Hong Kong airport shutdown: What it means for business and the economy

Hong Kong(CNN Business) Authorities in Hong Kong have canceled hundreds of flights this week because of major protests at the city's international airport. That's terrible news for companies operating in the financial hub.

The decision to cancel all departures and inbound flights not already in the air on Monday afternoon was made after thousands of pro-democracy protestors gathered at the airport, the region's third busiest after Beijing and Tokyo.

The disruption ran into a second day Tuesday. Riot police clashed with protesters and all outbound flights were canceled late afternoon because of a large protest at the airport.

Protests have been rocking Hong Kong for months, and the crisis is already having a noticeable effect on the city's economy. Some demonstrations have ended in violent clashes with police.

The airport shutdown is a stark reminder of the risk to global businesses and the city's tourism sector.

More than 74 million passengers traveled to and from the airport last year. It handles 1,100 passenger and cargo flights each day, and serves about 200 destinations around the world.

The airport contributes 5% to Hong Kong's GDP, directly and indirectly, said Frank Chan, Hong Kong's transport secretary, in May.

"This is a disaster for Hong Kong that will cost tens of millions of dollars," said Geoffrey Thomas, editor in chief and managing director of AirlineRatings.com, a website that monitors airlines.

The direct impact of Monday's suspension isn't the only problem, he said.

"Travelers for months to come will cancel and rebook with other airlines to avoid Hong Kong as a hub," Thomas added.

Hong Kong is home to seven Fortune Global 500 companies, including Lenovo (LNVGF) and CK Hutchison (CKHUY), and it operates as a regional base for big corporations and major banks that prize its semi-autonomous legal system and close ties to mainland China.

Companies have already reported "serious consequences from the disruption," including lost revenue, disrupted supply chains and shelved investments, the American Chamber of Commerce in Hong Kong said last month.

Fewer visitors, less business

Hong Kong's status as a hub for business travel was already under threat before the protests began.

More business travelers are taking direct flights to mainland China instead of stopping over in Hong Kong, according to a February report compiled by the Hong Kong Tourism Board.

It's still too early to assess the economic impact of Monday's shutdown, said Eleanor Wan, the CEO of BEA Union Investment Management, an investment firm based in Hong Kong.

But she added that the airport closure will have a "negative psychological impact," noting that several countries have already issued travel warnings for the city.

"I'm afraid there will be even fewer visitors coming and fewer hotel bookings," Wan said. She also pointed out that Hong Kong hosts many conventions that keep its hotels and conference centers busy.

Some flights had resumed earlier Tuesday before the latest cancellations happened. But the city's image has already suffered.

"This will severely damage its reputation and it will take a long time to recover," said Thomas, the aviation expert.

The turmoil could also give rivals a leg up. Thomas pointed to places like Singapore as an alternative gateway to China and the rest of Asia that could benefit from Hong Kong's problems.

Cities in mainland China, including Shanghai and Shenzhen, have also gradually developed major financial markets of their own.