China Airlines, EVA shares grow wings

Share prices for the nation's two air carriers soared by the 7-percent daily limit on the main bourse yesterday, following the announcement by the Mainland Affairs Council that expanded charter passenger and cargo flights would be permitted across the Taiwan Strait.

The announcement came at a time when the benchmark TAIEX was under heavy selling pressure as a result of concerns over possible interest rate hikes by the US Federal Reserve and the insider-trading scandal involving President Chen Shui-bian's (陳水扁) family members and top aides.

Shares of China Airlines Ltd (華航) closed at NT$15.5, while those of EVA Airways Corp (長榮航空) were at NT$14.3 on the Taiwan Stock Exchange yesterday. On the main bourse, the TAIEX was up 131.80 points, or 2.08 percent, to close at 6,469.01.

Yuanta Core Pacific Securities Corp (元大京華證券) analyst Dave Chou (周顯黎) said investor optimism was likely to continue for the next couple of days.

Further growth momentum depended on the implementation of the cross-strait flight policy, as the government has made similar announcements on several occasions without setting definite timeframes, Chou said.

The airlines industry has been hit hard by high oil prices and the weakened world economy, but the opening of direct charter flights would give the ailing sector a shot in the arm, he said.

Other analysts said expanded air links across the strait may be a sign of things to come, but UBS said in a research note issued after the council's announcement that the move was aimed at distracting market attention from the domestic political standoff, the Chinese-language Cnyes.com Web site reported yesterday.

The report said the council's move was largely symbolic, and although it might ease negative sentiment domestically, it couldn't resolve the country's political woes, which were likely to linger until at least the 2008 presidential election.

Even so, China Airlines welcomed the move.

"This represents significant progress," spokesman Johnson Sun (孫鴻文) said. "We are all ready [to make the most of this opportunity]."

Although there were still some restrictions, more liberalization was likely to follow, Sun said.

China Airlines' smaller rival was less upbeat about the policy.

While welcoming the loosening of restrictions on cross-strait flights, EVA Airways called on the government to reduce red tape as much as possible, public relations official Eric Lin (林司忠) said.

Citing new regulations for charter cargo flights as an example, Lin said the government required airlines to apply for approval for each flight.

China Airlines reported sales of NT$46.82 billion (US$1.44billion)for the first five months of the year, a 14.64 percent increase from a year ago. Due to high fuel costs and lower demand, the carrier may see a deficit in the second quarter, Sun said.

In the January-May period, EVA Airways' sales grew 9.75 percent to NT$37.31 billion from the same period last year.