Hong Kong Finds Itself At The Centre Of An Aviation Dispute

by Mary Swire, Tax-news.com, Hong Kong

19 June 2001

Since China's civil war, Taiwan has forbidden carriers to fly directly to the Chinese mainland and forces them to fly the long way round via Hong Kong making the flight between Taipei and Hong Kong the world's most travelled airline route. This has worked well for Hong Kong by bolstering the territory's status as a thriving hub in the Asian region but could be under threat with the recent news that landing rights negotiated between Taiwan and Hong Kong will not be extended for five years as is usually the case but for a mere few months instead.

According to a report by The Economist, Hong Kong is feeling the pressure. Already a hub for most of Asia as well as the Chinese mainland, Hong Kong not only wants to keep hold of its position but to strengthen it. The territory has lots in its favour. For example, it is in an envied location well within reach of direct flights from the United States as well as its close proximity to the mainland. Then there is the issue of capacity with the opening of Hong Kong's biggest and most efficient airport in 1998 where passengers should expect to wait no longer than 15 minutes at immigration counters and are able to reclaim their baggage in about 10 minutes on average.

The Hong Kong government has plans to promote and strengthen its aviation hub by 'gradually' liberalising landing rights (eg last month Air New Zealand was allowed to fly passengers from Hong Kong to London). Cathay Pacific is Hong Kong's flag carrier and former owner of Dragonair; they are the only two Hong Kong-based carriers and have traditionally divided the routes between them in a 'one route, one airline' agreement. Cathay served Taipei and Dragonair served the Chinese mainland. However, The Economist explains that Cathay sold shares in Dragonair to Chinese interests in the 1990s and the two companies now 'seem confused as to whether they are partners or rivals.'

What it means is that Cathay is beginning to face competition from airlines such as Thai Airways and two Taiwanese carriers who are aiming to muscle in as liberalisation takes hold, and if Dragonair starts eyeing up Cathay's routes - which is the sensible option for Dragonair - Cathay will have no option but to attempt to win landing rights in mainland China. This option, it is rumoured, has already led Dragonair, Cathay and the authorities involved to begin negotiations.

Earlier this year, Beijing announced its intentions to merge ten Chinese airlines into three and Air China, due to be listed in Hong Kong and New York is tipped as leader for international flights. Air China's parent company also owns Dragonair and could oust Cathay from its current throne. What keeps things up in the air at the moment is that direct transport links between Taiwan and the mainland could be possible at any time, although it's impossible to know when this will be. 'But their desirability,' states The Economist, 'and inevitability have become totems of Chinese patriotism throughout Greater China, [and] ... Hong Kong's days as a fast-growing hub may be numbered.'

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