Brent Hannon/TAIPEI
SINCE DEREGULATION in 1987, the growth of aviation inside Taiwan has been rapid. By historical coincidence, the opening of the skies came in the same year that the Taiwanese were allowed to travel to China. This combination sparked an aviation boom, as a half dozen airlines began domestic routes, eagerly awaiting the start of direct flights to China.
The resulting high frequencies and low prices turned many of Taiwan's 21 million people into air travelers almost overnight. Nine airlines now fly the domestic skies, including international carriers Eva Airways and China Airlines. The Taipei/Kaohsiung route, with 88 return flights a day, it's the busiest city pairing in the world, by frequency. In all, the nine airlines fly 32 sectors, land at 16 destinations, and operate more than 20 different aircraft types.
The prospect of direct flights to China has faded recently because of Chinese missile tests and escalating political tension. The four largest domestic carriers are profitable, but face increasing capacity problems, a shortage of slots at Taipei's domestic airport, a new noise tax, implemented in August, and increasing regional and domestic competition from Eva.
At Kaohsiung International Airport, 15min by road from Taiwan's second-largest city, the spirit of competition is on full display. Six airlines have flights to Taipei between 12:00 and 13.00, and they are hunting for customers. A man from TransAsia Airways presses frequent-flyer cards into the hands of passers-by. Ticket counters are alive with offers: all the airlines are willing to discount tickets, some by up to 10%.
TYPE DIFFERENCES
Aircraft type matters. When TransAsia upgraded in July from an ATR 72 to an Airbus A320, it added NT$198 ($7.33) to the price of the 350km (190nm) trip to Taipei. "The competitors are all using jets," says TransAsia. Eva flies a Boeing 767, while Far Eastern Air Transport uses a McDonnell Douglas MD-82. Formosa Airlines, with a Saab 340, charges the least. Prices range from NT$1,320 for a one-way trip aboard the newest jet-powered airliners, down to NT$1,000 for a flight with Formosa. Makung Airlines, which operates an older British Aerospace 146, charges NT$1,191.
The aircraft are flown north to Taipei up the west coast and return a few kilometres inland, creating a circular pattern. Out of the cabin windows, passengers can see one aircraft after another flying the return leg.
Taipei/Kaohsiung is not the only unusual route. According to a database compiled by Jerome Cheung, senior aircraft analyst at Saab Aircraft International, the shortest sector is just 20km from Chimay to Wonan, operated by Taiwan Airlines. Four sectors are shorter than 45km, while 11 are shorter than 185km. Matsu Island, off the China coast, has a runway so small that only the Dornier 228 can be landed there.
Domestic air travel reached critical mass two years ago says Great China Airlines vice-president Charles Wu. The Civil Aeronautics Administration's pro-competition stance, steadily rising incomes and clogged highways, have caused the airline boom.
As the airlines have increased frequencies, flying has become more convenient. In addition to Kaohsiung, most of the local airports are easy to reach. Taipei Domestic Airport (often called Sungshan) is in the centre of the city, 10min from the business district.
The fleet expansion of Taiwan's airlines has been breathtaking, given the country's size, the presence of two well-equipped international carriers, and the shortage of profitable overseas routes. Behind the growth is the prospect of direct flights to China. Flights have been banned since the late 1940s. Most Taiwanese travel to China via Hong Kong. Far Eastern, TransAsia, and Formosa are gearing up for China, and Makung, with its BAe 146s, has also expressed interest. Only Great China considers itself an exclusively domestic carrier.
"Everybody is betting on direct flights, on the opening of the Taiwan Straits," says Jean-Luc Valerio, Aerospatiale general representative. Valerio's choice of words summarises the roll-of-the-dice mentality of the airlines. Optimism prevailed earlier this year as relations between the two countries warmed. Offshore trans-shipment centres, seen as a prelude to direct shipping and air links, sparked a surge of excitement. That excitement has vanished, as President Lee Teng-hui's June visit to the USA has drawn a prolonged angry tirade, and two series of missile tests, from China.
Asked about flights to China, managers at the domestic airlines express resignation and complain about politics interfering with business. Most now think that the first direct flights to China will actually be to Hong Kong, after the 30 June 1997, handover. Meanwhile, doubts remain that there are enough passengers in the domestic market to justify the new capacity.
"It should be no problem," says Great China's Wu. Ford Chang of Formosa Airlines echoes the same sentiment. "There are enough passengers. The market grows very quickly," he says. Aerospatiale's Valerio expects the market to grow from 17 million passengers in 1994 to 25 million in 1996.
Nonetheless, TransAsia's aircraft on the Taipei-Kaohsiung route are less than half full. The airline says that it cannot break even at that level and hopes to increase the number of passengers. Formosa is running a load factor of between 60% and 70%.
PROBLEMS TO COME
Other problems lurk on the horizon, including a new noise tax, pressure on slots, and competition from Eva. The new noise tax, stricter than Stage 3 standards, was implemented on 1 August. Aircraft are taxed by a formula: the number of decibels over the permitted 73, multiplied by a dollar figure, the weight of the aircraft, and the number of takeoffs. The resulting penalty is expected to average about NT$50 per passenger, per flight.
Slots at Sungshan Airport in Taipei are increasingly hard to obtain. They are controlled by the military, which is conservative in parceling them out. Eva's purchase in April of 20% of Great China, and its purchase in May of a controlling share of Makung, were inspired by the shortage. "Now we have great access to time slots in Sungshan Airport," says Daniel Wu, Eva's senior vice-president of corporate planning.
Eva spells trouble for the domestic airlines. Although it operates at a loss, it has the backing of shipping giant Evergreen Group, and its regional-route network limits the smaller airlines' overseas expansion. Eva has ordered six McDonnell Douglas MD-90s, five of which will be operated by Makung between Taipei, Kaohsiung, Tainan, and other big cities.
Max de Nijs, Fokker Aircraft account-development manager marketing and sales Asia, foresees more mergers and takeovers. "The airlines won't go bankrupt," says de Nijs, who has been based in Taiwan since 1988. "The rich partners will eat them. Watch Eva."
Eva's MD-90s will make regional expansion difficult for the other carriers. The domestic airlines are always looking for suitable overseas destinations. In August, Far Eastern launched a series of charter flights to Subic Bay in the Philippines and another series to Palau, the world's newest country some 800km off the east coast of Mindanao.
Under civil-aviation authority regulations, if an airline flies 120 overseas charter flights in two years, it is allowed to fly scheduled overseas routes. The first airline to qualify was TransAsia, which launched three weekly scheduled flights from Tapei's Chiang Kai-shek International airport to Surabaya, in eastern Java, on 5 October.
TransAsia is scouting other destinations in Southeast Asia, and is interested in Macau and Hong Kong. The profitable Hong Kong route typifies the problems faced by the small airlines: after months of negotiation, Hong Kong agreed to give each country a second airline on the route. While TransAsia has expressed interest, the money making route will almost certainly be awarded to Eva.
Meanwhile, aircraft manufacturers are looking for the next Taiwan-style aviation market. They think it may be South Korea. The country is twice as big as Taiwan in size and population, is equally prosperous, is building a series of new airports, and apparently wants to open its domestic skies. Best of all, says Martin Craigs of Saab Aircraft International in London, its roads are clogged with traffic. If grid-locked roads were the only consideration, most of Asia would look like Taiwan. For now, it remains unique.
Source: Flight International
