CONFIDENTIAL
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4 The question of additional capacity was first raised by MAS
with BA at airline discussions in May 1981, but they failed to
make a convincing case. Discussions were resumed in October when
MAS advanced a case based on an assumption of 25% traffic increases
in 1982. There was no evidence for this (traffic fell by 3%
in 1981) and BA rejected it, but the meeting was a friendly one and
it was made clear to MAS, and in the agreed record of the meeting,
that since agreement could not be reached at airline level they
were at liberty to take the matter up in more formal negotiations.
The Malaysians have not yet asked for such negotiations, and that is
clearly the next correct step.
Since October traffic statistics for the whole summer have
become available and it seems likely that MAS could make a case
for additional capacity at formal talks. However, they should
not be encouraged to believe that the outcome of any such talks
is a foregone conclusion. While honouring our existing
commitments BA will certainly want us to do what we can to
achieve a more satisfactory agreement on capacity increases for
the future. The reasons are:
(i) MAS already carries 67% of London-Kuala Lumpur traffic
and outearns BA by £22.5m to £7.9m on the trunk route;
MAS outearns Cathay Pacific by a factor of 3:2 on
services to and from Hong Kong.
(ii) The CMU requires a high proportion of third/fourth
freedom traffic (i.e. passengers between London and
Kuala Lumpur); but 36% of MAS traffic between London
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