China Update
Taiwan’s transit door pushed ajar
China’s announcement that it would partially remove the ban on Mainland travelers transiting through Taiwan was hailed as a major business boost for Taiwanese carriers, but the new rules are still a long way from totally opening up the market.
February 1st 2016
Taiwan’s China Airlines was clearly elated with the news that Beijing had agreed to allow travelers from some Chinese cities to transit through Taiwan for the first time. Read More » The flag carrier “expressed welcome” that Chinese nationals flying from Nanchang, Kunming and Chongqing will soon be able to transit through Taoyuan International Airport.
Welcome they may be, but CAL clearly wants more. “We are ready for the latest announcement and look forward to seeing the policy expand to all Chinese cities,” an airline statement said.
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No timetable has been announced for the new rules although Beijing said Mainland transit passengers will not be allowed to leave the airport and added the plan would only be implemented after preparatory work between the two sides was completed.
Nevertheless, for Taiwan’s airlines, particularly CAL and EVA Air, the decision is a significant step forward. They have long complained they were disadvantaged by China because Mainland travelers can transit through other regional hubs, including Hong Kong, Singapore, Seoul and Tokyo.
Talks between Taipei and Beijing about lifting the transit ban had dragged on for years. Early last year, it was believed China would change its position before year end, but the discussions seemed to stall.
And it was politics, it appears, that prompted Beijing’s shift on the issue. The CAPA consultancy believes the decision was “a possible sweetener” in the lead up to the Taiwanese general election that was held last month.
The election delivered a victory to a party that does not favour closer ties with Mainland China and came at time when a significant number of Taiwanese felt cooperation with the Mainland had not delivered benefits – hence the offer of transfer traffic rights to Taiwanese carriers, CAPA said.
Taiwan’s Ministry of Transportation and Communications said the decision will support Taiwan’s plan to develop as an Asia-Pacific transit center, increase Taiwan Taoyuan International Airport’s passenger capacity and also non-aeronautical revenue within the airport zone.
Chinese government tourism statistics reveal that there were 107 million outbound Chinese tourists in 2014, with 2.16 million of them headed for the U.S. North American bound travelers are forecast to reach six million this year. If a portion of them transit through Taiwan, it will stimulate enormous business opportunities for the country. When the transit scheme is fully operational, it is expected to produce $290 million in benefits a year for Taiwan’s airlines.
Twenty direct flights a week link Taiwan with Chongqing, Kunming and Nanchang, with 15 of them operated by Chinese airlines, said Taiwan’s Civil Aeronautics Administration (CAA).
Since the decision to partially lift the transit ban, Taiwanese carriers are examining more direct cross strait flights from the three Mainland cities to Taiwan. The CAA estimated most of the 180,000 travelers from the three cities forecast to transit through Taoyuan will be bound for the U.S., Canada, New Zealand or Australia.
“Unsurprisingly, the proposed program is starting small, with Taiwanese carriers able to transfer traffic out of the three cities. These are not primary points. The biggest, Chongqing, is Taiwanese airlines’ 22nd most served mainland point. But transfer traffic could help Taiwanese carriers sustain service to smaller cities, where point-to-point demand is thin and there is room to boost load factors, unlike the situation on Beijing and Shanghai,” CAPA consultancy said.
Starting the transfer program as a confined trial “is the general modus operandi of the mainland Chinese authorities, going back to the special economic zones of past decades.” Beijing adopted the same approach when cross strait flights were introduced gradually between China and Taiwan.
CAL said: “With new fleets of B777-300ERs and the upcoming delivery of A350 aircraft, we look forward to increasing [Mainland] passengers travelling to Europe, North America, New Zealand and Australia after the latest policy officially hits the road,” the CAL statement said.
Taiwan’s flag carrier operates three flights a week between Taoyuan and Nanchang, two flights weekly between Kaohsiung and Nanchang and two flights a week between Kaohsiung and Chongqing.
“China Airlines owns the highest market share on Mainland China routes, and offers passengers access to an extensive global network. The comprehensive network includes 32 passenger destinations with 135 flights a week. The upcoming launch of a new route to Yangzhou, on February 1, will expand our operation to 33 passenger destinations and 137 flights a week,” CAL said.
However, CAPA said: “The possibility of connecting traffic is unlikely to lead to significant capacity growth for Taiwan’s airlines, who regard connecting traffic from Mainland China as supplementing, not dominating, point-to-point traffic.”
Still, it is a start. Taiwanese airlines will be eager to promote the transit program and to demonstrate some traffic growth so the new rules can be extended to more Mainland cities and also allow passengers to stop over in Taiwan.
Taiwanese airlines may aim to carry transfer traffic to Taiwan from larger major cities such as Beijing and Shanghai, where the business travel sector is larger and yield is superior to secondary cities, but the attraction of transfer traffic out of the main cities is not as strong as it might seem.
Capacity controls and slot limitations are capping the number of flights into Beijing and Shanghai. For Taiwanese airlines to expand into these major cities would require stopover approval, which in turn would require slot expansion. Shanghai Pudong is gradually increasing slots, but Beijing is unlikely to have significant slots available until its new airport opens later in the decade, analysts said.
