which can monitor worldwide

air traffic.

Moreover, the idea of a Twin Airport can also help the current state of the aviation industry. There was a

suggestion from one of the key players that the Philippines should consider operating a Twin Airport like the

other successful countries. All airports should be outside the city since Manila is so congested already. The

trend now is having an Aerotropolis, twin airports, with the 2nd airport becoming the predominant one. NAIA

can be a regional airport while Clark can be an International Gateway. In this way we can segregate Domestic

Cargo operations from International Cargo operations. One strategy according to CEB is that NAIA can handle

all domestic cargoes and Clark will handle all International Cargoes.

95

Another improvement could be the engagement of NAIA of e-frieght or paperless operations. This can

minimize a lot of steps and operations will be faster.

All interviewed stakeholders such as the government agencies and key players are all stating that NAIA is

beyond its capacity. The current airport is so congested and that there is no room for growth and improvement

anymore. Manila International Airport Authority mentioned that they are currently renovating the runway in

NAIA and that there is a plan to put up a cargo terminal within Terminal 3. However the key players still find

the area of terminal 3 too small and that there is no available warehouse in the area. It would then takes 30-45

minutes for a cargo to reach a warehouse since the warehouses are scattered in the area and all warehouses are

managed by different owners resulting to having different policies.

It then becomes a problem in NAIA in terms of cargo, that it does not have a Cargo Terminal or what we call a

Cargo Village. Upon arrival of the cargo, it is brought to warehouses which are located not within the airport

but in areas near the airport that most of the time would take another 30-45 minutes just for its transfer. NAIA

does not have a cargo facility wherein all cargo related activities are housed in one terminal.

In summary, according to the stakeholders NAIA is too congested and has no single cargo terminal.

Aside from this it only has a single operational runway for international traffic, is land locked and is

unable to expand. NAIA according to them is not large enough to accommodate larger aircrafts

such as Airbus 380. It is believed to have been already operating at its full capacity, leaving no

space or room for growth and expansion.

FIGURE 22: NAIA INTERNATIONAL AIRPORT

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FIGURE 23: VIEW OF THE NAIA AREA SHOWING IY IS LAND LOCKED AND

UNABLE TO EXPAND

Following the criteria that was used for the other hubs, below are the analysis for NAIA:

Location: In terms of location, the Philippines is said to be in a strategic point. NAIA is

specifically located along the border of Pasay and Paranaque. It is the main international gateway

for travelers to the Philppines. It is a hub for Air Phil Express, Cebu Pacific, Philippine Airlines,

Seaair and Zest Air. It is the airport serving the general area of Manila and its surrounding

metropolitan area.

Facility: Terminal 1 has consistently ranked at the bottom due to limited and outdated facilities,

poor passenger comfort and crowding. With this transport authorities plan to give Terminal 1 a

makeover. It will include expansion of the arrival area, addition of parking spaces and

improvement of other terminal facilities. As soon as Terminal 3 becomes fully operational,

Terminal 1 would be rehabilitated into an Airport City with the intention of Cebu Pacific Airways

to convert Terminal 1 into an exclusive terminal for their aircraft. The 2nd terminal NAIA2 in the

old MIA road is a 75,000 square meter terminal. It was designed to be a domestic terminal but it

later accommodated international flights. It has a capacity of 2.5 million passengers per year. It

was exclusively used by Philippine Airlines for both its domestic and international flights.

Terminal 3 or NAIA 3 is the newest and biggest terminal in the NAIA complex. The ultra-modern

$640million, 189,000 square meter facility has a 13 million passengers per year capacity. It has a

four –level shopping mall which connects the terminal to the parking buildings. Terminal 4 is the

97

Manila Domestic Passenger Terminal. It hosts all domestic flights within the Philippines operated

by Zest Air and Seaair.

There are also MRO Facilities in NAIA such as that of Lufthansa Technik Philippines. It offers a

wide range of aircraft maintenance, repair and overhaul services to customers worldwide.

Demand: In 2010, NAIA terminal carried 27.1 million passengers making it to the top 50 of the

world’s busiest airports. In 2011, all terminals in NAIA handled 29,552,264 passengers, 217,743

movements and 355,149 tonnes of cargo.

Cost: NAIA has a landing fee, parking fee and CIQ or the overtime charges of $100 per aircraft

that foreign airlines are burdened with.

Government Support and Regulations: In 1995 by executive order, The Philippines’ domestic

and international aviation sectors were liberalized. This set the stage for a series of bilateral

agreements that resulted in a dramatic expansion of air connectivity and cargo volumes between the

Philippines and major markets around the world.

In terms of expansion, NAIA is said to be at its full capacity. Airport operations and the structure

can be improved but expanding the current airport is not an option anymore. That is why the

Philippine government is looking at other potential areas to be alternative international gateways.

XIB. Clark International Airport (CIA) / Diosdado Macapagal International Airport (DMIA)

– Clark, Pampanga

Location: Clark International Airport formerly known as the Diosdado Macapagal International Airport. is

located at the Free Port Zone in Angeles Pampanga. It serves Angeles City and Manila. It is a hub for Air Asia

Philippines, Air Phil Express, Cebu Pacific and Seaair. It is the main airport serving the immediate vicinity of

the Clark Free Port Zone and the general area of Angeles City. It also serves the northern and central regions of

Luzon, being 85kms from the Ninoy Aquino International Airport that serves Manila.

Facility: The two parallel runways of DMIA are capable of NASA Space Shuttle landings. It has a Terminal

Radar Approach Control System (TRACON) worth $9.3 million that translates to investment in the future of

air travel in Clark. The TRACON can track aircraft in a radius pattern up to 220 nautical miles from Clark.

With this system in place, it places the airport alongside other major airports around the region. This system

adds significant safety advantages, speeds up arrivals and departures and ensures a greater level of airline pilots

confidence. This system answers the needs and opens the doors to major air carriers to establish service at

Clark and it also makes the airport compliant to ICAO.

In addition to this, there are also various state- of- the- art electronic communication, radar navigation, approach

lighting and fire/safety systems which include Instrument Landing System Doppler, Very High Frequency

Omnidirectional Range, VHF/UHF Transmitters, modern meteorological equipment, Precision Approach Path

Indicator, Airfield Ground Lighting Systems and an advanced Category 9 Crash, Fire and Rescue Equipment.

98

There are also new MRO facilities in Clark. SIA Engineering Company (SIAEC) has a $45 billion investment

to set up a world-class aircraft maintenance, repair and overhaul facility at Clark.

Cost: Clark International Airport charges landing and parking fees. Below are the landing and parking charges

at the NAIA.

Source: CIAC

Demand: Clark has an increasing passenger volume. In 2010 it had 654,229 passengers and last year it had

725,023 passengers. An increase in passenger volume was said to increase cargo volume as well.

Government Support and Regulations:

Total investment for the 1st phase involves: (1) Construction of an Airport Plaza, (2) Construction of a

Transport Plaza, (3) Construction of a Covered Parking Area and (4) Construction of new taxiways and aprons,

The P130 million current expanded Terminal 1, is designed to

accommodate at least one million to 2 million passengers annually to serve the growing passenger volume due

to the entry of foreign and local budget carriers at the airport. CIAC has embarked in a $12 million expansion

plan to attract more carriers and became the second international gateway into the Philippines. Completed last

2010, the expansion adds a second floor, arrival and departure lounges, and 2 aerobridges to the terminal

building.

Once terminal 2 is completed, Terminal 1 will take over all domestic routes. The terminal 2 of Clark comes in

2 phases, once completed, it will be dedicated to international traffic.

99

(5) Expansion of existing apron facilities, (6) Widening, Improvement and Construction of access roads with

interchanges, (7)Demolition of Existing buildings, (8) Development of new identity and signature and site and

utilities development.

The second phase involves: (1) Expansion of the eastern runway to 4000 meters, (2) Construction of a new

runway, (3) Construction of a shopping center, (4) Construction of new taxiways and aprons, (5) Construction

of a new Cargo Terminal Complex and (6) a Construction of a new Control Tower.

For Terminal 3, ALMAL Investment Company of Kuwait has offered to develop it, making DMIA handle 80

million passengers a year.

When Clark International Airport is completed it will have the following: (1) 3 parallel runways, (2) a High

Speed Train, (3) Accommodation of 80 million passengers annually, (4) Facility can accommodate A380, and

(5) It will be one of the largest airports in the world.

