China and Hong Kong have negotiated a new air services accord that opens up the market to new players and expands capacity for passenger and cargo services.
The deal ended months of secret talks to which airlines were not invited. Cathay Pacific Airways has been working delicately behind the scenes in its bid to secure additional China rights, while at least two other small airlines have been seeking to operate regional jets to secondary cities.
Dragonair, which held most of the China rights available to Hong Kong airlines in the previous deal, says it too will seek to take advantage of the newly available allowances. It already serves around 20 destinations in China and until last year was the only Hong Kong-based carrier serving the market, due to a now-scrapped "one-airline, one-route" policy.
Hong Kong's government says the new agreement removes limits on the number of airlines allowed to serve China. The number of routes that allow "dual designation" by carriers from each side will also be increased in phases, eventually covering them all by winter 2006. Cathay, which holds licences to serve Beijing, Shanghai and Xiamen, has until now been prevented from serving all but Beijing because Dragonair serves the two other cities and only the capital is allowed for dual airline designation. Chinese airlines already had far more rights than their Hong Kong counterparts under the old agreement.
Passenger and cargo capacity will be "substantially increased" under the deal, say authorities. Passenger capacity, they add, starts rising gradually from this month, eventually increasing by a third "such that the total number of passenger flights that may be operated by airlines of the two sides will increase from around 1,200 to 1,600 per week". Capacity for all-cargo services will be doubled to 42 frequencies a week from each side.
"It's a win-win arrangement for all, as the additional traffic rights will create abundant opportunities for both incumbent airlines, as well as newcomers," says Hong Kong's secretary for economic development and labour Stephen Ip. Hong Kong has long been criticised for being slow to open up, but its attitude towards allowing new competition has been changing, particularly as mainland Chinese authorities have been leading the way in terms of liberalisation in Asia.
China last year declared its southern island province of Hainan an "open skies" area allowing for unlimited services by foreign airlines, while its negotiators have been signing liberal bilateral air services agreements with countries in the Asia-Pacific, Europe and North America. Hong Kong has since mid-1997 been a Special Administrative Region of China, but it maintains its own air services policies.
Some disapprove of the new agreement, saying the increases in capacity allowances are not enough and criticise the fact that services to some cities will remain restricted for up to two more years. For example, a second Hong Kong-based passenger airline will not be designated to Shanghai until October 2006. Passenger capacity will increase by around 10% now and by another 10% from March next year, however, lifting to 98 the number of available weekly frequencies by the currently designated airline, Dragonair.
Hong Kong may, however, designate a new airline to operate all-cargo services to Shanghai starting from this month, while the number of weekly cargo flights that may be operated to the city will increase from 21 to 28. Dragonair already has freighter services to Shanghai while Cathay's 60%-owned Air Hong Kong is expected to seek rights to serve the city.
China's aviation market is growing faster than any other, but Hong Kong's main carrier Cathay was only able to reinstate services to the country late last year after being absent from the market for more than a decade. Cathay handed over all its China routes to Dragonair after acquiring the airline in 1990. Dragonair later came under the control of Beijing-backed companies, however, and it has started competing directly with Cathay for the first time on routes to major Asian cities such as Bangkok, Taipei and Tokyo.
In 2002, Cathay applied to Hong Kong's Air Transport Licensing Authority (ATLA) for rights to serve Beijing, Shanghai and Xiamen. Dragonair opposed the application, forcing ATLA to hold public hearings early in 2003. After a bitter public fight, Cathay was awarded licences to operate services three times a day to both Beijing and Shanghai, and three times a week to Xiamen. But it has only been able to start with three weekly services to Beijing due to restrictions in the old air services pact.
Cathay will still not be able to take full advantage of its entitlement of daily Beijing services under the ATLA licences since the new accord only allows for a relatively small increase in frequencies to the city. From this month Hong Kong carriers will be able to add four weekly passenger flights on the route and seven more from March next year.
Cathay's all-cargo subsidiary, Air Hong Kong, says it is interested in serving both Beijing and Shanghai with its freighters, while two other passenger airlines have said they want to operate regional jets to China. Last year helicopter operator CR Airways became Hong Kong's first regional jet operator when it started serving Siem Reap in Cambodia and Laoag in the Philippines with 50-seaters. It has said its main aim is to offer scheduled flights to secondary cities in China.
NICHOLAS IONIDES SINGAPORE
Source: Airline Business
