Brent Hannon/TAIPEI
EVA Airways, launched with little fanfare in mid-1991, today boasts a fleet of 30, a route network which extends to London, New York and Panama City, and a balance sheet which shows increasingly healthy profits.
Since its launch, EVA has bought shares in three domestic airlines, pioneered the world's first four-class service, opened a $70 million flight kitchen, signed an alliance with Continental Airlines and achieved a spotless safety record. Despite its expensive beginnings, which included all-new aircraft and a state-of-the-art training centre, the fledgling airline turned in a profit in just its fifth year of existence.
In the next five years, EVA will put emphasis on cargo, on continued efforts to expand into the lucrative Hong Kong and Japan markets, and on increased frequencies to the USA in the wake of the open-skies agreement recently reached between that country and Taiwan. As always, EVA is ready to fly to China, if and when permission is granted by Taiwan.
After losing $84 million in 1993 and $36 million in 1994, EVA has reversed its fortunes. It made a profit of $7.2 million in 1995, and $17.1 million in 1996. EVA president Richard Huang predicts for 1997 a year-end profit of $22 million. Load factors have steadily increased, from 60% in 1991 to 71% in 1994, 73.5% in 1996, and more than 75% so far in 1997, despite the continuing arrival of new aircraft.
EVA's fleet consists of nine Boeing 767-300s, 12 747-400s (including ten combis), six Boeing MD-11s (including three freighters), and three Boeing MD-90-30s. The airline will take delivery of two more MD-11 freighters and another passenger 747-400 by the end of the year, and two more passenger 747-400s by April 1998.
By the year 2002, EVA plans to have a fleet of 60, by which time it expects revenues to have increased to $3.1 billion, compared with $1.3 billion in 1996. Its route network is heavily geared toward South-East Asia, while long-haul flight destinations include Amsterdam, Auckland, Brisbane, Brussels, London, Paris, Sydney and Vienna.
Buoyant economy
EVA's rapid expansion has been helped by a fast-growing local travel market and a buoyant economy. International and domestic air travel in Taiwan continue to increase by about 10% a year. In the first six months of 1997, the number of people taking overseas trips rose by 11.5% over the same period in 1996, while domestic air travel was up by 9.4%.
EVA's 1997 profit projection is based on increases in yield, and in cargo revenue. "This year, we increased our fares," says Huang. "Taiwan has more travellers, but it is because we have a higher-air-fare policy that we can generate more revenue."
As befits a subsidiary of Evergreen Group, the world's largest container-shipping company, EVA's cargo business is doing "much better" than expected this year. Huang attributes the rise in revenue to EVA's daily combi schedules to the USA, which allow it to guarantee next-day service.
Freight customers, many of them with time-sensitive computer components, will pay a premium for this guarantee. "They are willing to pay two to three times higher than ordinary rates, because we ßy every day," says Huang.
Now, 33% of the airline's revenue comes from cargo - by the year 2000, it expects to earn half of its revenue from freighter operations.
EVA's success is good news for aircraft manufacturers. The carrier and its three domestic partners will need new aircraft in every range, according to Huang. "We need more narrowbodies to serve domestic and regional routes," he says. "Whether we will continue to purchase MD-90s or switch to other manufacturers is under debate in the company." Boeing 737s and 757s are being considered, he says.
EVA signed a letter of intent for eight Boeing 777s in June 1995, but it has yet to place an order. It still wants a long-range aircraft which can fly direct from Taipei to London, New York and Paris. "At this moment we are interested in the longer-range 777-200," says Huang, "but we haven't come to a conclusion."
EVA owns 40% of tiny Taiwan Airways, 25% of Great China Airlines, and 51% of UNI Air. The three complement each other: Taiwan Airways is an operator of small turboprops serving outlying islands, Great China serves larger cities with larger turboprops and UNI flies narrowbody jets on Taiwan trunk routes and overseas charters.
Taiwan Airways will require more turboprops for its services to the country's sparsely populated islands, augmenting its fleet of three 19-seat Dornier 228s and two Pilatus Britten-Norman Islanders. "We will continue to purchase propeller aircraft in small sizes, like the Dornier and the [Bombardier de Havilland] Dash 8," says Huang.
Great China, an operator of 12 Dash 8-300s and one MD-90, has placed six firm orders and six options on 78-seat Dash 8-400s for delivery beginning in 1999, making it the launch customer for that aircraft.
