CX/KA conflict?(Merged)

[Fly747]

Can someone please post this scmp article as I can't access it and myself and others may find it interesting. CX/KA conflict with no more one airline one route.

[christep]

Rather than do that anad upset the moderators, here is a link to another forum (one for us SLF) where someone has cut and pasted it already:

http://www.flyertalk.com/forum/Forum85/HTML/001118.html

[BlueEagle]

Thank you Christep, much appreciated.

BlueEagle - Moderator.

[Al E. Vator]

How could Dragon Air ever dream of competing with Cathay? Correct me if I am wrong but I understand they have no videos, no IFE at all on the A320's and absolutely no brand-awareness in Australia or Korea with the public. Also their A330's I believe don't have ETOPS qualifications, so how can they fly to Australia?

As much as I would not like to see it, Cathay will slaughter Dragon Air in China as they have oncarriage and are well known abroad. Unless Dragon get say a whole bunch of A340s and start flying NOW to say LHR, LAX and SYD I think they will get trampled by Cathay. That would be a shame.

[christep]

In the same way as, for example, Easyjet is being trampled by BA?

[Liam Gallagher]

Do some clicking and look at the shareholders and directors of the respective airlines; can't see much of a conflict.

[HIALS]

Al E Vator - for the record:

1. Dragonair is getting an entirely new fit-out of their fleets at the end of the year. The IFE will be installed along with sleeper beds in F & J etc etc. The product will be the same as CX and SQ.

Do you see a coincidence? I do.

2. Most Australians make the mistake of thinking that Dragonair is targetting the Australian/Korean etc market. They aren't. I suggest it is the outbound Chinese market (set to become one of the largest aviation markets in the world) that they are targetting. You should reverse you view that KA have no brand awareness in Oz/Korea etc and recognise that they have immense brand awareness in China. Better than CX/QF/KE etc etc.

Do you think you're missing the point? I do.

3. All KA aircraft could be brought into ETOPS compliance within a month or so. It would merely involve certification and perhaps installation of some up-rated bits n bobs. As for crew training, ETOPS would require a training course. One could be written in a matter of weeks. It would then take a couple of months to get pilots off the line and through the course. We are talking a total process of months for Company wide ETOPS compliance - which isn't really a problem given the licence application is itself a process of months.

Do you think you're exagerating the ETOPS thing? I do.


4. Cathay has no brand presence in China whatsoever at present. Whilst not denying that they are a fearsome and worthy competitor, I don't think Dragonair should shrink in fear of some healthy competition. Again you miss the point. Dragonair is not going to compete with Cathay for pax ex the rest of the world. Indeed, it could be seen as Cathay will compete with Dragonair for pax ex China.

Do you think you are overstating the power of the CX brand in China? I do.

In Summary - I don't think any of the hurdles are unsurmountable
and I don't think KA will get trampled by CX.

[Fly747]

HIALS, I am impressed by your registration date 1969!

[Al E. Vator]

Can Dragon really be serious though? I understand the comparisons between Easyjet and BA but Dragon are trying to muscle in on CX's service to say Sydney or Tokyo which is a full service, high quality product.

Seems like they are doing this simply as retalliation for CX wanting to get back into China (which CX after all did give to Dragon in the first place). Is this sensible motivation for a sucessful business?

HIALS, my friends at Dragon tell me that in Economy and Business class there will only be drop-down TV's, thus only one channel. If this is true it will not compete at all with the SQ or CX product.

Am I correct in thinking talk of Sydney and Tokyo is just a ploy to scare Cathay into selling out of Dragon to keep CNAC happy, the next item from Thursday seems to support this idea
===================================
Cathay faces losing stake in Dragonair HONG KONG STANDARD
Keith Wallis

Cathay Pacific Airways could be forced to sell all or part of its 17.8 per cent stake in Hong Kong Dragon Airlines (Dragonair) as a condition of winning at least one mainland route.

This follows Dragonair's move on Tuesday to lodge an objection with the Air Transport Licensing Authority (Atla) against Cathay Pacific's application to fly to three mainland cities - Beijing, Shanghai and Xiamen.

Cathay Pacific lodged its application with Atla at the end of August and the deadline for objections closes tomorrow.

Announcing its objection, Dragonair said it believed the three cities were unable to support the competition.

