NYTimes.com Article: Deal Preserves Hong Kong's Hub Status

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Deal Preserves Hong Kong's Hub Status

September 9, 2004
 By KEITH BRADSHER





HONG KONG, Sept. 8 - Beijing agreed on Wednesday to allow
more flights from here to cities across China, a step that
promises to make air travel to China easier, less expensive
and possibly safer. The deal could also influence
legislative elections here on Sunday in which relations
with the mainland are the main issue.

The pact strengthens Hong Kong's role as Asia's busiest hub
for international air travel at a time when it faces new
competition. An enormous rival, Baiyun International
Airport, opened three weeks ago just 80 miles up the Pearl
River in Guangzhou.

By addressing Hong Kong's lingering nervousness about
losing its role as the gateway to China, Wednesday's
agreement could help pro-Beijing candidates against their
pro-democracy rivals in the elections on Sunday.

China has offered several economic plums to Hong Kong in
the last 15 months in an attempt to tamp down calls for
greater democracy in this former British colony. Other
deals have included a relaxation of exit visa restrictions
for travel here, which has brought a flood of mainland
tourists into Hong Kong, and a free trade pact.

Sandra Lee, who oversaw the negotiations as Hong Kong's
permanent secretary for economic development, said that
participants had been working as fast as possible to
conclude a deal ever since the talks began in December.

Without mentioning Baiyun Airport, Ms. Lee said that
Wednesday's agreement would help Hong Kong by making sure
that travelers could reach many Chinese cities with much
greater frequency from here. The accord will increase the
number of seats available on flights from here to the
mainland by 30 percent, with most of the increase taking
place on flights to second-tier cities, and will double the
number of air cargo flights.

"Increasing the density of the network is an important step
toward enhancing our competitiveness," she said.

United Airlines, a unit of UAL, announced last week that it
was seeking authority to begin daily, nonstop flights to
Baiyun Airport from San Francisco. Until now, Hong Kong has
been the main airport for China's Pearl River delta region,
which is China's wealthiest region because Deng Xiaoping
started his experiment with capitalism in 1979 in cities
across the border from Hong Kong.

The management of Baiyun Airport had no criticisms of Hong
Kong's air rights agreement. "This is very innovative and
worth learning from," said Qi Yaoming, the publicity
director of the Guangdong Airport Management Company.

Cathay Pacific, which is the dominant carrier here and has
chafed at restrictions on its flights to mainland
destinations, welcomed Wednesday's deal and called for a
further relaxation on flights.

"In order to defend the competitiveness of Hong Kong
International Airport as the predominant hub in the region,
it is essential that the pace of liberalization of air
links between Hong Kong and the mainland catches up with
that seen between China and the rest of the world," the
carrier said in a statement. "This is vital for the overall
interest of Hong Kong - not just one or a number of
airlines."

The national government has been trying to help second-tier
cities, especially in the interior, as Beijing, Shanghai,
Guangzhou and other cities near the coast have boomed. But
providing daily service to some of the less-known cities,
instead of flights twice a week, is important to preserving
Hong Kong as a hub for China.

For cities that have only one or two flights a day, the new
accord will authorize as many as four or five a day. The
agreement, which will be phased in over the next two years,
allows flights to go from here to a second-tier city and
then on to another second-tier city before returning to
Hong Kong, instead of coming straight back.

The pact also calls for code-sharing between mainland and
Hong Kong-based carriers.

But the agreement calls for only modest increases in
passenger flight schedules from Hong Kong to Shanghai and
Beijing, the highest-volume and most lucrative routes.
Cathay Pacific has wanted to greatly expand its service to
these cities, but such competition would cut into the
profit margins of carriers that are partly or entirely
owned by the Chinese government and currently dominate the
routes.

Wednesday's pact also does little if anything to help
European and American carriers. The agreement allows
additional flights by mainland Chinese carriers and by
airlines based in Hong Kong that make most of their
decisions in Hong Kong and have mainly Hong Kong
shareholders. The agreement could actually increase
competition for European and American carriers, because it
gives mainland carriers the right to increase the number of
flights that originate on the mainland, make a stop in Hong
Kong and then continue to overseas destinations.

While Cathay Pacific has struggled for the rights to
operate more flights to the mainland, it has been the main
beneficiary of Hong Kong's reluctance to approve "open
skies" agreements with other countries. Such agreements
would allow other carriers, especially American carriers,
to operate more flights to and from Hong Kong. Long-haul
flights out of Bangkok and Singapore are often less
expensive.

Wednesday's agreement grew out of an annual review of the
four-year-old agreement that governs air traffic between
the mainland and Hong Kong, which Britain returned to
Chinese rule in 1997. Ms. Lee said that the agreement was
not an attempt to increase the value of the Hong Kong
Airport Authority, which the government hopes to privatize
as part of an effort to plug a budget deficit here.

http://www.nytimes.com/2004/09/09/business/worldbusiness/09beijing.html?ex=1095736354&ei=1&en=d7864a8c90d91582


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