Since he took the reins as Cathay Pacific's chief representative in Beijing in August, Lionel Kwok's favourite expression whenever he meets the media is that "we are part of China."

"Please, don't look at us as a foreign airline," Kwok says. "All the guys working here even my boss are Chinese."

From generous spending on ad campaigns in the Chinese media to various familiarization trips for local travel agencies and reporters, the key message being sent out is that Cathay, already one of the world's best airlines, is from Hong Kong.

All of these efforts to highlight Cathay's Chinese roots are being made to help it further penetrate the mainland market. Although Hong Kong is a Special Administrative Region (SAR) of China, it is still difficult to cross the threshold into the mainland market.

Cathay provides passenger services to two mainland cities, Beijing and Xiamen, in East China's Fujian Province, and carries cargo to Shanghai, the most lucrative destination on the mainland.

Some industry insiders say Cathay's hybrid nature is the major obstacle to the airline's growth in the mainland market, however. Cathay is 45.85 per cent owned by property-focused British conglomerate Swire Pacific Ltd. CITIC Pacific Ltd, which has roots on the Chinese mainland, controls 25.7 per cent and is the airline's second largest shareholder.

Some newspapers in Hong Kong have called Cathay a British airline, but the services between Hong Kong and Beijing, Xiamen and Shanghai are domestic Chinese routes.

The Convention on International Civil Aviation does not permit a contracting state to exclusively grant air traffic rights on its domestic routes to other contracting states. So if China has granted these domestic rights to a British airline, China cannot refuse to grant these rights to other contracting states that make the request.

Some analysts hold different views, however.

"Cathay's nationality should be decided by the place of its incorporation," says Liu Weimin, director of the Aviation Laws Research Centre under the Civil Aviation Management Institute of China.

"Cathay is registered in Hong Kong and its business is based in Hong Kong, so it is a Chinese airline."

Liu says that Cathay's identity should not be the main problem, given the fact that Hong Kong is part of China.

"The problem is other airlines that are competing head-to-head on the Hong Kong and mainland routes. They are watching for the entry of Cathay, which is internationally competent," Liu says.

"The authorities have to consider their opinions when granting rights to Cathay."

As economic ties between Hong Kong and the mainland grow closer, however, the number of passenger and cargo flights must increase in accordance with rising demand, Liu says.

"Everybody will have a share of the market," Liu adds.

Dragonair, Air China, China Southern and China Eastern fly from the mainland to Hong Kong. Dragonair operates the most flights, flying 56 times a week to Beijing, and 108 times to Shanghai, plus routes to a number of second-tier cities.

Cathay bought a 9.9 stake in Air China in 2004, during the mainland flagship carrier's Hong Kong listing. Cathay agreed to help upgrade its partner's engineering, marketing and other operational demands. Analysts say Cathay, in return, wants to get support from the mainland as it seeks additional air rights.

There was speculation earlier last year that the two could merge when the South China Morning Post reported that Cathay planned to exchange shares with Air China. The result would be that Air China could take over Cathay and grant the Hong Kong airline's parent, Swire Pacific, a substantial stake and an influential managerial voice in the company.

Both airlines denied the notion shortly after the reports surfaced.

"I've never heard of such negotiations with Air China," Kwok says.

Cathay started to share code with Air China at the end of October. It also co-operates with the mainland carrier on frequent flyer programmes.

Hong Kong greeted more than 13 million mainland tourists last year, twice the SAR's population.

"No one should overlook that lucrative market," Kwok says.

Hong Kong is also luring more and more individual travellers from the Chinese mainland. These "high-end frequent travellers" make the Hong Kong/mainland air routes even more attractive, Kwok says.

"They come every two or three months for shopping. They don't need a map and they use Octopus cards (public transportation passes/debit cards) at the 7-Eleven," Kwok says. "You don't see any difference between them and the local residents as long as they don't speak Mandarin."

Another key message comes from the familiarization trips organized by Cathay to show off Hong Kong's vitality, Kwok says.

"We took people to the Four Seasons and Mandarin Oriental just to show that Hong Kong is more than a place for cheap cameras and cosmetics. A trip to Hong Kong is quite an experience."

As one of the founding members of the Oneworld Alliance, Cathay flies to 92 cities around the world by operating more than 1,300 flights per week.

"Strong network frequency is our biggest advantage and is what we will continue to strengthen," Kwok says.

About 60 per cent of Cathay's passengers on the Beijing/Hong Kong route travel to and from China via Hong Kong. Cathay has four daily non-stop flights to London, three to Sydney and three to Los Angeles.

"This kind of frequency and convenience is what business travellers need," Kwok says.

The Hong Kong carrier launched a series of new ads in November on "network & frequency." The TV, print and online media campaign promotes Cathay's flight frequency and Hong Kong as an international hub. Topics such as "Move farther with Cathay Pacific" are expected to be the main thematic thrust behind Cathay's brand promotions in the next two to three years.

"For an economy that grows over 9 per cent per year, and a nation with a population of 1.3 billion, China needs more than just one hub," Kwok says.

"With its excellent infrastructure and continued efforts to spur its prosperity, Hong Kong will maintain its position as an important gateway to China."

Given China's economic growth and the deregulation of its skies, major mainland cities, such as Beijing, Shanghai and Guangzhou are also becoming important hubs.

"Hong Kong's position will be under threat and the order of these hubs, according to their importance, may be changed," Liu says.

"But as long as the whole pie is getting bigger, everybody will earn money."

(China Daily 01/16/2006 page2)