"Allowing the application would result in the uneconomical overlapping of air services,'' it said.

"Dragonair's ability to expand operations to primary destinations outside China has been constrained in the past, leading to its reliance on the Shanghai and Beijing routes.''

Insiders believe Dragonair's opposition has been inspired by its largest shareholder, China National Aviation Corporation (CNAC), which owns 43.29 per cent of Hong Kong's No2 carrier. "It is unlikely Dragonair would have acted alone. We believe CNAC is working behind the scenes, objecting to Cathay Pacific's application in an effort to force the carrier to reduce or sell its entire stake in Dragonair,'' one source said.

Another added: "Cathay Pacific is a very careful company. It is inconceivable that it would have made the application without first sounding out whether there would be opposition.''

He said James Hughes-Hallett, who is chairman of both Cathay Pacific and parent company Swire Pacific, and Cathay Pacific managing director David Turnbull had visited Beijing earlier this year to brief the authorities. "If they went to that trouble you can assume Dragonair was also sounded out.''

Under Dragonair's management structure, five of its directors are from CNAC, five from Citic Pacific and three from Cathay Pacific. Citic Pacific owns 29.35 per cent of Dragonair and 25.5 per cent of Cathay.

One insider alluded to a boardroom battle over whether Dragonair should object to Cathay Pacific's application for mainland rights. "If Citic ganged up with Cathay Pacific then there would be no objection. But it didn't happen probably because the CNAC board members said Citic and Cathay Pacific had a conflict of interest. Therefore CNAC won the day.''

Another added: "Maybe Stanley [Hui, Dragonair chief executive] was overruled. This is Machiavellian behaviour. The mainland shareholders have been jealous of Cathay Pacific's shareholding in Dragonair. Slowly but surely they will force Cathay Pacific to sell its stake.''

One source said there were strong grounds to suspect CNAC involvement given that Cathay did not object to Dragonair's cargo and passenger routes to Taipei awarded as part of the Hong Kong-Taiwan air services pact at the end of June. Neither was Cathay planning to object to Dragonair's application for rights to four Asian cities and Sydney.

"The fact Dragonair has decided to oppose Cathay Pacific's application means the gloves are off,'' a source said. "Maybe CNAC and Dragonair decided that six months' revenue (the length of time it will take Atla to decide on the application) from Beijing and Shanghai was simply too much to give away.''

Dragonair derives about 40 per cent of total revenues from the two routes.


A split would have significant implications for both groups. Last year, Cathay Pacific received HK$188 million in profits from its shareholding in Dragonair and associated companies.

This was nearly a third of its total net profits of HK$657 million.

In first-half 2002, Dragonair and other associated firms contributed HK$141 million towards Cathay net profits of HK$1.4 billion.

13 September 2002

[HIALS]

I concede that any thing CNAC does is potentially convoluted and obscure. Should the game plan be to divest monopolistic rights on PEK & SHA in order to get the CX/Swire spoilers off the KA Board, then it will probably be a damn good thing for KA in the long run.

But since posters here are asserting that Dragonair could not compete with Cathay, then I would like to draw your attention to the financial data at the bottom of the previous post.

A mighty substantial portion of CX's profit was derived from a mere 25% stake in KA... What does that say about the profitability of KA? To me it says that KA would be better re-investing that, rather large sum, into developing itself as a substantial regional airline rather than cross subsidising CX. It also means that KA is not the 'small fry' in comparison to CX that many of you make the mistake of assuming.

Cabin configurations (pop-down TV screens or pop-up toasters) are simply a matter of defining standards of cabin service. For god sake, QF don't have it and no one suggests that CX is going to drive QF into oblivion. If KA compete with CX, then I am sure they have the customer service savvy to do so - compete that is - using comparable standards of cabin service etc.

If there is a serious query about all this it is - why didn't/hasn't CX objected to KA's application for the 4 Asian ports plus Sydney?

I could understand both parties playing tit-for-tat in the game of blocking. So why is it one sided?

Only CNAC, Swire Pacific, CITIC & Cathay Pacific board members know the deals that have already been done.

[mole]

But since posters here are asserting that Dragonair could not compete with Cathay, then I would like to draw your attention to the financial data at the bottom of the previous post.

