Price war looms as carriers cut fares for China-Taiwan flights

HONG KONG : A price war could be brewing among airlines flying between China and Taiwan.

Authorities on the mainland are planning to cut airfares between the two destinations by as much as 15 per cent.

And analysts said this could lead to airlines flying cross-strait routes rushing to lower their fares.

Before the launch of direct flights between China and Taiwan, the cross-strait route was lucrative business for Hong Kong carrier Cathay Pacific.

With the latest price cuts, Cathay may be one one facing the most turbulence.

Earlier this month, three Taiwan-based carriers - China Airlines, Eva Airways and TransAsia - agreed to cut fares by between 10 per cent and 30 per cent next month.

A typical one-way ticket between Beijing and Taipei costs US$176, and US$512 for a return ticket.

"In the short term, there may be some price cuts, pressure on profit margins especially on Cathay Pacific. For the short-term, China Eastern Airlines may benefit because there's more travellers between Taiwan and China using China Eastern," said Kenny Tang, head of Research at Redford Asset Management.

However, lower margins could be offset by an increase in passenger volume and traffic.

Meanwhile, Cathay Pacific is busy putting new revenue streams on its radar.

"It's much more focused on mainland routes especially co-operations and change in shareholdings structure with Air China, so I think the domestic business on mainland will be the profit driver for Cathay Pacific," said Tang.

Cross-strait traffic is set to climb higher, as China and Taiwan put the finishing touches to their free-trade pact.

A record 5.4 million people travelled between China and Taiwan last year.

40 more flights are being added to the already schedule of 380 a week - and that's not including charter flights.

Four new airports are also planned on the mainland along the Western coastal area of Haixi. - CNA /ls