Paul Lewis/TAIPEI
COMPETITION IS heating up between Taiwan's two established international players, flag carrier China Airlines (CAL) and four-year-old Eva Airways. Ambitious fleet-expansion plans, the opening up of profitable trunk routes to Hong Kong and long-term prospects of direct flights to China, have put Taiwan's two largest airlines on a collision path.
Civil aviation in Taiwan has undergone a radical transformation since deregulation of the domestic airline market in 1987, but it was not until 1991, and the diversification of shipping giant Evergreen into aviation, that CAL's 32-year monopoly on international services ended.
Many observers initially dismissed Eva, and its green-adorned aircraft, as less than serious. The last four years, however, have proved the sceptics wrong. The carrier is now firmly established on the world scene. Its success, furthermore, is encouraging other aspiring Taiwanese carriers to step into the international arena.
Increased competition over the last two years could not have come at a worst time for CAL. The carrier has suffered from a succession of major aircraft accidents, compounded by a large downturn in profitable tourist traffic to China (via Hong Kong), and culminating in its worst financial performance in years.
The recent run of misfortune can be traced back to November 1993 and a new Boeing 747-400 running off the end of a runway into Hong Kong's muddy harbour. While there were no fatalities, CAL was forced to write off $150 million worth of airframe and engines, and an invaluable amount of company credibility.
CAL's reputation was further tarnished in April 1994 with the crash of an Airbus A300-600R at Nagoya, killing 264 passengers and crew. Further damage was done in March with the murder of 24 Taiwanese visitors to China and subsequent tourist boycott of the mainland.
The carrier's 1994 net profit plunged by 82%, to NT$600 million ($21.8 million). It is hoping for better things in 1995 and, based on its monthly performance to date, is confident of doubling its profit by the end of the year.
EVERGREEN CONTRAST
Evergreen in contrast, has still to see a return on the considerable sums poured into building up Eva. Capital expenditure has included $4 billion on new aircraft, $120 million on a new three-bay maintenance and overhaul hangar and over $100 million on one of the region's best-equipped training bases
Despite its heavy outlay on new equipment, Eva's financial performance has been gradually improving. While no official figures are ever released, analysts expect it to cut its losses, estimated at $32.7 million for 1994, to just over $3 million by the end of this financial year.
In the wake of its recent setbacks, CAL has embarked on a wide-ranging programme to restore confidence in the carrier, such as a more flexible approach to marketing and sales, a new corporate image and a series of improvements to safety and training. Measures include a new A300-600 simulator, the establishment of an independent safety department and the creation of a flight-operations data-analysis system.
More ambitious and expensive is a $4 billion ten-year plan to modernise and expand CAL's fleet. It calls for the purchase of 46 new jet-powered aircraft, to enlarge the carrier's existing fleet from 40 aircraft to 67 by the year 2003.
Topping the airline's lengthy list of planned acquisitions is a new 150-seat passenger aircraft for use on domestic and short-haul regional routes from CAL's second hub at Kaoshiung. Six aircraft are initially needed to replace three Boeing 737-200s and two wet-leased Airbus A320s, with a further four required after 1998 to meet anticipated traffic growth.
A combination of A320s and A321s is thought to be CAL's preferred choice, but it has yet to formally rule out either the 737-800 or McDonnell Douglas MD-90-30ER. A final selection, expected earlier this year, has been pushed back for "technical reasons." Any further delay could result in CAL's A320 lease agreements being extended for another year after the end of 1996.
"The 150-seater is the first issue we need to finalise in our fleet plan. After that will come the 300- to 350-seater. We need up to ten aircraft, but may adjust that from time to time," says Sherman Yeng, CAL deputy director for corporate planning.
A range of options has been under study for the last two years to try to rationalise the replacement of CAL's mixed fleet of six A300B4s, three 747-200s and four 747SPs.
"Currently, we've a very complicated composition of aircraft, as well as engines types," says Yeng. "One of the major targets of our fleet programme will be to simplify our fleet. We therefore need an aircraft that is suitable for both short-haul and long-haul routes."
Despite its continuing aircraft evaluation, CAL signed a letter of intent (LoI) earlier this year for four Boeing 777s during Taiwanese President Lee Teng-hui's controversial visit to the USA. Rival manufacturers have claimed that the LoI was quid pro quo for President Lee being granted a US visa and is designed to create political goodwill in Washington.
The airline has denied any connection, between the LoI and Lee's ground breaking US trip, and insists that it is still reviewing other types, such as the Airbus A330/340.
Another option under consideration is to replace the 747SPs with additional McDonnell Douglas MD-11s and select a new type of aircraft to replace the 747-200s. "We currently have four MD-11s and their capacity is about the same," says Yeng. He adds: "We don't rule out the possibility of a new type coming in and also replacing the MD-11s."
