Scheduled destination. Half the world s population lives within 5-hour flying time from Hong Kong

Transcription

1 THE AIRPORT AUTHORITY HONG KONG ( the Authority ) is a statutory corporation wholly owned by the Government of the Hong Kong Special Administrative Region. The Authority is charged with the operation and development of Hong Kong International Airport ( HKIA ). Scheduled destination Half the world s population lives within 5-hour flying time from Hong Kong As the gateway to China and much of Asia, HKIA is one of the busiest international airports in the world. Last year, over 34 million passengers and more than 2.5 million tonnes of cargo passed through the airport. More than 70 airlines operate some 4,000 flights a week from HKIA to more than 130 destinations worldwide. With 50% of the world s population within five-hour flying time, HKIA is a multi-modal international aviation centre and superhub of the region.

2 We are an integrated multi-modal transportation hub for flow of people, goods, services and information. Contents 3 Event Highlights 4 Chairman s Statement 8 Chief Executive Officer s Overview 12 The Board and Executive Directors 14 Financial and Operational Highlights 15 Business Review 18 Safety, Security, Quality and Efficiency 24 Customers and Retail 30 Planning and Growth 36 Corporate and Community 40 Financial Review 47 Report of the Members of the Board 52 Auditors Report 53 Financial Statements 80 5-Year Financial and Operational Summary

3 2 >> AIRPORT AUTHORITY HONG KONG ANNUAL REPORT 2002/03

4 Event Highlights April 02 >> The Authority unveiled details of its proposed multi-purpose SkyPlaza development with facilities for passengers, transport and business. May 02 >> HKIA was voted Airport of the Year for the second year in a row by Skytrax Research, a UK-based aviation research company. June 02 >> HKIA received an Eagle Award from IATA recognising the value for money that it provides to airlines. July 02 >> Expressions of Interest were invited from around the world for development of the International Exhibition Centre in the northeast corner of the airport. September 02 >> Hong Kong hosted the largest ever Air Cargo Forum with 4,000 delegates and 250 exhibitors from 69 nations. Airport Ambassador programme launched to promote customer service at the airport and vocational training for young people. (Senior Ambassadors joined the scheme in December 2002.) Launch ceremony held for the comprehensive transformation of the Arrivals Hall with new retail and catering and miniature gardens. October 02 >> A 15-year franchise for development, construction and operation of an Express Cargo Terminal at HKIA was awarded to DHL International (Hong Kong) Ltd. HKIA was voted Best Airport by readers of Travel Trade Gazette Asia and was Best Large Airport in the J D Power & Associates 2002 Global Airport Satisfaction Study. November 02 >> A Letter of Intent on flight diversions and emergency support was signed by the five Pearl River Delta airports at a semi-annual A5 Forum meeting. December 02 >> A 15 percent discount on aircraft landing and parking charges was extended until December Airport Customer Service Champion Awards presented to frontline service staff to recognise outstanding performance during the year. January 03 >> The Authority announced new records for cargo, passengers and flight movements, making 2002 the best year ever for aviation in Hong Kong. A new Arrivals Duty Free pavilion opened offering a wide choice of duty free and general merchandise for last minute purchases by arriving passengers. February 03 >> A total of 25 luxury brand licences and 23 catering licences announced for the East Hall shopping area which is undergoing a major renovation and expansion. A community gardening project was launched on the airport island, using composted kitchen waste from airport restaurants. Opening took place of the Airport- Mainland Coach Station, featuring a waiting lounge and sheltered bays for 10 coaches. March 03 >> The Authority launched its second bond issue for retail investors. The issue was 8 times over subscribed. The SARS outbreak started to have a very severe adverse effect on business at HKIA. April 03 >> A relief package of reductions on various charges was offered to airport business partners suffering from the impact of SARS. The title of Cargo Airport of the Year 2003 was awarded (for a second consecutive year) to HKIA by industry magazine Air Cargo News. May 03 >> A major revitalisation package was introduced to stimulate traffic and bring travellers back to Hong Kong immediately after the lifting of the travel warning against Hong Kong and Guangdong by the World Health Organisation. ANNUAL REPORT 2002/03 AIRPORT AUTHORITY HONG KONG >> 3

5 Chairman s Statement A record year The financial year ending 31 March 2003 was a successful one for the Airport Authority. Hong Kong International Airport saw record throughputs of both passengers and cargo. This resulted in a respectable net profit of HK$502 million which represents an increase of 113% on the last financial year. Starting from late March 2003, the Severe Acute Respiratory Syndrome (SARS) has, however, inflicted considerable damage on the local economy and on tourism and air travel generally. Both SARS and the war in Iraq will have a substantial negative impact on our business for the coming financial year. We also need to plan for the impact of direct services between the Chinese Mainland and Taiwan, whenever these may be resumed. We continue to adjust our planning and our services to these uncertain circumstances. Dr Victor Fung Kwok-king Chairman HKIA has a key role to play in the recovery of Hong Kong. Looking to the long term, there are many positive factors for the airport, most particularly the continued dynamic economic growth of China. HKIA is developing a series of strategies to ensure that it remains a principal hub of air transport infrastructure supporting this growth, especially in the Pearl River Delta region. The airport, as an important engine for economic development in Hong Kong, has a key role to play in the recovery of Hong Kong from the challenges the territory presently faces. Our regional context A part of that role has been made possible by the new powers of the Authority to extend its activities outside of the airport island. These powers are now available to us following the passage of the Airport Authority (Permitted Airport-related Activities) Order by the Legislative Council in October The context for the Order is a very competitive environment for aviation in China. With the rapid growth of the economy, airports within the Mainland of China are developing fast and airports in the region and around the world are ever increasing their direct services into the Chinese Mainland bypassing Hong Kong. No longer can we rely on our traditional role as the only international gateway to China. 4 >> AIRPORT AUTHORITY HONG KONG ANNUAL REPORT 2002/03

