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HK airlines face price war on Taiwan route
Cathay, Dragonair under pressure after mainland orders 15pc cut in cross-strait fares

26 June 2010
South China Morning Post

Cathay Pacific Airways and Hong Kong Dragon Airlines (Dragonair) face a bruising price war on the lucrative Hong Kong-Taiwan route after mainland carriers were ordered to cut cross-strait ticket prices.

Li Jiaxiang, the minister in charge of the Civil Aviation Administration of China, said last week fares for direct flights should be lowered by up to 15 per cent as part of a move to increase cross-strait transport ties.

Direct flight services between the mainland and the island have increased to 380 flights per week after being launched two years ago, and 40 will be added shortly. The governments on both sides of the strait are committed to more direct flights as economic ties improve.

"Air fares on routes to Taiwan will be under pressure in the short term," said James Tong, Dragonair's chief executive, at the carrier's 25th anniversary celebration. "But ticket prices and demand will be stable over the longer term as total traffic demand becomes enlarged."

A Cathay spokesman said the airlines would ensure its fares remained competitive. "Air fares are determined by market supply and demand," the spokesman added.

Air service capacity between Hong Kong and Taiwan has dropped 30 per cent since the start of direct flights in July 2008, said Law Cheung-kwok, an associate director of the Aviation Policy & Research Centre at the Chinese University of Hong Kong.

"It's easier said than done [for Hong Kong carriers] to cash in on additional market demand driven by direct flights," Law said. "Hong Kong carriers can only benefit from the increasing number of locals visiting Taiwan due to the simplified visa application to Taiwan but not the other way round."

The Hong Kong-Taipei route is served by Cathay, Dragonair, China Airlines and Eva Air, which respectively operate 12, four, 12 and seven flights per day. The Hong Kong-Kaohsiung route is operated by Dragonair, China Airlines and Mandarin Airlines, with seven to eight flights per day among them.

However, shorter flight and transit times have made direct flights the natural winner over the traditional transit through Hong Kong.

Dragonair and Cathay were now lobbying the Shanghai government to let them land at Hongqiao Airport, which is closer to the city's centre than the Pudong International Airport, Tong said.

They will study the infrastructure and capacity of Hongqiao and discuss with the Civil Aviation Administration of China about flight plans.

China Airlines' debut flight to Hongqiao from the Taipei Songshan Airport on June 13 has put pressure on the Hong Kong carriers to improve their services.

The 45-minute direct flight accompanied by easier connections to Shanghai's city centre makes the triangular route served by Hong Kong carriers less attractive. The transit time to Hongqiao is about one hour shorter than that to Pudong.

Dragonair saw the passenger volume on the Hong Kong-Shanghai route increase 40 per cent last month from May last year because of the World Expo and the lower comparative base. The carrier has deployed larger aircraft - an Airbus 330, against an A320 previously - to serve the route, resulting in a 10 to 20 per cent increase in capacity.