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If the Authority were to licence all three carriers in a completely de-regulated market neither Laker nor B. Cal would have the financial resources to compete with BA and Cathay although B.Cal could well attempt to do so. Such a proposition would result in a wasteful duplication of effort and he believed that in any such confrontation Cathay would be the only survivor.
He agreed that on the basis of BAs evidence that there would be a serious undermining of the route economics if there was an overprovision of capacity, either initially or in the ensuing years. He did not accept BAS forecast of traffic growth, but if BA's forecast was right then Cathay would not add capacity at the rate BA had assumed so as to enable the route to be operated profitably. Cathay had no plans at present to operate to any other point in Europe apart from London, although if the route did not develop as forecast it would be a possibility that might be considered so as to enable the Hong Kong-London route to remain viable.
Mr Bluck said that the London service would not be operated as a through plane service from behind points as they had assumed a five hour lay over in Hong Kong before commencement of the service to London. Approximately 52% of all passengers were businessmen the remaining 48% being tourists. The businessmen would seek to travel on the lowest bookable fare and the more affluent would want to travel first class which Laker was not proposing to provide. He agreed that if either B. Cal or Laker were licensed Cathay would be willing to discuss the proposed operations with them but Cathay would not wish to enter into any commercial agreement.
He agreed that Gatwick at present did not have any links with the middle east and that oil traffic between points in the B.Cal network could usefully be developed over that airport were the rights available for Cathay between Bahrain and London. He believed that Cathay was in a special position because they already had traffic rights between Hong Kong and Bahrain and were aware that Gulf Air was interested in operating beyond Hong Kong to both Korea and Japan. He did not believe that in these circumstances there would be any difficulty in the Government's obtaining Bahrain-London rights. A telegram from the director of Civil Aviation in Bahrain had indicated acceptance of the 747 on the Hong Kong- Bahrain route and that an application to operate beyond Bahrain to London would be favourably considered.
Mr Dewar said that Cathay were already actively involved in the cargo. market by feeding cargo onto airlines such as Cargolux and Martinair for distribution throughout Europe. Intermediate traffic amounted to an average of 100 passengers per flight on four flights per week. The traffic was primarily workers recruited from various countries in Asia, for large construction works in the Middle East, the dispersal point for which was Bahrain.
In a three carrier regime Cathay forecast a loss of profit of HK 109 million, which when deducted from the estimated operating profit as sole carrier of HK 51 million meant that in the first year the result would be a HKX 58 million loss. Mr Bebchick suggested that the correct basis for estimating profit and loss was the way seats were allocated between sector and end to end traffic and that to arrive at the correct figure an adjustment had to be made to reflect three rotations per week, instead of four, which showed that the loss would in fact be HK 27 million; this would result in a profit of HK 24 million. Mr Dewar said this return could possibly be acceptable.
Cathay generally was looking for a 10% - 15% return on capital as an objective over a period of two or three years. Mr Bebchik suggested that, if all the figures submitted by Cathay were analysed using the B.Cal methodology based on frequency and using Cathay's total market forecast of 271,509 rather than B. Cal's higher forecast, the cumulative
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