HKIA Thammasat Final

Tanawat
Airport Authority
Manita
Hong Kong
Pauline
Orrawan
Hong Kong International

A Case Study OnAirport & Airport Authority
Hong Kong
THAMMASAT UNIVERSITY
Airport Authority
Hong Kong
> Being ‘Greater’
Airport Authority
Hong Kong
Agenda
Company Profile
Situation Analysis
Issues and objectives
Recommendation
Financial Justification
Key Success Factors
Conclusion
Airport Authority
Hong Kong
Company Profile
Hong Kong International Airport
The 3rd busiest airport in terms of Passenger

traffic
Recognized as the Best Airport Worldwide
Has one of the best airport duty-free shopping

Infrastructure + Service business
Company Profile
Airport Authority
Hong Kong
Situation Analysis
Where AA is
•“Gateway to China”
Currently facing
Threats
•Largest Asian
Aviation Hub
Future
Consideration:
Position as
“Gateway to China =
sustainable?”
•Role of AA in
China’s Aviation
Development?
Situation Analysis
Airport Authority
Hong Kong
Situation Analysis
Position as Gateway to
China
“Is it Sustainable?”
Situation Analysis
Airport Authority
Hong Kong
Situation Analysis
Competitive Analysis Level 1: “Emerging International
Threats”
JAPAN – Narita Int’l Airport
2nd highest volume of cargo, 8th
for int’l passengers
..But High Landing Fees and
Limited Capacity
THAILAND – Suvarnabhumi Airport

Built on over 8,000 acres of
land with 100 million
passengers in capacity
.. But is unproven in service
quality
SINGAPORE – Changi Airport

Right behind HK in terms of
service, perhaps the second
best airport
.. But has 30.4 million
passenger capacity, 50 million
less than HK
Situation Analysis
Airport Authority
Hong Kong
Situation Analysis
Hong Kong
•Location = Proximity to China
•Cargo facilities & infrastructure
Situation Analysis
Airport Authority
Hong Kong
Situation Analysis
Competitive Analysis Level 2: “Emerging Domestic
Airports”
BEIJING Capital Int’l Airport

•Massive expansion planned for
2008 Olympics  60 million
passengers.
•Expecting to build ANOTHER int’l
airport to be opened in 2015
SHANGHAI Pudong Int’l Airport

•Final capacity expected to be 80
million passengers
Situation Analysis
Airport Authority
Hong Kong
Situation Analysis
Position as Gateway to China

“Not Sustainable”
+
Large Size of
Country & Potential GDP
Population
Re-Identifying Competitive Positioning and

Goal
“Become a Significant Gateway into
Beijing and Shanghai China”
 2 Other Important Gateways
to China
Situation Analysis
Airport Authority
Hong Kong
Issues and Objectives
Where AA is ISSUES TO BE SOLVED Where AA

should be in 5
Years
Currently facing
Prioritizing PRD
Threats
Collaboration Efforts
“To maintain
leadership as
•Largest Asian
world’s best
Aviation Hub Identifying Areas for airport while
Focused Competitive Efforts becoming the
Future sole gateway
Consideration: to PRD and
Position as Paving Way for the Southern
“Gateway to China = Awakening Dragon China.”
sustainable?”
•Role of AA in
China’s Aviation
Development?
Issues and Objectives
Airport Authority
Hong Kong
HKIA Tri-Co Strategy
Recommendatio
Airport Authority
Hong Kong
Strategy Overview
Tri-Co
Strategy
Short-Term
Gaining
Strong Foothold Collaboration
In S. China
Focused
And PRD Constraints Penetration
Financial Resources
Preparing for Long-Term
Competition
East and
Time Limitation Southeast Asia
Integrating
the Gateways Connection
To China
The 3 Gateways
Recommendation
Airport Authority
Hong Kong
Collaboration within PRD
Establish strong foothold in the Region to

Tri-Co Objective become the Gateway to Southern China and
Strategy PRD.
Collaboration Current Initiatives

Focused
Enhance infrastructure efficiency and
Penetration connectivity to enhance service experience.
Create Unified Airport System with Seamless Transfer
Competition
East and
Southeast Asia
Cargo
Services + Passenger
Services
•Air Cargo Consolidation Centre •Up Stream Check-in at Ferry Ports
(ACCC)
Connection
The 3 Gateways
Financial Efficiency & Time Constraints
Where to allocate and Focus Penetration

to reap the most benefits?
Recommendation I
Airport Authority
Hong Kong
Allocating Resources to PRD cities based on:

Tri-Co •GDP of City
Strategy •Gross Value Output

•Amount of Foreign Direct Also consider
Collaboration
Investment growth rate of
Focused
Penetration
•Net Saving per Household each
•Annual Disposable Income
Competition
East and Cities