6 CHAIRMAN S STATEMENT There is now, however, tremendous potential for HKIA to assist in building international links for the Pearl River Delta, a region which has become the manufacturing centre of the world. Our major platform for the development of links with the Delta is the A5 Forum of Pearl River Delta airports, which was formed in Through co-operation rather than head-to-head competition, we intend to expand the customer base for southern China so that all five airports can benefit and use their resources in the fullest and most appropriate fashion. We achieved considerable progress in the Forum last year and the five airports signed a Letter of Intent on flight diversions and emergency support procedures in November Creating new flows Taken together, the Order and the A5 Forum are a firm foundation for extending our facilities and activities to access new flows of people and cargo from within the Chinese Mainland. These new flows are essential for our long-term growth and for us to maintain our position as one of the strategically important international airports of the world. To access and serve our new flows we are already developing HKIA as much more than an airport. This means the delivery of many initiatives within a strategy to provide properly for all parts of the markets that we serve. One sign of this strategy in action during the year was the award of the contract to build and operate an Express Cargo Terminal. When this opens in 2004, the terminal will cater for the fastest growing sector of the overall cargo market. Cargo traffic will also be boosted by the establishment of cargo consolidation centres within the Delta itself by 2006/07. These centres will bring us geographically closer to our customers in the Delta region so that we can understand and respond quickly to their changing requirements. HKIA has tremendous potential to lead the development of international aviation links for the Pearl River Delta. Passengers, on the other hand, are being attracted through the development of multimodal transport links, with HKIA acting as the consolidation point for flows from many modes and directions. A new coach station for Mainland passengers coming to HKIA was opened during the year and a cross-boundary ferry terminal is due to open in summer Our ability to serve parts of our departing passenger market is also to be increased with a new facility called SkyPlaza, whose construction is due to start within This major new development will feature a variety of services for passengers and other airport users, but with a special emphasis on tour groups and passengers travelling to or from the Mainland of China. ANNUAL REPORT 2002/03 AIRPORT AUTHORITY HONG KONG >> 5

7 CHAIRMAN S STATEMENT Additional flows of passengers for the airport will also be created through the International Exhibition Centre, the first phase of which is due to open in late We will develop specialised services and facilities for delegates to exhibitions and conferences so that the particular needs of this market segment are effectively served. The International Exhibition Centre will act as a magnet for future development within the SkyCity commercial complex (which also includes SkyPlaza). With access by air, land and sea, SkyCity will bring a new dimension of business to HKIA. The dedication and enthusiasm of our staff is the solid guarantee of the safety, security and health of our airport. The airport experience New cargo and passenger facilities and transport services are one aspect of the overall strategy in building our future business. They are vital in creating the flows that stimulate the development of new destinations and flight frequencies. The quality of the airport experience, built around the resources brought in by new flows, is also essential to attracting passengers. This means close attention to such factors as security and safety, customer service and shops and restaurants. Excellence in all of these factors will be vital to our development, in the face of keen competition, as the international hub for the Chinese Mainland as a whole. In the wake of the SARS outbreak, a comprehensive regime of health measures has been introduced to ensure that passengers and the airport community are adequately protected. These health measures, together with the high standards of security and safety achieved at HKIA, are vital elements in our effort to attract passengers. We have refined many aspects of our security measures in close co-operation with the police and other Government departments. We also made good progress in ensuring the safety of all persons at the airport, working towards our ultimate target of zero injuries. Customer service has been a central theme of our work within the passenger terminal throughout the year. During the year, we have made many changes within the terminal to improve the quality of the customer experience. New restaurants have been opened in the Arrivals Hall and we have expanded duty free and other shopping for arriving passengers. Once the new retail starts to open in the expanded East Hall in late 2003, we will boast more top brand name shops than any other airport. Our people and our partners During the year, we made considerable progress in managing our human resources. In response to the Hay Report on the Review of Remuneration of Senior Executives in Statutory and Other Bodies, we achieved a closer alignment of our pay structure with the private sector by successfully implementing a variable compensation scheme for senior management. 6 >> AIRPORT AUTHORITY HONG KONG ANNUAL REPORT 2002/03

