Taiwan's airlines face merger pressure

China Airlines Co (華航) and Taiwan's five other carriers are under government pressure to merge and cut costs as passenger demand drops amid the nation's worst economic slump in a quarter century and increased traveler concern about safety.

"Taiwan's airlines need to act more quickly due to the impact of the terrorist attacks last month," said Amy Ling (凌鳳儀), director of the air transport at the Civil Aeronautics Administration. "The government will support them."

Airlines worldwide are carrying fewer passengers after hijackers crashed four commercial airlines in the US on Sept. 11, three of them into major buildings. China Airlines, Taiwan's biggest carrier, said its planes were about 70 percent full of passengers last month, down from 85 percent in August.

"The government's seen the difficulties overseas airlines have faced, so it probably wants to deal with companies with financial problems first," said Yu Wei-kuo, who manages NT$130 million (US$4 million) in stocks at Polaris Investment Trust (寶來投信).

China Airlines isn't interested in any mergers and isn't talking to anyone, said carrier spokesman Paul Wang (王振畬). Still, the airline may not have a choice because it is 72 percent owned by the government-controlled China Aviation Development Fund.

The most likely merger would be between China Airlines and Eva Airways Corp (長榮航空), owned by the Evergreen Group, whose chairman Chang Yung-fa (張榮發) is a senior adviser of President Chen Shui-bian (陳水扁), Yu said. He said the island only needs one international carrier.

"The airlines will take lots of measures to cut costs, such as cutting flights or routes," the Aeronautics Administration's Ling said. "We're encouraging them to cooperate, though we can't force them."

Eva Airways plans to fire staff and cut flights. The nation's second-biggest airline is suffering as freight demand slows along with economic growth. Eva lost NT$2.5 billion in the six months to June. In August, it said it expected a full-year loss of NT$3.4 billion.

In addition to China Airlines and Eva Airways, Taiwan's carriers are Far Eastern Air Transport Corp (遠東航空), Transasia Airways Corp (復興航空), Mandarin Airlines (華信航空), a China Airlines unit, and Uni Airways (立榮航空), a Eva unit.

Airline shares all fell yesterday in trading on Taiwan's stock exchange. China Airlines stock fell as much as 3 percent to NT$9.65. Eva declined as much as or 5.7 percent to NT$5.80. Far Eastern fell as much as or 4.6 percent to NT$6.30.