Travel. The world changed last week.
FOXTROTS
Fox – sly. Trots – left-leaning (Trotsky) plus its more insalubrious meaning.
Foxtrots – leading the industry in a dance.
2008 July 07
Travel. The world changed last week.
As I have noted, there were two significant travel industry developments last week.
1. The fuel surcharge on a Europe-Australia flight has just about reached US$1000.
2. Charter flights China-Taiwan started this past weekend.
On Saturday, I wrote about the fuel surcharge on Europe-Australia. Now China-Taiwan.
There will not be a sudden substantial change. There are hundreds of flights that currently fly the main evasive-routes – via Hong Kong and Macau. And capacity added on the new direct China-Taiwan flights will hardly touch 1%.
I have assumed that politics will not interfere again in the development of routes China-Taiwan. That is probably a foolhardy assumption, but needed for any plausible analysis.
The routes will develop, steadily. From the three main cities in China – Beijing, Guangzhou, Shanghai – to Taipei, then from those three to Kaohsiung at the same time as additional routes from other centres in China to Taipei. And so on. There is a big demand, and there is no reason to think other that in five years there could be 30-40 routes between Taiwan and China.
What will that do to the rest of the market?
Many airlines – including Air Macau, Cathay Pacific/Dragonair, Eva – have done well out of the ban on direct flights. Certainly they will lose substantial traffic as the direct flights develop. But most of this will be over a few years.
Broadly, the percentage of transit traffic must be at least 50%. Some traffic will be unchanged for various reasons (travellers might prefer to fly to Macau, for instance, gamble a bit before heading on to Guangzhou).
In terms of visitors, 8% of Hong Kong’s visitors come from Taiwan. But there is substantial double-counting in this. (A traveller arriving in Hong Kong is counted, and after his return from China, he is counted again as an arrival in Hong Kong.)
So perhaps the loss will be greater, say 60%. Although it is a big figure, it is unlikely to turn Hong Kong’s growth into a decline, and may not even be visible – because it will happen over a few years.
Macau might have a better chance of maintaining more of the Taiwan-China traffic because of the attraction of casinos in Macau – particularly for ethnic Chinese. Currently, the Taiwan market counts for about 5% of Macau’s visitors – a share that is already falling – but because of the fast-growing traffic into Macau from China.
As for Hong Kong, the gradual reduction of this traffic is not going to noticeably affect overall totals. If Macau loses 25% (but there is double-counting, as explained above for Hong Kong), then this would be around 1% of Macau’s total count in 2007. And as the decline will be spread over a few years, it may be difficult to spot the change.
All that said, and there is the great unknown – how much new traffic will direct routes attract? Costs, primarily air fares, should be lower (not a given, in view of market factors, but likely). But how many China nationals will want to visit the rebel province? I guess a big chunk, particularly those that are relatively close – not just in terms of friends and relatives, but geographically.
Again, air fares, capacity, and other factors will decide the figure, but I would guess a high 500,000 in the first full year, 2009. Although even a ‘guess’ may be too strong; what capacity will be added, and when? That 500k would make China the third-largest market for Taiwan after Japan (1.1mn) and Hong Kong/Macau (500k).
The Fox
