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Cablegate: High-Speed Rail Early Impact On Taiwan Airlines

VZCZCXRO6345
RR RUEHCN RUEHGH RUEHVC
DE RUEHIN #1095/01 1360322
ZNR UUUUU ZZH
R 160322Z MAY 07
FM AIT TAIPEI
TO RUEHC/SECSTATE WASHDC 5264
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUEHBK/AMEMBASSY BANGKOK 3689
RUEHGP/AMEMBASSY SINGAPORE 6895
RUEHKO/AMEMBASSY TOKYO 8762
RHMCSUU/FAA NATIONAL HQ WASHINGTON DC
RUEAIIA/CIA WASHDC
RHEFDIA/DIA WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHDC
RULSDMK/DEPT OF TRANSPORTATION WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC

UNCLAS SECTION 01 OF 02 TAIPEI 001095

SIPDIS

SENSITIVE
SIPDIS

STATE FOR EAP/TC
SINGAPORE AND TOKYO FOR FAA
BANGKOK FOR TSA
COMMERCE FOR 3132/USFCS/OIO/EAP/WZARIT
COMMERCE FOR 4431/ITA/MAC/AP/OPB/TAIWAN/MCHOI
TREASURY FOR OASIA/LMOGHTADER

E.O. 12958: N/A
TAGS: EAIR ELTN ECON TW
SUBJECT: HIGH-SPEED RAIL EARLY IMPACT ON TAIWAN AIRLINES

REF: A. 06 TAIPEI 4112

B. 06 TAIPEI 3473
C. 06 TAIPEI 3446
D. 06 TAIPEI 3414

1. (U) Summary: In the first four months of operation,
Taiwan's high-speed rail has already reduced passenger
loads on Taiwan's domestic air routes by 25 percent. To
cope with declining passenger volumes, Taiwan's small
carriers have cancelled routes, reduced fares, and
entered a new cooperative arrangement. As the high-speed
rail continues to expand service, some of Taiwan's
airlines may not survive. End summary.

Impact on Transportation Market
-------------------------------

2. (SBU) Taiwan's high-speed rail, which has been in
operation since January 5, is already hurting Taiwan's
struggling local airlines. TransAsia Airways Chairman
Tony Fan complained to us that for the last several
years, passenger load factors on Taiwan domestic flights
were already declining at a rate of about 10 percent per
year. He explained that since the high-speed rail became
operational, load factors on Taiwan west coast routes had
dropped by an additional 25 percent. These routes
account for about 50 percent of revenue for domestic
carriers, he said. Mandarin Airlines President Harris
Wang told us that the passenger load factor on Mandarin's
Taipei-Kaohsiung flights had fallen from 75 percent to
below 55 percent. Taiwan's Council for Economic Planning
and Development issued a report that indicated the
passenger load factor on Taipei-Taichung routes fell from
37 percent to 25 percent. The load factor for the
Taipei-Chiayi route fell from 63 percent to 46 percent.

3. (U) Other transportation service providers have not
been as strongly affected by the high-speed rail. The
number of passengers on Taiwan's existing railway system
dropped by 6.9 percent from December 2006 to February
2007. Total passengers on intercity bus lines have
dropped only slightly, but bus companies have complained
that revenue on Taipei-Kaohsiung routes have dropped by
as much as one third.

Airlines Try to Cope
--------------------

4. (U) Taiwan's local airlines have adopted several
different strategies to cope with the decline in
passenger volumes. Mandarin is eliminating some of its
least profitable routes. It has already stopped Taipei-
Taichung service. In addition it plans to cancel
Taichung-Taitung and Taichung-Pingdong routes. At the
same time, it continues to develop Taichung as a hub for
service to international destinations including Hong
Kong, Hon Chi Minh City and Macao.

5. (SBU) The local airlines have also cut fares on routes
that compete with the high-speed rail. According to
Mandarin's Wang, the new fares are only NT$150 (about
US$5) more expensive than tickets on the high-speed rail.
He said the reduced fares had attracted about 20 percent
of lost passengers back to the airline. However,
TransAsia's Fan noted that the lower fares had further
decreased total revenue on the routes.

6. (U) In addition, the four domestic carriers (Mandarin,
TransAsia, Far Eastern Air Transport and Uni Airways)
have implemented a new cooperative arrangement on Taipei-
Kaohsiung flights. A passenger who buys a ticket with
one airline can take any Taipei-Kaohsiung flight offered
by the four. The four carriers are also coordinating
their schedules both to make them more convenient to
passengers and to cut costs.

TAIPEI 00001095 002 OF 002

Worst is yet to Come
--------------------

7. (SBU) The airlines expect further disruption of the
local market. Trans Asia's Fan pointed out that the
high-speed rail is not yet operating at full capacity.
Currently, it operates 19 trains per day. It will
increase daily service to 39 trains before the end of the
year and eventually run 78 trains per day. Fan believes
that not all of the local airlines will be able to
survive once the high-speed rail expands to full service.
YOUNG

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