Local carriers face gray skies

Reducing the fleet

Unlike its competitors, Mandarin is shrinking its fleet. It plans to sell its two Fokker 100s, and is considering returning one or more of its three leased Boeing 737-800s. Far East Air is keeping its 16 aircraft, and is looking for more charter business, while TransAsia will take delivery of another ATR 72-500 later this year. TransAsia is also trying to sell and lease back one or more of its three older ATR72-300s.

The carriers originally ramped up their jet fleets in anticipation of direct flights to China, and as a result they are stuck with aircraft that are ill-suited for the 30 to 50-minute hops that predominate in Taiwan. Far East has an all-jet fleet of MD-80s and Boeing 757s. The other three carriers have mixed turboprop and jet fleets, but none of them fly the efficient new 50 to 70-seat regional jets that dominate the short-haul markets in the US. Instead they have larger jet aircraft that are slow to load and unload, and expensive to operate. "Those MD-90s are killing UNI," said Pierce.

The domestic airlines also must worry about the high-speed rail that is scheduled for completion in 2006. The train will make the trip from Taipei to Kaohsiung in 90 minutes, with stops in 12 cities, and will cost less than an air ticket. Evergreen Corp (長榮), parent company of EVA and UNI, is hedging its bets as it is part of a five-company consortium that is building the high-speed rail.

As always, the possibility of direct flights to China creates optimism. The CAA favors competition, and has a reputation for fairness in dividing up overseas routes. The domestic carriers believe the aeronautics administration will award Beijing, Shanghai, and other major cities to China Airlines and EVA, and will allow the smaller carriers to serve China's secondary cities. Direct flights to China seem likely to occur after China and Taiwan join the WTO in the next year or two. The ban on direct flights is illegal under WTO rules. Taiwan can invoke a special exclusion to maintain the ban, but the government has indicated that it will not invoke the exclusion. China flights would give a boost to the struggling airlines -- if they can hold out that long.