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Last Updated: Thursday, 27 November, 2003, 22:11 GMT
Airlines plan major new routes
Virgin A 340 Airbus
Virgin says cracking the Australian market will be tough
Virgin Atlantic plans to launch flights to Australia from summer 2004 following an air services agreement reached between the UK and Hong Kong.

It hopes to operate a daily service to Sydney, via Hong Kong, from Heathrow using an Airbus A340-600.

In return Cathay Pacific Airways is getting rights to fly from London to New York, an arrangement British Midland Airways (BMI) says is unfair.

The UK-Hong Kong agreement still needs approval from the European Union.

'Kangaroo route'

The deal allows Virgin to hook up with its Australian budget operation Virgin Blue.

But Virgin chairman Sir Richard Branson said penetrating the market would be tough given the "overwhelming advantages" enjoyed by rivals British Airways and Qantas.

He also said the dominance enjoyed by Qantas and its OneWorld partner Cathay Pacific would be difficult to dent.

"I am under no illusions though that competing on the Kangaroo route will be easy."

We think it will be a great opportunity - it is obviously a very competitive and exciting route
Cathay Pacific spokesman

Cathay has won the right to fly from Heathrow as part of a deal between Australia, Hong Kong, the UK, and USA, which has given Virgin Atlantic its new opportunity.

But BMI, the UK's second-largest carrier, said it was unfair to let another foreign airline fly to New York from Heathrow airport when it was barred under a disputed Anglo-American pact.

BMI has the second-largest share of landing slots at Heathrow.

Implementation of the agreement has been deferred at the request of the Hong Kong authorities until the European Union decides if the arrangement runs counter to its common transport policy.

"Open skies"

At present flights between the US and EU are restricted by a number of bilateral deals that have been negotiated by individual governments.

Negotiations are ongoing over a so-called "open skies" policy, that could lead to US and EU airlines having unlimited access to airports on either side of the Atlantic.

However it is unclear how the new arrangement involving Virgin Atlantic and Cathay Pacific affects these talks, as well as whether it breaches EU transport policy.

Ulrich Schulte Strathaus, of the Association of European Airlines (AEA), told BBC News Online: "The European Commission will have to consider whether there is a benefit to a European carrier.

"It will also have to consider if there is a benefit to European passengers.

"And it also will have to consider whether other European carriers would have expressed an interest in these routes if they had been given a chance to obtain them."

He said the AEA was anxious to see the US-EU talks on "open-skies" continue.


If the Virgin-Cathay flights get the go-ahead, the arrangement could lead to cheap flights across the Atlantic and to Australia through increased competition.

On the transatlantic route, Cathay Pacific will compete directly with BA, Virgin and United States carriers American Airlines and United.

A spokesman for the airline said: "We think it will be a great opportunity - it is obviously a very competitive and exciting route.

"We see ourselves as an international airline on every route we operate."

However it is unclear whether Cathay has enough slots at present to introduce the new service without having to buy extra slots.

It could purchase these either through Airport Co-ordination Limited or directly from an airline currently operating at Heathrow.

A Heathrow spokesman said: "It is always possible they could take part in slot-trading if they were desperate to get a new service up and running."

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