Other proposed projects are: (1) Airport Runways will be further improved to accommodate bigger aircrafts,

hotels and commercial buildings and other aviation facilities, (2) Construction of two new railway lines, one for

the Airport Railway and another for the North Rail commuter and high speed rail line serving Metro Manila

and several northern Luzon provinces, (3) Construction of 2 interchanges on the Subic-Clark-Tarlac

Expressway to Clark Airport, which will then connect to North Luzon Expressway.

Another initiative of the government is to support the Global Gateway Logistics City Project which

complements the airport operations. This will cover aviation-related and dependent businesses including but

not limited to warehousing, distribution, multi-nodal logistics, light manufacturing alongside complementary

business operations, and facilities to support aviation related activities within the Civil Aviation Complex of

Clark.

Below is a comparison between NAIA Airport and Clark International Airport. 49

FIGURE 24: NAIA VS CIA Source: GGLC

49 Global Gateway Logistics City (GGLC)

100

XIC. Mactan International Airport - Cebu

Location: Mactan International Airport in Cebu is located in Lapu-Lapu City. It is a hub for Airphil Express

Cebu Pacific and Philippine Airlines. This is a major international airport in the Visayas region and it is the

country’s second primary gateway. The area covers 797 hectares and has a single 3,300 meter runway that is

complemented by a full-length taxiway. It is a major trade center in the south for domestic and international

traffic.

Facility: The terminal building has a capacity of handling 4.5 million passengers annually on two wings: the

domestic and the international wing

Demand: In 2010, it accommodated 5,791,387 passengers, 46,206 aircraft movements and 45,403 metric

tonnes of cargo. This airport is currently served by thirteen passenger airlines and five cargo airlines. It is one

of the major cargo airports in the Philippines. Air Cargo Volume increases at an average growth rate of 47%

annually while domestic cargo grew 4% annually.

There are five cargo airlines currently operating in the Mactan Airport : (1) 2GO, (2) Fed Ex, (3) Pacific East

Asia Cargo Airlines, (4) Tri-MG Intra Asia Airplines and (5) Transglobal Airways.

Cost: The Mactan International Airport also requires landing fee and parking fees from the foreign airlines.

Government Support and Regulations: There are plans for the expansion of the existing terminal building

and the construction of two more boarding bridges or jetways to complement the existing four. A new cargo

terminal is also being planned. There is also a proposal to have a Bus Rapid Transit (BRT) Line to transport

airport passengers to and from the airport from different parts of Cebu.

XID. Davao International Airport / Francisco Bangoy International Airport - Davao

Location: Davao International Airport is located in Baranggay Sasa, Buhangin, Davao City. It is a hub for

Air Phil Express and Cebu Pacific. This is the main airport serving Davao City. It has a single 3,000-meter

precision runway.

Facility: The modern facility is designed to handle 2 million passengers annually and 84,600 metric tons of

cargo annually. The added capacity baggage handling equipment. The modernization and upgrading of the

airport facilities aims to cement Davao as the hub for tourism and foreign investment in the region.

Demand: In 2010, it handled 2,664,210 passengers, 19,198 aircraft movements and 34,257 metric tones of

cargo.

It is the busiest airport in the island of Mindanao.

Government Support and Regulations: The Philippine Tourism Development Plan includes the Upgrading

of the Davao International Airport. The plan includes improvement of city-side access road, parking and air

operations and ground transportation support services, immediate decongestion of the passenger-handling

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capacity in the existing departure area, expansion of the CIQS facilities, expansion of parking aprons for

terminal expansion and conversion to Airport Authority that includes marketing of the airport to carriers.

Below is a table showing the matrix of the different possible hubs in the Philippines. TABLE: 10: COMPARISON AMONG THE DIFFERENT POSSIBLE HUBS IN THE PHILIPPINES

102

Name of Facilty

Ninoy Aquino International

Airport Clark International

Airport

Mactan International

Airport Davao International

Airport Date Established 1981 1995 1960 1940 Rank In the World 48th NA NA NA

Geographical Location Metro Manila Clark Pampanga Cebu City (Visayas) Davao City (Mindanao)

Areas Served Metro Manila Pampanga and Manila Cebu and Manila Davao and Manila

Free Port Zone No Yes No No

Runway Capability 2 intersecting runways

2 parallel runways with plans of adding one more

single 3000- meter runway

single 3000-meter runway

Number of Terminals 4 1 1 1 Cargo Terminal None None None 1 Advanced Operating Systems No Yes No Yes

Market Size

In 2011, all terminals in NAIA handled 29,552,264 passengers, 217,743 movements and 355,149 tonnes of cargo.

In 2010 it has 654,229 passengers and last year it had 725,023 passengers. An increase in passenger volume was said to increase cargo volume as well.

Air cargo volume in 2007 is 53,472,924 kg. International cargo volume increased at an average growth rate of 47% annually while the domestic cargo grew 4% annually.

In 2010, it has 2,664,210 passengers, 19,198 aircraft movements and 34,257 metric tones of cargo.

Hub

It is a hub for Air Phil Express, Cebu Pacific, Philippine Airlines, Seaair and Zest Air.

It is a hub for Air Asia Philippines, Air Phil Express, Cebu Pacific and Seaair. It is the main airport serving the immediate vicinity of the Clark Free Port Zone and the general area of Angeles City.

It is a hub for Airphil Express Cebu Pacific and Philippine Airlines. This is a major international airport in the Visayas region and it is the country’s second primary gateway.

It is a hub for Air Phil Express and Cebu Pacific. This is the main airport serving Davao City.

Open Skies Policy Yes Yes Yes Yes Within a Free Trade Zone No Yes No No Incentives No Yes No No

Expansion

In terms of expansion, NAIA is said to be at its full capacity. Airport operations and the structure will be improved in terms of aesthetics but expanding the current airport is not an option anymore.

The P130 million current expanded Terminal 1; Airport City Development (GGLC) ; Improvement of Runways; Creation of Railways

Terminal Expansion; 2 more boarding bridges and a new Cargo terminal, Busr rapid Transit

The Philippine Tourism Development Plan includes the Upgrading of the Davao International Airport.

LOCATION

FACILITIES

DEMAND

GOVERNMENT SUPPORT

COMPARISON AMONG THE DIFFERENT POSSIBLE HUBS IN THE PHILIPPINES

103

XII. PHILIPPINE POTENTIAL AS A LOGISTICS – GAPS THAT NEED TO BE BRIDGED

Given the features of the different hubs in the different countries mentioned, we can say that the Philippines

has quite a number of improvements to do. Among the five (5) factors that were identified to be an ideal and

competitive hub, it has been found in the study that there are gaps that the Philippines need to fill in.

The Philippines as a Logistics hub is a plan that we can definitely achieve. It may not be in the short term but

eventually the Philippines has a big potential of becoming one because of its strategic location. Our

neighboring countries such as Hong Kong and Singapore are very successful in maintaining a logistics hub.

Even Malaysia and Thailand are doing their best to improve their logistics and trade system. Based on

comparisons with the other countries identified in this study, there are gaps or “need to’s” that the Philippines

may want to focus on in order for the country to be truly a competitive air cargo logistics hub. Below are the

gaps that resulted in the study:

(1) In terms of Location, the Philippines is already strategic, although it is not the centerpoint like China and

Hong Kong, its location is still very attractive for air cargo operations. It can be said that the country is still

within the 4-hour radius which can be very advantageous for air trade. The Philippines should bank on this

strength to be an efficient air cargo hub in Asia. The Philippines also have to have airports within a Free Port

Zone.

(2) Second, in terms of Facilities, the Philippines has to improve its airport and it operations and invest in

proper infrastructure that could complement the air cargo sector. Airports should follow at least the minimum

requirements of ICAO. Improvements such as having a night capacity and precision approach for safety are

among those that should be implemented. It should also work seriously on regaining category 1 status given

by FAA. Roads, railways and networks should be prepared as well in supporting the said industry sector.

Another important improvement can be in terms of automation. The operations and processes should improve

in terms of technology for faster and easier processing of documents. In terms of expandability, NAIA has no

more room for growth and expansion. There is no space for additional Runways and no area for a Cargo

Village.