EVA EXPANSION
Eva operates a fleet of 25 aircraft and, with the delivery of two more 747-400 combis by February 1996, the first phase of its equipment plan will be complete. With the average age of its fleet of ten 747-400s, nine 767-200/300ERs and six MD-11s no more than one year, Eva's 1996-8 phase is geared more towards expansion than replacement.
The carrier, like CAL, is giving priority to the purchase of new 150-seat narrow bodies and has ordered six McDonnell Douglas MD-90-30s, plus six options, for delivery from late 1996. The MD-90s will be used for domestic services, with five of the aircraft going to associate carrier Makung Airlines.
Next in line are three to four additional freighters and a new regional passenger aircraft to replace Eva's 767s. A decision is expected in 1996 between purchasing additional MD-11Fs or 747-400Fs. The carrier is heavily geared towards cargo and already operates three MD-11 freighters and eight 747-400 combis.
Eva has also signed a LoI with Boeing, for four yet-to-be-launched combi versions of the 777. The aircraft would seat 220 passengers and accommodate up to 38,000kg of freight, or seven pallets. As with CAL's 777 LoI, Eva has since sought to play down the significance of its accord (Flight International, 23-29 August, P13).
"We've only expressed our intention: there is no obligation," says Eva senior vice-president corporate planning Daniel Wu. "We're also considering similar size and performance aircraft. The A330 is a very good aircraft that can compete with the 777 on regional routes."
Eva's fleet plans remain fluid beyond the 1996-8 period. "This very much depends on our service expansion, whether we get the routes we need and whether there will be direct services between Taiwan and main-land China," says Wu.
HONG KONG AND BEYOND
Eva's long-term goal of gaining access to Hong Kong came a step closer in late July, when it was agreed that the highly prized route could be geared up to two additional carriers to compete with Cathay Pacific Airways and CAL. While Dragonair is likely to be designated as Hong Kong's second carrier, Eva faces a fight with up-and-coming local carrier TransAsia Airways.
"This is one of the busiest traffic routes in the world, and one that needs competition in order to balance it," argues Wu. "TransAsia cannot be expected to compete against Cathay Pacific and CAL. We're the carrier, that can compete with these two major airlines and make it a much better service."
A full agreement between Hong Kong and Taiwan has not yet been reached, with some important issues yet to be resolved, including increased frequencies and fifth-freedom rights for the new carriers. The most critical hurdle still to be cleared, however, will be obtaining China's approval for any new bilateral agreement.
Beijing's blessing will also be needed to ratify any new air-services agreement between Taiwan and Macau, which is due to open to international air traffic in November. While progress has been made with preliminary agreements on multiple destinations and a weekly capacity of 4,200 seats, no overall deal has yet been struck.
"All three carriers are eyeing Macau, as well as Hong Kong, and so it's going to be a very tough job for our authority," predicts Yeng. Eva in the meantime, is hoping that its earlier $10 million investment in terminal operations at Macau Airport will stand it in good stead.
Beyond Hong Kong and Macau, there is the much more difficult issue of direct flights between Taiwan and China. The hopes and wishes of every Taiwanese carrier to fly across the straits appear once again to be on the wane, with continued recent vitriolic exchanges between Beijing and Taipei and heightened military tension.
Taiwanese carriers have nevertheless continued to prepare for the eventual start of direct links, by building contacts with Chinese airlines and providing some technical assistance, such as with the Abacus reservation system. CAL recently joined with seven mainland carriers to introduce a through check-in service for passengers travelling between Taiwan and China via Hong Kong.
CAL and Eva are increasingly coming into direct and indirect competition on long-haul routes to North America. CAL, along with its Mandarin Airlines subsidiary, already operates services to seven US destinations, including Los Angeles, San Francisco and New York via Anchorage, and wants to add passenger and freight services to Atlanta, Chicago and Miami.
Eva, similarly, operates to San Francisco, Los Angeles and New York via Seattle, and is looking to add Chicago and Washington and to extend its Los Angeles service to Panama by the end of the year. "We're considering using Panama as a hub to extend our services from North America to Central and South America," reveals Wu.
Services to Europe remain largely complementary, with CAL serving Amsterdam, Frankfurt, Rome and Zurich, and Eva concentrating on London, Paris and Vienna. According to Yeng, CAL is targeting new routes from Moscow, possibly in partnership with Transaero Airlines and, in the longer term, Scandinavia and southern Europe. Eva's European plans centre instead on new flights to Amsterdam and Brussels.
Wu explains: "Our policy is not to focus on CAL, but focus on winning over passengers and cargo on service." Yeng has no doubts about where the threat lies. "Competition is getting keener and Eva is our major competitor," he says.
Source: Flight International
