TNAG-0868-FCO40-1078-Air-services-between-China--Hong-Kong-and-the-UK-1979 — Page 54

CONFIDENTIAL

5.

HE ALSO REFUSED TO AGREE A MINIMUM OF TWO

FREQUENCIES PER WEEK BY A BRITISH OPERATOR ON THE HONG KONG-SHANGHAI SECTOR, ESPECIALLY IF THESE WERE WITH

B707 AIRCRAFT. IT EMERGED THAT THE CHINESE ARE CONTEMPLATING USING TRIDENTS ON THIS ROUTE. LU INSISTED THAT THE CAPACITY TO BE MOUNTED ON THIS ROUTE SHOULD

BE AGREED BETWEEN THE AIRLINES IN THE LIGHT OF THEIR

ASSESSMENT OF THE LIKELY TRAFFIC DEMAND. HE WAS IMPERVIOUS TO ROGERS' ARGUMENTS THAT SINCE WE HAD NOT YET SELECTED OUR OPERATOR, THE GOVERNMENTS SHOULD SET A PATTERN WITHIN WHICH OUR CHOICE COULD BE MADE. HE WAS NOT EVEN ATTRACTED BY THE SUGGESTION THAT ANY EXCESS OF CAPACITY BY THE BRITISH OPERATOR OVER THEIR ONE-THIRD ENTITLEMENT IN THE INITIAL PERIOD COULD BE

MADE UP BY AN EXCESS OF CAPACITY BY CAAC LATER.

6.

DESPITE MUCH TWISTING AND TURNING ROGERS WAS UNABLE

TO ESCAPE FROM THE TRAP REFERRED TO IN PARA 8 OF MY TELNO 555.

LU WAS UNWILLING TO TIE THE REMOVAL OF THE RESTRICTION ON USE

OF SEATS ON THE TRUNK ROUTE SERVICES TO THE ABANDONMENT OF

THE HONG KONG ROUTEING BY 5A. HE COMMENTED LOGICALLY ENOUGH

THAT BA WOULD PRESUMABLY NOT DECIDE TO ABANDON THE HONG KONG

ROUTEING UNTIL THE TRUNK ROUTE TRAFFIC HAD BUILT UP TO A

LEVEL WHICH WOULD SUSTAIN DIRECT SERVICES ON A PROFITABLE

BASIS. AT THAT STAGE THERE WOULD BE NO REASON WHY CAAC

WOULD THEMSELVES WANT TO RESTRICT THE USE OF THEIR AND OUR CAPACITY. IF THERE WERE ANY DOUBT, BA WOULD PRESUMABLY OBTAIN CAAC'S CONCURRENCE FOR THE REMOVAL OF RESTRICTION BEFORE DECIDING TO WITHDRAW. LU WAS ALSO UNWILLING TO

AGREE THAT BOTH BA AND A HONG KONG BASED AIRLINE COULD OPERATE

AT THE SAME TIME BETWEEN HONG KONG AND PEKING, EVEN IF BA

WERE FULLY BLINDED ON THAT SECTOR.

7

ROGERS TOOK THE OPPORTUNITY OF HIS INFORMAL TETE A TETE CN 23 JUNE TO SOUND OUT LU ABOUT OUR CHOICE OF A CARRIER TO

OPERATE THE REGIONAL SERVICES. LU SAID HE DID NOT EXPECT THERE WOULD BE ANY DIFFICULTY IF WE DESIGNATED CATHAY PACIFIC, CR EVEN IF WE WERE TO DESIGNATE AN AIRLINE SPECIALLY REVIVED

OR ESTABLISHED FOR THE PURPOSE BY ONE OF THE RIVAL COMPANIES.

2 CONFIDENTIAL

/HOWEVER, HE