Sat, Aug 03, 2002 page10

• Cathay Pacific looks to resume Chinese routes

  LOOKING WEST Seeking to position itself in a market poised for further opening, the company seeks to regain mainland flight rights it transferred to Dragon Airlines in 1990

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  Cathay Pacific Airways Ltd (國泰航空) asked Chinese aviation regulators for permission to resume flights to China after a 12-year hiatus, stepping up competition with Hong Kong Dragon Airlines Ltd (港龍航空) and other local rivals.

  Asia's sixth-biggest airline by sales told China's Civil Aviation Administration and the Hong Kong government that it's interested in operating flights between Hong Kong and Chinese cities, said Cathay's spokeswoman Lisa Wong.

  Cathay transferred its Chinese flight rights in 1990 to Chinese state-controlled Dragonair, which is emerging as a competitor on regional routes, including to Taiwan. Cathay Pacific's lack of flights to the rest of China from Hong Kong has limited its ability to tap the country's rising demand for air travel.

  "If Cathay Pacific can get a line in, it'll be a good route and they'll provide competition to Chinese airlines like China Southern and China Eastern," said Kitty Chan, who helps manage US$80 million for Lippo Securities [Holdings] Ltd. "At the beginning, though, they may not get many routes or frequencies."

  State-run China National Aviation Co owns 43 percent of Dragonair, with Cathay and its parent Swire Pacific Ltd. holding a combined 26 percent.

  The resumption of Cathay flights to Chinese cities may trigger increased competition the national carrier, Air China (中國航空), and for China Southern (中國南方航空) and China Eastern (中國東方航空), analysts said.

  The three airlines are in the middle of absorbing smaller regional carriers previously under the control of China's Civil Aviation Administration. The Chinese government wants to set up three major airport hubs based in Beijing, Shanghai and Guangzhou.

  Cathay would likely to first operate to major cities including Beijing and Shanghai when it gets approval, tapping the market for full-fare business travelers, said Peter Hilton, an analyst with Credit Suisse First Boston. "You follow the business travelers because that's your natural client base."

  Some analysts said Cathay's China push is a form of compensation for the carrier losing some of its dominance on the Hong Kong-Taiwan route, one of Asia's busiest.

  Hong Kong-based Dragonair won rights for its first passenger flights to Taipei in a June accord and has started to operate 22 weekly flights on the route.

  Peter Harbison, managing director of the Sydney-based Center of Asia-Pacific Aviation, said Cathay will face a much bigger threat to its business when China and Taiwan agree to direct flights, bypassing Hong Kong.

  "Cathay has a window in which it needs to entrench its position both in terms of access to the Chinese mainland market and in terms of preparing the way for what happens when direct services start between Taiwan and the mainland," Harbison said.
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