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Aviation History
2001
2001 - 1030.PDF
TAIWAN'S AIRLINES Fight for survival Taiwan's domestic carriers are under real pressure as revenues decline BRENT HANNON/TAIPEI F IVE YEARS AGO, nine airlines flew the skies of Taiwan, offering low fares, high fre quencies, and a service that was generally on-time and reliable. Despite the intense competition - six airlines once flew the Tapei- Kaohsiung route - most of the domestic carriers posted solid annual profits in the mid-1990s. Taiwan was considered a paragon of airline deregulation, and was held up as an example for other Asian countries to follow. Today the situation is very different. Just four airlines fly domestic routes, and all are strug gling to make money. The four carriers - UNI Air, Mandarin Airlines, TransAsia Airways, and Far Eastern Air Transport (FAT) - last month cut a combined 47 flights per week, ye t their air craft remain just half full. According to Taiwan's Civil Aeronautics Administration (CAA), the number of domestic passengers fell by 18.6%, from 16.1 million in 1999 to 13.1 million in 2000. In comparison, in 1997, the first year of CAA records, 18.6 mil lion passengers flew domestic flights - 30% more than in 2000. The prospects for 2001 look just as bleak, with all four airlines predicting losses on domes tic routes and load factors in the mid-50s. The prospect of a high-speed railway has added to the gloom. "Taiwan is a troubled market," says Daniel Pierce, director of Asia Pacific sales for Bombardier Aerospace. "Passenger traffic is stagnant or dropping, the airlines have excess capacity, and now the high-speed train is being built, and its fares will be 2 5 % lower than the air fares." Several factors have contributed to the decline in domestic air traffic. Costs increased as the airlines switched from cheap and efficient propeller-driven aircraft to jets, which are more expensive to buy, maintain and operate. Ticket prices rose - last year the airlines raised fares by 20to30% ontrunkroutes,andbyupto50% on secondary routes - so customers found other ways to travel. The main north-south highway is larger and faster than it was five years ago. Taiwan's slowing economy and depressed stock market also contributed to the decline. Accidents have taken a toll, too, contributing to a decline in consumer confidence in a highly fatalistic culture. From 1993 to 1999, Taiwan airlines suffered seven fatal accidents that killed 500 people. Four CAL aircraft crashed in the 1990s; CAL subsidiary Formosa Airlines lost three aircraft to crashes; and a TransAsia Airways aircraft crashed in 1995. CROSS-STRAIT BREAKTHROUGH But as passenger numbers declined, the airlines were still slow to cut routes and sell aircraft. They are waiting for the inauguration of direct flights between Taiwan and mainland China, prevented by a ban based on the political enmi ty between the two countries. Currently, travel ers to China from Taiwan transit through Hong Kong or Macao on international carriers. Ending the ban would clear the path for the domestics to pick up the China-Taiwan traffic. Rather than sell aircraft now, and then buy or lease more aircraft when direct flights begin, they are trying to retain their current fleets in anticipation of a cross-strait breakthrough. The airlines also have limited freedom to cut services and must apply for government per mission to reduce frequencies or eliminate routes, and this is seldom granted. On 1 February, the CAA allowed them to drop 47 weekly flights, and each carrier cancelled sever al routes. "We would like to cut flights further to save money, but we can't because ofthe govern ment pressure," says Mandarin Airlines spokesman Vincent Chen. The resulting overcapacity, combined with the drop in passenger traffic, rising fuel costs, and a weakening New Taiwan dollar, has plunged three ofthe four carriers into the red. FAT remains profitable, but its after-tax profit of NTS 10 million (S3 00,000) in 2 000 is a far cry from the S30-S50 million annual profits it post ed in the mid-1990s. " \ The airline foresees another tough year irt; 2001. "This year we hope we can make a little money, but we haven't seen any improvement in our load factors," says a manager at FAT. Last year FAT's load factor was 56%. Like its com petitors, FAT flies a handful of overseas routes and charters, but competition from China Airlines (CAL) and EVA Air limits the number of profitable regional routes that are available. FAT remains the largest domestic carrier - in 2000 its domestic market share was 38%, fol lowed by TransAsia with 29%, UNI Air with 24%, and Mandarin Airlines with 9%. TransAsia says it lost NTS53 million in 2000 - an improvement on its NTS 1.75 billion loss in 1999. TransAsia is kept afloat by its lucrative Taiwan-Macau routes, which enjoy load factors of 80%, and contributed 40% ofthe airline's 2000 revenue. When the Macau airport opened in 1995, the CAAawarded the route to EVAand TransAsia, but not CAL, and it has since become a popular destination and gateway to China. TransAsia has eight daily flights from 42 FLIGHT INTERNATIONAL 27 March - 2 April 2001
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