FEATURE: Domestic airlines struggle to make ends meet

While the Lunar New Year holiday is traditionally a peak time for travel, domestic airlines struggled this year amid tough competition from the high speed railway and soaring fuel costs.

"All four domestic airlines suffered losses last year," said Hanson Chang (張有朋), senior public affairs manager at Far Eastern Air Transport (FAT, 遠東航空). "As such, most of us struggled to squeeze out meager new year bonuses for our employees."

Aside from FAT, the other three airlines that focus on domestic flights are TransAsia Airways (復興航空), Mandarin Airlines (華信航空) and Uni Airways (立榮航空).

Deregulation is the key to domestic airline companies' survival, especially in this "gloomiest winter," TransAsia chairman Fan Chih-chiang (范志強), who also doubles as chairman of Taipei Airlines Association (台北市運輸商業公會), said earlier this week.

"There is a myriad of regulations and restrictions that tie the hands of domestic airlines, which are already at a disadvantage compared to China Airlines Ltd (CAL, 華航) and EVA Airways Corp (長榮航空)," Fan said.

FAT, the only listed company among the four, saw its losses expand to NT$3.91 per share in the first three quarters of last year, compared with a loss of NT$0.66 per share from a year ago.

TransAsia and Uni Air also reported net losses of NT$0.19 and NT$0.79 respectively in the first half of last year.

Seven months after the launch of the high-speed railway service in January last year, airline services on two routes were halted given heavy losses, and two more will be suspended next month.

Uni Air, a subsidiary of the Evergreen Group (長榮集團), will stop flying between Taipei and Kaohsiung, while FAT will halt its Taipei to Tainan service.

While some industry observers have suggested that mergers or joint operations could relieve the oversupply, Fan disagreed.

He said a merger would only work if the airlines' routes were complementary and they operate the same type of aircraft.

But since the four domestic airlines own eight different types of aircraft and compete on more or less the same routes, a merger would not be a solution as it would not cut maintenance costs nor expand the airlines' operations network, he said.

Those are the same reasons why the four can't operate joint services, said Irving Hsu (徐正權), public affairs director of Mandarin Airlines.

Hsu said the Civil Aeronautics Administration's (CAA) demand that each route be serviced by two competing airlines also made a contingency plan difficult.

"Besides, even if one company drops out of a route, the other one would still struggle to make ends meet" because of the sharp decline in customers, Fan said.

Competing with CAL and EVA's near duopoly of international routes is difficult given government restrictions, although that did not stop the four from trying.

Anticipating the blow from the operation of the high-speed railway, FAT, Uni Air, Mandarin and TransAsia began to operate regular or charter flights to Vietnam, Cambodia, Thailand, Malaysia, the Philippines, Japan and South Korea.

However, these efforts have yet to drag them out of the red, as outbound flights contribute only a minor share to revenues.

Seeing strong demand for services that can help fliers save time and money, the four companies are exploring new transfer routes.

Chang said that although FAT's fast-growing service that transfers passengers through South Korea's Cheju Island to cities in the eastern and northern parts of China, including Shanghai, Beijing, Dalian and Shenyang, has helped to narrow losses, "nothing compares to direct flights when talking about a real boost in business."