CONFIDENTIAL
Peking and Shanghai by further extension of the same practice.
[4
Reversion to the free use of only 4 additional points in China instead of 7 would not help since CAAC could still select Tianjin and either Hangchou or Nanjing to achieve the same result, while direct capacity to
Shanghai for both CAAC and Cathay would be cut back. No doubt this is why Lu would have been prepared to settle on this basis in March.7
5 The arguments in your paragraph 3(b) (c) and (e) will not impress CAAC who are impervious to customer interests, while (a) and (d) would actually encourage them to believe that we will not be willing to take any firm action against services which we evidently value so highly.
6
The conclusion we draw is that a review on this basis would achieve nothing at all. In fact unless you are prepared to agree to some form of firm action either to prevent the use of services to other cities to circumvent the restrictions on CAAC's share of Peking and Shanghai traffic, or to scrap the existing CMU altogether, it is our view that Cathay will not get access to Peking at all and that its share of Shanghai traffic will fall progressively as CAAC builds up services via other points, if indeed the service is not lost altogether before long.
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