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EDITORIAL: Keeping the aviation sector airborne

On Saturday, president-elect Ma Ying-jeou (馬英九) told a business gathering in Taichung that he would implement direct charter flights on weekends starting on July 1.

The news, coupled with Ma's other election campaign promises to open up cross-strait transportation links, might have been expected to create a wave of euphoria in the nation's aviation industry, which has been hard hit by the launch of the high speed rail system last year.

The four domestic airlines -- Mandarin Airlines, Uni Airways, TransAsia Airways and Far Eastern Air Transport -- suffered huge losses last year, with Far Eastern Air on the brink of bankruptcy earlier this month. The companies have pinned their hopes on cross-strait deregulation to stay alive.

The direct charter flight policy would also be good news for international carriers China Airlines and EVA Airways.

But it will take more than direct flights to save some of these airlines. As the domestic carriers don't know how to improve operational efficiency and where to trim costs to stem their losses, their long-term prospects are contentious.

One of the myths about direct flights is that small Taiwanese airlines will be able to boost their bottomlines, while big carriers will see their revenues skyrocket.

The fear among many industry analysts, however, is that too many airlines plying the charter routes could undercut the ability of carriers to turn a profit. If everyone wants the same route, fewer seats will be filled on each plane, not more. It seems unlikely that these companies will be able to eliminate their old bad habits without aviation authorities intervening to allocate routes.

Moreover, the soaring cost of fuel, rising airport taxes in China and competition from other regional airlines will continue to pressure local carriers. To stay alive, they need to reduce operating costs and increase profitability.

The nation's aviation industry has long faced a problem of overcapacity in a market large enough for just two players. Industry consolidation is necessary. But it is unlikely the carriers will initiate any mergers or joint operations themselves, given the disparity of their fleets and corporate cultures and the incompatibility of their present routes.

Even though Mandarin Airlines merged with Formosa Airlines in 1999, the sector remains highly fragmented. Strong competition among all the players has kept talk of mergers at bay, while aviation authorities have not offered enough incentives to encourage consolidation. This issue now seems completely off the books; no one will want to concede anything with the golden goose of cross-strait flights so near.

The next administration must look beyond the allure of increased cross-strait travel and try to develop a sustainable plan for the aviation industry. To help revitalize this sector, the incoming government will have to improve the domestic business environment and airport infrastructure if Taiwan's aviation industry is to survive alongside its regional rivals.
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