Brent Hannon/TAIPEI

Taiwan's seven major airlines saw passenger numbers fall by more than 10% in 1998, compared with the previous year, making further consolidation within the ailing industry a strong possibility over the next 12 months.

Passengers carried fell to 16.67 million - 10.4% down on 1997 figures - while the carriers' average load factor plunged 2.34 percentage points, to 64.16%. The number of seats available dropped 7.13% to 25.98 million.

Taiwan's Civil Aeronautics Association (CAA) cites Asia's economic slump as the chief factor behind the decline, with the country's two fatal air accidents in early 1998 also depressing demand for travel. A pilot strike at TransAsia Airways and financial problems at U-Land's parent company also had negative impacts.

Flag carrier China Airlines (CAL) posted a loss of $86 million for the year, and has responded with plans to shrink its aircraft fleet and to cut the salaries of senior managers, while introducing a new yield management system aimed at improving yield by 5%.

CAL also plans to merge subsidiaries Mandarin Airlines and Formosa Airlines, assuming that the move is approved by its majority owner, China Aviation Development Foundation (CADF). The changes should cut costs by $37 million, helping the Taiwanese carrier to achieve its target of breaking even this year.

Taiwan's second carrier, EVA, achieved a modest net profit of $1.92 million in 1998 on turnover of $1.32 billion, and is evaluating its route network. Its Kaohsiung-Los Angeles flights have already been axed.

Second-tier carriers are also targeting costs, with the largest, Far East Air Transport (FAT), suspending all pay increases and cutting executive salaries. TransAsia Airways has already attempted salary savings, leading to the crippling strike of mid-1998.

The harsh market conditions confronting the aviation industry in Taiwan may ultimately lead to a thinning out of airlines, or - as EVA deputy senior vice-president K W Nieh forecasts - could result in a period of consolidation.

TransAsia seems a likely take-over target for CAL for example, with investors linked to the country's ruling KMT party - itself allied to CADF - already having acquired a 20% stake in the carrier. CAL also owns 10% of FAT.

Nieh suggests that U-Land is the airline most likely to fall victim to the current malaise, which he predicts will leave CAL and EVA as Taiwan's dominant operators.

Source: Flight International