Two weeks ago, during failed talks in Canberra, Hong Kong negotiators demanded a 35 per cent capacity restriction on passengers originating from Hong Kong that the airline could carry to Singapore and Bangkok.

Australia was not agreeable, and talks failed.

Now, a week before Qantas' operating permit expires, it has been granted a new permit with a 50 per cent cap on the number of passengers.

In simple terms, it means that if a 400-seat capacity Qantas flight to Bangkok is half full, only 100 passengers can be picked up at Kai Tak.

Qantas has been denying Cathay claims that it picks up 85 per cent from Hong Kong, though that figure appears to be accurate.

If it is not, why does Australia oppose any restriction? Many in the industry believe that the dispute involves more than inter-carrier competition.

Cathay is playing bully. If Qantas' claim that it only controls five to six per cent of the market share to Bangkok and Singapore is to be believed, Cathay's future on the route is hardly in jeopardy.

Cynics say Cathay's owner, Swire Pacific, is trying to play tough in the face of uncertainty over its post-1997 ownership.

One even went so far as to suggest the Australian Government, which has delayed the sale of its 75 per cent stake in Qantas three times because of poor market conditions, may be forced to raise the limit of foreign ownership because of the dispute.

British Airways already owns 25 per cent, the maximum foreign ownership generally accepted in the industry, and Australia said it would allow another 10 per cent to be sold to a foreign company.

Given the looming quest_ions of British ownership under Chinese rule, the cynic said, Swire may be trying to raise that percentage higher, to show China - and shareholders - that majority ownership of a foreign airline is not a new concept.

Irrespective of the motives, an air war will serve neither the airlines, governments, nor the passengers.

The airlines seem like they will resolve the differences despite the uncertainties.