315
PRIORITY
CYPHER CAT A
FM HONG KONG 23095ØZ
CONFIDENTIAL
ID
HKK
4kK5 184 1
RECEIVER
21 FEB 1978
INDEX
SK OFFICER
PA
80. 51
PAUSTRY
Action Taken
No
CONFIDENTIAL
TO PRIORITY F C O TELNO 214 OF 23 FEBRUARY 1978.
INFO PRIORITY WELLINGTON, KUALA LUMPUR.
NIR
See 13+
N/R.
UK / MALAYSIA AIR SERVICES: TELNO ALLOT 38 AND TELNO 37. OUR POLICY TOWARDS CPA IS NOT TO PROTECT IT AGAINST COMPETITION
PER SE BUT ONLY AGAINST RESTRICTIVE POLICIES OF FOREIGN COUNTRIES
AND MALPRACTICES OF OTHER AIRLINES TO AN EXTENT WHICH WOULD PRECLUDE PROVISION OF VIABLE COMPETING SERVICES BY CPA DESPITE
EFFICIENT AND ECONOMICAL OPERATION. IMPOSITION OF A 50-50 POOL ARRANGEMENT WITH UNLIMITED POOS SETTLEMENT WOULD GO MUCH BEYOND THIS, TO THE EXTENT OF PRACTICALLY REMOVING ALL COMPETITION AND ENSURING A 50-50 SHARE WITHOUT REGARD TO THE EFFORT PUT IN. WE
BELIEVE THIS TO BE NEITHER IN HONG KONGS NOR OUR TRAVELLING PUBLIC BEST INTERESTS AT THE PRESENT STAGE OF DEVELOPMENT OF HKG/BKI
SERVICES.
2. APART FROM THE POINT OF PRINCIPLE, MAS THEORETICALLY (ASSUMING
EQUAL YIELDS) OUT-EARNS CPA ON THE BKI/HKG ROUTE BY APPROXIMATELY
3:1. THE MALAYSIANS WOULD THEREFORE ARGUE THAT A 50:50 POOL WOULD RESULT IN A MASSIVE TRANSFER OF EARNINGS FROM MAS TO CPA WHICH WAS QUITE UNACCEPTABLE TO THEM. IN PRACTICE, HOWEVER, IF A POOL WAS INSTITUTED, THE MALAYSIANS WOULD LOSE MUCH OF THEIR ABILITY TO REBATE FARES AND THUS LOSE MUCH OF THEIR PRESENT MARKET TO CPA. THE LATTER SITUATION WOULD BE NO MORE ACCEPTABLE TO THEM THAN THE
FORMER.
3. FOR THE ABOVE REASONS, WE BELIEVE THE PROPER SOLUTION TO THIS
PROBLEM IS TO FREEZE MAS CAPACITY AT ITS PRESENT LEVEL AS PROPOSED IN MY TELNO 191 IN ORDER TO PERMIT CPA'S SHARE OF THE
CONFIDENTIAL
/TRAFFIC TO GROW