8 CHAIRMAN S STATEMENT The 970 staff of the Airport Authority have achieved a great deal during the year in growing our business and in meeting the needs of customers and business partners. I am most grateful to them all for their dedication and enthusiasm. They have worked tirelessly to make HKIA a safe, secure and healthy airport. The additional health measures now in place will give world travellers confidence and peace of mind when travelling through HKIA. I am also delighted to acknowledge the contribution of all members of the airport community of some 45,000 individuals working with our many partner organisations at HKIA. To assist our business partners in coping with the financial impact on their business of SARS, in April 2003 the Authority offered a relief package which includes reductions in charges and interest-free deferred payments. In addition, in May we announced another multi-million dollar revitalisation package under the name of Operation SkyFit to stimulate traffic and bring travellers back to Hong Kong. We sense huge opportunities for growth and are determined to seize and exploit those opportunities. We have benefited a great deal from the assistance provided to us by Government departments, both in terms of current airport operation and in terms of support for our ambitious plans for the future. We are particularly grateful for Legislative Council and Government support in passing the Order permitting us to extend our activities outside the airport island. An uncertain outlook Immediately, we have to address the rebuilding of passenger throughput, which in its worst week averaged below 20,000 a day. Our aim is to reach at least eighty percent of our normal traffic by December To achieve this target, we have launched an intensive marketing campaign to reassure the travelling public that HKIA is fit and healthy and to welcome passengers back. Looking beyond this phase, as numbers grow for both passengers and cargo, we will be clearly focused on expansion of capacity just in time to meet demand. As our facilities and services develop, we will fulfil our mission to create one of the leading international airports of the world, a key driver for the economy of Hong Kong. Faced with intense competition and uncertainties in the world s economic and political situation, plus the impact of SARS on regional aviation, I nonetheless remain very confident in our continued ability to prosper and grow. We manage an airport infrastructure amongst the finest in the world. In the short space of five years since airport opening, we have been recognised as a world leader for service to passengers and businesses alike. The growth potential of our markets in China and beyond is enormous. I know that we have the capability to make the very best use of that potential and to go on to set new global standards for airport management. Dr Victor Fung Kwok-king Chairman Hong Kong, 30 May 2003 ANNUAL REPORT 2002/03 AIRPORT AUTHORITY HONG KONG >> 7

9 Chief Executive Officer s Overview More than an airport Dozens of airports throughout the world can boast of their hundreds of flights a day and of their millions of passengers a year. All of us do our best to offer convenient connections and transshipments for passengers and cargo. However, HKIA is much more than just an airport. Instead, we are becoming a centre for the integration and management of multi-modal flows of people, goods, services and information. Such flows are the basis for the growth and success of HKIA, and our development and enhancement of these flows brings economic value to Hong Kong and the Pearl River Delta region. Dr David J Pang Chief Executive Officer Results for the year In a challenging environment for aviation worldwide, while taking bold steps to position HKIA for future growth, we have also accomplished all the corporate goals set at the beginning of the year. We achieved another record year for HKIA. Passenger numbers were up by 3.3% at 34.2 million and cargo throughput was up by 20% at 2.55 million tonnes. Net profit for the year was up 113% at HK$502 million. The increase in profit can be attributed to both traffic growth and productivity improvements and is a very satisfactory result when set against general economic difficulties in Hong Kong. In fact, HKIA has been able to reduce operating expenditure every year for the past three years in spite of volume increases. HKIA integrates and manages multi-modal flows of people, goods, services and information. By and large, our record results reflect the international aviation links that we provide to serve the fast economic growth of the Chinese Mainland. Our ability to link our growing catchment market with the rest of the world, and to serve that market effectively in the face of keen competition, remains the key to our future success. We will achieve that success by continuing to think and act well outside the box of a traditional airport operator. I am, however, very conscious that, even with such a rate of increase, our third consecutive year of profit increase still represents a low return on our net assets. We have much work ahead of us to improve this return by realising more fully the potential of HKIA as one of the greatest international airports in the world. We maintained our excellent credit rating and this was reflected in the success of our second retail bond issue, launched in March 2003, which also showed a good acceptance by the public of the HKIA as an investment. 8 >> AIRPORT AUTHORITY HONG KONG ANNUAL REPORT 2002/03

10 CHIEF EXECUTIVE OFFICER S OVERVIEW We achieved further international recognition for our service quality. This recognition included our leadership by a wide margin as Best Large Airport in the 2002 Global Airport Satisfaction Study conducted by J D Power and Associates, and the title Best Airport from Travel Trade Gazette Asia. HKIA received an Eagle Award from the International Air Transport Association (IATA) highlighting the value for money that we offer to airlines. Other accolades included recognition as Airport of the Year 2002 by Skytrax Research of the UK, and (for a second consecutive year) as Cargo Airport of the Year 2003 by Air Cargo News. A Diamond Award in the Public Sector/Not-for-Profit Organization Category of the 2002 Best Corporate Governance Disclosure Awards of the Hong Kong Society of Accountants was also the second such award in a row. We will achieve success by thinking and acting outside the airport operator box. Our health We accomplished so much in the past year while living by our core values in safety, security, quality and ethics. These values remain the trusted guides and uncompromising standards for how we conduct our business at HKIA. As a result of our disciplined processes for safety at work, our total staff recordable injuries were again reduced by half, for a second consecutive year, meaning that we are right on track to achieve our goal of zero injuries. Safety in all parts of the airport remained a top priority for the HKIA through the year. I am proud that tightening of security procedures through the year was achieved with minimum inconvenience to our passengers. We will never compromise on the standards we set for security of the airport and will maintain our vigilance in the face of new threats. Our success in increasing passenger and cargo throughput in challenging times certainly owes much to the quality of service offered to customers by ourselves and our many business partners in the airport community. The results of passenger satisfaction surveys conducted over the past year provide ample evidence that our many initiatives to improve customer service are indeed bearing fruit. I am delighted that the Customer Service Excellence Programme that we launched in early 2002 has brought such solid results in a relatively short space of time. Much progress was made in transforming the airport into a service business offering a unique airport experience. Many changes and new facilities - for example, in terms of shops, restaurants, transport and information - are our direct response to surveys of customer needs. A warmer environment is also being created with miniature gardens, landscaping and cultural performances. Such initiatives are part of our drive to attract passengers by offering much more than just the basic infrastructure of an airport. This was a year of excellent health for HKIA, and our fundamentals are solid and reliable. ANNUAL REPORT 2002/03 AIRPORT AUTHORITY HONG KONG >> 9

