Low-cost Chinese airlines target expansion in Taiwan

Budget airlines see opportunity for expansion in Taiwan, where demand for flights to the mainland is strong and airfares are high

PUBLISHED : Tuesday, 16 July, 2013, 12:00am
UPDATED : Tuesday, 16 July, 2013, 5:35am

Two mainland budget airlines have expressed interest in starting flights to and from Taiwan, a welcome first for the island where businesspeople complain of high fares owing to strong demand for major routes.

Spring Airlines and Juneyao Airlines, both discount carriers based in Shanghai, aim to begin flying to Taiwan, a boom market for mainland carriers since 2008 when the first scheduled direct flights began transporting eager investors and tourists, aviation officials in Taiwan say.

Airfares could drop from the average Shanghai-Taiwan round-trip price of NT$15,000 (HK$3,859) to less than NT$10,000, analysts say. Budget carriers in China normally charge 30 per cent less than the market rate because they do not provide food, entertainment or duty-free shopping during flights.

"They would have a market here," said Tina Chen, an aviation analyst with SinoPac Securities in Taipei. "The most common passengers are businesspeople, and they are most concerned with safety and being on time."

Taiwan and the mainland, after six decades of political hostilities, set aside their differences in 2008 and for the first time began allowing each other's airlines to operate regular direct flights en masse, sparing businesspeople costly stopovers in Hong Kong or Macau.

Those direct flights, which now total 616 a week, have also brought millions of mainland tourists to Taiwan following a separate agreement signed in 2008.

But Taiwan lacks a budget airline, which is not unusual for China, where discount carriers account for less than 10 per cent of all flights, said Eric Lin, a transport analyst with UBS Securities in Hong Kong. Low-cost carriers account for about 20 per cent of flights in Asia as a whole.

Hong Kong also lags in offering discount seats and Hong Kong Express aims to reposition itself as a low-cost carrier by September. Meanwhile, three investors, including Qantas and China Eastern Airlines, are applying to start a new discount carrier called Jetstar Hong Kong. Qantas expects to receive approval by the end of the year.

In Taiwan, passengers complain of cross-strait airfares equal to those for destinations twice as far away. Demand for travel to the mainland's top-tier cities, such as Beijing, Shanghai and Guangzhou, allows airlines to keep fares high.

Despite periodic increases in the number of flights, newer ones do not ease demand because they often connect Taiwan with mainland cities that are less popular with businesspeople and are smaller markets for outbound tourism.

"Demand has been there for decades. Everyone wants to fly direct, but the supply is not enough," Lin said. "Newly added flights are to secondary cities, however, so demand remains high."

Mainland aviation authorities tightly regulate fares for domestic, state airlines like Air China, China Eastern and China Southern. In Taiwan, local airlines' normal fares have long been considered affordable, limiting demand for discount services.

Nine-year-old Spring Airlines, known for flight attendants dressed as maids and butlers, has Taiwan on its radar as it sees traffic to and from the mainland doubling that of China-South Korea routes, said airline spokesman Zhang Wuan. "Cross-strait, for airlines, is a big market," Zhang said. "We have a lot of expectations for Taiwan."

Zhang declined to estimate his airline's mainland-Taiwan airfares or say when it would formally apply to start flights. Juneyao Airlines could not be reached for comment.

Expect a few bumps, analysts warn. While Taiwanese businesspeople and backpackers might choose a mainland discount airline, Chen said, conservative mainstream Taiwanese travellers would be more likely to use a trusted domestic airline despite higher prices.

The Taipei Airlines Association would not say whether local airlines would oppose entry by a low-cost mainland carrier. But the island's Civil Aeronautics Administration has indicated a likely all-clear. "If they applied, we wouldn't oppose it," an administration spokesman said.