(3) In terms of Demand

(4) In terms of the

, we should create cargo traffic and increase the volume in terms of cargo. The

government should provide incentives to both local and foreign investors to attract them to do business in the

Philippines. If incentives are provided, then a lot of local and foreign companies would operate their

businesses in the country, then definitely cargo traffic volume would increase. There is a need for critical

volume and one example is to have a strong electronic sector (high value, low volume) to be able to increase

cargo volume. The Philippines through its Subic and Clark Airports used to be the hub for Fed ex and UPS,

however due to a low traffic volume these two companies transferred their operations to China.

Cost factor, the Philippines can minimize the cost to the airlines by eliminating the practice

of red tape and overcharging. We are the only country that has an overtime charge shouldered by the airlines,

which makes our country unattractive to foreign airlines. The Philippines charges a Common Carriers Tax and

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the Gross Billings of 3% and 2.5 % respectively to Foreign Airlines which makes it difficult to encourage them

to operate in the country.

(5) Lastly in terms of Government Regulations and Support

The Philippines is considered as an ideal cargo hub because it is equidistant from all major Southeast Asian

countries such as Thailand, Korea, Japan, Guam, Vietnam, Hong Kong, Singapore, Brunei, Malaysia,

Shanghai and Xiamen in China and Taiwan.

, the Philippine government should start with

he improvement of infrastructure and craft policies that supports the industry. There should be a strong

political will to improve the air cargo system in the country, thus making us a potential air cargo hub in Asia.

The government should start prioritizing and reviewing its policies and continuously make the country

attractive to investors. It would be better if there is the presence of an airport city or an aerotropolis which

supports cargo and passenger services as well as businesses.

According to the interviews with the cargo key players, the Philippines still lack infrastructure, policies and

systems. Before we can actually become a hub there is a need to regain our category 1 status to be able to

reach a wider market and attract foreign investors and to make the Philippines the centerpoint of trade.

Being an Air Cargo Terminal will bring economic benefits to the country by providing a vehicle for

manufacturers, producers and suppliers to expand their markets. Cargo Hub operations also bring in

opportunities for direct employment. It can range from manual jobs such as cargo handling and sorting to

highly technical jobs such as managers. Cargo hubs also act as industrial magnets drawing big industry players

thereby creating a cluster of industries near the hub.

As mentioned in the previous section of this paper, it was said that having a strategic location is a plus in terms

of cargo hub operations. A strategic location would allow operational efficiency. According to a study made

by Raagas in 2004, which was validated by an interview with Captain Ben Solis, “ Air Cargo is ideally picked

up at the end of the production day and delivered at the start of the following day to allow efficient operations

and practice of the JIT system.” It was also said that there is only a six to eight hour window for cargo to get

from Point A to its final destination. It takes two hours on the ground to prepare and sort the cargo at the point

of origin prior to flight and another two hours to prepare and sort the cargo for final destination. This leaves

only four hours of flight time. With this we can say that the farthest “spoke” cannot be more than 4 hours

flying time from the hub location. This was also validated through the observation of UPS operations in Clark

done by the researcher .

50

Aside from location, another factor to put into consideration is capacity. There must be enough runways and

enough area for several cargo airlines to operate. For intra-Asia hub operations in the Philippines, the best time

It was mentioned by FedEx Managing Director, that Hong Kong is a natural choice for a hub operations given

the top intra-Asia cargo routes, but given the 4-hour flying time constraint, the Japan-Singapore route maybe

more efficiently served by the Philippines.

50 Raagas, 2004

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to dispatch is from 12 midnight to 4am as what the researcher observed during the operations of UPS in Clark.

This would ensure that the cargo will get to its destination before the first working hour. Another factor to

consider is aircraft parking capacities to allow aircraft to load and unload and park simultaneously. Given all

these, the Philippines has a strong chance to be a cargo hub of choice especially for Non-China based cargo

airlines because of its strategic location, relatively affordable airport fees, and open skies policy for cargo.

XIII. WHY CLARK IS THE BEST OPTION AMONG THE FOUR AIRPORTS IN THE

PHILIPPINES TO BE THE NEXT AIR CARGO LOGISTICS HUB

Looking into the gaps that need to be solved in order for us to be a potential air cargo hub in Asia, there is a

need to look into another airport aside from NAIA. NAIA as it is can be improved in terms of Facilities and

Costs as stated above, However to be a fully operational competitive air cargo hub there is a need to look into

another international airport.

From the interviews that the researcher conducted, it appears that among the three other options presented in

this study, Clark in Pampanga is the best choice to be the next main international gateway. A Philippine

Airlines representative suggested that NAIA can handle the domestic cargo and Clark can handle all

international cargo or at least run two international airports that could serve the growing needs of the aviation

and tourism industries in the Philippines. This is the concept of having a twin airport model. For this to

materialize, proper infrastructure (creating and maintaining roads, railways and networks) should be built.

LOCATION:

Another positive aspect about the Philippines is the weather. Since there is no winter season in the

Why is Clark the best option? Clark’s strategic location makes it a natural gateway

to the Asia Pacific Region. The Freeport Zone, which is only 80 kilometers north of Manila is an

ideal place for investment as it already has the infrastructure and it offers a lot of incentives. Clark

is also said to be positioned a few hours away from the tourist sites in Central Luzon.

The Philippines specifically Clark is said to be an ideal logistics hub for cargo because it is

equidistant from all major South East Asian countries such as Hong Kong, Thailand, Korea, Japan,

Guam, Vietnam, Singapore, Brunei, Malaysia and China. In the researcher’s interview with FedEx

Managing Director, Hong Kong was said to be the centerpoint of all the cities, making it the perfect

hub. Hong Kong would always be the natural choice for hub operations given the cargo routes, but

given the 4-hour flying time constraint we can say that Clark can be the best option because some

of the routes if Hong Kong is used as a hub will take more than 4 hours.

Another reason why Clark can be the best option as a hub is that the US Airforce clearly recognized

the Philippines’ strategic location when they put up in Clark a military installation outside the US.

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Philippines, there is no need for a de-icing procedure which would take up a lot of time

DEMAND:

There is also the increase in the number of Budget Airlines coming into Clark such Air Phil Express, Seair,

Dragon Air, Cebu Pac, Tiger, Jet Star and Malaysian Air. These budget airlines are believed to bring in 10-

Known as a former US airport facility, Clark International Airport is said to be the

fastest growing airport in the country with an average growth of 28% in passenger traffic for the

past five years, according to the data from Global Gate Logistics Center (GGLC). It positions itself

as the country’s major low cost airport and is being prepared to be the next international gateway.

In terms of its airport operations, CIA has expanded its services. From an average of one flight per

day in 2003, the airport now accommodates 21 flights daily on an average. Last year there were

7,581 flights carrying 767,109 passengers.

The Carriers servicing international routes are the following: Air Asia, Air Phil Express, Asiana

Airlines, Cebu Pacific, Jin Air, Seair,Dragon Air, and Tiger. UPS also operates out of Clark. FedEx

stopped its operations in Subic after 15 years, and transferred to China but there are news that it is

thinking of bringing back some of its cargo operations back to the Philippines, specifically in Clark.

The Subic-Clark Corridor is responsible for 8% of the Philippines’ total export by air. In 2010, the

corridor exported $2.3 billion worth of high value products, up by 91% from the previous year. The

destination of the corridor’s air cargo products includes much of east Asia, which collectively

accounts for 56% of Subic-Clarks total exports by air. Other parts of Luzon also form part of

Clark’s catchment for cargo. Economic Zones located in the south of Luzon which is 117

kilometers away from Clark, contribute 12% to the Philippines’ total air cargo exports.

The Catchment Basin for Clark is said to be 25 million. It has a broader geographical catchment compared to

other possible airport hubs in the country. Its geographical catchment includes Central Luzon, Northern

Philippines and the Northernpart of Metro Manila (Quezon City). There is indeed a big opportunity for Clark

to be the next air cargo logistics hub with potential clients coming from Region 3, which has a highly educated

populace and with high per capita density; not to mention its legacy of the military and its major businesses in

the area. With SCTEX then, it would be closer for passengers from Northern Manila, and Regions 1,2,3 to go

to Clark than to NAIA.

Recent news also revealed the presence of MROs for commercial aircrafts which can also increase

employment in Clark. Hong Kong’s Metro Jet, which handles corporate jets, has invested in Clark. There are

news that there will be more to come.

