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SCMP Reporter

THE threat of an all-out halt on flights between Hong Kong and Australia grew yesterday to its highest level so far with the territory threatening to draw Australia's second international airline into the row if agreement is not reached in 10 weeks.

  The Government said moves by Canberra threatening to ban Cathay Pacific Airways from landing in Australia after June 30 were a 'very serious escalation'.

  The Economic Services Branch said Hong Kong would have no choice but to take 'appropriate measures' against Qantas and Ansett Australia if the threat was acted upon.

  Principal Assistant Secretary for air services negotiations Andrew Pyne said the territory had so far kept direct flights between the two countries out of the dispute, and Australia had gone 'too far'.

  Mr Pyne said the extending of Cathay's landing rights only to June 30 could be the single shot that leads to a complete halt on flights between Hong Kong and Australia.

  While it was hoped the dispute would be resolved before June 30, Ansett's permit was now also in jeopardy, he said.

  Ansett has already had its permit extended to October, but the Director of Civil Aviation has the power to revoke it.

   'If the dispute did widen to include direct air services between Hong Kong and Australia, then obviously Ansett would be affected.

  'At the same time, though, we believe the Australian Government will act responsibly and will back down on its threat to cut Cathay from Australia,' Mr Pyne said.

  'We don't believe they have any basis for turning this into an issue of direct services. We have done our best to keep that out of it so far and we hope they will too.'   All three airlines in the dispute are continuing to sell tickets for dates after June 30.

  Australia's shortened permit for Cathay was retaliation against tough restrictions in Qantas' new Hong Kong operating permit on the number of passengers it can upload from Hong Kong and carry on to Singapore and Bangkok - its so-called 'fifth freedom' routes.

  The new permit which runs to October 28 limits the number of fifth-freedom passengers to half the total number aboard each aircraft.

  Fifth-freedom rights cover carriage of passengers and freight by an airline between destinations outside its home country, and are the subject of almost every serious air rights dispute.

  Cathay claims Qantas, the Australian flag carrier, has contravened the terms of the existing agreement, uploading 85 per cent of Bangkok and Singapore-bound passengers from Hong Kong - well above industry norms. Cathay claims Qantas' alleged abuses were putting its own services on the two routes in jeopardy.

  Qantas has said it only uploads between 50 and 60 per cent, and has scoffed at Cathay's claim, maintaining it only controls five to six per cent of the market share on the routes.

  Negotiations in Canberra two weeks ago failed after three days, when negotiators from the territory demanded a 35 per cent cap on Qantas' fifth freedom passenger numbers.

  In a statement yesterday, Cathay 'expressed serious concern' over Australia's shortened permit, saying it was 'heavy-handed and only creates concern and unnecessary uncertainty among Australian travellers.'   Spokesman Phil Burfurd said travellers in Australia had already begun ringing the airline, worried they would not be able to fly to Hong Kong after June 30. Mr Burfurd said he did not know of any cancellations.

  A spokesman for Laurie Brereton, Australia's Federal Minister for Transport, played down the threat of cancelled services after June 30, saying it was 'too early' to make any decisions.

  Ansett managing director and chief executive Graeme McMahon said last night he was surprised the airline was now included in the dispute, and the issue would be brought up with government authorities.



Flights to Australia under threat