CONFIDENTIAL
From the Secretary of State
At the peak period. CAAC operated 12 Hong Kong-Shanghai services each week, including 3 via nearby Nanjing. By contrast, Cathay
had only 3 services, representing one-third of the agreed
capacity. Since beginning their services to London, Cathay have
been technically disqualified from operating any Shanghai
services: the Chinese have refused designation, but allowed services to operate on an interim basis with a 5% royalty penalty
on all sales.
At peak periods, CAAC operated 9 B707 services weekly on the Hong
Kong-Peking route, 4 via nearby
4 via nearby Tianjin. Cathay have none. and although BA's once weekly London B747 service is routen via Hong Kong. they are not allowed to carry local passengers between Hong Kong and Peking, with the result that they usually have some 300
empty seats on that sector. By next summer, it is generally
service will require a total capacity
accepted that the
equivalent to at least 12 x B707.
The Negotiations
be able
to obtain some more capacity for
The Peking service is the more
We
shall probably
Cathay's Shanghai service.
difficult issue.
In any normal circumstances. Cathay would be the natural choice
to operate the Peking service. But we know the Chinese will
resist this very strongly. They will argue that Cathay are
technically disqualified because of their London service. but at
a deeper level we think they may fear and resent the existence of
a powerful airline based in Hong Kong and will do everything
possible to keep it out of Peking. There are indications that
they will be less sensitive to the provision of a BA service -
CONFIDENTIAL
2.