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12million passengers thus making Clark very attractive to tourists and thus can also increase cargo traffic. Now

is the right time to increase passenger volume with the entrance of these budget airlines.

FACILITY

FIGURE 25: DMIA AREA

DMIA fees is another consideration. It was found to be much less than that of NAIA.

: Another factor in hub operation is the airport capacity. Clark is said to have to

existing parallel runways and there is a plan to add one more. This is enough area for several cargo

airlines to operate.

With 2 runways in DMIA, 48 aircrafts, 24 on each runway can be dispatched within the 4-hour

window. UPS used to have seven flights per night at the DMIA and Fed Ex used to have 12 flights

per night at Subic. This just shows that DMIA has the capacity to operate as a cargo hub. However,

UPS at present only has 1 flight per night in Clark while Fed Ex transferred its hub to China after

15 years of operation in Subic. The reason for this is that China and Hong Kong are believed to be

in the centerpoint in Asia. In cargo operations, there is no room for delay in aircraft dispatch

because cargo flights connect to other further destinations.

Aircraft parking capacities is also important to allow for the simultaneous loading, unloading and

parking of aircrafts. This is the problem that NAIA is experiencing now. There is a need for proper

time slotting of flights to avoid delays.

A major problem with Clark is its distance from Manila. However, if roads and highways are fixed such that

say, NLEX and SLEX are connected, then it would be easier to choose Clark as the next hub. Further

developments of inter-modal transportation access to Clark that will ferry passengers from Manila to

Pampanga, such as the use of a big speed and conventional rail link to connect Manila with Clark and CIA will

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be developed. It was reported that San Miguel Corporation and MPC are the two Philippine conglomerates

showed interest in developing the high speed rail link between Manila and Clark and other cities in the North..

COST: In terms of cost, Clark will have the following Aeronautical Fees and Charges. CCT of

3% and GBT of 2.5% and the CIQ charges are already being solved by the government.

GOVERNMENT SUPPORT:

With all the developments happening in Clark now especially the Global

Gateway Logistics Development, which according to GGLC Developer, would happen in 2-3 years, Clark

would be in the best position to become the air cargo logistics hub in the region. However, we cannot transfer

outright from NAIA to Clark as

there is a need for a paradigm shift, where it becomes imperative for the government to be a catalyst.

The GGLC Project will be bringing in a lot of developments in Clark. It will bring in businesses and

employment. All its investors and locators are said to be aligned with the airport operations. There is a great

chance of creating a Cargo Village in the said area since most of the businesses to be attracted as locators

complement the airport operation. This will definitely attract investors and tourists which will bring in more

passenger and cargo volume that will make Clark as the next potential air cargo logistics hub in Asia.

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FIGURE 26: GLOBAL GATEWAY LOGISTICS CITY

Source: GGLC

FIGURE 27: INVESTMENTS IN CLARK

Source: GGLC

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In 1995, the Philippines’ domestic and international aviation sectors were liberalized. This order led to a series

of bilateral agreements that resulted in an expansion of air connectivity and increase in cargo volumes between

the Philippines and major markets around the world. One of the most significant events, was the 1995

Philippine-U.S. air transport agreement that led to FedEx’s Asia hub at Subic Bay followed by UPS’s hub at

the former Clark Air Force Base. This agreement not only substantially increased the number of all-cargo

routes that could be operated by U.S. carriers to and from the Philippines, but it also gave unrestricted rights to

these carriers to: (1) serve other countries from the Philippines; (2) determine capacity on these routes; and, (3)

change gauge, allowing the carriers to utilize wide body aircraft on long-haul, high-volume routes and shift to

smaller aircraft on shorter, lower-volume ones

XIV. CHALLENGES AND CONCERNS (ISSUES)

Part of the challenge for the Philippines now is to increase air cargo traffic, given that there is liberalization and

that taxes are being lifted from the international air carriers. To give us a better perspective, let us re-visit what

has happened in the air cargo industry in the past.

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However, in late 1999, due to heavy pressure from Philippines Airlines (PAL), The Philippine government

retreated from its highly liberalized aviation environment.

With the signing of the agreement, FedEx established its Asian hub at Subic Bay. Within months, heavy

foreign investment in time- sensitive industries began flowing into industrial parks at and around the air express

hub. These included, among numerous others, South Korea’s Anam Group, one of the world’s largest

producers of computer memory chips. Anam was reported to have invested US $400 million in its Subic Bay

plant that turns out 50 million chips per month, equivalent to nearly half the production in South Korea. There

were a lot of companies from other countries that also came into the country and were attracted to have their

business operations in the Philippines. It was also reported that between 1995 and 2000, 150 firms located

around the airport, constituting US $2.5 billion in commercial real estate investments. During the same period,

exports increased from US $24 million annually to over US $1 billion annually.

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An example is the experience of Acer, which used a combination of FedEx services at Subic Bay and those of

PAL’s and Eva Air’s (Taiwan) wide-body belly cargo from Manila to Taipei. It is because of the pressure of

PAL on foreign airline access, Acer was forced to cut back its Subic Bay production by half and reduce

Due to this reason, foreign airline access (aside

from FedEx’s at Subic which had been locked in) was cut back significantly, and for some foreign airlines

(such as that of Taiwan’s) , terminated entirely.

51 Clark Air Base has been renamed Diosdado Macapagal International Airport 52 Bowen, T. Leinbach & D. Mabazza, “Air Cargo Services, the State and Industrialization Strategies in The Philippines: The Redevelopment of Subic Bay” (2002) 36 Regional Studies 5, 451.

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employment of its facility there by 1,000 employees. Taiwan, which at that time was the largest country

investor in the Philippines, essentially stopped all new investments and began to shift investments out of the

Philippines.53 By 2001, the liberalization retreat to protect the national carrier was costing the country’s net

inward investment, and as such the policy was eventually reversed. With a liberal aviation policy restored,

both foreign direct investments and job growth again surged around Subic Bay and Clark Air Base.

Given the past state of the sector, this study points out that given the proper support and guidance the air cargo

sector can again regain back its glory. But prior to attaining success, below are several critical issues that

should be dealt with in order for the Philippines to truly become an air cargo logistics hub in Asia. These are

results of the interviews conducted with the stakeholders. These issues only validated the gaps that were found

out earlier in the study.

1. COGESTION IN NAIA (In relation to the Location Factor Gap)

Many players in the industry complain about the congestion of operations in NAIA during peak

hours. As much as the industry would like to cater to increase frequency of routes and add more

destinations, the current capacities of NAIA can no longer service additional flights. There is also

the problem on slotting. There have been flight delays due to the fact that NAIA can no longer

operate beyond its capacity. According to Captain Ben Solis , there is already a directive to lessen

flight movements. It was said that NAIA can only have 36 movements, 40 at the most and 44 if

there are sophisticated systems. However currently NAIA has 47-50 movements per day which

should be drastically lessened in order for it to operate efficiently and safely.

2. CARGO OPERATIONS IN NAIA (In relation to the Facilitiy Factor Gap)

Another issue is the scattered warehouses in NAIA. It is because of this problem, there are issues of

pilferage and loss of cargo, which leaves importers disappointed.

53 Bowen, T. Leinbach & D. Mabazza, “Air Cargo Services, the State and Industrialization Strategies in The Philippines: The Redevelopment of Subic Bay” (2002) 36 Regional Studies 5, 451.

3. AIRPORT CATEGORY DOWNGRADE (In relation to the Facility Factor Gap and Demand

Factor Gap)

Five years ago the Philippines had a status of Category 1 which means that the Civil Aviation Authority of the

Philippines (CAAP) was in compliance with the requirements and standards set by the International Civil

Aviation Organization (ICAO) regarding aviation safety and security standards.

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In 2008, the US Federal Aviation Administration (FAA) downgraded the Philippines from Category 1 status to

Category 2. This means that CAAP was found not providing the safety oversight of its air-carrier operators, in

accordance with the minimum safety oversight standards provided by ICAO. The FAA found 23 issues that

need to be solved. It included the following:

(1) Lack of laws and regulations necessary to support the certification and oversight of air carriers in

accordance with minimum international standards; (2) CAAP’s lack of technical expertise, resources and

organization to oversee and license air carrier operations; (3) CAAP does not have adequate and trained and

qualified technical personnel; (4) CAAP does not provide adequate inspector guidance to ensure enforcement

of and compliance with minimum international standards; (5) CAAP has insufficient documentation and

records of certification; (6) Inadequate continuing oversight and surveillance of air carrier operations.