A mighty substantial portion of CX's profit was derived from a mere 25% stake in KA... What does that say about the profitability of KA? To me it says that KA would be better re-investing that, rather large sum, into developing itself as a substantial regional airline rather than cross subsidising CX. It also means that KA is not the 'small fry' in comparison to CX that many of you make the mistake of assuming.

Rather misleading of you don't you think? The quotation from the original post read:

Dragonair and other associated firms

This additional CX profit comes from a very large number and variety of associated companies of which Dragonair is just one. Furthermore KA has stated that the profit it derives from PEK and SHA allow it to cross subsidise many of its other Asian routes which it would otherwise be unable to operate. If CX were to use the capital currently invested in KA to expand and compete with KA on selected routes then the results would be interesting.

A lot of water has flowed under the bridge since CX and Swire saved KA from oblivion but let's not forget that is what they did. Perhaps now they think it is time for KA to stand on it's own feet and compete with CX on a level playing field. Hope this answers the questions posed at the end of your post HIALS.

[HIALS]

The 'one airline - one route' policy was a shameless political manipulation on behalf of CX/Swire by the then British Colonial Government. It was blunt favouritism and protectionism.

It was this act of governance that strangled KA and lead to their near demise.

Yes - CX subsequently saved KA, but it is disingenuous to speak as if the former didn't happen and only the latter did.

What we are seeing now is the re-assertion of KA (thanks to CNAC having greater aspirations than the CX/Swire portion of the Board) as an opponent to CX.

But, I believe the pie is big enough for two. I think they both should prosper - afterall the real competition is SQ, UA, BA, QF etc. It will probably be good for CX, KA and Hong Kong (Airport and City/State) to have two viable and meaningful airlines operating from HKG.

The only point I would want to see is that KA get the same rights to CX ports as CX gets to KA ones. Given the historical strangulation of KA via the One Airline One Route policy, it is unfair to claim that they have to trade expansion on a Port for Port basis. Anyone can see that this would give CX access to KA's most lucrative routes and about 70% of their profit, while trading to KA a mere 3 ports in CX extensive network. This would penalise the victim of past skullduggery.

p.s. Mole - not at all misleading. I deliberately left the statement vague (ie a substantial portion = an indeterminate but large sum) because I am aware of the HAECO & Catering contributions.

[mole]

A little confused aren't we?

The 'one airline - one route' policy was a shameless political manipulation on behalf of CX/Swire by the then British Colonial Government. It was blunt favouritism and protectionism.

It was this act of governance that strangled KA and lead to their near demise.

I would have thought the "one airline - one route policy" is precisely why KA has managed to become financially viable. Isn't this why it is now objecting to the CX application to fly to SHA & PEK? Are you arguing for or against this policy? KA seems to be for it in some cases but against it in others. CX has made it very clear they are against it which is why they have not made any objections to KA's applications for new route licences. The only objections for new licences are those raised by KA! Muddled thinking somewhere perhaps.

[HIALS]

Nope not confused at all. Just trying to put things into historical perspective.

I'm talking about the mid 1980's.

At that time the Chinese market was trivial and difficult. Cathay threw it to KA as a fillip in order to cement the one airline one route policy. i.e. throw the underdog a seemingly poisoned chalice while you make off with the gold.

The real goal in those days was to keep KA from long-haul competition with CX. And that is exactly what was done.

You may not remember this far back - but KA was one of the group of launch customers for the MD11. It was ordered to fly long-haul competition with CX. However, that aircraft order was cancelled when the duplicitious British Colonial Government instituted the one airline one route policy to the great benefit (suspiciously so) of the Swire Group.

Consequently, with it's raison d'etre ravaged, KA fell on hard times and was ultimately rescued from oblivion by CX. However - it is important to remember that one action preceded the other. In fact, one action was calculated to precipitate the other.

Having isolated KA for the best part of 15 years (as a compliant feeder operation to deal with the difficult Chinese market) it is disingenuous of CX and their apologists to try to take the high moral ground and act like the saviours of KA. You are inferring that KA are ungrateful and given to biting the hand that feeds them. In fact, they are just trying to go full circle, back to their original ambitions of the 1980's.

I am a proponent of the liberalisation of the Hong Kong airline industry. That is, both KA and CX competing. However, just as the USA is talking big about 'free skies' at the moment because they have the market power to dwarf their rivals, so I believe that a true quid pro quo attitude will entrench CX and destroy KA given their relative sizes. No one would argue (except the Americans) that free skies is a good thing if it actually results in American airlines supremacy by stealth. A similar corollory exists in this debate.

