HONG KONG. Cathay Pacific Airways is to pay US$1.58 billion to buy rival Hong Kong carrier Dragonair and double its stake in Air China, adding 21 routes in the world’s second-largest aviation market.
Asia’s second most profitable airline will buy the 82% stake in Dragonair it does not already own for HK$8.22 billion (US$1.1 billion) in cash and stock and pay HK$4.07 billion to increase its Air China stake to 20%, the airlines said in a statement today. Air China will pay HK$5.39 billion for 10.2% of Cathay Pacific.
Chief Executive Philip Chen, who ran Dragonair from 1994 to 1997, will extend Cathay’s access to cities such as Shanghai and Tianjin, making it the dominant foreign-controlled airline in China. Co-operation with Cathay may help Air China compete with domestic rivals, including China Southern Airlines Co.
Cathay Chairman Christopher Pratt told reporters in Hong Kong today: “We badly wanted a significant presence in mainland China.” Dragonair’s network “fits very, very well,” he said.
Air China, based in Beijing, is facing more competition as China Southern sets up a hub in the Chinese capital. British Airways is among international carriers that are adding flights to China as the country opens up its aviation market.
Cathay, which resumed flights to China in 2003 after a 13-year absence, has been slow in obtaining access to mainland China. It flies only to Beijing and Xiamen in the southeast.
Cathay and Air China plan to split sales and costs on common routes between Hong Kong and China and sell each other’s tickets, they said.
Dragonair and China Eastern Airlines are the only carriers that fly passengers between Hong Kong, Asia’s third-busiest airport, and Shanghai. The route to Shanghai is Hong Kong’s second busiest, after Taipei.
More than 2.8 million people travelled between Hong Kong and Shanghai in the year ended March 2005, according to Hong Kong’s Civil Aviation Department.
The World Tourism Organisation forecasts that 100 million Chinese people will travel abroad each year by 2020, up from about 20.2 million in 2003.
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