It was also reported that a team from CAAP led by Director General Ramon Gutierrez, has just returned from

a visit to the US where it presented what the country has done to resolve the problems that led to the category

downgrade. The prospects was said to be still uncertain. The only assurance that was given by FAA is that

they will review the report submitted by CAAP.

In a report by ABS-CBN news, some sources said that what could help convince the FAA to give a positive

grade for the Philippines is if the country’s flag carrier, Philippine Airlines, pushes through with its plan of

buying Boeing planes and the Department of Transportation and Communications would announce its plan to

source the $13 billion radar equipment needed by NAIA in the US. At present, CAAP is taking the lead in

bringing back the Philippines’s former status. It is trying to convince FAA that the country is addressing the

problems that were seen in the inspection report that was submitted five years ago. According to CAAP, the

issues that were identified were just minor. It just includes fine tuning the civil air regulations, changing the

safety and oversight structure, updating its database storing system and standardizing certification of safety

inspectors and revalidating airline carriers. CAAP also mentioned that there are only 2 which were left

unresolved and according to them it was more of a political issue that is why it is taking a while to solve it.

However, they are trying to meet the issues raised by FAA and that they are doing their best to make flying as

safe as possible.

Another one of the issues is the limitation in the heights of structure within NAIA so that aircraft flying on

instruments are assured they would not hit the tall buildings that are on the path of the landing pattern. This

was also the concern of former AFPI chairman, who mentioned that there are also houses that were built very

near to NAIA’s runway which can hamper the safety of those living within the area. Some of the buildings

were reduced in size but some owners had to pay since they were sued by the government and had to settle

with the aviation authorities a huge penalty amount rather than having their buildings reduced. CAAP had

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ruled that these buildings within a five mile radius from the end of Runway 13 could only build structures not

higher than 150 feet.

This downgrade has really affected the growth of the Philippine Aviation Industry. It resulted to

making the Philippines part of the European Aviation Blacklist which will result to a limited reach

in market. With this downgrade, the current aviation status prevents the country from effectively

promoting the tourism industry as one of the growth sectors. The aviation authority noted that the

category downgrade does not mean that the Philippine Carriers are banned from flying to the US,

but it definitely prevents new services to be added to the US route until all issues are solved.

According to President Noynoy Aquino, once these are solved there would be an influx of tourists

in the country. He is hoping that the current number of tourists will increase to 10 million by 2016.

In an interview with PAL representatives, PAL is doing their part. They already bought new

aircrafts, however, since the country is still in category 2, PAL cannot use these aircrafts and

increase their flights to a wider market, such as having new routes to the US and Europe. If this is

the case, we will have a difficult time increasing cargo capacity

a. 3% Common Carriers Tax (CCT)

4. TAXES (In relation to the Cost Factor Gap)

Burden of Taxes and charges imposed by various government agencies – the industry is already

suffering from the volatility of jet fuel prices and it was even made worse by the additional burden

of taxes imposed like the Common Carriers Tax (CCT) and Gross Philippine Billings (GPB).

According to the IATA study, removing those taxes would provide a potential gain of US$38-78

million for the Philippine economy resulting from increased tourism. This would also lower cargo

transport cost thereby boosting export earnings to almost US$ 1billion.

Foreign airlines are burdened with discriminatory taxes such as the following:

Revenue Regulations No 11-2011 entitled, “ Revenue Regulations Defining Gross Receipts for Common

Carrier’s Tax for International Carriers pursuant to Section 118 of the Tax Code amending Section 10 of

Revenue Regulations No 15-2011” finally came up with a formal definition of Gross Receipts for International

Carriers under Section 118 of the Tax Code as follows:

“ Gross receipts” shall include, but not limited to, the total amount of money or its equivalent representing the

contract or ticket prize, excess baggage fees, freight / cargo fees, mail fees, rental, penalties, deposit applied as

payments, advance payments and other service charges and fees actually or constructively received during the

taxable quarter from the passage of persons, excess baggage, cargo and / or mail, originating from the

Philippines in a continuous and uninterrupted flight, irrespective of the place of sale or issue and the place of

payment of the passage documents.

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Provided further, that for a flight, which originates from the Philippines, but where transshipment of passenger

takes place at any port outside the Philippines on another airline, only the aliquot portion of the cost of the ticket

corresponding to the leg flown from the Philippines to the point of transshipment shall form part of the Gross

Receipts.

Said definition amended Section 10 of Revenue Regulations No 15-2002. Notable Section 118 of the Tax

Code simply provides as follows:

Section 118 Percentage Tax on International Carriers

International air carriers doing business in the Philippines shall pay a tax of 3% of their quarterly gross

receipts.

Thus the above definition under Revenue Regulations No 11-2011 amending Section 10 of Revenue

Regulations 15-2002 would serve as a guide for international carriers in determining their Gross Receipts for

percentage tax purposes. This is a direct tax where the airline company is the one directly liable. It s not like

Value Added Tax (VAT) that could be passed on to the buyer.54

b. 2.5% Gross Philippine Billings Tax (GPB)

An international carrier doing business in the Philippines shall pay a tax of 2.5% on its Gross Philippine

Billings. It refers to the amount of gross revenue derived from carriage of persons, excess baggage, cargo and

mail originating from the Philippines in a continuous and uninterrupted flight, irrespective of the place of sale

or issue and the place of payment of the ticket or passage document. In Singapore and Malaysia, they are

liberalized already that’s why they are attracting a number of investors. In the Philippines, these investors are

pulling away due to these taxes.

The Board of Airline Representatives (BAR) as well as the International Air Transport Association (IATA)

have repeatedly communicated their strong disagreement to the CCT and the GPB imposed on foreign airlines

operating in the Philippines. Malaysia, Thailand and Vietnam are said to be enjoying its tourism growth and

connectivity due to the fact that they do not impose these taxes. If international carriers are exempted from

these taxes, the Philippines will be more attractive to foreign investors and tourists and it will also attract

foreign airlines to make the country a destination of choice. This view was shared as well by the Key Players

that were interviewed by the researcher. These two taxes are considered as a burden to the carriers which

pushes them away to operate in the country.

According to the American Chamber of Commerce, “In the highly competitive international aviation industry,

foreign airlines connecting the Philippines to foreign airports operate at a very low margins. The termination of

flights of European airlines, including that of Air France-KLM’s direct service to Manila marks the end of any 54 Philtaxation.blogspot.com

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direct flights from Europe to the Philippines. The recent decision also of Qatar Airways to end flights between

Doha and Cebu is another example of connectivity reduction. It was reported that the Philippines should look

at what its neighboring countries are doing. Malaysia, Thailand and even Vietnam is experiencing gains from

increased connectivity and tourism. These countries are more business-freindly to the foreign airlines. We

should then strive to bring back these lost opportunities and make it a point to start attracting the foreign airlines

again to do business here.

Early this year the House of Representatives approved a bill that would rationalize the taxes, particularly the

Common Carrier’s Tax (CCT) and Gross Philippine Billings (GPB) tax imposed on international air carriers.

It was reported that House Bill 6022, a substitute measure to House Bills 3298 and 4444 and House Resolution

1949 seeks to amend Sections 28, 108 and 118 of the National Internal Revenue Code of 1997. If enacted into

law, international air carriers will be exempted from CCT which is said to be 3% of the airline’s gross turnover

and GPB which is 2.5% of the gross turnover.

In the article of Iloilo representative Jerry Trenas, author of HB 4444, he said that the country’s tax regime is

driving away tourists from the country. The said measure seeks to advance the country’s tourism, trade,

employment and economic integration with the rest of the world, eliminating the negative impact of CCT and

GPB on the country’s connectivity and competitiveness as an international investment destination. The

move’s objectives are:

(1) to recognize, honor and respect the principle reciprocity with regard to other countries in relation to tax

treaties and international agreements embodied in diplomatic notes involving international carriers;

(2) to enhance the country’s competitiveness through tax incentives. This will facilitate movement of goods

and services and people since it will improve tourism in the country, attract foreign investors and encourage

international airlines that stopped its operations and direct flights to the Philippines to restore its operations in

the country. It was said that carriers with extensive global networks left the country and transferred to other

neighboring countries which do not burden them with such taxes.55

55 The Daily Tribune, March 23, 2012

Another Act that is being supported by Representative Ralph Recto is the Customs Modernization Tariff Act

(CMTA). This Act decreases the fees and charges that the companies pay for certain products. Companies are

said to pay more taxes and other charges that the actual value of the product, making the companies lose

revenues. This is another step that the government should really push since this can greatly have an impact on

the decision of the companies to invest in the country.