Southeast Asia
1.
Guangzhou
2.
Connection Develop Shenzhen
within
3. Fuoshan
The 3 Gateways Proximities
to these
Cities 4.
Dongguan
Recommendation II
Airport Authority
Hong Kong
Competing with Focused
Efforts
Utilize collaborations to enhance position while
Objective remaining competitive in the region
Tri-Co
Strategy
(i) Promoting PRD A5 as a Whole
Collaboration
Focused
Penetration
Competing “Connectivity”
Effectively
Market as “Region”
Competition -Enhance Image as
Gateway to S.
East and
Southeast Asia China
Identifying
(ii) Collaboration with HK Tourism Board and Gov’t
Viable Target
Connection Market -Airport Experience = Increase
Traffic?
The 3 Gateways -Need to offer incentives to “Visit” HK
for international prospective markets
-Need to encourage use of HK as
gateway to other countries for
domestic residents
Recommendation II In supplement to current initiatives
Airport Authority
Hong Kong
Efforts
Utilize collaborations to enhance position as
Objective “gateway” to the South of China and PRD
Tri-Co region.
Strategy
(i) Promoting PRD A5 as a Whole
Collaboration
Focused
Penetration
Competing “Connectivity”
Effectively
Competition
East and
Where Best Market as “Region”
-Enhance Image as
Gateway to S.
To Focus
Southeast Asia China
Identifying
(ii) Collaboration with HK Tourism Board and Gov’t
Viable Target
Efforts?
Connection Market -Airport Experience = Increase
Traffic?
The 3 Gateways -Need to offer incentives to “Visit” HK
for international prospective markets
-Need to encourage use of HK as
gateway to other countries for
domestic residents
Recommendation II In supplement to current initiatives
Airport Authority
Hong Kong
Efforts
Utilize collaborations to enhance position as
Objective “gateway” to the South of China and PRD
Tri-Co region.
Strategy
East and South-East Asia as Focused Market
Collaboration
Focused Competing Promote HK as regional

Penetration on a gateway between SE
Regional Level Asia and S. China
Competition
-Anticipated very high propensity
East and to travel for PRD residents
Southeast Asia
-At GDP level of PRD, SE Asia most
Identifying Why? attractive tourist destination
Viable Target -HKIA retail experience and
Connection Market connectivity of A5 can attract
passengers into HK
The 3 Gateways
-Sign up with more low-cost airline
to land in HKIA [incentives to land]
How?
-Low Cost Airline [core target
growth]
Supporting Marketing Efforts
Recommendation II
Airport Authority Paving Way for the Awakening
Hong Kong
Dragon
Integrating the flows between the three main
Objective gateways.
Tri-Co
Strategy
Collaboration Beijing Capital Int’l Airport
Cover Northern Region
Focused
Penetration
Shanghai Pudong Int’l Airport

Competition Cover Eastern Region
East and
Southeast Asia
HKIA
Cover Southern Region (PRD)
Connection
The 3 Gateways •Seek collaboration with other major airports

•Improve connectivity among the three main gateways
•Each focus on own region, minimize cannibalization
Recommendation III
Airport Authority Paving Way for the Awakening
Hong Kong
Dragon
Integrating the flows between the three main
Objective gateways.
Tri-Co
Strategy
Collaboration
Focused
Penetration Together,
Competition
Romance of the
East and 3 Kingdoms
Southeast Asia
“Triangular
Connection
Vanguard of the
Great Wall”
The 3 Gateways •Improve connectivity = Increase Piece of Pie
•Each focus on own region, minimize cannibalization
WIN-WIN-WIN Situation
Recommendation III
Airport Authority
Hong Kong
Timeline
Activities 2005 2006 2007 2008 2009 2010
Existing Plan
Sky City Complete
Passenger Flow Enhanc. Complete
Collaboration
Logistic Expansion Shenz. Guang. Fuosh.,Dong.
Seeking for more collaboration Other Areas in PRD
Competition
Low Cost Airlines Attract Low Cost Airlines
Marketing Promote PRD
Connection
Major Airport Beij., Shang.
Supporting Activities
Government Collaboration
Airport Authority
Hong Kong
Revenue Growth Rate
2005 2006 2007 2008 2009 2010

20.13% 25.06% 43.42% 42.16% 43.17% 43.52%
Benefit from collaboration
Attract more passengers and cargo
Airport Authority
Hong Kong
Revenue Growth Rate
2005 2006 2007 2008 2009 2010

20.13% 25.06% 43.42% 42.16% 43.17% 43.52%
Turnover and Profit
40000
35000 HK$ 28,531,000,00
30000
25000
20000 Turnover
Net Profit
HK$ 6,506,000,000
15000
10000
HK$ 11,011,000,00
5000
0
2005 2006 2007 2008 2009 2010
HK$ 1,414,000,000 Net Profit Margin: 28-32%

Airport Authority
Hong Kong
Cost Estimation (HK$)
Fund needed in total

Collaboration
Logistic Expansion 750,000,000 HK$ 2,050,000,000
Seeking for More Collaboration 200,000,000
Competition
Low Cost Airline 200,000,000
Marketing 450,000,000 Sources of Fund
Connection
Collaboration with Major Airports 200,000,000
Supporting Activities Internally generated fund
Collaboration with Government 250,000,000
Total 2,050,000,000 Available credit line
Airport Authority
Hong Kong
Cost Estimation (HK$)
Collaboration
Net Present Value
Logistic Expansion 750,000,000
Seeking for More Collaboration 200,000,000
Competition
HK$ 60,347,000,000
Low Cost Airline 200,000,000
Marketing 450,000,000
Connection Pay Back Period
Collaboration with Major Airports 200,000,000
Supporting Activities
Collaboration with Government 250,000,000 3.7 years
Total 2,050,000,000
Airport Authority
Hong Kong
Key Success Factors
Governme Selecting Continuous

nt Alliances Improveme
Support nt
Airport Authority
Hong Kong
Issues Are Solved
Where AA is ISSUES Are SOLVED Where AA

should be in 5
Years
Currently facing
COLLABORATION
Threats
“Focused Penetration”
“To maintain
leadership as
•Largest Asian
world’s best
Aviation Hub COMPETITION airport while
“East & Southeast Asia” becoming the
Future sole gateway
Consideration: to PRD and
Position as CONNECTION Southern
“Gateway to China = “Triangular Vanguards” China.”
sustainable?”
•Role of AA in
China’s Aviation
Development?
Conclusion
Airport Authority
Hong Kong
>
Beijing
Romance of the
Being ‘Greater’
3 Kingdoms
Togeth
Shanghai er
“Triangular
Vanguard of the
Great Wall”
Hong
Kong
Thank You.
Airport Authority
Hong Kong
Hong Kong International

