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Joseph Lo

Cathay Pacific Airways may be close to re-establishing a strong mainland presence.

Analysts said reports that Cathay was interested in forming commercial partnerships with leading mainland carriers was an indication of the airline's desire to solidify its relationships in the China market ahead of an increased presence.

A senior official of John Swire & Sons - which controls and manages Cathay -  told reporters earlier this week in Beijing that the carrier wanted to cash in on the rapid economic growth in China by increasing partnerships with the leading mainland airlines.

These would include traffic links and non-flight services, such as pilot training and joint-selling of air tickets.

Peter Hilton, an aviation analyst at Credit Suisse First Boston in Hong Kong, said any moves the carrier might make would be done with the intention of furthering its presence in the mainland rather than for immediate financial reward.

The Swire official could have been alluding to Cathay's desire to make a strategic investment in Shanghai-based China Eastern Airlines, which reports from Beijing indicate could become reality soon.

'There is more to it than just trying to make a profit out of non-flight services on the side,' Mr Hilton said. 'This may be Cathay's way of alluding that it is getting back into China.'

Cathay no longer flies to mainland destinations, having given up those rights to Dragonair, in which it has a 19 per cent interest.

Dragonair is 43 per cent owned by China National Aviation Corp, the commercial arm of the regulatory body that controls civil aviation in China.

It is widely believed that Beijing intends eventually to inject Dragonair into a new mega-carrier led by flag carrier Air China.

If that were to happen, it would threaten Cathay's feeder network in the mainland, for which it, at present, relies on Dragonair.

'For Cathay, it would be important to retain a strong feeder system in China, since they don't fly there themselves,' Mr Hilton said.

Last year, non-flight activities contributed about 4 per cent of Cathay's revenues and its scope to increase non-flight contribution to its revenues is limited.

'It is obviously of some benefit, but it will never be a major bottom-line driver for airlines like passenger and cargo activities are,' said Mr Hilton.

Because of the political and alliance-driven nature of the aviation industry, it would be difficult for Cathay to establish close commercial ties with all leading mainland carriers.

Cathay is closely allied with China Eastern, which shares Cathay's air miles programme, and the two carriers have a number of joint training programmes in place.

Besides wanting to invest in China Eastern, Cathay has been wooing the carrier for the oneworld alliance.

Air China has been linked with joining the rival Star Alliance, which is led by Lufthansa and United Airlines.

Part of the reason why non-flight services make up such a relatively small part of a typical airline's activities is because of the disproportionately large amount of capital tied up in aircraft and flight support.

It is therefore usually in an airline's best interest to devote as much of its resources and attention as possible to maximise the return on its core assets.

Cathay has joint ventures that provide some catering and terminal services in the Philippines, Vietnam and Japan.



Cathay looks set for greater mainland role as commercial partnerships sought