11 CHIEF EXECUTIVE OFFICER S OVERVIEW Our core values in safety, security, quality and ethics guide our conduct of business at HKIA. Our growth For sustainable growth, HKIA s strategy is to maximise the push and pull through of passenger and cargo flows and we have been making intensive efforts to increase the flows into the airport. This means improving connections with our target markets, particularly in the Pearl River Delta, and removing barriers between them and us. We have opened a fine new coach station for Mainland passengers coming to HKIA and a cross-boundary ferry terminal is due to open in summer All such initiatives are again a reflection of our intention to build our business by developing as much more than an airport pure and simple. The Pearl River Delta is vital to our cargo business as 70% of air cargo handled at HKIA has its origin in the Delta region. Barriers to access to HKIA for cargo are being dismantled through facilities such as our Marine Cargo Terminal and the direct sealed truck services between HKIA and Mainland cities offered by both Hong Kong Air Cargo Terminals Limited and Asia Airfreight Terminals Limited. For our customers, we are integrating multi-modal transport flows to provide the fastest, most reliable and most economic air transport solutions. We have also made progress during the year in integrating with the four other airports in the Pearl River Delta. This has involved both multilateral links being established through the A5 Forum and bilateral links. By developing co-operation among the five airports, we will improve regional and international access to the whole of China, which is now the fastest growing aviation market in the world. In the new financial year, the outbreak of SARS is having a substantial impact on our business. At the end of May 2003, immediately after the lifting of the travel advisory against Hong Kong and Guangdong by the World Health Organization, we announced an aggressive revitalisation package to stimulate traffic and bring travellers back to Hong Kong. In the longer term, I believe that our plans and projections for growth will remain valid and appropriate to our potential and prospects. Crises come and go, but the flows of people and goods will continue. Temporary setbacks must not make us lose sight of our long-term vision. In summary, we have made excellent progress with development of our platform for growth. In particular, we are well on schedule in implementation of all of the ten key growth projects laid out in the Master Plan 2020 that we published in late Indeed, four of these projects will either be complete or sufficiently operational to contribute to our business within at most a year from now. Our passenger and cargo markets have been developing very much in line with the targets set in the Master Plan and we will continue to bring our ten key projects forward just in time to meet that demand. Our people and our organisation We could not have accomplished what we have achieved in terms of both excellent health and sustainable growth without the creativity and dedication of our people. 10 >> AIRPORT AUTHORITY HONG KONG ANNUAL REPORT 2002/03

12 CHIEF EXECUTIVE OFFICER S OVERVIEW The integration of diversities in our organisation is ever further advanced. Combined together, the many and varying talents of our people are a great source of energy and innovation. As HKIA reaches maturity with implementation of Business Units and Service Units, lines of accountability have become clearer. We are increasingly outward oriented towards our markets and our customers and able to act with speed and determination in tackling and solving their problems. As part of the continuous effort to build an organisation of continuous learning, sharing and caring, early in 2003 we established an Airport Management Academy with a vision to pass on some of the management expertise we have developed at HKIA. The Academy as it develops will synchronise our corporate culture of learning and sharing. It will assist us in our mission of setting and sharing new global standards for airport operation and management. Partnerships for the journey ahead As integrator of the airport, we depend very much on the quality of service provided by our many business partners. Our progress and achievements during the year are the fruit of the excellent partnerships that we have formed with so many other organisations. Their enthusiastic participation in many joint initiatives during the year has been crucial to the achievement of our common goals of service excellence and business growth. HKIA has come a long way in its first five years. From the base of a superb piece of hardware, we have built a successful service and experience business. Our challenge going forward is to integrate ourselves with the huge markets that we serve in the Mainland of China. Remember that HKIA is not just an airport, it is a centre of multi-modal flows of people and goods. Together with our business partners, we will contribute to the economic growth of Hong Kong and the Pearl River Delta region. We have much to learn and also much to offer. I am very sure that our organisation and its staff have the capabilities and commitment to achieve the great task ahead. Our challenge is to integrate with the other four airports in the Pearl River Delta to maximise the value of our available resources and assets. I would like to take this opportunity to thank all my colleagues in HKIA, all our business partners and the Government for their parts in achieving another record year. The good counsel and vision of our Board Members have also been invaluable in developing our strategies for the future and in overcoming present challenges. I look forward to continuing support from staff, business partners, the Government, the Board and our many other stakeholders as we overcome the challenges posed by the SARS outbreak and other economic uncertainties; and then go on together to achieve an even greater future in the years to come. Dr David J Pang Chief Executive Officer Hong Kong, 30 May 2003 ANNUAL REPORT 2002/03 AIRPORT AUTHORITY HONG KONG >> 11

