TNAG-0864-FCO40-1074-Involvement-of-Hong-Kong-in-air-services-agreements-1980 — Page 10

- 6 -

22.

The 37%-40% load factor in the executive cabin was acceptable as there was a class of traveller particularly in the Hong Kong market, who was willing to pay the price for space and service, so that although that particular cabin would be 60% empty it would still be profitable. The difference of £41 between the Laker and B. Cal economy fares was acceptable as they were two different products and concepts of what the passengers required. The same applied to the other fares offered by B. Cal which were higher than Laker's.

23.

24.

25.

26.

27.

Mr Bebchick explained that the 66.6% break-even load factor on the end to end traffic could not be related to the 65% year-round average load factor that the ATLA considered satisfactory to avoid turning traffic away.

The end to end load factor, the sector load factor, the route load factor, the aircraft load factor and the overall market load factor were all different concepts. Mr Bebchick analysed the distinctions between them in detail and argued that only the route load factors of the operators could properly be aggregated to give a market load factor.

Mr Osborne, referring to the Cathay break even load factor, said that costs could be reduced by cargo revenue, but not by intermediate traffic, since a proportion of the seats and therefore of the total costs had to be allocated to the carriage of that traffic at an assumed load factor substantially less than 100%. If the seats allocated to the intermediate traffic were deducted from the total, the breakeven load factor would rise in 1980/81 from 53.7% to 65.4%, in 1981/82 from 50.2% to 62.5%, in 1982/83 from 47.5% to 62.2% and in 1983/84 from 46.8% to 62%. If the passengers required per flight was calculated using the B.Cal method, it was clear that B.Cal on a daily service would require approximately 65,000 passengers fewer than Cathay in order to break even. The Cathay re-calculation of the B, Cal breakeven load factor was incorrect as it had employed yield figures which included standby traffic which was discretionary.

Mr Smith said that BCAL currently operated four DC10s so as to provide eight services per week to West Africa, seven to Houston, three on the South American routes and two to Caracas, Bogota and Lima.

The three additional aircraft they expected to obtain in the next ten months would be allocated one to Atlanta, one to Hong Kong and the third possibly to North American points.

Mr Barron said that B.Cal's traffic forecast had been based on British Airways historical traffic, but included an element of indirect traffic and a stimulation factor. The escalating rate of growth had been based on an improvement in economic conditions, the future development of Hong Kong and the increasing popularity of Hong Kong as a holiday destination for Europeans.

Mr Smith said that capacity was a principal determinant of the eventual market share and that B.Cal's estimate of the market had been completed without any assumptions as to Laker's participation. He agreed that, if Laker had full traffic rights at Sharjah, it could generate sector traffic and cargo between London and Sharjah and Hong Kong and Sharjah which would increase the original sector revenue figure of 1% put forward in Hong Kong.

17