Taiwan carrier blames sharp drop in passenger revenue due to Sars outbreak The travel limitations imposed by the Taiwanese government during the Sars outbreak this year is expected to shrink China Airlines' passenger revenue from its core Hong Kong office, with sales falling 40 per cent below projections, according to a top executive. The carrier in January projected passenger revenue from Hong Kong to reach HK$605 million, but that may be adjusted downwards next month because of the operational difficulties of the past two months, said David Yao Du-sheng, general manager Hong Kong. 'There were some factors that we could not control. The government stopped issuing landing visas to Hong Kong residents. It lowered the traffic dramatically. Passenger revenue from Hong Kong will fall 40 to 45 per cent behind our initial expectations,' Mr Yao said. Demand is recovering fast as load factors have returned to 90 per cent levels recently, and the Taipei-based carrier will resume most of its schedules this month. However, yields remained down more than 50 per cent compared with the same period last year and the carrier would try to revive profitability by attracting more lucrative front-deck business, Mr Yao said. 'Similar to most other airlines, our strategy is to stimulate passenger demand first. Yield is low at the moment because of heavy discounts. We will try to adjust the passenger mix by attracting more individual bookings, especially in first and business class by offering promotions. Yield from these customers is higher despite discounts.' Taipei management said earlier this year, despite Sars, the island's No1 airline remained hopeful of a similar result to last year's - a net profit of NT$3 billion (HK$679.5 million). But Mr Yao said the Sars outbreak would probably push the carrier into the red. 'Our task is to minimise the loss as much as possible,' he said. Cargo demand from the Hong Kong office remained steady for China Airlines in the first half and Mr Yao said he was confident of achieving the HK$1.3 billion revenue target. This was despite capacity cuts during the Sars outbreak dragging down air freight revenue by a comparative 7 per cent so far this year, he said. The carrier moved 34,898 tonnes from Hong Kong in the first half, down a comparative 12 per cent. China Airlines cut its 12 daily services to Taipei to six and replaced its 747-400 aircraft with the smaller 737-800 during the epidemic, reducing the belly freight capacity. Despite the operation of an extra 747-400 freighter, with its 100-tonne capacity, during the outbreak, China Airlines still lost 500 tonnes of capacity a week. 'Freight capacity was 12 per cent lower year-on-year during the past couple of months. But still, I think we can achieve the target in the second half,' Mr Yao said. 'Demand for air freight services has always been strong and there will be higher demand later in the year with the Christmas rush.' With the hub in Taipei, more than half the cargo volume from Hong Kong for Taiwanese airlines is bound for the United States and Europe. China Airlines moved 78,674 tonnes from Hong Kong to Taipei last year, of which less than 40 per cent was destined for the Taiwan market. Eva Air, the island's No2 carrier, moved 56,000 tonnes from Hong Kong last year. Cathay Pacific, with direct operations from Hong Kong to the US and Europe, moved 18,000 tonnes to Taiwan through Tokyo last year. Dragonair, which has about 615 tonnes of cargo capacity each week from Hong Kong, refused to disclose volume figures, but they were not seen as a threat to market leaders. China Airlines in December placed an order for 10 Boeing 747-400s and 12 Airbus A340-300s. Four of the Boeings will be delivered in freighter configuration. It took its first freighter delivery on Wednesday and the other two will arrive next month and October. The carrier will have a fleet of 17 freighters by the end of this year. It will take all the deliveries by 2007 and the new A340-300s will be used to modernise its passenger fleet.