An executive from one prospective local airline said that 'while the statement was necessarily vague, it raises warning flags to me'.

'The government says it will take a wait-and-see attitude and that it would move to protect airline start-ups,' he said. 'But CR Airways and Hong Kong Express have been locked in a licensing dispute, first with Dragonair and now between themselves, for nearly a year without a government decision.

'It worries me that the environment for start-up airlines will go from bad to worse. What we need is more clarity for the industry - ultimately it is the Hong Kong consumer that will benefit.'

Another executive from a rival prospective carrier said he was 'hopeful the government is telling the truth about being pro-competition in the airline sector [and] that they are truly on our side'.

'A consolidation of Air China, Cathay and Dragonair - if it goes ahead as suggested - has major, major issues for the government to consider and digest,' he said. 'I doubt if the [Economic Development and Labour Bureau] is ready to say much more at this moment.

'But I am also hopeful that, given time, if you have a good case for wanting to fly a certain market that is dominated by an incumbent airline, government will support you. That seems to be the direction that government is heading in.'

A government official said it was not felt there was an anti-competition issue in Hong Kong.

'At the policy level, [the economic development bureau] will encourage newcomers,' the official said. 'They are not concerned about how close Air China, Cathay and Dragonair are becoming. Even on the Beijing route, those three airlines are competing like hell. Cathay is under-cutting Dragonair and they are losing money.'

According to the official, the government wants to 'maintain an environment where newcomers, when they want to, are given favourable consideration ... Whenever new routes come up on a sector with dominant players, they will give them to a new player'.

Local travel agents offered a slightly different picture of the Hong Kong-Beijing market, however, where the three carriers account for 88 per cent of weekly flights.

Comparing the lowest current promotional two-way fares of the four airlines operating on the route - Air China, Cathay, Dragonair and China Southern Airlines - Dragonair is the most expensive at $2,803, exclusive of tax and airport charges, while Air China's fare was $2,612 and Cathay's $2,633.

China Southern offered the lowest fare at $2,241. It also gives customers more scheduling flexibility with a maximum 35-day stay, compared to maximum seven-day stays on rivals' lowest promotional fares.

Still, Joseph Tung Yao-chung, executive director of the Travel Industry Council, which represents tour operators and travel agencies, said the group did not see any risk of monopoly pricing.

'Even if Air China, Cathay and Dragonair join up, fares will still be regulated by destination competition,' Mr Tung said, adding that while business travellers might have little choice on destinations, it was different for leisure travellers.

'For the leisure traveller, if fares are too high between Hong Kong and Beijing, he can choose to fly to Shanghai or another destination where the three have less power to raise fares.'

He said operators also had scope to 'tailor-make holiday packages'.

Aside from booking customers on the airline with the cheapest fare for a desired route, operators could route customers 'through other airports where better fares can be found, such as Shenzhen', he said. 'So there's not too much worry there about a cartel happening.'