Taiwan's airlines hope for China flights

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Taiwanese carriers are banking on new flights to China to offset domestic market woes

Taiwan's domestic airline market is declining rapidly amid competition from high-speed trains. But Taiwanese carriers are hoping that a change in government could be their saviour, as it could result in a warming of ­relations with China followed perhaps by long-sought-after flights between the two sides.

Taiwan's domestic air transport market had already been declining as road links improved, but in January 2007 a high-speed rail line opened between Taipei in the north and Kaohsiung in the south, which for years had been the busiest domestic air route. That has had a major impact on travel along the west coast of Taiwan's main island and in 2007 alone domestic air passenger numbers fell more than 25% to 6.3 million.

Since the high speed rail line opened carriers have pared back domestic services by 27% and switched to international services. Some domestic air routes such as Taipei-Taichung have been dropped altogether and flights on the key Taipei-Kaohsiung route have been cut by 38%. Taiwan's CAA says several requests for more domestic cancellations are currently under evaluation.

The shift to international flying has not been enough for Far Eastern Air Transport. One of four carriers with scheduled domestic services, it filed for court protection from creditors in February.

taiwan hi speed rail 
© Taiwan Hi Speed Rail   

The launch of Taiwan high speed rail has forced carriers to cut services

FAT was given 90 days of ­creditor protection and is trying to raise cash by selling its 6% stake in Taiwanese carrier TransAsia Airways. It is also trying to find a new investor to provide a cash injection. "There are two main impacts on the domestic market," FAT says. "One is the high-speed railway and the other is the ­economic situation in Taiwan, which is slowing gradually."

But William Hsu, general secretary of the Taipei Airlines Association, which represents Taiwan's six scheduled carriers, says: "We are optimistic. The presidential election will change [relations with China]. In the past eight years things have been frozen" due to China's distrust of the outgoing two-term Taiwanese president, Chen Shui-bian, who came to power in 2000. A new president is due to be elected in late March.

China considers Taiwan a renegade province and there are no diplomatic ties or regular non-stop flights between the two sides, although charter flights are allowed briefly each year during four holiday periods. Taiwanese airlines have for years been hoping that regular flights will eventually be allowed and they expect that once the market opens up there will be huge growth in air travel between the two sides. Taiwanese companies have billions of dollars worth of investments in China.

It is in part as a result of planning for regular non-stop flights to China that airlines have fallen into financial difficulty, however, as several years ago they invested heavily in acquiring new aircraft only to have China rights continue to elude them. In the meantime, the carriers are seeking government support to enable them to operate more international services, such as to Japan and South Korea. "We are continuously suggesting to the government that they grant more and more traffic rights internationally," Hsu says.

At TransAsia, where Hsu is an executive vice-president, operations are now split around 50-50 in terms of domestic and international business. Hsu says that in the past TransAsia's business was at least 60% domestic.

FAT says 70% of its operations are now international. The other two airlines with domestic services, UNI Air and Mandarin Airlines, have also been progressively expanding their international operations. Taiwan's two main carriers, China Airlines and EVA Air, are exclusively international carriers, offering limited domestic services through their respective subsidiaries Mandarin and UNI.

Prior to the launch of high speed rail the government urged carriers to consider mergers. But no deals were done.