Move May Pave Way For Future Full Direct Service Between Taiwan And Mainland

A political thaw attributed to warming relations between China and Taiwan may soon open new routes to mainland Chinese cities for Taiwanese carriers barred from operations for years due to political tensions between the two nations.

BusinessWeek reports China Airlines made a move toward ending Chinese mainland isolation as Ringo K.S. Chao, the chairman of the Taiwanese carrier, signed a memorandum of understanding in the Chinese city of Guangzhou with China Southern Airlines Chairman Shao-Yong Liu in an initiative to boost cooperation between the two airlines.

In another move, China amended a restrictive policy to allow new routes from Taiwan to the mainland to develop. Formerly allowed to only fly charters from Taiwan to China for special holidays such as Chinese New Year, Taiwanese carriers China Airlines and EVA Airways will begin regular weekend charter service on July 4 over the Taiwan Strait between five Chinese cities and eight Taiwanese cities. The service will only be allowed from Friday to Monday and will still need to fly over Hong Kong, a special administrative jurisdiction, before continuing into China.

Even with the detour, Taiwanese airlines still believe the new routes will be profitable based on past performance with the holiday charters. The new routes may help deflect massive losses the airlines incurred from unprofitable international routes and rising oil prices. China Airlines posted an $84 million loss last year and another $98 million loss in the first quarter of 2008. EVA Airways was right behind when it reported a $62 million loss in 2007 and a $75 million loss in the first quarter of 2008.

In a further move, Beijing has agreed to chartered flights to five more Chinese cities and double the number of cross-strait flights to 72 a week after the Olympics. Both sides hope to take advantage of this new freedom and plan to hold further talks within the next three months addressing an increase in the frequency of charter flights and direct cargo flights.

Negotiations with China to allow direct flights to mainland cities, instead of taking the detour over Honk Kong, may also help to improve the bottom line for the struggling Taiwanese carriers. Morgan Stanley estimates the carriers could save at least 70% on fuel costs per trip if the Hong Kong provision was removed. "If they can do direct links, it mitigates the loss that they would have otherwise," says Chin Lim, an aviation analyst with Morgan Stanley.

Optimists feel the recent movement may open the doors for full service direct flights by the end of 2009.

"We should negotiate as quickly as possible direct flight routes and establishing air control procedures for direct flights," said Yu Fang Lai, vice-minister of Taiwan's Ministry of Transportation and Communications, told journalists in Beijing on June 13, when the two sides announced the July 4 date.

FMI: www.evaair.com, www.china-airlines.com/en