HONG KONG—Taiwan's China Airlines Ltd. is set to become the first carrier on the island to join the race in Asia's booming low-cost aviation market, and will make public its plans as early as December, according to the company's chairman.
The move by the Taiwanese full-service airline follows those of its many Asian rivals, including Singapore Airlines Ltd. and Japan Airlines Co., to invest in the budget-carrier market in response to growing competition from no-frills startups in the region. Low-cost carriers now account for around a quarter of the Asia-Pacific's airline traffic.
China Airlines Chairman Huang-Hsiang Sun said he expects faster growth in the low-cost market in northeastern Asia because of further liberalization in the region's aviation industry, such as new open skies agreements signed between Taiwan and Japan. He said though that the market in that part of Asia remains at a very nascent stage as against other Asian regions.
"Therefore China Airlines would also like to have our own low-cost carrier as a defense against (other budget airlines)," Mr. Sun said in an interview with The Wall Street Journal.
However, he declined to give details of the planned investment and whether it will involve a transformation of one of its existing airline units or a partnership with other investors. "We don't expect explosive growth at the start but we don't want to be absent in this marketplace."
Mr. Sun said the airline had been considering investing in the budget carrier market for four years but Taiwan had lacked the necessary air rights to accommodate new startups. The gradually liberalizing skies in Asia has helped make such plans feasible now, he said.
Meanwhile, China Airlines' domestic rival EVA Airways Corp. has no plans to join the low-cost race or cut fares to compete with no-fills carriers, says EVA President Austin Cheng. "The impact of LCCs is limited in Taiwan and we will continue to monitor the situation," Mr. Cheng said. He said the carrier would instead to strengthen its full-service offerings by boosting transit capabilities and further improving services and products.
Still, both China Airlines and EVA are facing mounting pressure from more low-cost airlines flying into the market. Spring Airlines Co., China's biggest budget carrier, will launch a Shanghai-Taipei service, which according to some airline executives is the most lucrative route in the China-Taiwan market, starting in December. The airline is marketing one-way fares of as low as 199 Chinese yuan (US$33), a substantial discount to current fares on the route.
Other budget carriers including Malaysia's AirAsia Bhd., Japan's Peach Aviation, Singapore's Scoot and Australia's Jetstar Airways are also serving the island.
The 11 budget airlines now serving Taiwan account for just 4% to 5% of the total market share in terms of airline capacity on the island, according to Mr. Sun, adding that China Airlines sees strong potential for more growth in that segment.
In addition, China Airlines, Taiwan's biggest airline by fleet size, also hopes to further boost its full-service operations by acquiring new widebody jets and adding more frequencies over the next few years.
"It's like operating a hotel group," Mr. Sun says of the airline's two-pronged strategy. He said the planned budget carrier is a one-star hotel, while China Airlines is positioned as a four-star hotel chain. He said the airline will unveil new cabin designs and crew uniforms in September next year when it receives the first of 10 Boeing 777-300 extended range aircraft on order.
Mr. Sun says he expects transit traffic, which currently accounts for 10% of total passengers, to rise to 30% over the next few years when the Chinese government allows mainland Chinese travelers to transit to other destinations from Taiwan.
Visitors to Taiwan from mainland China have surged in recent years as relations have between both sides of the Taiwan Strait have improved. The number of Chinese visitors to Taiwan jumped to 2.6 million in 2012 from 1.8 million a year earlier. The number of mainland visitors in the first nine months this year jumped by 15% to 2.2 million, according to Taiwan's tourism bureau.
Mr. Sun said China Airlines, which also plans to receive its 14 Airbus 350 widebody jets on order from 2016, will in the first half of 2014 decide on a new round of aircraft purchase plans that involve up to 25 narrow-body jets, with new generations of the Airbus A320 and Boeing 737 families under consideration.
Source: Wall Street Journal by Joanne Chiu
from China Travel & Tourism News http://www.chinatraveltourismnews.com/
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