Cathay Pacific Airways Limited Taiwan Branch &
Hong Kong Dragon Airlines Limited

Case:

Key Words:

aviation, Hong Kong, merger

Reference:

Fair Trade Commission Decision of May 31, 2007 (the 812th Commissioners' Meeting)

Industry:

Civil Air Transportation (5101)

Relevant Laws:

Article 6(1)(ii),11(1)(ii) and 12(1) of the Fair Trade Law

Summary:

1. This case originated from the facts that in March 2007, Cathay Pacific Airways Limited Taiwan Branch, the enterprise in Hong Kong, issued a letter to its headquarters (hereinafter called "Cathay Airways") to enquire whether the headquarters shall file a merger report to the FTC regarding to extraterritorial merger between itself and Hong Kong Dragon Airlines Limited (hereinafter called " Dragon Airlines"). After the FTC conducted studies and analysis of this case, it is found that the Cathay Airways should file a report and relevant information to the FTC regarding to the merger in terms of Article 11(1) of the Fair Trade Law.
2. Cathay Airways and Dragon Airlines in this case provide international air transportation service at home. In terms of the provisions of "FTC Guidelines on Filing of Report Regarding to Civil Air Transportation Merger ," after considering the factors, such as the degree of substitution between different and neighboring routes, travel distance, travel time, characteristics of the passengers and the cost of travel time of each aforesaid route, Taiwan-Hong Kong (Taipei-Hong Kong, Kaohsiung-Hong Kong) and Taiwan-Macau (Taipei-Macau, Kaohsiung-Macao) routes have some degree of the replacing ability. Therefore, the relevant service market and geographical market in this case are possibly within the scope of Taiwan-Hong Kong/Macao international air transportation service market. Prior to September 28, 2006, Cathay Airways had hold 17.79% shares of Dragon Airlines; it continued to acquire the rest of the shares of Dragon Airlines on September 28, 2006, which was 82.21%. This process had resulted in that Cathay Airways held 100% shares of Dragon Airlines in total. After the merger, Cathay Airways planned to integrate the operation resources of its Taiwan Branch, including each hardware facility, consolidation of flights and human resources of two branches at the airports. In the same way, the party which filed a merger report, Cathay Airways calculated the market share in terms of the statistics on people on exit recorded by the Civil Aeronautics Administration, Ministry of Transportation and Communications, and it resulted in that the market share of the Airways was 25.86﹪in 2006. The merger therefore fell under the type set forth in Article 6(1)(ii) of the Fair Trade Law and it was consistent with the threshold set forth in Article 11(1)(ii) of the same law regarding to the filing of a merger report; there were no incidents that fell within the circumstances provided by Article 11(1).
3. Other than enterprises that undertook merger, China Airlines, EVA Air, Air Macau, TransAsia Airways and Madarin Airlines also provide Taiwan-Hong Kong, Taiwan-Macao air transportation services and participate in the competition. It is unlikely that this merger leads to the happening of events toward the concerted action. Related enterprises could also invest capitals and enter the related markets in this case after acquiring appropriate qualifications in terms of laws and regulations; and gradually, they would enter for operation after the negotiation on traffic rights could result in opening up air routes. Therefore the merger in this case will not harm market competition. Furthermore, consumers and traveling businesses can also, without restraint, select services provided by different airlines; therefore, the ability of trading counterparts or potential trading counterparts to restrain the enterprises of the merger on the raise of prices of products or service remuneration is still high. Therefore, the merger in this case is beneficial to both expansion of the operation scale and reduction of operation cost of the enterprises of the merger. It also provides more diverse, higher-quality services for consumers. Additionally, the overall economic benefits brought by the merger in this case would outweigh the disadvantage resulting from the competition restraints and therefore the FTC did not prohibit the merger in accordance with Article 12(1) of the Fair Trade Law. The FTC also considered that no circumstances in this case have severely harmed the competition order yet, and the enterprise supplemented the merger report to the FTC; therefore, the FTC held that no disciplinary action would be taken against the enterprise. However, in order to avoid the enterprise from subsequent violation of law, the FTC provided a warning to the enterprise.

Appendix: None