Cathay Pacific Asia Miles - Chinese carriers prepare for cross-strait flights

This is not good news for Cathay and Dragonair. If the Taiwan to China via Hong Kong market dries up, I'd imagine a huge negative financial impact.


From Air Transport World:

Monday April 14, 2008
Chinese mainland carriers are preparing for commercial flights across the Taiwan Strait to be permitted before year end, as the newly elected president of Taiwan, Ma Yingjiu, has promised.

Ma will take office on May 20 and said he plans to allow the launch of weekend charter flights across the strait in July, followed by daily scheduled flights before 2009.

According to China International Capital Corp., mainland carriers see "big market potential" across the strait. The route is expected to contribute more than CNY5 billion (CNY714.2 million) to the collective annual net profit of mainland airlines.

News reports out of Taiwan said that Air China plans to take the lead and establish a branch office on the island after Ma assumes the presidency. CA did not confirm but did stated that "all mainland carriers are preparing for launching the cross-strait flights."

CICC noted that China Eastern Airlines will benefit most from the flights as 35% of the Taiwanese population living on the Chinese mainline resides in Shanghai and neighboring Jiangsu Province. China Southern Airlines should reap more benefits than CA as well, according to CICC, as it holds a 60% stake in Xiamen Airlines. A quarter of the mainland's Taiwanese population lives in the Pearl River Delta region and another 10% in nearby Fujian Province.

Air China holds a 17.5% stake in Cathay Pacific Airways and a 51% stake in Air Macau. Those two carriers will be impacted by the liberalization, especially CX, which connects Taiwan to both the mainland and Europe through Hong Kong.

there's undoubtedly some big impact to CX, but I'm thinking maybe it's somewhat smaller than what I thought. I think I read earlier somewhere that only 10% of the HKG-Taiwan traffic is bound for mainland (the rest being O/D or connecting traffic to US/Europe/etc).

and while the CNY 5 billion sounds high, I think a big part of it comes from "incremental" demand, i.e. a lot of people are not flying now because of the lack of direct flights, or fly much less. so CNY 5 billion more earned by Chinese carriers doesn't all come from (or only a small of this come from) current connection business via HKG - most of this might come from new demand.

It will be interesting to see what happens with flights to Taichung, a recent survey showed that over 50% of business travellers to Taiwan were going to Taichung area, they currently have about 30 flights a week between HKG and Taichung

If that were the case I might be switching to Taiwan-based carriers depending on their condition and quality. The cities I travel from/to are LAX,TPE,PVG,HGH and sometimes shenzhen and CAN. I use CX because I always hit every city on each trip.

This will really impact CX. The last statistics I read from Mingpao is that 40% of passengers on Taipei to Hong Kong flights connect through Hong Kong to somewhere else, however, I think the reality is way more. Last time I was on the TPE route, it seems like 50% had a connection from China. Also, CA/MU/etc may launch cheap fares that entice Taiwanese customers to fly via PEK/PVG onboard to Europe, and even America. The impact for CX is more than just cross-strait traffic, but also for lucrative long haul destinations. I would be very interested to see how CX/KA will be affected by this change.

Expect to see drastic capacity reduction in HKG-TPE market if the direct China-Taiwan flights start regular service.

There are around 40 roundtrips per day for this limited HKG-TPE market. Some claimed 80% of them are connecting traffic to/from China, although I think the ratio is closer to 50%. The actual number is hard to ascertain as there are no published through fare for China-Taiwan market. Many people simply purchase two fares. What looks like O/D between TPE and HKG is actually a connection on a separate ticket with MU, for example.

The current proposal is for weekend charters only, no plan for regularly scheduled service yet.

Expect to see drastic capacity reduction in HKG-TPE market if the direct China-Taiwan flights start regular service.

There are around 40 roundtrips per day for this limited HKG-TPE market. Some claimed 80% of them are connecting traffic to/from China, although I think the ratio is closer to 50%. The actual number is hard to ascertain as there are no published through fare for China-Taiwan market. Many people simply purchase two fares. What looks like O/D between TPE and HKG is actually a connection on a separate ticket with MU, for example.

The current proposal is for weekend charters only, no plan for regularly scheduled service yet.

they did mention the target of starting daily scheduled service by 2009, which is very soon.

A lot of the Taiwanese business persons may not be connecting, because they just go by road to their factories/businesses in the Pearl Delta Region. But if they can fly non-stop to SZX, then that's more "non-connecting" traffic that HKG will lose.

just spoke to someone who works in economic development here in Taiwan and she says 80% + is for sure a more accurate figure for people flying via HKG and connecting onwards, that includes the ferry into China such as macau etc

just read that CI said they'll reduce their Taiwan-HK capacity from 18 roundtrips a day to 8 a day, when daily direct flights happen between mainland China and Taiwan, so that they can re-deploy the planes from the HK flights to the direct mainland routes...(I didn't know they have 18 roundtrips a day, even including TPE, KHH, etc)

on the bright side, if CX is also going to reduce capacity on the HKG-TPE routes, that might give them more aircraft capacity to open other new regional destinations?

Right now, approximately:

TPE-HKG

CX 15x
CI 13-14x
BR 7-8x
KA 4x
TG 1x

KHH-HKG

KA 5x
CI 2-3x
AE 1-2x

So, CI/AE do have about 18 daily flights between Taiwan and HKG.