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5. CUSTOMS, IMMIGRATION, QUARANTINE (CIQ) / OVERTIME CHARGES (In relation to the

Cost Factor Gap)

One of the most pressing issues that the industry is facing now is the imposition of Customs, Immigration and

Quarantine (CIQ) Fees which include the $100 overtime fee per aircraft and the meal and transportation

allowance of the airport personnel. In the interviews that were made, not only the representatives of the foreign

airlines, but even other stakeholders believe that overtime charges of the airport’s personnel should be covered

by the government. There should be shifting in terms of its operations so that foreign airlines will not have

extra costs, which makes them uncompetitive and therefore discourages them to have flights in the country.

The government should be persuaded to shoulder overtime charges of its personnel and to implement a system

of shifting of personnel to cover its 24/7 operations.

The Board of Airline Representatives (BAR), an organization of executives of international airlines operating

in the Philippines, said that their members mentioned that they have been paying the CIQ fees for the overtime

services rendered by customs personnel since 1990. For these international airline companies this is a very

abusive act of Customs. In a report, they pointed out that “If four flights come in, Customs charge us four times

for the same hour they were rendering their overtime charges.” Foreign airlines were forced to pay these CIQ /

overtime charges including meal and transportation allowances because Customs in the Philippines are said to

be so powerful at the airport. BAR representatives even mentioned that the customs have the power to delay

flights making it very inconvenient to the passengers as well. They also mentioned that customs officials

wanted to adopt the $1 = P50 exchange rate which started in 2005. BAR said that NAIA is the only airport in

the world that charges CIQ fees for foreign airlines. KLM Royal Dutch Airlines was reported to have stopped

its flights to Manila due to the fact that the Philippine government is imposing a lot of taxes. It was also

reported that Lufthansa stopped its Manila to Europe route in 2008.

According to Business Mirror dated August 20, 2012, Malacanang backed up the decision of Secretary

Manuel Roxas III to cease payment of overtime pay for customs, immigration and quarantine officials at the

country’s international airports. Roxas in coordination with the Department of Finance directed government

agencies performing services in international airports to field sufficient number of personnel in shifts to address

the operational requirements and avoid rendering overtime.

6. FUEL AND SECURITY SURCHARGE (In relation to the Cost Factor Gap)

This is not just an issue here in the Philippines but worldwide. With the increasing cost of fuel

¨prices, the industry’s competitiveness against other means of transport is lessened because

consumers tend to be price sensitive. Another issue related to fuel prices is the challenge among

industry operators to keep operation costs low, of which 40% of total cost goes to fuel expenses.

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In an interview with domestic cargo key player, Cebu Pacific, an increase in fuel prices has a huge effect on the

travelers because there will be an increase in surcharge fees exacted to them, which in turn will discourage

traveling and will impact on the number of flights.

In a report in The Daily Tribune last June 26, 2012, Cebu Pacific has lowered fuel surcharges to much as 20%

on all domestic flights to further bring down prices for passengers. This will take effect on flights from Manila

to Visayas, Mindanao and selected Luzon routes (less P100), from Manila to selected Luzon routes (less P50),

from Visayas to Luzon and Mindanao and within Visayas (less P50) and from Mindanao to Visayas and

within Mindanao (less P50). Cathay Pacific, the number two key player in international cargo, on the other hand, and its subsidiary Hong

Kong Dragon Airlines petitioned the Civil Aeronautics Board (CAB) for the adoption of fuel surcharge

increase to recover costs related to increasing fuel prices. It is seeking a 6.6 % increase in fuel surcharge from

$129.20 to $137.80 for flights between Hong Kong and South West Pacific, North America, Europe, Middle

east, Africa and the Sub Asia continent.

Fuel surcharges are said to be added to air fares. This is to help airlines worldwide to offset the rising cost of

fuel, which as what was said by CEB representative is 40% of their cost. However, if this continues to rise, it

will have an effect on the financial performance of the airlines. It would be difficult for them to balance the

cost with the quality of their service.

Open Skies is a policy concept that calls for the liberalization of the rules and regulations of the international

aviation industry—especially commercial aviation--- in order to create a free market environment for the

airline industry. The objectives of the policy is (1) to liberalize the rules for international aviation markets and

minimize government intervention as it applies to passenger, all cargo, and combination air transportation as

well as scheduled and charter services; and (2) to adjust the regime under which military and other state-based

flights may be permitted. For open skies to be effective, a bilateral Air Transport Agreement must be

concluded between two or more nations.

7. OPEN SKIES POLICY (In relation to the Government Support Factor Gap and the Facility Factor

Gap)

56

Last year the Philippine Civil Aeronautics Board (CAB) approved rules allowing foreign carriers to fly in the

Philippines under the Aquino administration’s “pocket open skies” policy. President Benigno Aquino III

signed Executive Order 29 (Liberalizing the Philippine aviation by easing restrictions on foreign airlines in

selected international airports outside Metro Manila) to foreign airlines specifically to airports other than the

NAIA. This was said to increase tourist arrivals and air traffic. The policy is also designed to facilitate access

to secondary airports. This is construed to favor the grant of additional frequencies capacities and rights.

According to the policy, any foreign carrier intending to engage in international air transportation to any

56 Wikipedia

118

secondary gateway or to increase its frequencies or capacities or route rights should file a petition for grant of

an increase of traffic rights over and above the limitations. It also states that CAB, in case of failure to reach

mutual agreement to grant reciprocal rights to Philippine carriers within 12 months from the grant, may revoke

the said grant. CAB may continue to allow operations of traffic rights granted under EO 29 if the Board deems

it to promote mutual interest or mutual benefit.

Open Skies Policy can open the country to other markets, however the Philippines has to be prepared as well.

It should improve its airports and its operations and invest more on infrastructure. Philippine Airlines, the

country’s flag carrier strongly disapproves on this. Other carriers are said to get more than our own domestic

airlines. For these key players, there is no reciprocity. The government is giving too much to other foreign

airlines.

1. For automation of operations such as the initiatives in E2M and the Automated Export Documentation

System (AEDS), these should be customized to Clark situation as a Freeport.

8. BUREAU OF CUSTOMS (In relation to the Government Support Factor Gap)

The Bureau of Customs in NAIA is the number one complaint of the stakeholders. From the results of the

interviews, the Customs Bureau is reported to have different policies. For instance, in the cargo delivery, the

length of how long the release of cargo differ, For some, it takes very long for them to release a particular

Given this there is a big effect on the cargo delivery because of time and speed. Every hour that the cargo is

late, there is a huge implication on the cost. In an example given by PAL, during a transshipment from HK

going to Cebu passing through Manila, the processing of all documents in Manila are being done by the

forwarders, they are the ones engaging in red tape. In a flight Tokyo-Cebu-Manila, from Cebu to Manila,

goods are being guarded, this means that would entail more costs. Customs should engage in paperless

systems, so that documentation and other activities are all automated. In this case, cargo and its activities will

be monitored and red tape can be diminished.

In terms of the Customs Bureau in Clark, in can be said that the performance of Clark is better than that of

NAIA in terms of customs operations. Most of the interviewees mentioned that NAIA Customs is a pain and

they still continue engaging in red tape. However, when BOC in Clark was interviewed it was learned that

their operations are clear and synergized. They are currently looking into the practice of E2M or the Electronic

to Mobile System. It is a system that has a tie up with the bank for easier payment and processing. For

enhancement of BOC operations, there was a request to upgrade X-ray machines for non-intrusive

examination. BOC Clark also recommends the following:

For Trade Facilitation, make Clark a tourist hub (Clark-SG; Clark to Korea and Vice Versa) – and train BOC

Personnel in the Korean language

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2. As for the Single Window initiative, BOC is already linked. Operations are already paperless and

queueless. BOC is however the one blamed for the delays and not the other agencies since BOC is the

last to issue a permit.

