Discussions with a budget airline reveal focus on lucrative, long-haul passenger routes With a jealous eye on the growing number of travellers between Canada and Hong Kong, Cathay Pacific Airways has started talks with Canada's thriving discount airline, WestJet Airlines, about a possible alliance. Analysts agree that by entering into the talks with WestJet, Cathay Pacific is taking direct aim at Air Canada, the faltering national airline that has turned to its Asian routes for the prosperity that has eluded it at home. Air Canada president Robert Milton has made no secret of his belief that his airline's hopes of success lie increasingly in long-haul routes, especially those to Asia. Philippe Lacamp, who became head of Cathay Pacific operations in Canada three weeks ago, revealed the talks between the two airlines in a Canadian newspaper interview. He described the two airlines as 'a good fit'. Both airlines took pains to play down the significance of the discussions. Cathay acknowledged there had been talks 'but they are preliminary and they are exploratory, really, just early discussions'. Cathay spokeswoman Jennifer Pearson said the discussions had been conducted 'over the past three to six months'. She was careful to say Cathay had also had discussions with other airlines. No date was set for the next meeting with WestJet, she added. Similarly, WestJet spokeswoman Siobhan Vinish insisted the meetings between the two airlines were 'just discussions', similar to talks with other airlines. But many analysts suspect Cathay's overture to WestJet is a response to the opening of Air Canada's new service between Hong Kong and Toronto, the first direct flights between the two cities. The national airline, which will emerge from bankruptcy protection at the end of this month, already has direct services from Vancouver to Shanghai, Beijing and Hong Kong. Air Canada's other Asian destinations are Seoul, Osaka and Tokyo. Like most of the world's airlines, Air Canada has suffered a variety of ailments that have pushed it to the edge of bankruptcy over the past 18 months - the September 11 terrorist attacks, the Sars epidemic and domestic competition with discount airlines. Pushed to the brink, Air Canada sought bankruptcy protection in April last year. For a time, it looked as if Victor Li Tzar-kuoi would save the airline with a C$650 million (HK$3.9 billion) rescue, but he backed away when Air Canada's unions would not make the financial sacrifices he was demanding. So Air Canada cut its payroll by more than C$1 billion and went scrambling for investment - $850 million from Deutsche Bank, $250 million from the New York hedge fund Cerberus Capital, and a combination of $1.5 billion in financing and $600 million in reduced aircraft leasing costs from GE. The surprise of the Cathay Pacific move is that in its eight-year history, WestJet has made its mark with a lean operation that offered low fares instead of frills, winning a reputation as 'the airline for seniors and students'. WestJet's profits are also lean - C$60.5 million last year - but it was still a profit, as opposed to Air Canada's 2003 net loss of $1.87 billion. Almost unheard of in the airline industry these days, WestJet has had 30 consecutive quarters of profitability. Although WestJet began as a non-union and bare-bones operation, it has spread its wings increasingly in recent years to pose a major challenge to Air Canada. It now has 30 per cent of the country's domestic passenger traffic, about half of Air Canada's share. More significantly, WestJet, which has made Toronto's huge and expensive Pearson International Airport its eastern hub, will enter the US market later this month with flights to New York, Los Angeles, Fort Lauderdale and Orlando, Florida, Phoenix, Arizona and Palm Springs, California. A partnership with Cathay Pacific would be a deviation from WestJet's basic business plan, but airline analyst Karl Moore sees advantages for both airlines. Mr Moore, a professor at Montreal's McGill University, believes WestJet could function as a feeder from Canadian centres for Cathay Pacific, which now offers two flights daily from Vancouver to Hong Kong and a Toronto-Hong Kong flight via Vancouver. 'So if Cathay Pacific could have a feeder domestic airline in Canada and increasingly a North American airline as a feeder for themselves, that's an attractive proposition because it's a growth area - and Air Canada sees it increasingly as a growth area,' he said. The next step for WestJet, he suggested, might be for the airline to launch itself into the long-haul business after using the partnership with Cathay Pacific to learn the rules of the international game. Whatever the uncertainties about alignments, analysts agree that the airlines know what they are doing in their focus on the trans-pacific market. Mr Moore and independent aviation analyst Rick Erickson, based in Calgary, agreed that operations such as Air Canada and Cathay Pacific must focus on long-haul operations to generate profit growth. And both agreed that Air Canada's Mr Milton is right to concentrate on the Chinese market, not only for Canadian and Chinese business people but also for tourists. 'China is really central to the world economy, so North Americans are increasingly going to China,' Mr Moore said. As a result, the Chinese market has been a major growth area for Air Canada. Mr Erickson expects a tremendous growth in the China market, given the growth of the Chinese middle class. One of the long-term goals of Air Canada, he says, is access to '15 or 20 Chinese cities with populations of more than three million that nobody in Canada has ever heard of'.