A Case Study OnAirport & Airport Authority
Hong Kong
Airport Authority
Hong Kong Slide Navigator 1
General Analysis Focused Competitive Efforts
Incheon Airport SE Asia GDP and PPP
Regional Airport Analysis Why SEA Asia as Focused Market
China’s GDP Criteria for selecting Low-Cost Airline
Growth of Low-Cost Airline
Collaboration within PRD Growth of Low-Cost Airline in Europe (Reference)
PRD Potential Markets (GDP, FDI)
PRD Potential Markets (Savings, Income) Connecting Major Airports
A5 Airport Information Why Beijing and Shanghai should collaborate
Is Guangzhou Airport a Threat? Considerations of Future Satellite Airport Prospects
Is Macau a Threat? What to do with Hang Zhou Airport?
Why Should PRD members collaborate? Will Shanghai buy the airport?
Why not BUY stake in PRD airports? 3 Kingdoms, Different Focus
Logistics Expansion through Strategic Alliance Tactics for Integrating Gateway
Supporting Strategies
What to do with Cargo Segment Others
Privatization Considerations (Pros and Cons)
Financial Risk Management
Should HKIA be privatized?
Should Retail be a Focus Elsewhere
Risk Analysis by Strategy
Slide Navigator 2 (Financial Back-ups)
How will CEPA benefit HKIA
Presentation Slides Index
Airport Authority
Hong Kong
Slide Navigator 2
Financial Analysis
Historical Financial Statements (IS)
Historical Financial Statements (BS)
Ratio Analysis
Current Financial Position
Strategic Justification
Assumptions IS and BS
Income Statement (Pro Forma)
Balance Sheet (Pro Forma)
Ratio Analysis (Forecasted)
NPV Analysis
Turnover Breakdown after Strategy
Growth Rate Derivation
Other Financial Issues

Company valuation
Airport Authority
Hong Kong Presentation Slides
Overview Timeline and Financial Forecast
Company Background Timeline
Situation Analysis Growth Rate
Issue Identification Sales and Profit Forecast
Cost Estimation and Source of Fund
Recommendation NPV
Strategy Overview
Conclusion
Collaboration within PRD Key Success Factors
Current Initiatives Issues are Solved
Prioritize Initiatives Penetration
Analysis and Historical Data

Focused Competitive Efforts
Strengths
Competing Effectively
Weaknesses
Identifying Viable Target Market
Opportunities
Threats
Connecting
The Vanguard of the Great Wall
Airport Authority
Hong Kong
How CEPA benefit HKIA?
• CEPA (Closer Economic Partnership
Arrangement) makes governments
exchanging info on working counterparts of
newly added service sectors
– HK Gov’t: organizes promotional activities (i.e. Business
Fair for HK-Guangdong Economics, Technology & Trade
Cooperation) encourage Mainland investment & listing
– Mainland China Gov’t: Customs General Administration
promotes cross-boundary road freight transport (i.e.
relaxation of “one truck, one driver” requirement,
arrangement on freight licenses, improvement to customs
clearance services at inland control point)
Airport Authority
Hong Kong
Turnover Break-
Down
Turnover by Source (present)

Turnover by Source (forecasted)
0.77% 0.23%
Airport charges 0.68%
2.46%
5.30% Security charges 3.76%
37.53%
Aviation security
25.90% 41.47%
services
Airside support
services franchises
Retail licences 43.08%
revenue
Other terminal 2.24%
16.71% commercial revenue
2.24% 5.15% Real estate revenue
11.91% 0.57%
Other income
Airport Authority
Hong Kong
Valuation
Multiple Method DCF Method Book Value Method
P/E
P/E = 13.88
Value = HK$36,416 mil.

Best Value = HK$61,933,000
Airport Authority
Hong Kong
Growth Rate
2006
Derivation 2007
Normal GDP MKT GR Exp. Normal GDP MKT GR Exp.
Airport charges 10.00% 15% 5% 32.83% 20.00% 13.00% 15% 5% 36.45% 25.00%
Airside support services franchises 12.00% 15% 5% 35.24% 15.00% 12.00% 15% 5% 35.24% 20.00%
Retail licences revenue 15.00% 15% 5% 38.86% 30.00% 35.00% 15% 5% 63.01% 35.00%
Other terminal commercial revenue 15.00% 15% 5% 38.86% 17.00% 15.00% 15% 5% 38.86% 21.00%
2008 2009
Normal GDP MKT GR Exp. Normal GDP MKT GR Exp.
Airport charges 15.00% 15% 5% 38.86% 35.00% 17.00% 15% 5% 41.28% 40.00%
Airside support services franchises 15.00% 15% 5% 38.86% 30.00% 15.00% 15% 5% 38.86% 32.00%
Retail licences revenue 60.00% 15% 10% 102.40% 73.00% 30.00% 15% 10% 64.45% 55.00%
Other terminal commercial revenue 20.00% 15% 5% 44.90% 30.00% 20.00% 15% 5% 44.90% 30.00%
2010
Normal GDP MKT GR Exp.
Airport charges 20.00% 15% 5% 44.90% 40.00%
Airside support services franchises 15.00% 15% 5% 38.86% 32.00%
Retail licences revenue 30.00% 15% 10% 64.45% 55.00%
Other terminal commercial revenue 20.00% 15% 5% 44.90% 30.00%
Past 12 months
Cargo 15%
Conservative! Passenger 38%
Aircraft 27%
Airport Authority
Hong Kong
Privatization
Privatization Privatization
Pros: Cons:
•Another source of money •Risk of anti-competition
•More flexibility e.g., •Profit-oriented
international expansion
•Seek for profit to return
•Efficiency to SH
•Larger scope of business •Neglect country
development
Airport Authority
Hong Kong
Privatization
Privatization Do HKAA need to be

