CATHAY Pacific Airways is expected to give up services to Kaohsiung later this year to allow sister company Hong Kong Dragon Airlines to make its entry into the lucrative Taiwan market. Dragonair applied on August 8 for a permit to fly to the port city through the territory's Air Transport Licensing Authority, and its application is expected to be gazetted next week. The move follows a July 31 tentative agreement between Cathay and the Taipei Airlines Association (TAA), which saw the territory's de facto flag carrier conceding after months of negotiations to two new airlines being allowed on the route. Although they were not formally named, it was anticipated they would be Dragonair and Taiwan's EVA Airways. Taipei has yet to announce its carrier. 'We can confirm an application has been made,' a Civil Aviation Department spokesman said. 'An application has been made by Dragonair to the Air Transport Licensing Authority in accordance with the provisions of licensing of air service regulations, for a licence to operate scheduled services between Hong Kong and Kaohsiung,' he said. The July 31 deal with Taiwan left certain details still to be worked out, meaning it will be months before Dragonair can begin operations to Taiwan. Routes, schedules and capacity still need to be finalised before October 30 and the two sides - Cathay and the TAA - are to meet again at the end of the month. The formal agreement must then be approved by the Joint Liaison Group, as it will be a new five-year commercial agreement straddling the 1997 handover of the territory. The tentative agreement stipulated that neither Taiwan's China Airlines nor Cathay, which operates 12 flights a day to Taipei and three to Kaohsiung, would lose routes. But one airline official said 'that will probably happen', when asked whether Cathay would give up services to Kaohsiung. Although the territory has a 'one airline-one route' policy, the official said there were certain cases where it would be permitted. Another said Dragonair, which has a fleet of 10 aircraft, 'has a lot of work to do' before it could start services because it would likely need to acquire new jets for the route. Cathay had no official comment, saying only: 'We're still in the process of negotiating with the Taipei Airlines Association.' Meanwhile, Dragonair recorded a 27.6 per cent increase in cargo carriage from January to June, according to a Reuter report. The airline's cargo and distribution manager, Eddy Sat, said the airline carried 6,643 tonnes of freight during the period, adding that numbers were up because Dragonair began issuing its own airway bills from January in Beijing, Shanghai and Xiamen, resulting in more efficient handling of cargo. In the past only the Civil Aviation Administration of China was able to issue airway bills on behalf of all carriers in the country. Mr Sat said demand on key routes was also behind the increase in cargo. Dragonair is owned 46 per cent by CITIC Pacific, 30 per cent by Cathay and 13 per cent by Swire Pacific. Small shareholders account for the rest.