The Government is committed to enhancing Hong Kong's position as an international aviation hub. So I am proud to start with the assertion that Hong Kong is Asia's hub.

Today, over 70 airlines operate 4,500 weekly scheduled flights between Hong Kong and 140 destinations around the world. This extensive network forms the backbone of our hub. It represents a good mix between long and short-haul services; between international services and services to the Mainland; and between point-to-point traffic and transfer traffic.

More importantly, the network provides a highly competitive environment for local and foreign airlines to offer quality services at reasonable prices to passengers and shippers. 

However, none of us involved in the industry can afford to be complacent. We are in a rapidly changing environment which is characterised by fierce competition: competition from other major airports in the region and competition introduced by emerging low-cost carriers, just to give two of the most obvious examples.

Having said that, I firmly believe that we can, and we will, remain Asia's hub, provided we adopt the right formula. The formula I refer to, is the three I's, namely infrastructure, investment, and institution.

Hardware enhancement underway 

On infrastructure, we already have one of the best airports in the world. This great piece of architecture is indeed the very foundation supporting our aviation development. To stay ahead, we are continuously improving its hardware, enhancing its service quality, and adding value to its business model.

For example, the SkyPlaza is scheduled to open next year. This facility will increase passenger handling capacity and add new shopping facilities, office space and a much-improved transport interchange. Within two years, the AsiaWorld Expo will open to provide a world-class exhibition facility right next to the cabin door. In the vicinity of the airport island, new tourist attractions such as the Hong Kong Disneyland and the cable car system to Ngong Ping will be completed also in the next two years.

In short, the airport will soon be the focal point of a cluster of trade, tourism and commercial facilities.

Aviation hubs compete for catchment areas. Our population of seven million is relatively small to support a super hub, and we have to develop the vast potential market of transfer traffic. We are therefore taking a multi-pronged approach to expanding our catchment area through developing cross-boundary intermodal connections.

As far as the Pearl River Delta (PRD) is concerned, quite a number of infrastructure projects are being built or are under active planning. The Western Corridor, the Lok Ma Chau Spur Line, an express rail link with Guangzhou and the Hong Kong - Zhuhai - Macau bridge, just to mention a few.

Meanwhile, cross-boundary coach and ferry services provide seamless connections between the airport and major cities in the PRD. We are also working closely with our Mainland counterparts to further streamline customs and immigration formalities.  Together, these projects will greatly improve our airport's connectivity with the PRD.

Links with international air networks enhanced

To further stretch Hong Kong International Airport's reach beyond the PRD, we are taking steps to better link our international and Mainland air networks.

Infrastructure provides the necessary platform for private sector investment. The Government is doing our part to create a favourable environment for the private sector to make investments. We have put in place a robust and transparent regulatory regime and a comprehensive set of bilateral air services agreements for the aviation industry to operate under.

In return, our private sector is making a strong commitment to the Hong Kong hub and its future, by investing in aviation-related facilities and human resources including fleet, aircraft maintenance, catering, ground handling, intermodal connections, etc. I am especially pleased to see that stake-holders in our aviation industry have demonstrated their confidence in HKIA in a tangible way, by expanding their fleets and handling capacity in anticipation of increased traffic demand.

Before I turn to the third I, namely institution, it would be useful to say a few words about the institutional set-up in the global environment. Hitherto, international air services have operated in a highly regulated environment governed by bilateral inter-governmental air services arrangements. But times are changing and some fundamental changes are taking place.

First and foremost is the global trend of moving towards a more liberal bilateral system of air rights. Second, competition amongst major airports and the emergence of low-cost carriers have added further impetus to the liberalisation process.  Policy makers are increasingly prepared to enter into more liberal bilateral agreements to attract more traffic and enable low-cost carriers to take off (as it were).

Thirdly, although a credible multilateral institution has yet to emerge, some countries, notably the EU and some ASEAN countries, are taking the initiative to develop different forms of plurilateral arrangements. These are developments we cannot ignore.

Aviation policy clear, consistent 

Against this backdrop, Hong Kong's aviation policy is clear and consistent, namely that we should continuously expand Hong Kong's aviation network through progressive liberalisation. After two decades, we have now laid down a firm legal framework comprising over 50 air services agreements to support our network expansion. 

On this basis, we have proactively pressed ahead with our liberalisation process as evidenced by the fact that over the past two years, we have concluded open or significantly enhanced bilateral arrangements with most of our major partners in Asia, North America, Europe and Australia. And you all know that we have recently concluded another substantially expanded arrangement with the Mainland.

These liberalisation efforts are clearly bearing fruit. Since the opening of HKIA in 1998, we have achieved remarkable growth both in traffic volume and network size.  Passenger traffic has grown by 34%, cargo traffic by 77%, number of scheduled services by 50%, number of destinations by 40%.

But behind all these numbers is a far more important development, namely competition.  We are enabling more and more airlines, be they local or foreign, legacy network airlines or low-cost carriers, to enter the market and to offer more choices to consumers.

We are also allowing a second Hong Kong carrier to operate on an increasing number of major routes: Beijing, Taipei, Bangkok, Tokyo, Sydney. Apart from promoting competition, this second designation will, we believe, help create synergy between our international and Mainland networks.

This is a major step to help Hong Kong seize the enormous opportunities available in the Mainland market. It will further strengthen our position as a major international hub and the premier gateway to the Mainland.

Liberation policy serves HK's interest

Our progressive liberalisation policy has proved to serve the interest of Hong Kong. It is built on our fundamental philosophy of maintaining a level playing field, one of the pillars supporting Hong Kong's economic success. The Hong Kong SAR Government does not own airlines nor subsidise them in any way. We do not provide Chapter 11 protection or soft loans. We have no ring-fenced domestic market as a fall-back for local airlines.

Until such time as there is a multilateral institution similar to the WTO, we have to ensure that we get the best deal to serve Hong Kong's overall interest through bilateral agreements. Progressive liberalisation provides the right balance and serves that purpose.

To conclude - let me say that the long-term prospects for air travel remain promising, especially in this part of the world. Some may be concerned about competition, in particular that posed by the new Baiyun Airport in Guangzhou.

But the old days of having to turn away traffic because of capacity constraints in Kai Tak have long gone. And competition is not a zero sum game. Baiyun Airport opened on the 5th August this year. Look at our HKIA's September throughput: passenger volume increased by 15% year-on-year; flight movements 18%; cargo saw another record month. 

So, it is more a question of how we can continue to capture a substantial share of a growing market.  Hong Kong has always thrived on competition. The key to our success is doing the right things at the right time, with our legendary "can-do" spirit. Long may these continue.