privatized?
Pros:
•Another source of money Cons:
•More flexibility e.g., •Cash cow and bankable

international expansion company
•Efficiency •Now emphasizing on

collaboration
•Larger scope of business
•One of the most efficient
airport in the world
•SkyCity project
Airport Authority
Hong Kong
Logistic Expansion
•Beside Hong Kong, the areas around PRD are still under
development
•Without the same level of development, passengers, cargos
could not be freely flow
•Logistic expansion is the mean to try to enhance PRD logistic
system to ensure the freely flow of passengers and cargos
•Emphasis on multi-modal transportation

•Consolidation center warehouse
•Alliance with logistic companies e.g., DHL and Hactl
Will Shanghai Buy Hangzhou Airport?
Airport Authority
Hong Kong
•If “Triangular Vanguard” collaboration falls through,

-Shanghai will be seeking to develop connectivity
-Hang Zhou = will be crucial to Shanghai’s Connectivity
Plan
Contingency Alternatives:
-Sell Stake Back to Local Government
-Keep Stake, but strategies should benefit all
three parties: Hang Zhou, Shanghai and Hong
Kong
i.e. logistics expansion between Hang Zhou and Shanghai
Airport Authority
Hong Kong
What to do with Hang Zhou?
•Recently acquired 35% stake of Hangzhou Xiaoshan
International Airport
•Triangular Vanguard Strategy
-Hangzhou in Shanghai’s region
A Clash in Strategy? = Yes.
-If continue to Operate – Cannibalization
of Shanghai’s area  Collaboration falls
apart
Short-Term:
•Develop Hangzhou Airport to
increase value
[not allocating all resources]
Medium to Long-Term:
•Seek out prospect buyers of
Hangzhou airport and sell= i.e.
Focus efforts in improving connectivity of Southern
Shanghai
China Region
Airport Authority
Hong Kong
Why not buy stakes in PRD
airports
Benefits of Buying Stakes:
-Gives more control over Development
BUT,
-same objectives can be reached at less cost
-collaboration = win-win situation
•Strategies should be focused on
“Bringing FLOW in and out of Hong Kong”

-Logistics expansion to enhance connectivity
-Providing Reasons for Passengers to use HK as
“gateway” to other countries
Airport Authority
Hong Kong
Risk Analysis by Strategy

•Lack of Cooperative Efforts
•Assist them = Turn their status better than us
•Failed Projects [“10 Key Projects” by AA]
•Guangzhou and Shenzhen – internationalize and becomes
threat
Focused Competitive Efforts

•Markets are Price-Sensitive – if crisis occur, pose significant
threat
•Low Cost Airlines fail to collaborate
Connection of Gateways
•Shanghai and Beijing do not collaborate – hidden agendas
•Lack strategic alliance for improving logistics
Airport Authority
Hong Kong
Should Retail be a Focus
Elsewhere
Retailing is one of HK’s attraction
One of the ways we differentiate ourselves from other airports
If retail businesses open elsewhere, there could be dilution
effect
Type of Traveller
2004
2003
HK Residents
2002 Transfer/Transit
Visitors
2001
2000
0 10 20 30 40
millions
Airport Authority
Hong Kong
Why Focus on S.East Asia
Considering China’s still growing market, SE Asia is suitable

alternative for those who cannot afford cross-continent trips
SE Asia Passenger to HK = account for largest portion of total
passengers 24%
3 Kingdoms – Different Focuses
Airport Authority
Hong Kong
Beijing Capital Int’l Airport

“Cultural”
Cover Northern Region
Shanghai Pudong Int’l Airport

“Commerce”
Cover Eastern Region
HKIA
Cover Southern Region (PRD) “International”
Fashion,
multinational
headquarters,
financial sector
Airport Authority Tactics for Integrating Gateways
Hong Kong
-build relationship by providing airport consultancy studies

-collaborate in planning how to improve connectivity between the three
gateways
OBJECTIVE:
-allow for seamless transfer between
the cities
Possible Initiatives:
-logistics expansions (allow cargo flow)
-allowing mainland China airlines to use HK
as gateway to Southeast Asia
-offering operational mutual benefits:
maintenance
-customs clearance at one point, valid for
all points
 i.e. Complete Mainland entry formalities
at HKIA
Airport Authority
Hong Kong
Macau as Threat?
•Macau currently focusing on increasing number of low

cost airline flying in to its airport
•Will threat increase when the opening of “Hong Kong-
Macau-Zhuhai” Bridge?
HKIA can turn threat into opportunity

