Effective from August, Hong Kong-based airline Cathay Pacific raised business and first class fares to Vancouver by 10-15%. The increases were part of a 3% to 15% rise affecting most of the airline’s routes.

Cathay said it would also adjust its network, increasing flight frequency on high-demand routes such as to the Middle East, while reducing frequencies on others less in demand, such as Vancouver. ‘The extent of the impact fuel prices are having on our business was underlined when we announced a loss of HKD663mn (US$84.9mn) in our interim results last week’ chief executive Tony Tyler said on August 12.

He said the carrier’s network was being ‘reshaped… to ensure we fly aircraft to where we can cover our costs and also make some money’. The losses were the first experienced by Cathay Pacific since the 2003 SARS crisis. During 2007 the airline said it had carried 23.5mn passengers and 1.6mn tons of cargo.

Despite the tougher times expected in the passenger business, in our latest Hong Kong Freight Transport Report BMI predicts that Hong Kong air freight will grow at an average annual rate of 5.0% over the next five years.

All the evidence indicates that the powerful economic boom in mainland China will continue to create a complex mix of opportunities and threats for Hong Kong. In general, as the Special Administrative Region (SAR) repositions itself, we believe it will be the higher-value/lower-bulk transport modes that are most resilient, despite the current spike in jet fuel costs. So we remain relatively confident about prospects for airfreight, particularly for regional trade in electronics, IT products and express/parcel delivery.

The territory retains some extremely important advantages. In BMI’s freight transport rating, Hong Kong scores a total of 76.5 (out of a potential maximum of 100), with particular strength in both the regulatory and competitive environments and a satisfactory showing in the ratings for long-term economic risk and infrastructure growth. This will continue to make it an attractive place for the freight industry, more so if it can begin to grapple with its higher costs, relative to the mainland.

According to our latest estimates, transport and communications GDP rose by 7.4% in 2007, one percentage point faster than overall GDP, which we estimate to have increased by 6.4%. For the 2008- 2012 forecast period we expect the transport and communications sector to continue outpacing the economy as a whole, although by a smaller margin. It will achieve average annual growth of 5.5%, versus 5.1% for overall GDP. The total value of transport and communications GDP will rise to US$33.2bn in nominal terms by 2012, representing 11.0% of Hong Kong’s GDP.

We continue to trim sea-borne freight forecasts to take account of the growing competitive threat from rival ports, particularly those in Mainland China, with lower labour costs, such as Shanghai and Shenzhen. We expect throughput to grow by an annual average of 4.8%, down from the 8.0% figure over the preceding five years. Rail freight, always relatively marginal in Hong Kong, will grow at 5.4%, an increase on the rate over the preceding five years.