Local airline companies may not greatly benefit from an increase in direct passenger flights and new cargo services between Taiwan and China amid improving cross-strait trade ties, analysts said yesterday.
Local carriers expect flights to China to double to at least 72 a week as direct transportation is expected to top the agenda of this week’s cross-strait talks. The nation’s five local airlines will each be able to provide one extra flight per day if that expectation is realized.
“Expanding passenger services, which will complete one of President Ma [Ying-jeou’s (馬英九)] campaign promises, will increase each firm’s share of the business and allow for shorter routes, which translates to fuel savings and possibly ticket savings for passengers,” Charles Ma (馬嘉禾), an airline analyst at SinoPac Securities Corp (永豐金證券), said via telephone yesterday.
The caveat lies in what demand there will be for cross-strait flights. Even the airlines are unable to provide precise estimates, he said.
“Just look at the demand for current weekend charter flights; how will increasing the number of flights and increasing the number of locations help with a basic lack of demand,” Allen Tseng (曾炎裕), an associate manager of Capital Securities Corp, (群益證券) said via a separate telephone interview yesterday.
Tseng said an increase in passenger traffic would not significantly boost the net profits of local airlines in the short term in light of their deep losses in the first three quarters.
As for direct air cargo links, Tseng said in the current environment any type of increased traffic may not be good news for the capital-intensive industry, because of exorbitant fuel prices, airplane depreciation and high fixed costs.
Tseng estimates direct air cargo flights could at best contribute 3 percent of the total revenues of airlines. But with heavy losses reported by China Airlines Ltd (CAL, 中華航空) and EVA Airways Corp (EVA, 長榮航空) this year, such a contribution would be “insignificant,” Tseng said.
In addition, direct air cargo flights between Taiwan and China would notentirely replace the cargo businesses currently routed via Hong Kong and Macao.
“It does, however, put local carriers on equal footing with international air cargo companies, because it lifts the restriction of having to stop in Hong Kong or Macau before entering China,” Tseng said.
Airline stocks traded higher as Association for Relations Across the Taiwan Strait (ARATS) Chairman Chen Yunlin (陳雲林) arrived in Taiwan yesterday.
CAL and EVA stocks both edged higher on the Taiwan Stock Exchange, with CAL trading up NT$0.7 at NT$7.89 and EVA up NT$0.51 to close at NT$8.40.
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