 Bridge can draw passengers into HK as HK passenger
can leave for Macau
-adds value to passengers landing in HK
-provide value adding services (sky plaza) to draw
passengers from Macau
 Will benefit HK
Airport Authority
Why PRD members would
Hong Kong
Collaborate?
• They also want to become an international airport

•But win-win situation arises
•If market PRD as a whole and ease of traveling improves, ALL
cities will benefit as travelers have better access to
•If they try to develop an international airport the caliber of

HK on their own, it’ll take them several years
In the L-T, these PRD airports could be as strong as HKIA now

That’s why it’s important to stay one step ahead of them
(continuous development)
Airport Authority
Hong Kong
Historical Financial
Statement
Income Statement (for the year ended 31 March in HK$)
2001 2002 2003 2004 2005
Turnover 5159 5274 5417 5039 6506
Staff costs and related expenses -858 -894 -903 -903 -926
Repairs and maintenance -480 -395 -364 -341 -311
Operational contracted services -353 -285 -266 -213 -224
Government services -706 -716 -715 -694 -697
Government rent and rates -139
Occupancy expenses -133
Other operating expenses -404 -482 -504 -541 -373
Operating expenses before depreciation -2801 -2772 -2752 -2692 -2803
Operating profit before depreciation 2358 2502 2665 2347 3703
Depreciation of fixed assets -1781 -1843 -1813 -1610 -1685
Operating profit before interest and finance charges 577 659 852 737 2018
Interest and finance charges:
Finance costs -533 -428 -233 -255 -286
Interest income 34 12 12 6 4
-499 -416 -221 -249 -282
Profit before taxation 78 243 631 488 1736
Taxation -3 -2 -125 -102 -322
Profit after taxation 75 241 506 386 1414
Minority interests -3 -5 -4 -4
Profit attributable to shareholder 72 236 502 386 1410
Airport Authority
Hong Kong
Statement
Balance Sheet (at 31 March, in HK$)

2001 2002 2003 2004 2005
Total non-current asset 49030 47579 46360 48527 48219
Total current asset 963 1279 2574 1748 998
Total Assets 49993 48858 48934 50275 49217
Total current liabilities 4976 2756 3974 1297 3783
Total non-current liabilities 8839 9681 7956 11588 13010
Total Liabilities 13815 12437 11930 12885 16793
Total Equity 36178 36421 37004 37390 32424
Total Liabilities and Equity 49993 48858 48934 50275 49217
Airport Authority
Hong Kong
Statement
Ratios Analysis
2001 2002 2003 2004 2005
Liquidity
Current ratio 0.19 0.46 0.65 1.35 0.26
Quick ratio 0.16 0.42 0.62 1.28 0.25
Leverage
Debt ratio 27.63% 25.46% 24.38% 25.63% 34.12%
TIE ratio 1.08 1.54 3.66 2.89 7.06
Profitability
NPM 1.40% 4.47% 9.27% 7.66% 21.67%
ROA 0.14% 0.48% 1.03% 0.77% 2.86%
ROE 0.20% 0.65% 1.36% 1.03% 4.35%
Asset Utilization
DSO 240.20 81.25 76.88 49.76 68.73
Inventory turnover 35.10 41.86 43.34 57.26 95.68
Total Asset Tunrover 0.10 0.11 0.11 0.10 0.13
Airport Authority
Hong Kong
Statement
Current Financial Position
• Low liquidity, but given the available credit line,

borrowing ability and support from government,
low liquidity should not be a big problem
• Low leverage, high ability to borrow
• High operational efficiency
• Currently considered to be in a good financial
position
Airport Authority
Hong Kong
Assumptions
2006 2007 2008 2009 2010
Airport charges 20.00% 25.00% 35.00% 40.00% 40.00%
Security charges 10.00% 10.00% 15.00% 17.00% 17.00%
Aviation security services 1.00% 2.00% 2.00% 3.00% 3.00%
Airside support services franchises 15.00% 20.00% 30.00% 32.00% 32.00%
Retail licences revenue 30.00% 35.00% 73.00% 55.00% 55.00%
Other terminal commercial revenue 17.00% 21.00% 30.00% 30.00% 30.00%
Real estate revenue 3.00% 3.00% 3.00% 5.00% 5.00%
Other income 6.00% 6.00% 6.00% 6.00% 6.00%
Staff costs and related expenses -14.20% -14.15% -14.10% -14.05% -14.00%
Repairs and maintenance -4.80% -4.80% -4.80% -4.80% -4.80%
Operational contracted services -3.40% -3.40% -3.40% -3.40% -3.40%
Government services -10.70% -10.60% -10.50% -10.40% -10.30%
Government rent and rates -2.00% -2.00% -2.00% -2.00% -2.00%
Occupancy expenses -2.00% -2.00% -2.00% -2.00% -2.00%
Other operating expenses -5.70% -5.70% -5.70% -5.70% -5.70%

2006 2007 2008 2009 2010
Non-current assets
Fixed assets 2% 2% 2% 2% 2%
Interests in subsidiaries 25% 25% 25% 25% 25%
Other investments 4% 4% 4% 4% 4%
Other asset
Current assets
Stores and spares 1.05% 1.05% 1.05% 1.05% 1.05%
Trade and other receivables 8.40% 8.40% 8.40% 8.40% 8.40%
Current liabilities
Interest-bearing borrowings 37.10% 37.10% 37.10% 37.10% 37.10%
Trade and other payables 18.80% 18.80% 18.80% 18.80% 18.80%
Deferred income 2.20% 2.20% 2.20% 2.20% 2.20%
Tax payable 0.02% 0.02% 0.02% 0.02% 0.02%
Airport Authority Pro Forma Financial
Statement
Hong Kong

