Cathay Pacific Airways to Soon Set Up Venture with Air China

The recovery of the Chinese airfreight market has sped up the negotiations between Cathay Pacific Airways Limited (SEHK: 0293), Hong Kong Dragon Airlines Limited (Dragonair) and Air China Limited (SHSE: 601111 and SEHK: 0753) upon the establishment of a joint venture.

The headquarters of the venture will be located in Shanghai, so as to make use of international direct routes in the city, disclosed James Tong, CEO of Dragonair, a Hong Kong-based international airline under Cathay Pacific Airways.

Earlier, Air China Board Chairman Kong Dong revealed that his company was also talking with China Cargo Airlines Limited under China Eastern Airlines Corporation Limited (NYSE: CEA, SEHK: 0670 and SHSE: 600115) about the establishment of a joint venture.

The venture among Cathay Pacific Airways, Dragonair and Air China will be set up on the platform of Air China Cargo Co., Ltd., which has become a wholly owned subsidiary of Air China, after the latter acquired the Air China Cargo shares held by CITIC Pacific Limited (SEHK: 0267) and Beijing Capital International Airport Co., Ltd. (BCIA and SEHK: 0694).

Both sides are now discussing how Cathay Pacific Airways will take a stake in Air China Cargo. The plan of Air China is that Cathay Pacific Airways will inject its freighter assets into Air China Cargo and take a 49% stake.

Three years ago, Cathay Pacific Airways acquired the stake in Dragonair held by former shareholders including Air China, turning the latter into a wholly owned subsidiary.

By far, they have completed their route integration as a whole. Formerly, Dragonair mainly operated flights to Mainland China and other Asian countries, while Cathay Pacific Airways international transshipment via Hong Kong.

On October 13, 2009, Cathay Pacific Airways released consolidated operation data with Dragonair, indicating that their passenger capacity dipped 2.0% from a year earlier in September and freight traffic slipped 5.8%.

James Tong points out that the hardest time was May and June, when the passenger capacity dived 40% and freight traffic fell 50%. Generally, the recovery of freight will be faster than passenger transportation.

Since Cathay Pacific Airways and Dragonair mainly carry passengers from Hong Kong to other places around the world and mainland airways have opened more international direct flights, they are facing the reduction of passenger sources. To resolve the problem, Dragonair opened new routes from Hong Kong to Guangzhou in September, carrying passengers from Europe and the US to the Pearl River Delta.

Besides, Cathay Pacific Airways and Dragonair mainly focused on big customers in previous time. After the financial crisis, James Tong found out that a potential market existed in small and medium companies. Hence, Dragonair has gradually changed its customer orientation.

(USD 1 = CNY 6.83)

Source: dycj.ynet.com (October 15, 2009)

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