A Cathay Pacific Airways flight took off for Beijing on Tuesday in the Hong Kong carrier's first commercial service to mainland China in 13 years.

While Cathay has high hopes for its return to the world's fastest growing aviation market, its access is limited to three round trips to the Chinese capital a week, and industry watchers said it could be years before the carrier generates significant profit from its mainland flights.

"We think the demand will be huge, and we're cooperating with the mainland. I'm hopeful that there will be more flights and destinations for Cathay," said Chief Operating Officer Philip Chen, who was greeting passengers at Hong Kong Airport.

Cathay, which aspires to twice-daily flights to both Beijing and Shanghai, last flew to Beijing in 1990.

It handed its China routes to smaller rival Dragonair, in which Cathay now has a 17.79 percent stake, under Hong Kong's "one carrier, one route" policy, which was recently relaxed.

Cathay secured the right to return to the mainland in April following a hotly contested public hearing with Dragonair, which flies eight times a day to Beijing.

ING Financial estimates that the thrice-weekly Beijing-Hong Kong flight will boost Cathay's 2004 net profits by HKD$4 million (USD$515,100) out of a forecast net profit of HKD$3.7 billion.

Cathay, which last week secured rights to fly the lucrative London-New York route, will also be able to sell tickets throughout China, opening up a new revenue source.

Talks between the Hong Kong and mainland governments on Cathay's application to fly to Shanghai and the southeastern city of Xiamen are tipped to begin in January and analysts say the routes could be up and running by the end of 2004.

But China is likely to be cautious in granting Cathay additional flights given opposition from home carriers including Shanghai-based China Eastern Airlines as the fragmented Chinese airline industry consolidates.

Cathay could also gain exposure to the Chinese passenger market, which Boeing forecasts will grow 7.1 percent a year until 2022, through a long-mooted tie-up with China Eastern.

Market speculation that Cathay may take an equity stake in the airline resurfaced last week, boosting both companies' stock prices. The Shanghai carrier is the only mainland airline in Cathay's frequent flyer program.

(Reuters)