2006 2007 2008 2009 2010
Turnover 7816 9774 14018 19928 28531
Staff costs and related expenses -1110 -1383 -1977 -2800 -3994
Repairs and maintenance -375 -469 -673 -957 -1369
Operational contracted services -266 -332 -477 -678 -970
Government services -836 -1036 -1472 -2073 -2939
Government rent and rates -156 -195 -280 -399 -571
Occupancy expenses -156 -195 -280 -399 -571
Other operating expenses -445 -557 -799 -1136 -1626
Operating expenses before depreciation -3345 -4169 -5958 -8440 -12040
Operating profit before depreciation 4471 5606 8061 11489 16491
Depreciation of fixed assets -1856 -1793 -1829 -1866 -1903
Operating profit before interest and finance charges 2615 3812 6231 9623 14588
Interest and finance charges:
Finance costs -344 -430 -617 -877 -1255
Interest income 4 5 7 10 14
-340 -425 -610 -867 -1241
Profit before taxation 2275 3387 5622 8756 13347
Taxation 398 593 984 1532 2336
Profit after taxation 1877 2794 4638 7224 11011
Minority interests -5 -6 -8 -12 -17
Profit attributable to shareholder 1872 2789 4629 7212 10994
Statement
Hong Kong

2006 2007 2008 2009 2010
Fixed assets 48836 49812 50809 51825 52861
Interests in subsidiaries 1954 2444 3505 4982 7133
Total non-current asset 51182 52727 54954 57684 61215
Current assets
Stores and spares 82 103 147 209 300
Trade and other receivables 657 821 1178 1674 2397
Cash and cash equivalents 148 1965 6053 13031 24300
Total current asset 886 2889 7378 14914 26997
Total Assets 52068 55615 62331 72598 88212
Current liabilities
Interest-bearing borrowings 2900 3626 5201 7393 10585
Trade and other payables 1469 1838 2635 3746 5364
Total current liabilities 4542 5681 8147 11582 16582
Total assets less current liabilities 47526 49935 54184 61016 71630
Non-current liabilities
Interest-bearing borrowings 8900 8900 8900 8900 8900
Trade and other payables 112 112 112 112 112
Deferred income 4053 4053 4053 4053 4053
Deferred taxation 545 545 545 545 545
Total non-current liabilities 13610 13610 13610 13610 13610
Total Liabilities 18152 19291 21757 25192 30192
Capital and reserves
Share capital 30648 30648 30648 30648 30648
Reserves 3238 5647 9896 16728 27342
Total Equity 33916 36325 40574 47406 58020
Total Liabilities and Equity 52068 55615 62331 72598 88212
Statement
Hong Kong
Ratios Analysis
2006 2007 2008 2009 2010
Liquidity
Current ratio 0.20 0.51 0.91 1.29 1.63
Quick ratio 0.18 0.49 0.89 1.27 1.61
Leverage
Debt ratio 34.86% 34.69% 34.91% 34.70% 34.23%
TIE ratio 7.60 8.86 10.10 10.97 11.62
Profitability
NPM 23.95% 28.53% 33.02% 36.19% 38.53%
ROA 3.60% 5.01% 7.43% 9.93% 12.46%
ROE 5.52% 7.68% 11.41% 15.21% 18.95%
Asset Utilization
DSO 68.62 68.62 68.62 68.62 68.62
Inventory turnover 95.24 95.24 95.24 95.24 95.24
Total Asset Tunrover 0.15 0.18 0.22 0.27 0.32
Airport Authority NPV Analysis
Hong Kong
2005 2006 2007 2008 2009 2010

