Tue, May 13, 2003 - Page 10 News List

Airlines will need red ink

PAPER AIRPLANES China Airlines and EVA Airlines are flying their aircraft nearly half-empty. No one is surprised that the firms are hemorrhaging capital

By Joyce Huang  /  STAFF REPORTER

China Airlines Co (華航) and EVA Airlines Corp (長榮航空) may have dipped into the red last month after SARS left planes in and out of Taiwan more than half empty.

"With occupancy rate dropping to between 30 and 50 percent, China Airlines is estimated to have lost NT$150 million in April while EVA is estimated to have lost NT$125 million," a local airline industry analyst who requested anonymity, said yesterday.

Airlines need a 70 percent occupancy rate to break even, she added.

Another market analyst, Wang Teng-cheng (王登城) at Yuanta Core Pacific Capital Management Co (元大京華投顧), shared a similar view, saying that "both airlines may stay in the red in the second quarter."

China Airlines saw last month's sales fall to NT$5.1 billion from NT$6.7 billion in April of last year, a 23.8 percent drop.

The company said that the economic impact of SARS was to blame for the slide.

"The company's as well as the industry's passenger business has been badly hurt by the disease," China Airlines spokesman Roger Han (韓梁中) said yesterday.

To weather the crisis, Han said that the carrier has enacted several contingency measures to cut costs in addition to previous flight cancellations. The measures include flying smaller planes to cut down on fuel costs, encouraging aircrew to take unpaid leave and minimizing unnecessary expenditure.

EVA also saw a 9.34 percent drop in last month's revenues from a year earlier. The carrier reported NT$4.3 billion in last month's sales, down from NT$5.7 billion in March and NT$4.8 billion April of last year before it was granted the lucrative Hong Kong-Taipei route.

"The company has suffered a 35.86 percent drop in passenger travel in April [from a year earlier] following the escalation of the SARS epidemic," EVA spokesman Nieh Kuo-wei (聶國維) said yesterday.

Nieh added that the industry is expected to see revenue drop further this month, but expressed hope for a recovery when the diseased is contained.

Both Han and Nieh denied any plans to lay off employees and insisted that both airlines are still financially viable since their air cargo businesses, which account for over 50 percent of their revenues, are unaffected by the disease outbreak.

Meanwhile, domestic carriers are in a even worse financial shape since passenger traffic is key to their survival, said Michael Lo (樂大信), chairman of the Taipei Airlines Association (北市航空運輸公會).

"The occupancy rate [of domestic flights] has declined by nearly 20 percent to 40 percent," said Lo, who is also president of Mandarin Airlines (華信航空).

Lo added that SARS fears further scared away tourists after all passengers were required to wear masks early this month.

To counter the disease's impact, Lo said that most airlines have implemented plans to keep costs down, but none has announced plans to ax staff.

"However, if the disease is protracted, some airlines haven't ruled out the possibility of laying off employees," Lo said.

He dismissed market speculation that one local carrier may declare bankruptcy if SARS is not contained soon.

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