9. SYNERGY IN THE GOVERNMENT (In relation to the Government Support Factor Gap)

The aviation / air cargo logistics industry has a lot of room for growth, improvement and opportunities to catch

up with its successful neighboring countries. However to be able to make this happen, the government will

play a big role in leading this quest for success.

The government must make all the necessary policies and regulations to implement a smooth operation of the

industry. For instance the government should set a good example to all its employees. Each agency should

implement and follow their rules and make sure that everyone else will follow. The problem with the policies

is that those on top are giving instructions for those policies but those at the bottom are continuously doing their

old system which consist of doing red tape or the “lagayan system”. It was said in the FGDs and Interviews

that the actions of the rank and file in the government agencies specifically that of Customs cannot be

controlled. The government also was said t have no standards. Each agency is doing and implementing its own

policies. There is no presence of a regulatory board. Plans and programs should have proper coordination

among agencies in the government and simulation and this will definitely take time. What the government lack

is a sense of urgency in implementing its policies and projects. There is a Lack of Long term Urban Planning

as well. There is still hope for the government to do its part.

Aside from these, the government should provide incentives to enable business and trade in the country. The

government should provide the environment, provide better airports. This is more of a political will.

Government should help business, protect investors and continue maintain a good partnership with those who

has already investments in the country.

120

TABLE 12: Summary of Imperatives for the Air Cargo Logistics Sector (in support of the vision to

make Clark the Primary International Gateway / Logistics Hub

ISSUES DESIRED RESULT CONCERNED

GOVERNMENT

AGENCIES

UPDATES

CCT of 3% and GPB

of 2.5% to Foreign

Airlines

1. Removal of these

taxes

2. Amendment of

NIR Code Sec 28.

1. Congress

2. Senate

3. DOTC (CAB /

CAAP)

4. DOF (BOC /

BIR)

5. DOT

1. House Bill 4444

and Senate Bill

3065. The bills

seek to amend

and eliminate the

taxes being

imposed to

foreign airlines

2. There was an

HB 4444

committee

hearing held on

March 13, 2012

3. HB 6022

removes the 3%

CCT and the

2,5% GPB

imposed on all

cargo and

passenger

revenues.

4. DTI-BOI is

support drafted

comments for

both House and

Senate Bills

Open Skies Policy 1. More liberalized

aviation policy.

2. Increased

DOTC / CAB 1. EO 29 (March

14, 2011) was

issued directing

121

International carrier

Services through

reduction of cost.

the CAB and

negotiating

panels t persue

more

aggressively the

international

civil aviation

liberalization

policy.

2. Malaysia’s Air

Asia establishing

a hub in Clark

DMIA.

CIQ, overtime, meal

and transportation

charges

1. 24/7 operations at

all international

airports and

government should

shoulder overtime

payments for

personnel

1. DOF / BOC

2. DOJ / BI

3. DOT

4. DOH

5. DA

6. SBMA

7. CDC/CIAC

1. Supported by

senior

government

officials. BOC

has ordered staff

services by shifts

without overtime

pay- but

employees are

not in favor of

this and they

took legal action.

2. DOF Secretary

ordered CIQ

officials to

discontinue the

one shift practice

and have 3 shifts

for 24/7

operations

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effective May

2012.

FAA 2007 Audit:

Category Downgrade

from 1 to 2

1. Upgrade to

category 1

2. Implementation of

the DOTC Air

Traffic

Management

Project fueled by

Japan

1. DOTC (CAB /

CAAP)

2. NCC

1. CAAP still

awaiting recent

audit of the

technical review

conducted by the

team of ramon

Gutierrez in the

US>

Fuel and Security

Surcharges – its

implementation made

cargo cost expensive

Removal or reduction in

fuel and security surcharges 1. DOF

2. NCC

Customs BOC satellite office /

personnel to be stationed

outside the perimeter of the

free port zones

1. DOF / BOC

2. Eco Zones

Operators

BOC in Clark said they

are inside the airport just

for monitoring and

checking.

Increase Air Cargo

Traffic 1. New market

Opportunities

2. High Value Added

Products from

Mindanao (crops)

3. Operationalized

Distribution Center

/ warehouse

Facility in Clark

4. Completion of

DMIA Expansion

1. CDC / CIAC 1. Continuous

promotion of

Clark

2. SCADC vision

for Clark /

DMIA to be an

international

gateway airport

in the

Philippines

3. Global gateway

Logistics

Development

123

XV. VISION, GOALS AND TARGETS

I. SHORT TERM GOALS: (2016)

a. Increase in the Number of Free Trade Zones in the Country. (LOCATION FACTOR)

Acording to Captain Ben Solis, the government should decide how many free trade zones it still

wants to have. This will definitely attract foreign investors to have their business operations in

the Philippines.

b. Improvement of the NAIA Airport. (FACILITY FACTOR)Expansion is no longer

possible but at least improve the operations in NAIA especially the operational aspect.

Paperless or the E-Freight System should be implemented and practiced. In line with this CAAP

should work on regaining Category 1 classification of the Philippines. New equipment and

systems should be installed for more efficient operations.

c. Increase in the Number of Foreign Investors. (DEMAND FACTOR) The number of

Investors in Central Luzon and in Northern Luzon should be increased. This will definitely

create the need for air cargo thereby increasing cargo volume in the country.

d. Elimination of Taxes such as CCT and Gross Philippine Billings. (COST FACTOR)

This can definitely attract foreign airlines to operate efficiently and competitively.

e. Elimination of CIQ Charges / Overtime Charges. (COST FACTOR) Foreign Airlines

should not be burdened by these charges. The Philippine Government must implement the 3-

shift operations of customs

f. Provide more incentives to investors. (GOVERNMENT SUPPORT FACTOR) This are

taxes such as Preferential Tax on Free Port Zones (Businesses which are registered are entitled

to a preferential tax of Gross Income Earned in lieu of the customary national and local taxes),

Foreign Investment Incentives such as Board of Investment Incentives (Any enterprise

registered with BOI is entitled to incentives), Fiscal Incentives (Income Tax Holiday for pioneer

firms and non pioneer firms, Tax credit on raw materials, additional deduction from taxable

income for labor expense cannot be enjoyed with ITH, Duty Free importation of capital

equipment, spare parts and supplies for both export and domestic-oriented enterprises) and Non-

Fiscal Incentives (Employment of foreign nationals, Guaranteed 100% repatriation of foreign

investments and earnings and Importation of consigned equipment for an unlimited period

124

g. Position Clark as the Low Cost Carrier Airport and a Primary International Gateway.

(GOVERNMENT SUPPORT FACTOR, DEMAND FACTOR and FACILITY FACTOR)

a. Clark as the Primary International Gateway and an Air Cargo Logistics Hub

In Asia. Support marketing strategies that would promote Clark as a hub in Asia.

Since NAIA is already congested, by 2016 Clark should already be positioned to be the next

international gateway and an air cargo logistics hub in Asia. Start investments in Clark and

pursue completion of GGLC. Improve airport operations and facilities and have the best

automated systems and processes available for airport operations. Invite more Low Cost

Carriers. Have a robust marketing campaign promoting Clark as the next Air Cargo Hub.

.

II. MEDIUM TERM GOALS: (2022)

b. The Philippine Aviation back to Category 1.

(LOCATION FACTOR)

c. Development of Provincial Airports.

(FACILITY FACTOR)

d. Aerotropolis Vision for Clark.

(FACILITY FACTOR)

e. Having Railways and Improvement of Roads that would connect NAIA to

DMIA both for passengers and cargo.

(FACILITY FACTOR)

f. Fully-Automated Cargo Terminal or Cargo Village in Clark.

(FACILITY FACTOR)

g. Full Implementation of the E-Freight System.

(FACILITY

FACTOR)

h. More incentives for Investors and more policies supporting Air Cargo Sector.

(FACILITY FACTOR)

III. LONG TERM GOALS: (2030)

(GOVERNMENT SUPPORT FACTOR)

a. Cargo Terminal comparable to Hong Kong and Singapore with state-of- the- art

and fully automated facilities.

b. Air Cargo as an enabler for more trade as it promotes more connectivity with

other markets.

