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UPDATE 2-U.S. agency criticizes Hong Kong air carrier quarantine rules

(Adds Cathay Pacific statement, trims)

WASHINGTON, March 16 (Reuters) - The U.S. government warned it could limit flights by Hong Kong-based carriers that got a leg up on U.S. rivals after the Asian financial hub imposed quarantine rules that forced U.S. cargo carrier FedEx Corp to move some crews to San Francisco.

The U.S. Transportation Department (USDOT) issued an order on Tuesday requiring Hong Kong-based Cathay Pacific Airways Limited to file flight schedules for all U.S. flights within seven days to determine if any are “contrary to applicable law or adversely affect the public interest”.

The USDOT order was issued in reaction to rules issued by Hong Kong in January requiring locally based air crews to quarantine when returning there from international locations, but exempted flights between Hong Kong and Anchorage, Alaska’s biggest city.

USDOT said Hong Kong’s restrictions exclusively benefited Hong Kong carriers and “impaired the operating rights of U.S. carriers”.

While FedEx’s Hong Kong-based crews serve only intra-Asia routings and therefore do not benefit from the Anchorage exception, USDOT said, Hong Kong carrier Cathay Pacific operates a large transshipment operation at Anchorage.

“This carve out effectively provides Cathay Pacific with the ability to continue those operations without impact from the new crew quarantine requirements,” said USDOT.

Cathay Pacific said it hoped the matter is “resolved among all relevant parties as soon as possible,” adding it has been hit hard by the quarantine measures and reduced weekly freighter frequency between Hong Kong and U.S. from 35-39 flights to 21-28 flights.

The airline has cut passenger capacity by about 60% and cargo capacity by 25% of January levels.

The Hong Kong Transport and Housing Bureau said U.S. concerns were “unfounded” and defended the Alaska exemption as “equally applicable to all airlines” and including “stringent self-isolation requirements”.

The agency added it has “will continue to engage FedEx in constructive dialogues, with a view to exploring and co-creating options to address the company’s business and operational issues while upholding the need to safeguard the public health of our community.”

It said FedEx had temporarily relocated its Hong Kong-based crews to San Francisco “in order to maintain the viability of critical operations in its intra-Asia network.”

On Tuesday, a FedEx spokesman said it hoped the USDOT order “will aid in resolving this matter” and added it was working with U.S. and Hong Kong authorities and the Air Line Pilots Association “to address Hong Kong’s entry and quarantine requirements for locally-based crew members”.

Reporting by David Shepardson; additional reporting by Farah Master in Hong Kong; Editing by Ana Nicolaci da Costa, David Gregorio, Philippa Fletcher

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