Cathay has conspired in the past to hobble KA. This has lead to a massive size and wealth disparity between the Companies. CX cannot now demand equality in expansion because to do so would ensure the demise of KA. This would reward past skullduggery and reinforce the adage that might is right.

[mole]

And your point is?

[HIALS]

My point is that - if you live by the sword then you die by the sword.

CX used it's political connections to great advantage in the 1980's when it was the 'insider'.

Now, when CX/Swire is the 'outsider' and CNAC is the 'insider', I will be disappointed if there are any complaints about CNAC using political connection to enhance the position of KA.

Afterall, it is a tried and tested (by Swire/CX) method.

[hughorgen]

:p Remember that Dragonair is the Flag Carrier !!!

That will make an impact as KA is a Chinese Company and HK based ! :D

ARe you all forgetting politics ???? By the way HIALS, very astute reasoning and good history however KA could beat CX at their own game......

....Time will tell !!:eek:

[spleener]

err ... perhaps as stated.
thankds for the history lesson and outline HIALS.

[Al E. Vator]

Cathay won't object to Dragonair routes
Keith Wallis The Standard

In a surprise move, Cathay Pacific Airways yesterday said it would not object to the recent application by Hong Kong Dragon Airlines (Dragonair) to fly to five Asian destinations. This is despite all five routes being key Asian services for Cathay Pacific.

Dragonair lodged its application to fly to Manila, Tokyo, Seoul, Bangkok and Sydney with Hong Kong's Air Transport Licensing Authority (Atla) on September 13. But it was only published in the Government Gazette last Friday, giving people three weeks to object.

Airline insiders told The Standard soon after Dragonair lodged its application with Atla, that Cathay Pacific would object in a tit-for-tat move against Dragonair's objection to Cathay's application for three mainland routes.


"We would drop our opposition if Dragonair would withdraw its objection, one senior Cathay executive told The Standard.


But in a statement yesterday, Cathay Pacific general manager international affairs Andrew Pyne said: "Two strong and respected airlines are now well established here, and we believe they should both be able to contribute to Hong Kong's future economic development by building more effective hub operations at Hong Kong International Airport. To do this they will both need to have the ability to expand operations to serve new destinations and markets.''

It was not immediately clear whether Cathay's move would put pressure on Dragonair to withdraw its objection against Cathay's application to fly to Beijing, Shanghai and Xiamen.

Justifying its opposition to Cathay Pacific's resumption of mainland services after a 12-year gap, Dragonair said its "ability to expand operations to primary destinations outside China has been constrained in the past, leading to its reliance on the Shanghai and Beijing routes''. The two routes have been critical in supporting Dragonair's ability to provide services to other secondary cities in China and the Asia-Pacific, enhancing Hong Kong's status as an aviation hub.

But one insider said: "It is clear Cathay Pacific has decided that its position is that both airlines should compete on all routes under the banner that increased competition would strengthen Hong Kong's position as an aviation hub.''

Another added: "Cathay's decision not to object is a smart move. First of all it avoids confrontation which would not be good for Hong Kong. Secondly, it throws down the gauntlet to Dragonair to withdraw its objection to Cathay's planned mainland services. Cathay is basically saying to Dragonair, `We are both big boys. We no longer need to protect our routes from each other.' It's now turned the tables on Dragonair.''


Backing its application to fly to the mainland, Cathay Pacific said it wanted to strengthen Hong Kong "as a gateway to the Chinese mainland''.


Cathay's decision not to fight Dragonair's application means the No2 carrier is likely to win Atla approval for the new routes quite quickly, probably before Christmas.


But there would then have to be government-to-government negotiations with each of the five countries - Philippines, Thailand, South Korea, Japan and Australia - to agree on the number of flights, frequencies and landing slots. This could be quite difficult in the case of Japan because Narita airport is effectively full.


No details of Dragonair's application have been released. But insiders said Dragonair would want to operate two return flights a day between Hong Kong and Manila, Bangkok and Seoul, with possibly a daily service to Tokyo and Sydney.

The new destinations would increase Dragonair's Asian route network by more than half.

[hughorgen]

:D ;) :p

Well KA is the Flag Carrier !!!

:D :) :p