(FACILITY FACTOR)

(DEMAND FACTOR)

125

c. Philippines to be the center of trade and a hub to a lot of cargo carriers.

d. Continuous Improvement of Airports, Roads and Networks.

(DEMAND FACTOR)

e. To be one of the Top 10 Cargo Hubs in the World.

(FACILITY

FACTOR)

XIV. STRATEGIES AND ACTION

A. TAXES AND INCENTIVES:

1. EO 619 was signed by President Gloria Macapagal Arroyo last April 16, 2007. It states that Tax

and Duty incentives are provided to duly registered businesses that locate to special economic

zones in the Philippines.

2. RA 7916 supports that companies that opt to relocate with in a Free Port Zone are granted

generous tax breaks by the government. Corporate Income Tax is equivalent to only 5% of their

gross income and the Capital Equipment and Raw Materials can be imported Duty Free.

3. Modified and Liberalized Foreign Investment Law states that foreign Investors of any

Nationality are permitted to maintain 100% foreign equity in all areas of investment set up in the

Philippines. Foreigners are permitted to lease privately owned land from Filipino owners for 50

years with an extension of 25 years, thereby having a total of 75 years.

1. Provide more tax and duty incentives to both local and foreign investors that would allow

and attract them to expand and extend their business operations in the Philippines.

STRATEGIES: (DEMAND FACTOR & GOVERNMENT SUPPORT FACTOR)

2. Government should be deciding on how many free ports they would want to establish in the

country. Government to identify and increase the number of free port zones.

3. The government should develop more PEZA zones

B. FOREIGN INVESTMENTS:

1. Texas Instrument (TI) built its $1billion manufacturing plant in Clark. According to its Vice

President Kevin Ritchie they chose the Philippines instead of its other neighboring countries such

as Vietnam, Thailand and China mainly because of two reasons: (1) The Philippines has highly

skilled and quality labor force, and (2) The willingness of the Philippine Government to offer

favorable and attractive tax and tariff incentives.

126

STRATEGIES: (GOVERNMENT SUPPORT FACTOR)

1. The Philippine Government should create educational programs that would train and hone

the skills of Filipino Workers. This could be a continuous education program where the

objective also is to enhance the technical skills and knowledge of Filipinos. This is one of

the factors that attracts foreign companies to invest in the Philippines, our skills and talents

are among the best in the world, thus providing quality labor to these businesses.

2. Promote to the Foreign Investors the advantages of operating in the Philippines. This

should be part of the government initiative to attract these businesses to have their

operations in the country. This in effect will increase our export growth.

3. The Philippines to be the enabler for trade and connectivity. By attracting investors to

locate their businesses in the country, there would be more movement in terms of cargo

volume. If these investors would have their manufacturing plants in the country, there are

more opportunities for trade and cargo movement. The Philippines can reach a wider market

through exporting these raw materials to other countries. But the country has to first be an

attractive location and environment to these locators. The effort has to come first from the

government to attract these investors through tax incentives and an efficient system in terms

of airport operations and efficient transport of goods.

4. Develop companies such as BerthaPhil Business Park in Clark. It definitely will attract

investors who are not sure where to relocate their business. BerthaPhil is an integrated IT,

Housing and Commercial Camus which provides office, warehouse space and customized

IT facilties to different local and foreign companies.

5. Government agencies supports and extends help to investors. In Clark, CDC devoted 30

hectares in the Freeport zone to accommodate presence of support industries and suppliers

of companies such as Texas Instruments.

C. IMPROVEMENT OF ROADS AND HIGHWAYS

1. The completion of the key transportation link, Subic-Cark-Tarlac Expressway (SCTex). This

superhighway directly interconnects Subic Bay and Clark and it further extends to the Central

Techno Park in Tarlac to the north of Clark.

2. Aside from the SCTex there was the opening of a 3.5 kms North Interchange via Panday Pira

connecting Road and the opening of the Clark South Internchange which is located near the

Yokohama Tire Facility and the Clark Airport. These initiatives were made possible because most

of the locators in Clark has been requesting for an exit and entrance point to and from the Clark

Freeport.

127

3. Part of the government plan as well is to connect the North Luzon Expressway and the South

Luzon Expressway via metrorail. This however is part of the Long Term Plan which can connect

Clark to Manila.

The improvement of roads and highways will help Clark and Subic and the nearby provinces to

become important participants in the government’s Global Gateways Development Program.

STRATEGIES: (GOVERNMENT SUPPORT FACTOR AND FACILITY FACTOR)

1. More highways such as the SCTex should be develop. The plan of putting a metrorail to

connect NLEX and SLEX can be an advantage for the passengers, however in terms of

cargo it would be better to create sky ways for easier transport of cargo.

2. Government should create transport means in the free port zones. These transport means

should be available in the region.

D. IMPROVEMENT OF AIRPORTS / TERMINALS

1. The Ninoy Aquino International Airport is said to be beyond its capacity to operate. The plan of

improving the airport and faciltiies are still ongoing. However, there are a lot of issues and

problems that need to be resolved for NAIA to operate efficiently. Even if problems within the

NAIA are solved it is still operating beyond its capacity. It will only solve its current operations but

expanding the airport is not an option anymore.

2. NAIA has no cargo terminal or a single building cargo terminal where all processes and

operations related to cargo are done.

STRATEGIES: (FACILITY FACTOR AND LOCATION FACTOR)

1. To solve the capacity to expand of NAIA, taxiways should be developed for a free flow of

the aircrafts. The taxiway can be created as an alternative route to solve issues on flight

delays. This is very similar to the “U-Turn” concept of MMDA to solve traffic in Metro

Manila.

2. Look for the next international gateway for Commercial Aviation Sevices in the Philippines.

3. Look into the different areas in the Philippines, which could serve as a potential

international airport which can also be positioned as a cargo logistics hub in Asia. The

potential area or location for another international airport should (a) operate within the

requirements by the ICAO, (2) it should have access to the different modes of

transportation, (3) it within a freeport zone, (4)It should have a logistics supply facilities.

128

4. There should be a creation of a Logistics Infrastructure, Inventory Management Facilities

contained in an area near the seaport and an airport.

5. Creation of an Aerotropolis wherein a Cargo Village can be located.

6. Develop areas like Clark. (GGLC. Berthaphil Business Park

E. GOVERNMENT:

1. The government might have no synergy when it comes to implementing and prioritizing

projects.

2. CAAP is still working on the Category Upgrade.

3. The government lacks political will in implementing policies in the air cargo sector.

STRATEGIES: (GOVERNMENT SUPPORT FACTOR)

1. Re-structure or Re-organize the CAAP. The responsibility of CAAP, being both an operator

and a regulator should be thoroughly thought about. In other countries, an airport operator is

different from a regulator. This is to have a more efficient operations in the airport. The

government can remove one of these responsibilities from CAAP so it can focus and

concentrate more on its assigned duty. In this way, the quality of CAAP will also be

improved. In the new CAAP law, the Airport Transpostation Office was changed to CAAP,

it was only the name that was believed to be changed, the structure was still the same.

2. There should be no presence of customs within the free port zone. The BOC should be

relocated near the exit of the Freeport zone so as to monitor cargo going out of the zone.

This would create ease in the cargo movement.

4. Presence of Political Will. The government must take the lead in creating policies and

implementing these policies. The Philippines has the capacity to compete with its

neighboring countries specifically in being a logistics hub in Asia. The leaders just have to

set mind to it. They should start creating the need for cargo volume by improving all the

systems, improving all infrastructure and facilities, then making sure policies are in place

and are implemented. Once all these have taken place it would be very easy to attract and

invite investors to do business in the country.

5. In terms of supporting Marketing Strategies and Promoting Clark as the Next Air Cargo

Hub, there should be a focus on negotiations for express cargo flights, Organize a one-stop-

action center specifically catered to aviation industry needs, Focus overall marketing efforts

of CDC on aviation-related and aviation-dependent industries, Maintain airport fees which

are lower or comparable.

129

6. For the government to release an Information Campaign Strategy. Continue to advocate for

open skies in order to increase cargo operations.

7. For the government to have an Infrastructure Development Strategy. It should look into

targeting big players who have financial resources to have their own cargo handling and

sorting facilities, Use political ties that could provide help in negotiations with cargo liners,

Negotiate for Bank Loans or finance continuous airport improvements.

130

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