TNAG-0864-FCO40-1074-Involvement-of-Hong-Kong-in-air-services-agreements-1980 — Page 28

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132. The question that the Authority had to decide was whether BCAL be

licensed alone or jointly with Cathay. A licence granted solely to Cathay or Laker was not a viable alternative. The Authority should avoid any preferences laid down in the Act and Guidance and reach a decision on the merits. The courts and Secretary of State had negated the spheres of interest policy and the Authority had made it clear that it did not apply to a cabotage route. The exception in the penultimate sentence of paragraph 7 of the Guidance did apply because BA had over the years failed to provide an adequate service, and, when faced with the prospect of competition, had reduced its services. Paragraph 3(1)(a) would prevent the Authority from licensing Cathay but only if it wanted to do so in preference to BCAL. The Authority had on the evidence to determine that Laker would not satisfy all substantial categories of demand which BCAL would and thus there could be no statutory preference for licensing Laker.

BCAL warranted licensing on the merits of its case without the need for the Authority to invoke re-inforcement by statutory mandate. BCAL was not, however, waiving its rights under the law.

133. Cathay had said that a three carrier regime was not viable for them

whereas in Hong Kong a three carrier regime had been demonstrated to be profitable. On the evidence submitted by BCAL it was clear that the results under the three carrier regime had indicated a profit for Cathay in the year 2, although they had said that the amount was unacceptable. Cathay's profit sights were too high if service was to be adequate and they seemed to be unwilling to accept the inevitable developmental loss which operations on the route would entail.

134. BCAL's position had remained consistent from the start and they had

not changed their projections, financial results or type of product. Cathay Pacific however had proposed three services to start in January 1981, had then proposed three services beginning in August, and was now proposing four services commencing in May. BCAL had proposed a simple fare structure in which one fare was lower than the Skytrain fare, whereas Cathay's fare structure was more complex, and its proposed mid-week fare would result in some traffic having to travel on the services provided by BA. BCAL's timings were convenient and they would operate profitability in accordance with the Authority's criteria without relying on revenue from the Middle East points. They would be able to sell tickets through their offices in France and the Low Countries and if their applications for Manila and Taipei were successful it would result in additional support for the Hong Kong operation and provide Gatwick with a substantial gateway to the Far East.

135. Laker's case was unrealistic. They would not serve the entire market

or provide a full cargo service. There was no pool of charter traffic as on the North Atlantic and, if their traffic mix forecast proved to be wrong and there were fewer high fare paying passengers, they would make a loss. Their whole case was dependent upon Sharjah revenue but they had no idea of the size of the Sharjah market and had not carried out any economic studies.

136. There had been a decline in the growth rate over recent years due

mainly to the change from charter to scheduled service operation and the only section of the market that appeared to have benefited from that change was the sixth freedom carriers. BA's criteria on viability had not followed their experience as they had said that an acceptable operating ratio was 115 but that they had never achieved it on the route.

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