Cathay Pacific has launched an immediate review of its North American expansion strategy after the signing of a landmark air service agreement with the US. The breakthrough comes as welcome relief to Hong Kong negotiators embroiled in a bitter bilateral dispute with Australia.
The US deal was forged in early October after years of stalled negotiations, mostly over US fifth freedom traffic. The Hong Kong flag carrier has won direct access to 14 additional US cities after previously being limited to only west coast gateways. Cathay currently flies only to Los Angeles and insiders suggest it may move quickly to launch a Hong Kong-New York non-stop service.
The US has also gained from what has clearly been a measured backdown by both parties, with an increase in the current fifth freedom rights to Japan, Thailand and Singapore and new fifth freedoms to South Korea and the Philippines for FedEx.
But while Hong Kong negotiators and Cathay managers are delighted with the US deal, hopes appear to be fading of finding a resolution to the dispute with Australia. Four months after the two sides avoided reciprocal sanctions by agreeing to try to renegotiate the bilateral by next January, relations are strained. One source in Hong Kong suggests: 'The whole issue is taking on the appearance of the Titanic heading straight for an iceberg.'
The previous bilateral was abandoned after a row over Qantas' fifth freedoms beyond Hong Kong to Singapore and Bangkok. Cathay accuses the Australian carrier of filling those flights with Hong Kong originating passenger and wants a cap placed on the fifth freedom traffic.
A round of talks scheduled for early October was postponed for 10 days at the request of the Australian government, which has already hinted its carriers may use Macau's new international airport instead.
But Cathay officials scoff at the threat, saying direct flights through Singapore and Bangkok are much more attractive options than submitting their passengers to an hour long ferry ride to Hong Kong from Macau. Of more concern to Cathay officials is Australia's threat to limit the carrier's access to only one Australian city, reasoning that Qantas and Ansett have access to only one port in Hong Kong.
The two sides were due to meet in October and the accord with the US will not help the Australian position. It is understood the US has agreed to an undisclosed cap on Hong Kong-originating passengers for beyond flights by US operators.
The deal is the result of the US administration's renewed efforts to focus on Asian bilateral issues and comes in the wake of the mini-deal reached with Japan in July and the recent compromise with the Philippines (see p22).
Source: Airline Business
