The pact by Cathay Pacific Airways on Wednesday to buy a stake in Air China has highlighted a struggle across East Asia, and especially in Hong Kong and China, over how vigorously airlines should be allowed to compete with each other on international routes.
At stake is the world's fastest-growing regional aviation market, with China at its core. The fight over market access has drawn not only airlines but investment bankers seeking deals and consultants, lawyers and lobbyists seeking contracts.
At the heart of the debate lies Hong Kong, home to Asia's biggest airport for international passenger traffic and the world's biggest hub for international air cargo shipments. Many of the arguments here echo those at hubs dominated by a single carrier in the US.
Cathay Pacific is the biggest carrier here, and has opposed allowing other airlines, especially American and Australian carriers, greater rights to fly through Hong Kong and pick up passengers to carry to other Asian destinations. At the same time, however, Cathay and the Hong Kong government have been pressing Beijing to allow more flights between Hong Kong and Chinese cities.
The most immediate question now is whether Cathay's planned 9.9 percent stake in the state-owned Air China will help soften objections from Beijing to allowing more Cathay flights to the mainland. Beijing has strictly limited the number of these flights while trying to prepare its domestic carriers for international competition, though it raised the ceiling somewhat last month and has allowed more nonstop flights lately from the US.
Antony Tyler, who oversees Cathay's route negotiations as its director of corporate development, said at a forum on Thursday that the Air China deal made sense even leaving aside the prospect of greater access to the Chinese market. "This is an investment, and getting additional traffic rights into China is a totally separate issue," he said.
But earlier in the forum, Tyler also voiced Cathay's continued desire to offer flights from Hong Kong to Shanghai. Dragonair, which has the Chinese government as its biggest single stakeholder although Cathay also owns a sixth of the shares, conducts a thriving business on the route now.
Hong Kong has moved slowly but steadily to allow more flights from other countries, but not fast enough to suit FedEx Express, in particular. FedEx is now in talks to open an Asian hub 150km up the Pearl River in Guangzhou instead, and has been critical of Cathay.
"When you look at Hong Kong, Hong Kong is a market of monopolies and duopolies," said David Cunningham, the president of Asian and Pacific operations for FedEx. "My concern for Hong Kong is that, living here and loving it, the world has moved beyond that."
Cathay Pacific carries a third of the passengers passing through Hong Kong; it holds its minority stake in Dragonair, which has another tenth of the market; and is now moving to invest in Air China, with another several percentage points of the traffic here.
Limits on competition have tended to mean high prices but also superb service. Cathay's numerous and fast-moving flight attendants manage to serve every economy-class passenger a hot meal even during 80-minute flights aboard packed jumbo jets to Taipei.
Tyler acknowledged that air fares here are somewhat higher than in other markets, but attributed this to longstanding factors, notably differences in exchange rates. He insisted that Hong Kong was a competitive market, adding that Dragonair and Cathay compete not only with each other but with at least one other carrier on every route.
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