CONFIDENTIAL
7
In such circumstances there would seem to be
little point in asking BA to meet the undertaking
given to your predecessor to cease serving Peking via
Hong Kong no later than July 1983 in order to make room
for Cathay Pacific. There could be no certainty that
Cathay would benefit from this manoeuvre, while BA
would certainly lose by having to use an uneconomic
routeing. We should probably still respond to Lu's
offer of a review, but we should not expect to make
any progress unless and until CAAC want additional
rights to and through Hong Kong, e.g. across the
Pacific or to other points in South East Asia. This
may be some years ahead and by then the value of their
position on services between Hong Kong and points in
China could be so great that they would not be prepared
to jeopardize the status quo in order to obtain such
rights anyway. Indeed this could already explain why
Lu did not pursue CAAC's earlier interest in such
rights at the review negotiations last March.
Meanwhile CAAC would continue to provide services to
Peking, Shanghai and other points in China which are
inadequate in terms of service, frequency and seat
availability at a high price.
8
Our conclusion is that if you attach any importance
to breaking CAAC's virtual monopoly of air services
between Hong Kong and China to the benefit of the
travelling public as well as Cathay Pacific, we must
act firmly now or in all probability lose the opportunity