13 The Board and Executive Directors >> 1 >> 2 >> 3 >> 4 >> 76 >> 87 >> 98 >> 910 The Board Dr Victor Fung Kwok-king >> 1 Chairman Aged 57. First appointed to the Board in June 1999 and was re-appointed in June Chairman of Li & Fung Group. Chairman of the Hong Kong University Council. Hong Kong Representative on the APEC Business Advisory Council. Member of the Tenth National Committee of Chinese People s Political Consultative Conference. Dr David J Pang >> 2 Chief Executive Officer* Aged 59. Appointed as Chief Executive Officer in January Former Corporate Vice President of E.I. DuPont and Chairman, DuPont Greater China. The Honourable Mrs Selina Chow Liang Shuk-yee GBS JP >> 3 Aged 58. First appointed to the Board in June 1999 and was re-appointed in June Member of the Legislative Council. Chairman of the Hong Kong Tourism Board. Mr Daniel R Fung QC SC >> 4 Aged 49. First appointed to the Board in June 1999 and was re-appointed in June Chairman, Des Voeux Chambers. Chairman of the Broadcasting Authority. Chairman, East-West Strategic Development Commission Limited. Member of the Tenth National Committee of Chinese People s Political Consultative Conference. Former Solicitor General of the Hong Kong SAR Government. Mr Stephen lp Shu-kwan GBS JP >> 5 Secretary for Economic Development and Labour* Aged 51. Became a Board Member in July 2002 upon his appointment as Secretary for Economic Development and Labour. Mr Albert Lam Kwong-yu JP >> 6 Director-General of Civil Aviation* Aged 59. Became a Board Member in October 1998 upon his appointment as Director-General of Civil Aviation and was re-appointed in June 1999 and June Mr Frederick Si-hang Ma JP >> 7 Secretary for Financial Services and the Treasury* Aged 51. Became a Board Member in July 2002 upon his appointment as Secretary for Financial Services and the Treasury. Mr John Strickland GBS JP >> 8 Aged 63. First appointed to the Board in June 1999 and was re-appointed in June Director of Hong Kong Exchanges and Clearing Limited. Director of Esquel Holdings Inc. Director of Wheelock and Company Limited. Member of the Hong Kong University Council. Member of the Antiquities Advisory Board. Member of the ICAC Operations Review Committee. Former Chairman of the Hongkong and Shanghai Banking Corporation Limited. 12 >> AIRPORT AUTHORITY HONG KONG ANNUAL REPORT 2002/03

14 THE BOARD AND EXECUTIVE DIRECTORS From left to right: Mr Alex Derbie, Mr Hans Bakker, Mr Raymond W C Lai, Mr Howard Eng Kiu-chor, Mr Willie W Chan >> 5 >> Miss Maria Tam Wai-chu GBS JP >> 9 Aged 57. First appointed to the Board in December 1995 and was re-appointed in June 1999 and June A Barrister. Hong Kong deputy to the National People s Congress. Member of the Committee for the Basic Law of the Hong Kong SAR under the Standing Committee of the National People s Congress. Member of the Board of the Urban Renewal Authority. Former Member of the Executive Council and Legislative Council and former Chairman of the Transport Advisory Committee. Dr Peter Wong King-keung BBS JP >> 10 Aged 57. First appointed to the Board in December 1995 and was re-appointed in June 1999 and June Chairman of Newmark Company Limited. Member of the Tenth National Committee of Chinese People s Political Consultative Conference. Member of the Town Planning Board. Vice Chairman of the Hong Kong Arts Development Council. Former Member of the Airport Consultative Committee. Mr Hans Bakker Commercial Director Aged 54. Appointed in June Former Managing Director of Schiphol International, Amsterdam. Mr Willie W Chan Human Resources and Administration Director Aged 53. Appointed in October Former Regional Vice President - Human Resources, Asia Pacific Japan Australia, American Express International Inc. Mr Alex Derbie Legal Director Aged 54. Appointed in November A Solicitor. Former Senior Legal Adviser of MTR Corporation Limited. Mr Howard Eng Kiu-chor Airport Management Director Aged 50. Appointed in December Former Acting Airport Management Director. Former Vice President of Operations, Edmonton International Airport, Canada. Mr Raymond W C Lai Finance Director Aged 53. Appointed in August Former Senior Vice President, Head of Corporate Banking & Capital Markets of ABN AMRO Bank N.V., Hong Kong. Executive Directors * Member by virtue of being holder of the post Mrs Ivy Chan Poon Yuen-man KPMG Secretary to the Board Auditors ANNUAL REPORT 2002/03 AIRPORT AUTHORITY HONG KONG >> 13

