Xiamen Airlines increases direct flights, cuts fares
Xiamen Airlines has fired the opening salvo in what promises to be a bruising price war on increasingly lucrative flights between the mainland and Taiwan, a battle that can hurt Hong Kong carriers.
More airlines are expected to follow the medium-sized airline based in Fujian, the closest province to the Taiwan Strait, after the Civil Aviation Administration of China ordered airlines to lower airfares by 10 to 15 per cent last month.
Xiamen Airlines will beef up its direct cross-strait flights from Xiamen and Fuzhou from 11 to 29 weekly and lower airfares by one-third from tomorrow in a bid to build a connecting hub between the mainland and Taiwan.
Cathay Pacific Airways and Hong Kong Dragon Airlines have been nervously watching the expansion of direct flights between the mainland and Taiwan.
Political tensions between Beijing and Taipei meant cross-strait flights used to be routed through Hong Kong, making it one of the most lucrative short-haul flights in the world.
Hong Kong International Airport said it lost 7 per cent of total passengers to direct flights last year.
The market will be even bigger if Beijing further relaxes the restrictions by allowing Chinese individuals to travel to Taiwan rather than just in groups, said Hu Bin, a general manager of the passenger marketing department at Xiamen Airlines.
The carrier cut fares to as low as 1,000 yuan (HK$1,149) for a round trip to Taipei from 1,500 yuan and will increase direct weekly flights to 29 from tomorrow. The round-trip ticket from Taipei to Fujian was priced even lower at 850 yuan, Hu said.
Lower direct flight fares would have a negative impact on the ticket prices between Hong Kong and Taiwan, Dragonair chief executive James Tong said last month.
Daiwa Capital Markets transport analyst Kelvin Lau said: 'Other mainland and Taiwanese airlines will follow as it is a government-driven fare reduction.'
The impact to Taiwanese carriers will be the most as the percentage of direct flights to their total sales is higher than that of mainland carriers.
'Because the domestic and international terminals at Xiamen airport are closer together, we edge out Shanghai, Beijing or Guangzhou as a connecting hub in terms of transit time,' Hu said. 'Passengers arriving in Xiamen and Fuzhou do not need to walk half an hour from one terminal to another to catch the transiting flights as in the three busiest mainland airports.'
Flight times between Fujian and Taiwan could be halved once the two governments agree to direct flight paths. Currently, flights taking off from Xiamen cannot fly directly to destinations in Taiwan because of military restrictions on airspace in the region, meaning a flight that should take only 40 minutes actually takes 90 minutes.
'The flight time could be reduced to 40 minutes if we can fly directly to Taipei,' Hu said.
Fujian is heavily armed because of decades-long political tensions between the mainland and Taiwan.
A lack of landing slots at major airports in Beijing, Shanghai and Guangzhou helped Xiamen Airlines secure 18 of the 50 extra direct flight quotas doled out to mainland carriers in May. The carrier will have 18 extra direct flights from tomorrow, including one daily flight to Taipei from Xiamen and Fuzhou each.
Xiamen and Fuzhou are among the most popular mainland destinations for direct flights.
The percentage of seats sold by Xiamen Airlines on direct flights stood at 88 per cent, 13 percentage points above the industry average, Hu said.
After the reduction in airfares, the margin for direct flights will be about the same as for domestic flights, he said. However, the increase in passenger demand will offset the fall in margin per ticket.
'If the two governments further liberalise air traffic, the direct flight traffic can reach 10 million passengers a year,' Hu said.
The estimate was computed on the tourist numbers between the mainland and Taiwan through Hong Kong or Macau before direct flights began in July 2008, he said.
Xiamen Airlines flies to 54 destinations including on the mainland, Hong Kong, Macau, Taiwan, Japan, South Korea, Malaysia and Singapore. It plans to increase direct services to Taiwan
From July 7:
29 flights per week
1,000 yuan to 1,200 yuan for economy seat
Daily flights between Xiamen and Taipei
Daily flights between Fuzhou and Taipei
Flight time to be reduced to 40 minutes
New cities Taichung and Kaohsiung
11 flights per week
1,500 yuan to 1,800 yuan for economy seat
Four weekly flights between Xiamen and Taipei
Four weekly flights between Fuzhou and Taipei
Flight time 90 minutes