The government must help coordinate consolidation of Taiwan's domestic airline sector and reduce the current four airlines to two if any are to survive excess flight capacity and future competition from the north-south high-speed railway, according to industry leaders and analysts.
Chang Jung-fa (
Chang, whose group operates EVA Airways Corp (
The government wouldn't have to wait for the arrival of the north-south high-speed railway, since the collapse of one airline would trigger a domino effect that could sweep the industry, Chang said.
The negative impact of such a scenario on the economy would be very hard to predict, he said.
The high-speed railway built by the Taiwan High-speed Rail Corp (台灣高鐵) is scheduled to be operational by 2005 to ferry passengers between Taipei and Kaohsiung in around 90 minutes at a cheaper fare, which constitutes a serious threat to airlines.
The main problem for the four domestic airlines -- Far Eastern Air Transport Corp (
According to Peter Negline, a regional airline analyst at JP Morgan in Hong Kong, this problem has been compounded by over-investment and looming rail competition.
"Demand is very weak, and there's also been a lot of over-investment by airlines partly in anticipation of the opening up of cross-strait flights," Negline said. "Then there are issues such as the rail link and the competition that's going to provide."
The government had been attempting to promote merger activity under the stewardship of former Minister of Transportation and Communications Yeh Chu-lan (
Out of the nation's six airlines, only China Airlines Co (
There was a general consensus among industry observers with Chang's assertion that airlines are willing to consolidate, but are simply looking for a workable method -- or indeed some government aid to expedite merger activity -- to initiate such plans.
"All the airlines agree with Chang and are willing to merge," Shih said. "But the actual `how to do it' remains a big problem with serious technical issues such as what to do with excess aircraft, employees, market share and fair trade issues needing resolution," he said.
JP Morgan's Negline said there was a general understanding of a need for "rationalization of capacity" through downsizing on mergers but that working out the nut and bolts of such activities is a tough task.
"The problem in all of that is how do you execute the downsizing and who is going lead that? People get concerned about market share and currently aircraft prices are quite weak," he said. "Clearly there's going to be a lot of people taking book losses."
In related news, Chang Jung-fa announced on local TV that he has resigned from his postion as advisor to President Chen Shui-bian (
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