Cathay Pacific Airways Limited recently announced a HK$200 billion plan of fleet expansion as well as a HK$5.5 billion plan of building a new freight station. The Hong Kong-based carrier also announced the strategy of opening new routes to second tier cities in mainland China like Chongqing, Wenzhou and Hangzhou.

Currently, Cathay Pacific mainly focuses on international services with only two mainland destinations - Beijing and Shanghai. However, the airline has launched other domestic services to mainland cities -- Sanya, Guangzhou, Xiamen, Kunming, Fuzhou, Hangzhou, Changsha, Chengdu, Chongqing, Wuhan, Ningbo, Shanghai, Nanjing, Qingdao and Beijing -- through Dragon Air, its sister company.

The global aviation industry saw a huge decline of profit in the first half of this year influenced by the rising costs of jets fuel and the low demand for air travel. The cargo business in Hong Kong also encounters a depression. Cathay Pacific, specialized in the international services and cargo business, needs the strong mainland market to raise its revenue. The plans of fleet expansion and launching mainland routes have emerged under this circumstance.

Cathay Pacific needs to handle the relationship with its strategic partner Air China Limited, China's flag carrier. The two carriers have carried out their "Star Program" for nearly five years, but the development of their cooperation is really tardy. The two sides have no other cooperation on routes except code share. Air China quitted its Hong Kong business initiatively. Cathay Pacific's international flight network is relatively complete, but lack of coordination with that of Air China. Cathay Pacific's move will actually bring an opportunity for both companies to cooperate better.

Cathay Pacific is basically exploring Chinese southern cities. The airline tries to avoid direct confliction with Air China, whose market mainly targets northern China. However, Cathay Pacific also eyes Chengdu City, the southwest base of Air China, which has recently surpassed Shenzhen Baoan International Airport for the first time in terms of passenger traffic.

As the industries in eastern part are now migrating into western China, Chengdu attracts many intellectual industries into its realm, like Alibaba, Foxconn, Maersk and Intel. The outlook for passenger and cargo transport in Chengdu is very good, so it is more than difficult for Cathay Pacific to abandon this value stock, though a direct competition with Air China could burst out. The specific flight schedule at Chengdu Shuangliu International Airport might be a major issue that Cathay Pacific will consult with Air China.

Although Cathay Pacific's expansion to second tier cities will take away part of Air China's market share, it is not completely a bad case for the latter, as Air China could take this opportunity to enhance the cooperation with Cathay Pacific. It could be a win-win solution if Air China helps Cathay Pacific with its domestic expansion, and get the support and co-ordination from Cathay Pacific on international routes in return.

Also, it will be beneficial for Beijing Capital International Airport, if the cooperation between the two airlines can be enhanced as well as Air China' international route expanded. However, the competition between the two airlines in international market is still inevitable in the future.