Airlines Looking Abroad

Economic News

22 Jul 2010
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Taiwan's two biggest airlines, China Airlines and Eva Air, suffered first quarter losses at a time when there is increased domestic competition from the high speed train and a fall in cargo volumes.



In a filing to the Taiwan Stock Exchange on Monday 30 April, China Airlines, which is 64% owned by the Taiwanese government, announced first quarter losses of $24.41m compared to profits of $11.5m in the same quarter last year. Meanwhile, Eva Airlines reported a first quarter net loss of $9.94m compared to net profit of $6.78 in the same quarter last year.



China Airlines and Eva Air earn around 40% of their income from cargo and 60% from passengers.



China airlines reported its share of the total cargo freight volume fell to 65.9% from 70.9% in 2006 while Eva's fell to 72.9% from 73.87% in 2006.



Besides falling revenues and cargo volumes, Taiwanese airlines are facing increased domestic competition from the high-speed train.



On April 30, Mandarin Airlines, a subsidiary of China Airlines, closed its route between Taipei and Taichung. Mandarin was the only carrier covering the short distance between the two Taiwanese cities. Taiwan's Civil Aeronautics Administration (CAA) gave the company permission to abandon the route, on the grounds that it was no longer profitable because of the emergence of other transport alternatives, such as the high-speed train.



CAA statistics show Mandarin airlines lost $1.36m on the route in 2006. The opening of the high-speed line in January 2007 has had a major impact on passenger numbers. While the airline had a passenger occupancy rate of 20% in January, the figure fell to 11.6% in March and 4.3% in April.



Moreover, at the beginning of 2004, Taichung airport was moved away from the city and renamed Central Taiwan International Airport. As a result of the increased distance between the new airport and Taichung city, the route became less attractive.



While a single high-speed rail ticket from Taipei to Taichung costs US$21 and the journey takes an hour, it costs around US$40 for a single plane ticket and it takes about 50 minutes.



In response to the increased competition from the high-speed rail link, some airlines operating the Taipei to Kaohsiung route, from the north to the south of the island, agreed to continue offering discounts. Originally, the 30% discount scheme was planned to end in April but they will carry on until May or June, as passenger levels have increased to 70% from 40% before the discount scheme was implemented.



Ou Chin-Der, the chief executive officer of Taiwan High Speed Rail Corporation told OBG, "The high-speed rail will definitely have a critical impact on the domestic airline industry. In the future we hope to have a carrying capacity of 150,000 people per day so it will continue to do so. Although I do not see airlines as a direct competitor, our main goal is to attract some of the 1.8m passengers that use our highway system everyday."



As their share of the domestic market falls, Taiwan's airlines are increasingly looking to expand their international operations as a way of increasing revenues, particularly in mainland China.



Presently, there are restrictions that prevent direct flights between China and Taiwan. An agreement to allow direct flights for Chinese tourists to Taiwan is being negotiated. However, the Mainland Affairs Council, the government body that deals with Taiwan's Chinese policy, said on April 30 that Beijing is slowing any agreement by insisting on using its "One China" policy. If an agreement is ever reached, it is expected that only 1000 Chinese tourists per day will initially be allowed to visit Taiwan.



Still, China announced it would like to encourage Taiwan's airlines to further cooperate with the mainland, form joint ventures and become more involved in the whole industry, including the building of airports and maintenance. Taiwan's airlines are interested in taking advantage of China's large market and some Taiwanese airlines already have stakes in Chinese firms. China Airlines has a 25% stake in mainland cargo carrier, Yangtze River Express Airlines.

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