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Properly handle Cathay Dragon traffic rights to maintain market competition

¡iĶ¤å¡jIn accordance with the large-scale reorganisation plan announced by Cathay Pacific, Cathay Dragon was grounded immediately while approximately 8,500 positions were cut. Some 5,300 Hong Kong employees lost their jobs in what is the largest layoff in the history of Hong Kong. The company is now seeking approval from regulators for Cathay Pacific and its wholly-owned subsidiary Hong Kong Express to operate most of Cathay Dragon's routes.

Cathay Pacific's decision to abruptly shut down its subsidiary has left experts in the field puzzled, as Cathay Dragon's short-haul routes from Hong Kong to mainland China and other parts of Asia were among those that could resume the soonest, once the Covid-19 pandemic comes under control. As traffic rights are important public resources of Hong Kong, the rights that were originally held by Cathay Dragon must be handled by the Hong Kong government in accordance with established mechanisms. Subsequent re-allocation of the traffic rights should also take into account two principles, which are the maintenance of market competition and the consolidation of Hong Kong's status as an international aviation hub.

Cathay Pacific, the largest commercial flight operator in Hong Kong, acquired Dragonair in 2006 and later rebranded it as Cathay Dragon in 2016. Ever since its acquisition, Cathay Dragon has maintained its good reputation and mainly operated short-haul routes between Hong Kong, mainland China and other parts of Asia. It covers more than 20 Chinese cities while its parent company only covers the four destinations of Beijing, Shanghai, Chengdu and Xiamen.

However, its operations seriously overlapped with Cathay Pacific's newly acquired Hong Kong Express last year.

Being the first country to bring the Covid-19 pandemic under control, China has become the quickest in the world to recover both in terms of economic activities and traffic, with over 600 million trips being recorded on its National Day. Once the pandemic in Hong Kong is brought under control and traffic with the mainland is resumed, Hong Kong is set to be integrated into China's economic "internal cycle".

Cathay Dragon's routes to mainland China could have taken pressure off its parent company, as those are very likely to be the first of the groups' many routes to get back into schedule, creating revenue for Cathay Pacific. However, Cathay Pacific ultimately decided to shut down Cathay Dragon, leaving the rest of the aviation industry surprised and puzzled. The aviation giant will allegedly seek approval from the Hong Kong government to absorb Cathay Dragon's routes together with its other subsidiary Hong Kong Express.

According to industry experts, Cathay Pacific might be looking to consolidate its monopoly on the Hong Kong market, so that it could simplify its corporate structure while maintaining all its routes.

Traffic rights are aviation agreements signed between countries that cover the number of flights, destinations, and airspace. Airlines must be granted traffic rights before they can operate a route between the specified destinations.

The SAR government negotiates aviation agreements directly with other countries and regions under the authority of the central government of China. Applications of traffic rights are also managed by the Hong Kong government.

The traffic rights granted to airlines that are registered in Hong Kong are therefore important public resources that belong to the SAR government instead of private properties of airlines.

Following the announcement of Cathay Pacific's reorganisation, the Transport and Housing Bureau has clearly stated that Cathay Dragon's traffic rights must be returned to the government and cannot be transferred to other companies.

Other Hong Kong-based commercial airlines can apply for the use of the said traffic rights, and the Transport and Housing Bureau shall re-distribute the rights according to the established mechanism.

The Transport and Housing Bureau emphasised that the major principle of air rights allocation is that public resources can be fully utilised to consolidate and enhance the competitiveness of Hong Kong's aviation industry. Both the aviation industry and the society have pointed out that competition is crucial to progress and consumer welfare.

New competitors can also bring more quality services and employment opportunities, which is beneficial to the healthy development of an industry.

Therefore, the government should bear in mind the maintenance of competition in the aviation industry when handling the traffic rights issue that is brought about by Cathay Pacific's restructuring.¡½Jeffrey Tse

Exercise

1.¯èÂI

2.¤l¤½¥q

3. ÃbÂ_

4.¦X¨Ö

5. ¦¬ÁÊ

Answer

1.destination

2.subsidiary

3.monopoly

4.merger

5.acquisition

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