China, Taiwan agree groundbreaking flights deal

Singapore
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China and Taiwan have agreed a groundbreaking deal that will result in a huge increase in passenger flights across the Taiwan Straits, the sea that separates the two countries, as well as the first cargo flights.

China has considered Taiwan a renegade province since the two split in 1949 following a civil war. But ties have improved dramatically since the middle of this year when a new government took power in Taiwan. Soon after taking power it agreed an historic deal with China that allowed for limited passenger flights. Since July six airlines from China and five from Taiwan have been operating a combined total of 36 round-trip flights between Fridays and Mondays.

Under the new accord, which takes effect in mid-December, there will be an increase in the number of allowable flights to 108 per week and freedom to operate on any day.

Many more Chinese cities will also be open for the non-stop services, increasing to 21 from the current five. Eight Taiwanese airports remain open for flights.

In addition, the agreement will allow for the first dedicated cargo flights between the two sides. This will initially be capped at 60 per month and is a particularly important element of the agreement given that trade ties are growing between the two sides. Taiwan's China Airlines and EVA Air already have minority stakes in separate Chinese cargo airlines.

The new agreement will also help airlines reduce flying costs through more direct flight routings. Until now flights had to pass through Hong Kong's airspace but the new deal allows airlines to fly shorter routings that take them toward Japanese airspace.

Airlines from both sides had been seeking to operate nonstop flights for many years and expect eventually these will make up a large proportion of their revenues. However, for now at least, airlines expect to lose money on the new services, which are still being operated on a charter basis. China and Taiwan have indicated they expect to allow scheduled services from next year.

The new nonstop flights are meanwhile expected to hurt Air Macau particularly badly, as it has traditionally relied heavily on carrying traffic between Taiwan and China via its home base, west of Hong Kong.

It will also directly affect Hong Kong's Cathay Pacific and subsidiary Dragonair. Cathay recently issued a profit warning on the potential effect. "The full impact of the expansion of Taiwan-mainland China cross-strait flights remains to be seen, but can be expected to put additional pressure on passenger and cargo revenues," it said.

Chinese negotiator Chen Yunlin (left) and Taiwan's Chiang Pin-kun