Cash Flow
CF w -236 1817 4088 6978 11270
CF wo -618 1676 2927 3892 5312
Net CF 0 382 141 1161 3086 5957
Terminal value 76483
CF 0 382 141 1161 3086 82441
WACC
wd 24.84%
kd 5% NPV (in million HK$) $60,347
tax 17.50%
we 75.16% PBP 3.2
ke 9.00%
WACC 7.79%
Airport Authority
Hong Kong
A5 Airport Information
Shenzhen:
•10.8km2, 53 parking space
•148 domestic destinations and 11 international
destinations.
•10 842 800 passengers, and 406 600 tonnes of
cargo.
•Ferry routes to Hong Kong International Airport,
where passengers can transit without going
through immigration and custom checks, like
transit between two flights. [all domestic flights]
Guangzhou:
•opened in Aug. 5, 2004
•Current capacity: 27 million passengers per
year
•Planned capacity in 2010: 80 million
passengers per year
•Cargo capacity: 1 million tonnes
•Planned cargo capacity in 2010: 2.5 million
tonnes
•Destinations: 100 (mostly domestic)
Airport Authority
Hong Kong
China’s GDP
Airport Authority
Hong Kong
Future Satellite Airport
Prospects
Kunming
•2003 GDP per capita: 4,355 yuan
•Foreign Investment: US$146 million and had
1,575 enterprises with foreign investment.
Nanning
•GDP per capita $1950 in 2003;
•378 flights a week, 1.646 million passengers
Guiyang
•GDP per capita of $1420 in 2003
Haikou
•GDP per capita of $2890 in 2003, 6,025,000
passengers, currently 13 airlines operating out
of this airport
Chengdu
•GDP per capita of $2503 in 2003
Airport Authority
Hong Kong
PRD Potential Markets
Airport Authority
Hong Kong
PRD Potential Markets
Zhu Hai = at this point still relatively low in GDP and Net Saving of
Urban Households
Airport Authority
Hong Kong
Low Cost Airline Growth
Airport Authority
Hong Kong
S.E. Asia PPP & GDP per
Capita
East Asian Nations = Japan and S. Korea
Airport Authority
Hong Kong
Airport Analysis
•Shanghai: long-term plan calls for a total of four terminals and four runways, for
a final capacity of 80 million passengers per year. 500 flights per day, carrying
more than 35 million passengers per year
•Incheon: good feedbacks BUT it lacks behind in cargo shipping. Currently,
capacity is 1.7 million tons compared to 3 million that’s being used in HK
•Beijing: massive expansion to prepare for 2008 Olympics. Expecting to build
ANOTHER international airport, finished in 2015.
-Capacity at 35 million passengers, increasing by 3 million per year
-27.5 million passengers, 880,000 tons of cargo and mail
-Undergoing expansion to raise capacity to 60million passengers
•Changi Airport: 1,300 hectares, 3,200 flights per week connect Singapore to 152
cities in 51 countries around the world.
- 2004: 30.4 million passengers
-Capacity: 44 million + 2.7 million for Low-Cost Terminal (with expansion
for another 20m in 2008)
•Suvarnabhunmi Airport: 4 5 million at opening day and 100 million upon full
development, Approximate 8,000 acres
-Capable of handling 9,600 bags per hour
•Narita International Airport: 8th in the world for int’l passengers, and 2nd
highest volume of cargo. 62 carriers are operating air services to and from this
airport, whose network connects 99 cities in 36 countries and 2 regions around
the world.
-One of the highest landing fee for airlines
-Growth of Low Cost Airlines
Airport Authority
Hong Kong
Incheon?
Another great airport with technological advancement

. . But it doesn’t rank up there with HK, Singapore, or Tokyo in
terms of tourism appeal
Also, It lags behind in cargo capacity
Currently, their capacity is 2.1 million tons while HK is already
using 3.09 million tons
Airport Authority
Criteria for Selecting Low Cost Carriers
Hong Kong
Main passengers who come to HK are from S.E. Asia, Taiwan,

and China
Thailand: Nok Air, One-Two-Go
Malaysia: Air Asia
Singapore: Jetstar Asia, ValuAir, Tiger Airways
Indonesia: Lion Air, Awair Airlines
Japan: JAL Express, Skynet Asia Airways, Ibex Airlines
Passenger by Market
7%
8% 24%
9%
13%
20%
19%
SEA Mainland China Taiwan
Others Japan Europe
USA & Canada
Growth of Low Cost Carriers
Airport Authority
Hong Kong
Supported by the Asian government as they can fill up unused

capacity.
Singapore: Tiger Air
Thailand: Nok Air
Singapore is even building a new terminal as a hub for budget
carriers
Asian operators can contain costs lower than the American &
European ones, leading to a more competitive playing field.
Currently, there are more than 33 low-cost airlines operating
in E. Asia ranging from Pakistan to Japan
N. America: 6% increase in international seat capacity

over July 2004, 8% overall
UK: 40% growth rate
Continental Europe: 30%
Airport Authority
Why should Shanghai & Beijing
Hong Kong collaborate?
We currently provide them consulting on aviation

operations
Provides greater convenience for customers as a
whole, and this will increase the size of the pie
Beijing has an added incentive to collaborate with HK

before the 2008 Olympics, allowing better access to
the city
All 3 cities are of large populations, and they all could

benefit in an increase in tourism, spending, etc.
FREEFLOW TRIANGLE
Airport Authority
Hong Kong
Is Guangzhou a
Threat?
Very NEW airport, opened in 2004 with capacity of 27
million passengers per year. Planning to increase to
80 million by 2010
Most of this capacity will be filled by the Domestic

market
Guangzhou lacks the attractiveness that HK has over
int’l passengers, and given the short distance within
the 2 cities, int’l passengers will more likely choose HK
over Guangzhou (because of the retail experience,
bigger business center, etc.)
Airport Authority
Hong Kong
Consideration of Risks from Seamless
Transfers
Customers may prefer a Direct flight into their city of destination

rather than having a transfer
Require more investment on fixed assets for luggage handling
PRD does not see the importance of our action plan, and our
investment becomes meaningless. Shopping experience may not be
well received
Airport Authority
Hong Kong
Cargo – How to sustain
growth
•Another important source of revenue for HKIA (17% of

turnover)
•HK is already the busiest airport in terms of cargo processing
•Noticeable problem cannot be identified
•Therefore, they should maintain what it’s doing
Airport Authority
Hong Kong
Financial Risk Management
•Natural Hedges through spreading loan over different

maturity dates
•Interest rate swaps and Forward rate agreements to
minimize interest rate fluctuations
•Hedge currency exposure with US dollar borrowings to

reduce risk of exchange rate fluctuation
Airport Authority
Hong Kong
Strengths
•Reputation as Most Modern and Efficient Airports in the World

