Taiwan airlines join budget race amid shift in demand
China Airlines and TransAsia look to offer discount services as travellers increasingly opt for the restrictive cost savings of no-frills carriers
Two Taiwanese airlines that are playing catch-up in the island's budget flight market are banking on a shift in local passengers' attitudes to discount travel to keep their ventures competitive against 13 foreign rivals that are already offering cut-price services to Taiwan.
The budget newcomers - flagship carrier China Airlines and TransAsia Airways - have been monitoring market demand and have observed a shift in passenger preferences from the costly flexibility of full-service operators to the restrictive cost savings of no-frills carriers.
[Taiwanese carriers] see that there’s money so now they want to come in
"Some foreign budget airlines are starting to use this market and Taiwan itself doesn't have one," said Fang Chia-wen, the public relations chief at TransAsia, the island's oldest airline. "There's a demand, so we applied for a licence."
TransAsia got the licence from the island's aviation regulator six months ago and is looking to start services towards the end of this year.
China Airlines would start budget services through a partnership with Singapore-based Tigerair, the parties said in a December 16 statement. The Singaporean carrier will take a 10 per cent stake in the venture, which will be based locally with paid-up capital of NT$2 billion (HK$518 million).
The venture, known as Tigerair Taiwan, would operate as a no-frills carrier on international routes in Northeast Asia where the Singaporean airline wanted to expand services, the statement said, forecasting flights to Japan and South Korea. Neither side would discuss proposed fares.
TransAsia has yet to decide on operating details such as flight destinations, service frequencies and fares.
Demand would come largely from Taiwanese backpackers, said Tina Chen, an aviation analyst with SinoPac Securities in Taipei.
Passengers traditionally paid more for the right to change dates or seats, she said, but younger solo travellers were bringing about a change in attitudes.
"The Taiwanese carriers once didn't want to touch this market, but they can see that there's money so now they want to come in," Chen said.
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.
Taiwan's Civil Aeronautics Administration has yet to approve the Tigerair venture, which, like TransAsia's, would require proof of air safety and a business plan outline.
Discount flights offered by the Taiwanese carriers were likely to start with major Asian cities, but not to the mainland, where local passengers were willing to pay for full-fare services, Chen said.
Foreign budget carriers have worked those intra-Asian routes since 2004.
However, two mainland discount carriers, Spring Airlines and Juneyao Airlines, aimed to offer services to Taiwan, aviation officials in Taipei have said. Their arrival is expected to cut fares for the average Shanghai-Taiwan return flight from NT$15,000 to less than NT$10,000.
Still, the airlines may face resistance from travellers who have found reasons to be wary of discount services. Taiwanese who have tried out budget flights warn of tacked-on ticket taxes, long layovers and steep charges for excess baggage.
Taiwanese surfer and innkeeper Chris Hsia encountered all three on NT$6,000 budget flights to Bali through Singapore. He is thinking of switching to a mainstream carrier next time - not the Singapore discount airline that flew him there before with surfboards in tow.
"It takes forever because of the layover," Hsia said. "Prices are not that much different when it comes to taxes and shipping."
Han Cheng-hua, a deputy section head in charge of licensing airlines for the civil aviation authority, said Taiwan had no quota on the number of budget airlines it could permit. That leaves the gates open to any applications from EVA Airways or Mandarin Airlines, two other major carriers in the island.
The authorities would consider a quota only if supply exceeded demand, Han said.
"We need to see the market demand. And if there's saturation, we would go back and review permit rules, but not at this point," he said. "A lot of younger people want to go overseas for cheaper. The full fares are pretty expensive for them."
