Cathay Pacific's recent acquisition of Dragonair and strategic alliance with Air China could put it in a position to eclipse rivals such as Singapore Airlines and Qantas? reports media. (6/19/2006)

On recent developments, AFP reported that the acquisition realises Cathay Pacific's long-held ambition to get into the key China market and creates breathing space for Air China, which suffers from close political oversight given its status as the mainland flag carrier.

Cathay Pacific previously flew to only two destinations in China -- Beijing and Xiamen -- but through Dragonair it has picked-up 23 Chinese cities, including the lucrative Hong Kong-Shanghai route.

According to AP, Cathay wants to become the dominant carrier for international passengers flying to the mainland -- a bold vision that's prompted investors to look past near-term worries including recent uncertainties in the stock market and high fuel prices.

Shares in the Hong Kong-listed airline have soared by nearly six percent since the deal was announced June 9. Since then, three investment houses have upgraded Cathay to a buy?over potential benefits from the complex deal valued at HK$12.29 billion ($1.57 billion). Seven brokerages with bullish views of Cathay are on average forecasting another 16 percent rise in the coming months. Analysts are already talking about further price target upgrades as more details become clear about the extent of the cost savings and revenue synergies Cathay will enjoy as it acquires all of Hong Kong Dragon Airlines Ltd. and forges closer ties to Air China Ltd,?it reported.

These are positive steps, positive developments,?said Jim Eckes, Hong Kong-based managing director at airline consultancy Indoswiss Aviation, reportedly said. Air China has always been the weakest of the Big Three in China,?he said referring to China Southern and China Eastern airlines. It doesn't make it any easier with people looking over your shoulder.?

In the longer term, the stock is bound to have more upward revaluations by investment houses as the positive changes to Cathay's fundamentals are calculated,?Alan Lam, an analyst at Guotai Junan Securities Ltd reportedly said.

US investment house Morgan Stanley noted near record oil prices and higher airport taxes were expected to further undermine the operations of China Eastern and China Southern airlines. We believe the combined Cathay-Air China Dragonair franchise will represent a formidable threat to airlines operating in China and into the greater China markets, comprising China, Hong Kong, Taiwan and Macau,?it said. As a result, we think the two Chinese airlines -- China Eastern and China Southern -- would have a difficult time competing with the combined Cathay AirChina-Dragonair franchise in the China market.?

US-based research house Globalysis reportedly stated: consolidation will bring a little more security as bigger airlines may have deeper pockets to reach into should tough times hit while economies of scale could help reduce operating costs and increase profitability, as we may see happening with the new Cathay Pacific.?

As per the information available, in 2005 the Chinese aviation industry carried 138 million passengers and 3.035 million tons of freight. To meet demand, Beijing plans to increase the national fleet to 1,580 aircraft by 2010 from 863 and plow US$17.4 billion into airport infrastructure.