- 29.
153.
154.
The evidence suggests that, on either BCal's or Cathay's forecast of market size, the licensing of both a second and a third carrier on the route would at best result in a suboptimal outcome. The market would be large enough in the first year to accommodate profitably (in addition to BA's daily frequency) perhaps two flights a week by Cathay with its 747s and two a week by BCal with its DC10s. On this basis neither of the new operators on the route would have a sensible operation while the needs of the consumer would be poorly met. The Authority is obliged to conclude that it cannot approve a three carrier regime on this route at this time consistently with its statutory obligations under Section 3 of the Act of 1971. To approve a three-carrier regime would, in the Authority's judgement conflict fatally with the requirement in Section 3(1)(a) of the Act to secure that services are provided at the lowest fares consistent with an economic return to efficient operators and with the requirement in Section 3(1)(a) that the reasonable interests of users in this case in a high frequency of service catering for all categories of demand - should be furthered. (The Authority would have reached the same conclusion if the Act had been amended as currently proposed).
Given its conclusion that the route will stand only one additional operator, the Authority is faced with the unenviable task of choosing between Cathay and BCal. The reasons given in paragraph above point to the conclusion that Hong Kong and the public would best be served by granting the licence to BCal, whose aircraft size is better tailored to the needs of the route at its present stage of development. The Authority fully understands the desire of the Hong Kong Government for Cathay to be licensed. There would be some advantages in the route's being developed by a carrier based at the Hong Kong end. Cathay is well placed to develop Asian traffic from its Far East network and it already has the advantage of rights between Hong Kong and Bahrain. However, the Authority does not consider that these advantages outweigh the disadvantage that Cathay could not satisfy the needs of the market as well with its 747s as BCal could with its DC10s. The market clearly requires the flexibility of a frequent additional service with a smaller aircraft and of the two only BCal proposed to provide this.
155. It appears to the Authority that the Hong Kong Air Transport Licensing Authority
had the need for the second service to operate at high frequency well in mind but that in licensing both BCal and Cathay, it may have paid more regard to political considerations than to the harsh logic of the economic analysis. It is no part of the Authority's function to have regard to political considerations and it has no power to do so unless it is so directed by the Secretary of State. The Secretary of State has given no direction in this matter. If he considers that the political considerations in this case are such that he should exercise his power of direction, he will doubtless do so. If he were to do so by directing that Cathay should serve the route in addition to BCal, he should reckon that the result is likely to prove unsatisfactory to both airlines as well as to consumers. If he were to do so by directing that Cathay should replace BCal, he would be saying in effect that it was more important to give Cathay a place in the sun than to provide the service which the market is clearly demanding and which is clearly better for the travelling public. The Authority would not have reached a different conclusion if the Act had already been amended as proposed in New Clause 20.
156. The Authority has not granted traffic rights at intermediate points but would
be ready to do so at such time as they could be obtained on reasonable terms by the United Kingdom.
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