Cathay Flying Into Trouble?

Hong Kong government officials say that China National Aviation, a Chinese state-owned charter airline operator, could receive a license to begin scheduled services from Hong Kong early next year. That would be bad news for Cathay Pacific Airways, the colony's dominant carrier, whose shares fell 5.4% in the three days following the news.

Because the Chinese state-owned airline is not subject to the same profit pressures as privately owned Cathay, it could lay on enough capacity to put a competitive squeeze on Cathay. CNAC has hired a former Cathay official, who was instrumental in starting Hong Kong's second airline, Hong Kong Dragon Airlines, to help advise it.

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