The future of Hong Kong's Cathay Pacific looks increasingly uncertain as it attempts to fathom the motives behind a China National Aviation Corporation (CNAC) application for an air operator's certificate in the territory, in a move to set up a Chinese-controlled, Hong Kong-based international airline to compete with Cathay.
The manoeuvre - CNAC is wholly-owned by the Civil Aviation Administration of China (CAAC) - is the first indication that Cathay may lose its long-established dominance after Hong Kong returns to Chinese rule in 1997. It has also sparked renewed concerns over whether Beijing will allow Cathay to remain majority controlled by foreign interests: UK-based Swire Group holds 52.4 per cent of the carrier's shares.
CNAC is interested in competing with Cathay on several of its major routes, and on the lucrative air link between the territory and Taiwan. But Cathay managing director Rod Eddington believes there is room for only one Hong Kong flag and that consolidation may be inevitable in Asia. Cathay has always said its position as Hong Kong's sole operator was assured by Chinese officials. Mainland Chinese interests hold a 22.5 per cent stake in the carrier.
CNAC's move comes amid a series of bilateral disputes over the extensive fifth freedom rights held by major overseas operators. At presstime Hong Kong and Australian government officials were in talks over claims Qantas is over-using fifth freedom rights through Hong Kong to Singapore and Bangkok.
CNAC's bid for a licence sparked rumours that China is preparing for mainland interests to take control of Cathay. However, Eddington insists Swire does not intend to reduce its shareholding to make way for Chinese control. 'I don't think China has enough capital to increase its stake in Cathay,' he says.
Allowing a Chinese-controlled company to call itself a Hong Kong entity would contravene the Anglo-Chinese Joint Declaration on Hong Kong, according to Cathay. 'Whether a Hong Kong company clearly controlled from Beijing can qualify as having Hong Kong as its principal place of business' is crucial, says Cathay chairman Peter Sutch.
Meanwhile Hong Kong has clamped a 50 per cent quota on Qantas fifth freedom traffic from June 30 and Australia is threatening to retaliate with action against Cathay's direct flights. Cathay says all Qantas' Hong Kong-Bangkok passengers and 85 per cent flying to Singapore originate in Hong Kong, in breach of an agreement which says most through traffic must originate in Australia. Australia argues the ASA contains no limits on fifth freedom traffic. Hong Kong is also concerned about fifth freedom incursions by airlines from Canada, the US, Britain and Singapore.
Meanwhile Hong Kong has clamped a 50 per cent quota on Qantas fifth freedom traffic from June 30 and Australia is threatening to retaliate with action against Cathay's direct flights. Cathay says all Qantas' Hong Kong-Bangkok passengers and 85 per cent flying to Singapore originate in Hong Kong, in breach of an agreement which says most through traffic must originate in Australia. Australia argues the ASA contains no limits on fifth freedom traffic. Hong Kong is also concerned about fifth freedom incursions by airlines from Canada, the US, Britain and Singapore.
Source: Airline Business