UNI Air, with a fleet of five MD-90s and five British Aerospace146-300s, concentrates on routes from Taipei to Hualien, Kaohsiung, Makung, and Taitung, and from Kaohsiung to the same cities. It also flies overseas charters to the Thai island of Phuket, Laoag, in the northern Philippines, and the country of Palau. UNI will take delivery of another MD-90 in 1998, the last of ten ordered by EVA.
Profit squeeze
Taiwan's domestic airlines, while traditionally profitable, have lately been squeezed by overcapacity and low prices, says Huang. Great China turned a profit in 1997, but UNI Air and Taiwan Airways posted losses, as EVA invested in upgrading their safety and management. EVA expects UNI to break even this year, and Taiwan Airways to do the same in early 1998.
China Airlines (CAL), EVA's main competitor, has also acquired shares in Taiwan's domestic airlines. It has a controlling 42% stake in Formosa Airlines and a 10% share of Far Eastern Air Transport, Taiwan's largest and most profitable domestic carrier.
Along with EVA and CAL, Taiwan's domestic airlines are also awaiting permission to operate direct flights to China, banned since 1948. A similar ban on direct shipping is being lifted, although slowly, causing speculation that the veto on direct flights may be next to go.
If direct flights were to begin, says Huang, all three of EVA's subsidiaries would need new aircraft immediately, but, even without direct flights, he says, they will be needed.
While EVA executives project a $22 million profit this year, they are far from satisfied. The airline is largely shut out of two key markets - Hong Kong and Japan - which account for a high proportion of travel to and from Taiwan.
According to figures from the Taiwan Tourism Bureau, in the first six months of 1997 33% of outbound Taiwanese nationals listed Hong Kong as their first destination, while another 10% listed Japan. Among inbound non-Taiwanese, 40% listed Japan as their place of residence, while 12% listed Hong Kong.
In the absence of direct flights to the mainland, Hong Kong remains the key gateway for the estimated 1.5 million Taiwanese who travel to China each year. Competitor CAL flies 105 passenger services a week to Hong Kong, plus five freighter flights, a similar number to Cathay Pacific Airways' frequencies. The route is CAL's leading revenue producer.
EVA flies just 16 services a week between Taipei and Hong Kong, and wants a bigger slice of the pie. "The agreement discriminates against us," says Huang. "Only 16 flights a week versus China Airlines and Cathay, which have more than 100 flights a week."
EVA will insist on renegotiating the five-year bilateral signed in December 1995, which resulted in the current 16 frequencies. It will push Beijing to re-open discussions, reminding the Chinese that, from April 1998, with the opening of the new airport at Chek Lap Kok, landing slots will no longer be a constraint.
In the absence of additional flights to Hong Kong, traffic to Macau has increased steadily, both as an alternative gateway into China and as a destination in its own right. Unlike Hong Kong, Macau is visa-free for Taiwanese, making it an attractive weekend holiday spot.
EVA recently negotiated an increase in the bilateral agreement with Macau, from the current 4,200 seats a week, to 5,700. This will give EVA daily frequencies to Macau from Taipei and Kaohsiung.
Aiming for Japan
The other blank spot in EVA's route map is Japan. EVA flies only to Fukuoka, a secondary city in southern Japan, but it wants to serve one of the key gateways - either Tokyo or Osaka.
EVA has finished its lobbying effort, which included bringing the influence of Beijing to bear on Japanese officials. It hopes to gain permission to serve Osaka's Kansai Airport by the end of the year.
EVA will also emphasise transpacific services, in the wake of the agreed, but unsigned, open-skies accord between Taiwan and the USA. Under the deal, Taiwanese airlines can ßy unlimited frequencies to the USA, to intermediate points before the USA and onward to other destinations, picking up passengers and cargo, subject to agreement by the third country.
EVA already operates 41 passenger and six cargo flights a week to the USA, more than any other airline in South-East Asia. It serves Honolulu, Los Angeles, New York (Newark), San Francisco and Seattle, and plans a cargo route to Chicago and a passenger route to Miami.
Because EVA hopes to gain a listing on the Taiwan Stock Exchange (TSE) in mid-1998, earning a profit in 1997 is doubly important. TSE regulations require a company to earn two consecutive years of profit, at an average of 2% of its capital, to be eligible. While EVA has met that, Huang is afraid that a lower profit margin this year would cause the TSE to change its mind.
EVA has reached so many of its targets so far; few would doubt it can reach this one, too.
Source: Flight International