15 TURNOVER in HK$ millions 6,000 5,000 Financial and Operational Highlights 4,000 3,000 2,000 1, /99* 99/00 00/01 01/02 02/03 Financial Results (in HK$ millions) 2002/ /02 Turnover 5,417 5,274 PROFIT (LOSS) ATTRIBUTABLE TO SHAREHOLDER in HK$ millions TOTAL PASSENGERS in millions /99* 99/00 00/01 98/99* 99/00 00/01 01/02 02/03 01/02 02/03 Operating Profit before Depreciation 2,665 2,502 Depreciation of Fixed Assets 1,813 1,843 Finance Costs Profit Attributable to Shareholder Financial Position (in HK$ millions) 2002/ /02 Total Assets 48,934 48,858 Total Borrowings 7,801 8,450 Capital and Reserves 36,978 36,399 Capital Expenditure Return on Net Assets 1.4% 0.6% Debt / Equity Ratio 1 : : 4.3 CARGO TONNAGES in thousands 3,000 2,500 2,000 1,500 1,000 Operational Highlights (in thousands) 2002/ /02 Total Passengers 34,198 33,101 Cargo Tonnages 2,546 2, Aircraft Movements /99* 99/00 00/01 01/02 02/03 Note: Total passengers include originating, terminating, transfer and transit passengers. Transfer and transit passengers are counted twice. AIRCRAFT MOVEMENTS in thousands Credit Ratings 150 Standard & Poor s: 2002/ / Long-term local currency issuer credit rating AA- AA /99* 99/00 00/01 01/02 02/03 Long-term foreign currency issuer credit rating A+ A+ * 6 July 1998 to 31 March >> AIRPORT AUTHORITY HONG KONG ANNUAL REPORT 2002/03

16 BUSINESS REVIEW The health of our airport is nurtured by a keen attention to security, safety and efficiency and a dedication to global standards for frontline service. The growth of the airport is developed through the ten key projects in our Master Plan 2020 which will deliver rapid integration with the Pearl River Delta. And finally, our success is achieved by the creativity and innovation with which our people respond to the many challenges that face us. The pursuit of health and growth by the Authority and our people is made possible by our close partnerships with Government, airlines, regional airports, airport service providers and many other organisations. ANNUAL REPORT 2002/03 AIRPORT AUTHORITY HONG KONG >> 15

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18 ORGANISED Safety, Security, Quality and Efficiency >> Business partners took >> Joint working with >> Independent monitoring >> Constant pressure on part with enthusiasm in many Government departments of HKIA has shown fast costs is making us an ever safety campaigns which, was key to further tightening progress in service quality. leaner organisation. Creative taken together, helped us of security and security was This owes much to the use of technology helped meet all our targets for also a major focus of the hundreds of airport improve our productivity and reductions in injuries. We work of the A5 Forum of organisations involved in develop more effective have put safety at the core of Pearl River Delta airports. customer service. We are relationships with our many all activities on the airport HKIA was rated best in class determined to maintain the airport partners. However, island and our final target is always zero injuries. by passengers for sense of security and yet delay upward momentum on service standards and keep we never seek savings that would impact adversely on RIGOROUS to travellers was kept to ahead of the competition. service to passengers. a minimum. INNOVATIVE

19 BUSINESS REVIEW Safety, Security, Quality and Efficiency Safety The safety of all persons at the airport remains a core value of our business and is fundamental to all our activities in operating HKIA. We aim to be the best airport in the world which also means becoming the safest airport. Simply put, our goal is zero accidents. During the year HKIA met all targets for reductions in injuries. Job-related injuries were recorded for two staff of the Authority itself (2001/02: 4 staff; and 2000/01: 10 staff). There were also reductions in terms of other safety parameters such as airport staff and passenger injuries and traffic accidents both inside the aircraft operation area and on the public roads. Improvements were achieved with the help of all our business partners at the airport. The Authority worked with them through a series of campaigns focusing particularly on Baggage Hall Safety, Ramp Safety, Road Safety and Lift and Escalator Safety. We have also reviewed their Safety Management Plans and conducted safety audits with them. A Baggage Hall Safety Campaign was conducted for a second year. The Campaign included a number of competitions to recognise best practice. Other activities included safety talks and sessions on defensive driving. We also installed a number of extra features to improve safety such as additional lighting, mirrors at blind spots and additional CCTV. With the help of all these measures, the average injury rate has dropped from 3.3 cases per month in 2000 to fewer than one case per month in Our ultimate target of course is zero injuries. To foster a culture of ramp safety, a Ramp Safety Campaign was conducted for a fourth year. Apart from the focus on aircraft ground services safety, the Campaign also put a particular emphasis on ramp personnel safety. Safety talks, a safety quiz and a staff occupational health suggestion scheme were conducted to increase the safety awareness of ramp staff. As ramp safety is a shared responsibility, the Authority, together with all 14 ramp handling franchisees, signed a Ramp Safety Commitment Charter. 88 Ramp Safety Ambassadors from all ramp handling franchisees were trained and appointed to participate in ramp safety drives. With all these measures, we achieved an OSHA ramp staff injury rate of 3.06 per 200,000 hours worked. The index is well below our target and equates to less than half of the injury rate of comparable US airports. The target for next year is for a 20% reduction in ramp injuries. 18 >> AIRPORT AUTHORITY HONG KONG ANNUAL REPORT 2002/03

