CONFIDENTIAL
LEADING TO HEAVY DISCOUNTING OF THE LEVEL OF AGREED FARES WHICH THE AIRLINES ARE REQUIRED TO CHARGE UNDER THE TARIFF PROVISIONS OF THE ASA'S. WE ARE AWARE OF CASES WHERE EUROPEAN AIRLINES HAVE UNDERCUT THE UK/HONG KONG CABOTAGE FARE IN AN EFFORT TO SYPHON OFF TRAFFIC WHICH WOULD NORMALLY BE CARRIED BY BA BETWEEN LONDON AND HONG KONG. SUCH PRACTICES ARE SELF-
EVIDENTLY DAMAGING TO BA.
4. WE HAVE FULLY IN MIND HONG KONG'S COMMUNICATIONS NEEDS AND WE CAREFULLY NOTE THE POINTS MADE IN PARA 1 OF YOUR TELEGRAM UNDER REFERENCE. WE DO NOT BELIEVE, HOWEVER, THAT A REDUCTION IN SWISSAIR SERVICES FROM 5 TO 3 WEEKLY, GIVEN THE PRESENT VERY LOW LOAD FACTORS, AND THE EXISTENCE OF A FULL RANGE OF OTHER SERVICES TO CONTINENTAL EUROPE AND THE UK, WOULD HAVE ANY SERIOUS
EFFECT ON HONG KONG'S COMMUNICATIONS. IT IS POSSIBLE ANYWAY THAT DURING THE PRESENT SERIES OF TALKS, THE SWISS MAY HAVE EVIDENCE OR PRODUCE PROPOSALS THAT WOULD PUT A DIFFERENT COMPLECTION ON THE MATTER. A JOINT EUROPE/HONG KONG OPERATION B BY BA AND SWISSAIR OR SOME OTHER COMMERCIAL ARRANGEMENT ARÉ POSSIBILITIES WHICH MIGHT BE EXPLORED. ALTHOUGH UTHEREFORE WE ARE AT PRESENT OF THE FIRM OPINION THAT SWISSAIR'S CAPACITY TO HONG KONG IS EXCESSIVE AND SHOULD BE REDUCED, THE FINAL OUTCOME OF THE TALKS CANNOT YET BE FORSEEN
5. AS REGARDS HONG KONG'S TRADE WITH SWITZERLAND, WE ARE AWARE OF THE IMPORTANCE OF THE SWISS MARKET, BUT THE FACT THAT SWITZERLAND HAS IN THIS FIELD ALSO A VERY FAVOURABLE BALANCE MUST SURELY BE AN IMPORTANT ARGUMENT AGAINST THE SWISS SEEKING TO CONFUSE THESE TWO VERY DIFFERENT ISSUES AND WOULD GREATLY STRENGTHEN HMG'S HAND IN RESISTING ANY ATTEMPT TO DO SO.
6. THE RELEVANCE OF THE SCANDINAVIAN ISSUE IS SIMPLY THAT THE EXISTENCE OF THE PRESENT SUBSTANTIONAL EXCESS OF CAPACITY TO HONG KONG BY THE EUROPEAN AIRLINES GENERALLY WOULD, UNLESS IT CAN BE REDUCED, MILITATE STRONGLY AGAINST ANY POSSIBILITY THAT WE MIGHT BE WILLING TO PERMIT SAS A ROUTE.
OWEN
FILES
MAEQ
HKISA
WED
[COPIES SENT TO CAD/ DOT]
MR MURRAY MR FERGUSSON,
MISS BROWN
CONFIDENTIAL
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