jakob
Sep 5, 02, 12:25 am
Cathay Pacific and Dragonair are on a flight path for conflict as they move in on each other's routes following the government's abandonment of its "one airline, one route" policy.
It emerged yesterday that Cathay is poised to ask the government for the rights to fly five important Asian routes from Hong Kong that are now solely held by Dragonair.
According to sources close to Cathay, the airline's application - to be made to the Air Transport Licensing Authority (ATLA) next week - covers the rights to Sendai in Japan, Phuket in Thailand, and Phnom Penh in Cambodia, three destinations to which Dragonair already offers regular services. Also to be included in Cathay's application is a request for two other destinations for which Dragonair holds rights but to which it does not yet fly - Madras in India and Pusan, South Korea.
Cathay's move follows Dragonair's successful application for Taipei rights in June. The granting of the first overlapping passenger service for the two Hong Kong airlines represented an end to the government's policy of non-competition, adopted in 1986.
The two carriers have been actively seeking rights to each other's routes since Dragonair began Taipei flights in July.
Cathay last month applied to ATLA for the right to resume flights to Shanghai, Beijing, and Xiamen in the mainland, while Dragonair made similar moves for five regional services currently being operated by Cathay - to Bangkok, Manila, Tokyo, Seoul and Sydney.
Cathay's latest application is expected to be gazetted by the government for public consultation two to three weeks after Dragonair's application is unveiled next Friday.
It is uncertain whether Cathay plans to launch services on the routes in the short term. Airlines normally hold rights to more routes than they actually fly.
Sources said that both Cathay and Dragonair were "on the same page" with their expansion strategies, and denied that the pair would embark on a destructive price war.
"These are routes where Cathay sees opportunities for growth and, as such, wants to be positioned to benefit. But it doesn't necessarily mean that growth would come at the expense of the other carrier," a source close to both airlines said.
Still, some analysts interpreted Cathay's move as a shot across the bows of Dragonair, which in recent months has become increasingly independent in its expansion plans - despite Cathay and its parent, Swire Pacific, holding a 25 per cent stake in the smaller carrier.
Cathay displeased Dragonair recently by lobbying the government to grant US airlines greater access to Hong Kong cargo routes. In exchange, Cathay is seeking approval from US regulators for a code-sharing partnership with American Airlines. However, greater access to Hong Kong cargo routes for US airlines would hamper the viability of Dragonair's plans to launch US cargo services.
"Cathay wants to make sure there's a level playing field going forward. What better way to be certain of that than to hold rights to operate Dragonair's core ex-China routes?" said one regional aviation analyst who declined to be named.
"Given both carriers' expansion needs, it seems inevitable that they will eventually move to compete openly on many routes out of Hong Kong."
For consumers, growing competition between Cathay and Dragonair should initially offer the prospect of lower fares on overlapping routes. But it is uncertain whether those benefits would last, as there are few examples where a smaller airline has taken on a larger one from the same base and won.
Larger carriers have the ability to subsidise loss-making routes with other, profitable, operations - with disastrous consequences for the smaller competitor which must commit its capital to fleet expansion. This was the case in the collapse of Australia's Ansett last year following a price war with Qantas.
It emerged yesterday that Cathay is poised to ask the government for the rights to fly five important Asian routes from Hong Kong that are now solely held by Dragonair.
According to sources close to Cathay, the airline's application - to be made to the Air Transport Licensing Authority (ATLA) next week - covers the rights to Sendai in Japan, Phuket in Thailand, and Phnom Penh in Cambodia, three destinations to which Dragonair already offers regular services. Also to be included in Cathay's application is a request for two other destinations for which Dragonair holds rights but to which it does not yet fly - Madras in India and Pusan, South Korea.
Cathay's move follows Dragonair's successful application for Taipei rights in June. The granting of the first overlapping passenger service for the two Hong Kong airlines represented an end to the government's policy of non-competition, adopted in 1986.
The two carriers have been actively seeking rights to each other's routes since Dragonair began Taipei flights in July.
Cathay last month applied to ATLA for the right to resume flights to Shanghai, Beijing, and Xiamen in the mainland, while Dragonair made similar moves for five regional services currently being operated by Cathay - to Bangkok, Manila, Tokyo, Seoul and Sydney.
Cathay's latest application is expected to be gazetted by the government for public consultation two to three weeks after Dragonair's application is unveiled next Friday.
It is uncertain whether Cathay plans to launch services on the routes in the short term. Airlines normally hold rights to more routes than they actually fly.
Sources said that both Cathay and Dragonair were "on the same page" with their expansion strategies, and denied that the pair would embark on a destructive price war.
"These are routes where Cathay sees opportunities for growth and, as such, wants to be positioned to benefit. But it doesn't necessarily mean that growth would come at the expense of the other carrier," a source close to both airlines said.
Still, some analysts interpreted Cathay's move as a shot across the bows of Dragonair, which in recent months has become increasingly independent in its expansion plans - despite Cathay and its parent, Swire Pacific, holding a 25 per cent stake in the smaller carrier.
Cathay displeased Dragonair recently by lobbying the government to grant US airlines greater access to Hong Kong cargo routes. In exchange, Cathay is seeking approval from US regulators for a code-sharing partnership with American Airlines. However, greater access to Hong Kong cargo routes for US airlines would hamper the viability of Dragonair's plans to launch US cargo services.
"Cathay wants to make sure there's a level playing field going forward. What better way to be certain of that than to hold rights to operate Dragonair's core ex-China routes?" said one regional aviation analyst who declined to be named.
"Given both carriers' expansion needs, it seems inevitable that they will eventually move to compete openly on many routes out of Hong Kong."
For consumers, growing competition between Cathay and Dragonair should initially offer the prospect of lower fares on overlapping routes. But it is uncertain whether those benefits would last, as there are few examples where a smaller airline has taken on a larger one from the same base and won.
Larger carriers have the ability to subsidise loss-making routes with other, profitable, operations - with disastrous consequences for the smaller competitor which must commit its capital to fleet expansion. This was the case in the collapse of Australia's Ansett last year following a price war with Qantas.