Much in Australia is riding on the outcome of two sets of bilateral talks with Hong Kong.

Virgin Atlantic wants fifth freedom rights from Hong Kong to Australia, so it can fly from London through to Australia and compete directly against Qantas and British Airways. With access to Australia, Virgin Atlantic could also link with its local affiliate, Virgin Blue, which could provide behind and beyond gateway feed for Virgin Atlantic passengers. That would give Virgin Blue a chance to grab more domestic market share from Qantas by claiming some of the international feed on local routes that now almost all goes to Qantas.

During November talks, Hong Kong and UK negotiators addressed the question of fifth freedoms between Hong Kong and Australia. In exchange for granting Virgin Atlantic's request, Hong Kong wants fifth freedoms for Cathay Pacific from London to the USA.

Hong Kong's Dragonair insists that if Virgin Atlantic gains access from Hong Kong to Australia, it should also be allowed into that market. Currently Cathay Pacific and Qantas dominate flights allotted under the Hong Kong-Australia bilateral, which means changes are needed in that accord too.

Even if Virgin Atlantic fails to gain rights beyond Hong Kong to Australia, Virgin Blue has said it will seek a new route to Hong Kong to meet its sister airline if more frequencies become available.

Also waiting in the wings is the question of whether Australia's competition commission will approve an extension of the existing Qantas-British Airways joint service agreement. The commission has deferred that issue until early in 2004. Virgin Atlantic has said it will oppose that extension unless it gains its own access to Australia.

Source: Airline Business