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Cathay is betting on Chinese travel boom

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Dec 04, 2007

(TVLW) Cathay Pacific is betting on explosive growth in China as seventy new airports come on stream and the rising middle class bursts onto the global scene.

"You can find a stack of press cuttings every year talking about China's hard landing, saying they're running out of luck, and it hasn't happened," said John Slosar, head of the fast-growing Asian carrier based in Hong Kong.

"China has got no credit for what a good job it has done in avoiding this massive crevasse. I don't see the boom stopping, and I can assure you that everybody I meet in China wants to see the world. There is going to be a fantastic travel boom out of China for quite some time," he said.

China is already the world's second biggest aviation market. Passenger levels are soaring 14pc a year. The government has launched a construction blitz to extend the network of airports to 220 over the next twelve years, up from 150 this year.

Even so, the Shanghai stock market has fallen 22pc from its peak in October, while the energy giant PetroChina has lost a third of a trillion dollars in theoretical value since its partial float in early November.

There are widespread concerns that monetary tightening by the Chinese central bank may have popped the speculative bubble, although the country has shrugged off such upsets before without losing its stride.

Cathay Pacific, owned by the Swire Group, took over Dragon Air last year, opening up routes to 21 cities across the Chinese mainland. It also own 17pc of the dominant carrer Air China.Mr Slosser said the group has no plans to buy the Airbus A380 superjumbo, preferring the smaller Boeing 777-300s jumbos.

"The A380 is a great accomplishment but there is not much space for cargo. It may look efficient in terms of cost per seat, but passengers are only part of business. We do a lot of cargo, and it doesn't have much space," he said.

The company said the dramatic spike in oil prices had pushed jet fuel costs to 30pc of total expenses, up from 17pc at the beginning of the decade. "We're being squeezed a lot. There comes a point when you can't pass it along to the customer any more," said Mr Slosar.

"For the last half century the real cost of air travel has been getting cheaper and cheaper but we may have reached the bottom of the slope. From now on it may start to increase in real terms," he said.

Mr Slosar said the aviation industry had done an abysmal job of explaining how aircraft have slashed fuel use with each successive wave of jet technology, a failure that has left carriers appearing to be the arch-villains of global warming.

"We produce just 2pc of global carbon emissions: you'd think it was 52pc the way people go on. It annoys me that air travel is presented as something selfish. It has opened up the whole world," he said.

Cathay Pacific said it had a contingency reserve to cope with Avian flu, should the H5N1 virus mutate into a human epidemic -- a risk still viewed as highly likely by the World Health Organization.

Aircraft were grounded across Asia when the virulent SARS epidemic in 2002-2003 killed 800 people and set off panic, crushing airline stocks. "We were hit very hard by the SARS. We just had to park our airlines and put people on unpaid leave. We've learned out lesson," he said.

telegraph.co.uk

Cathay is betting on Chinese travel boom
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