Long-time allies Cathay Pacific Airways and Dragonair have formally become enemies, after a public row broke out in Hong Kong over rights to serve China - the fastest-growing aviation market in the world.
The first signs of a spat came in the second half of last year, after Dragonair was given rights to compete head-to-head with Cathay for the first time on passenger services on the lucrative Hong Kong-Taipei route.
Soon after that Cathay applied for rights to serve three points in mainland China already served by Dragonair, namely Beijing, Shanghai and Xiamen. Dragonair, which makes most of its money from China services, lodged an objection, forcing Hong Kong's Air Transport Licensing Authority (ATLA) to call the first public route licence hearings in more than a decade.
Five days of ATLA hearings were wrapped up on 29 January and another four-day round of testimony has been set for March. The January hearings saw senior executives from both sides engaging in often heated exchanges.
At one point Cathay's lawyers described as "absolute rubbish" claims by Dragonair that the China market is not big enough to sustain another airline operating from Hong Kong. Cathay executives went on to argue that the smaller carrier was "crying wolf" in claiming that its future was threatened if Cathay were allowed to compete with it.
At the hearings, Cathay argued: "Hong Kong is currently being bypassed by China-bound traffic from Europe, North America, Australia and South-East Asia. Our aim is to change these traffic flows and enhance connectivity through Hong Kong."
Cathay adds: "Other airlines, such as Singapore Airlines, Thai Airways, Japan Airlines and Korean Air, and hubs in the region, have recognised the potential of the China market and are developing connecting services of their own. Hong Kong will find it hard to recover ground lost to competitor hubs if it falls any further."
Many observers believe the China rights fight is part of a bigger game plan by Chinese interests to win outright control of successful Dragonair, which was started as a competitor to Cathay in the mid-1980s but which was taken over by the larger carrier in 1990.
Cathay and its parent Swire Pacific still in fact own around a quarter of Dragonair, although the smaller carrier has been steadily forging its independence since Chinese interests took control in 1996.
Then, Cathay and Swire had sold the biggest single stake in Dragonair to Beijing-backed China National Aviation (CNAC) in return for a promise that CNAC would not launch a competing airline in Hong Kong. Many believe CNAC has now forced Dragonair to object to Cathay's China rights bid to pressure the larger airline into selling more Dragonair shares to it.
Another development at Cathay has seen the resumption of talks with its pilots' union. The two sides have been at loggerheads for years, and have not held meetings since October 2001.
NICHOLAS IONIDES SINGAPORE
Source: Airline Business