20 BUSINESS REVIEW To minimise the risk of lightning strike at the airport, an Airport Lightning Warning System (ALWS) was commissioned in May The System provides real time warnings to organisations at the airport to alert outdoor staff of the approach and the passage of lightning storms. A visual and audio warning system, which will help rapid dissemination of warnings, is being installed in the aircraft parking aprons. Security Security is fundamental to the airport business. There was a continued tightening and refinement of security procedures during the year in response to the threat of terrorism. The Authority and its subsidiary, Aviation Security Company Limited (AVSECO), worked in close partnership with the Police, other Government departments and the airport community to maintain a heightened level of vigilance. Despite additional security restrictions and procedures, inconvenience and delay to the travelling public was kept to an absolute minimum. This remained the case even at Chinese New Year when more than 1,000 extra flights were scheduled over a two week period. Indeed, AVSECO ended the year 2002 as best in class for security inspection in the IATA Global Airport Monitor survey. In the same survey, passengers rated HKIA best in class for sense of security. During the year we improved our security infrastructure by rebuilding our two mid-field screening facilities. The new facilities will provide a much better environment for the screening of vehicles and airport staff entering the enhanced security restricted area. These facilities have been designed to cater for forecast increases in vehicular and cargo movements and also to provide flexibility for security processes to adapt to changing operational and regulatory requirements. EQUIPMENT AND FACILITIES RELATED ACCIDENTS (Excluding aircraft flying related accidents) No. of accidents per 1,000 movements Hong Kong International Airport* 22 Asian Airports** 353 World Airports** 155 European Airports ** * Annual average for the year ended 31 March 2003 ** Airports Council International 2001 Survey AIRCRAFT RELATED GROUND INCIDENTS (Excluding aircraft flying related accidents) No. of accidents per 1,000 movements A rigorous programme of contingency training and drills for security threats, fires, typhoons and other emergencies was maintained through the year. A full scale emergency drill, involving a simulated air crash of an A320 jet carrying 160 passengers, was mounted in November to test the effectiveness and overall co-ordination of the various organisations response plans Hong Kong International Airport* 22 Asian Airports** 353 World Airports** 155 European Airports ** * Annual average for the year ended 31 March 2003 ** Airports Council International 2001 Survey ANNUAL REPORT 2002/03 AIRPORT AUTHORITY HONG KONG >> 19

21 BUSINESS REVIEW NUMBER OF PASSENGER INJURIES IN TERMINAL* No. of injuries per million passengers A Safety and Security Taskforce was formed within the A5 Forum of Pearl River Delta airports and a number of meetings were held during the year. Members visited HKIA in December 2002 and showed particular interest in the Hold Baggage Security Screening System which is seen as the model for an integrated security and baggage handling solution. Looking ahead, we will continue a phased replacement and updating of systems and equipment to meet emerging needs of security at the airport. HKIA will also continue to build on the co-operation and sharing that has been established in the A5 Forum on safety, security and emergency support AA STAFF JOB RELATED INJURIES Staff injury (%) * /02 02/03 * A passenger injury in terminal is defined as an occurrence with personal injury in the passenger terminal area. Note: Passenger numbers include originating, terminating and transfer passengers. Transit passengers are excluded. 00/01 01/02 02/03 * Staff injury rate in percentage is defined as no. of staff injuries in the fiscal year over total no. of staff as at 31 March. Quality The measurement of quality of performance in our service to passengers is essential feedback to our efforts to create the best airport experience in the world. As reported in the IATA Global Airport Monitor Survey, passengers noted significant improvements in the quality of services at HKIA during the year. In the area of courtesy, helpfulness of airport staff, our improvement was particularly notable. This last achievement is an indicator of the success of the Airport Customer Service Excellence Programme that began at the start of A concerted programme of training and campaigns was conducted in partnership with all airport service organisations including Government departments. The objective has been to develop a consistently friendly approach to customer service. The programme culminated in the presentation of the Customer Service Champion Awards in December. Awards were made to frontline service staff with records of consistently exceeding customer service expectations through Our work with airline partners on improvements in service to customers has shown particularly impressive results. We are grateful to airlines for the enthusiastic co-operation that has resulted in these excellent improvements. The Passenger Care Team established in March 2002 continued to act as a guarantee of added care and support to stranded passengers in times of emergency such as typhoons. Regular drills were conducted through the year to ensure the operational readiness of the Team which is formed from the Authority s non-operational staff on a rotation basis. The value of this drill in honing the performance of the Team was apparent when it was activated in September 2002 during Tropical Storm Hagupit. 20 >> AIRPORT AUTHORITY HONG KONG ANNUAL REPORT 2002/03

