Cathay Pacific Airways Ltd, the world's fourth-largest international cargo carrier, plans to start Hong Kong-Beijing freighter flights and increase its Shanghai service as rivals target China's mainland for expansion, Bloomberg News reported.
Hong Kong's biggest airline may also add more cargo flights to southern Europe and India over the next few years to meet demand from customers, Ron Mathison, Cathay's general manager for cargo, said.
Cathay earned 25 percent of sales last year from cargo, as exports fueled economic growth of 9.9 percent in China's mainland. Deutsche Lufthansa AG, Singapore Airlines Ltd and other carriers are forming joint ventures to challenge Cathay in the world's fastest-growing major economy.
"There's enormous growth potential, especially with the opening of China's mainland to competition for cargo," said Peter Drolet, an analyst at UOB Kay Hian Ltd in Hong Kong. Cathay is "dedicated, for the most part, to the growing China market," said Drolet, who has a "buy" rating on the airline.
Cathay will add all-cargo flights to Stockholm and Toronto in September, raising its number of freighter destinations to 30, it said on June 19. The airline has applied for permission to fly its freighters to Beijing and to increase its daily Shanghai service, Mathison said.
Cathay may add flights after a new air services deal between Hong Kong and the central government comes into effect in October. The carrier already has passenger services to Beijing and Xiamen, Fujian Province.
"Our network is a key asset and that's why we need to grow it," Mathison said. "It's not just the number of frequencies - it's also the range of destinations."
The carrier's proposed HK$8.22 billion (US$1.1 billion) purchase of Hong Kong Dragon Airlines Ltd, which will give Cathay 21 more passenger routes in China's mainland, will also expand its cargo network.
Dragonair, as the airline is called, flies its six freighters to New York, Shanghai, Xiamen and other cities.
Airlines are investing in China's mainland, as the country's air cargo market is set to grow 14 percent each year until 2009, according to an International Air Transport Association forecast.
Still, the increased capacity and largely one-way traffic flow is squeezing margins.
"Airlines are adding capacity to service the strong demand coming out of China's mainland, but there isn't strong demand coming back," Mathison said.
Yields, or revenue per metric ton for each kilometer flown, out of Hong Kong are about eight times higher than for flights returning from Europe or the US, he said. The airline's average cargo yield fell 0.6 percent last year to HK$1.75 (23 US cents) per ton-kilometer, after it filled less cargo space.