-Modern Facilities and Quality of Service
 excellent transfer facilities and shorter minimum connection times
between flights
-Named the Best Airport Worldwide for business and leisure travelers by the
IATA
-World’s Best airport for the 5th consecutive year
-First Class cargo processing capability – help appeal to overseas direct
investors
-world class logistics SCM
-react to shorter response time demanded by trade buyers for delivering
exports
•Strong Customer-Orientation  Not just INFRASTRUCTURE but provide
“EXPERIENCE”
•Has backing of the HK SAR Government
•Located within 5 hours flying time to 50% of the world’s population, acting as a
regional hub
•Location = Key Gateway to China
•Large Airline Network = 69 airlines operating [offers incentives to fly to new
destination from HK)
•Enjoys financial success and remains profitable since the year 2000
•Established high levels of safety, security, quality services and operational
efficiency
•US/HK air services agreement, enabling US carriers to reach more Asian
destinations via HK, and allowing HK carriers to provide services to more
destinations within the US. THAMMASAT UNIVERSITY
Airport Authority
Hong Kong
Weaknesses
•Requirement of expansion of logistics facilities for growing potential

•Still faces boundary that artificially separates HK from CHINA
-traffic increase at rate disproportional to dramatic economic growth on the
Mainland
-Mainland airports of Beijing, Shanghai, and Guangzhou increased in traffic
-Hangzhou, Chongqing, and Shenzhen
Airport Authority
Hong Kong
Opportunities
•Increasing air traffic between HK and mainland China (New Target Market)
•New business initiatives such as SkyPier, DHL Express Cargo Centre, East Hall
Expansion, with the latter doubling retail space
•Cooperation with neighboring airports offers larger volumes of passengers and
cargo flows
•Development of multi-modal transportation system (complements air with land
and sea links)
•Rapid Growth of high-tech and high-value manufacturing in S. China
•CEPA agreement allows HK companies and service providers to get a head start in
China before the WTO takes effect
-enhance HK’s role as regional financial center
-center for multinationals’ regional headquarters
•Asia Pacific region is enjoying higher growth (19%) than other parts of the world
(10.7%)
•Worldwide trend/acceptance towards retail businesses in the airport (over 53%
source of revenue)
•Air Cargo within Asia Pacific enjoying higher growth (5.6%) than the rest of the
world (2.8%) (p28)
•PRD alone on verge of explosive growth regarding its propensity to travel
•Increase in non-aeronautical revenues
Airport Authority
Hong Kong
Threats
•HKIA traffic rate not growing at the same rate as the economic growth of China
due to competition from airports in the mainland (Beijing, Shanghai, Guangzhou,
Shenzhen, Hangzhou, Chongqing) as the Chinese gov’t focuses on this sector (p22)
•Competition from abroad as the super hub comes from Singapore, Thailand,
Korea, and Japan
•Increases in direct services into China bypassing HK
•Direct flights from Chinese mainland to Taiwan
•HK size of market has limited growth potential
•Rapid deregulation of air services, increase in LFC, and increase of airport hubs
•Need to set cost-effective charges that enable airport to be competitive with
other international airports (liberalization of airports)
Airport Authority
Hong Kong
Company Profile
Turnover by Source
Retail Licences Revenue
5% 3% 2% 1% Other terminal commercial

26% revenue
Airside support services
franchises
Airport C harges
Security C harges
5%
41%
Real Estate Revenue
17%
Aviation security services
Other income
Company Profile

HKIA Thammasat Final

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Tanawat

Hong Kong International

> Being ‘Greater’

Key Success Factors

Hong Kong International Airport

The 3rd busiest airport in terms of Passenger

Recognized as the Best Airport Worldwide

Has one of the best airport duty-free shopping

THAILAND – Suvarnabhumi Airport

SINGAPORE – Changi Airport

BEIJING Capital Int’l Airport

SHANGHAI Pudong Int’l Airport

Position as Gateway to China

Re-Identifying Competitive Positioning and

Where AA is ISSUES TO BE SOLVED Where AA

HKIA Tri-Co Strategy

Establish strong foothold in the Region to

Collaboration Current Initiatives

Where to allocate and Focus Penetration

Allocating Resources to PRD cities based on:

Strategy •Gross Value Output

East and Cities

Focused Competing Promote HK as regional

Shanghai Pudong Int’l Airport

The 3 Gateways •Seek collaboration with other major airports

Activities 2005 2006 2007 2008 2009 2010

Passenger Flow Enhanc. Complete

Seeking for more collaboration Other Areas in PRD

Marketing Promote PRD

Revenue Growth Rate

2005 2006 2007 2008 2009 2010

Benefit from collaboration

Attract more passengers and cargo

Revenue Growth Rate

2005 2006 2007 2008 2009 2010

Turnover and Profit

HK$ 1,414,000,000 Net Profit Margin: 28-32%

Cost Estimation (HK$)

Fund needed in total

Cost Estimation (HK$)

Governme Selecting Continuous

Where AA is ISSUES Are SOLVED Where AA

Hong Kong International

Other Financial Issues

Analysis and Historical Data

Turnover by Source (present)

Multiple Method DCF Method Book Value Method

Value = HK$36,416 mil.

Best Value = HK$61,933,000

Privatization Do HKAA need to be

•More flexibility e.g., •Cash cow and bankable

•Efficiency •Now emphasizing on

•Emphasis on multi-modal transportation

•If “Triangular Vanguard” collaboration falls through,

•Strategies should be focused on

“Bringing FLOW in and out of Hong Kong”

Collaboration within PRD

Focused Competitive Efforts

Considering China’s still growing market, SE Asia is suitable

Beijing Capital Int’l Airport

Shanghai Pudong Int’l Airport

-build relationship by providing airport consultancy studies

•Macau currently focusing on increasing number of low