22 BUSINESS REVIEW Looking ahead, we are determined to maintain our quality standards and to develop longterm consistency in achieving international leadership. The big changes currently underway in our shopping and catering facilities will certainly help us to reach that goal. Only by offering the finest airport experience in the region on a consistent basis can we be successful in beating stiff competition to establish HKIA as the superhub for Asia. Efficiency The Authority has achieved a fifth consecutive year of reductions in operating expenditure. Constant pressure on costs has become part of our corporate culture. However, we never look to achieve savings through dilution in our service to customers. Cost reductions are being achieved through the repackaging of maintenance contracts as these come up for renewal. Specialised work that can be carried out by internal staff is being taken out of contracts. This means a reduction in the cost of the contract and also opens up contracts to less specialised contractors. The potentially high costs of meeting the challenge of technical obsolescence are being reduced in an innovative way. A leasing approach has been devised for tackling the server migration for the Airport Operational Database. This customised lease reduces our capital outlay and also provides flexibility for upgrading to a newer model. In recognition of our excellence in strategic enterprise IT deployment, the Authority has been admitted by the CIO Asia Magazine as CIO 100 Honouree As well as achieving efficiency in terms of cost savings, we are also undertaking reviews of major business and operational processes with a view to eliminating activities that add little value to service delivery at the airport and thus to increasing efficiency. In addition, the trend towards automation of workflows within our organisation is accelerating and simplifying the ways in which we do business, both internally and with outside partners. Maintaining health The sound health of the airport is a firm base for our future growth and success. We will continue to measure our health against ever higher standards for customer service, safety, security and efficiency. By meeting and exceeding those standards, we will also meet our responsibility as custodian of a facility that is so vital an element in Hong Kong s prosperity and future development. ANNUAL REPORT 2002/03 AIRPORT AUTHORITY HONG KONG >> 21

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24 DELICIOUS... Customers and Retail >> We work closely with >> Meeters and greeters now >> Miniature gardens and art >> Speed of access between COOL! airlines, restaurants, enjoy a transformed Arrivals exhibitions in the terminal the airport and the Mainland retailers and other partners Hall. A major expansion of are together creating a of China is key to our to respond to changing the main East Hall shopping warmer and more relaxing success in building new customer needs. Arrivals area will soon be complete environment for customers. markets. Connecting duty free now allows last with a new food court and These visual elements are passengers to and from minute purchases whilst many new shops and other complemented by audio Mainland have been plugged a Boutique Boulevard will retail areas will then follow offerings with regular in closer with a new coach cater to demand for this programme of rebirth. performances of Chinese and station and direct ferry luxury brands. Western music and traditional connections into the Pearl songs at festival times. River Delta will commence operations in the summer of TRENDY...

25 BUSINESS REVIEW Customers and Retail AIRSIDE OPERATION PERFORMANCE Percentage (%) Serving our customers The refinement of the HKIA airport experience involved many new initiatives during the year in terms of facilities, processes and, in particular, customer service. In all these initiatives, we continue to be guided by our feedback on what the customer needs and wants. This feedback is gained from quality surveys, direct from customers to our staff and through regular liaison with our service partners at the airport including airlines, restaurants, retailers, Government departments such as Immigration, Customs & Excise and Police, and many more. 80 As a result of such feedback, we continue to work on key elements in the service package 75 such as speed and convenience of flow within and to and from the airport and information to orient passengers. We continue to exploit the latest technology to add comfort and 70 00/01 01/02 02/03 convenience to the passenger experience. Average percentage of aircraft allocated to frontal gate. Average percentage of aircraft departure on time*. * Departure on time is defined as the outgoing flights take off early or within 15 minutes of schedule. AVERAGE TIMES OF FIRST AND LAST BAGS INTO ARRIVALS HALL AFTER AIRCRAFT LANDED Average time (minutes) Speeding connections through technology New technology is being exploited in partnership with airlines in a pilot project to avoid bottlenecks at check-in. Wireless infrastructure established at HKIA now allows airline staff to perform some pre-check-in processes for passengers away from check-in desks thus easing pressure in peak periods. This facility is particularly helpful for transfer passengers where speed is often of the essence to catch the connecting flights. And for all passengers it helps increase the time available for enjoyment of airport facilities. In July 2002, HKIA joined the Simplifying Passenger Travel Interest Group, an international initiative managed by IATA. The vision behind the initiative is for airport partners to work together to simplify procedures involving passengers. Technology is to be introduced to replace or streamline repetitive checks of passengers and their documents. Procedures will also be streamlined to the benefit of frequent travellers who will be able to use a Frequent Visitor Express Channel that is currently being developed. 15 Our baggage handling system was made even more reliable during the year with a 10 design modification which has brought significant performance improvements. This 5 change has contributed to speeding passenger flow through the terminal. Passenger 0 First bag Last bag movement to and from the more distant departure and arrival gates has also been speeded up by reducing the platform dwell time of the APM intra-terminal train to only 30 seconds. 00/01 01/02 02/03 First bag performance pledge Last bag performance pledge Multi-modal transport connections Coach services for passengers connecting to and from the Pearl River Delta became even more convenient during the year with the opening of the Airport-Mainland Coach Station. Located on ground level at the northern end of the Arrivals Hall, the Coach Station features a waiting lounge and sheltered bays for 10 coaches. Five coach operators now offer up to 24 >> AIRPORT AUTHORITY HONG KONG ANNUAL REPORT 2002/03