Date
17 September 2019
China Airlines is facing lackluster demand amid the economic slowdown in Taiwan and intense competition from budget and mainland carriers. Photo: Reuters
China Airlines is facing lackluster demand amid the economic slowdown in Taiwan and intense competition from budget and mainland carriers. Photo: Reuters

China Airlines strike reveals difficult operating environment

I went to Taipei for my first overseas trip years ago. I was so impressed with the elegant flight attendants of China Airlines, Taiwan’s largest carrier. Since then, I have been a loyal fan of China Airlines.

However, the recent pilot strike at the airline might change my mind when it comes to long-haul flights.

Established in 1959, China Airlines was once wholly owned by the Taiwan government. Initially, all of its pilots were recruited from the island’s air force and its chairmen were mostly retired air force officers. Compared with the pay scale of fighter pilots, the salary and fringe benefits of China Airlines pilots had been very competitive.

Taiwan decided to open up the civil aviation sector in 1988, and introduced private airlines like Eva Air and foreign carriers. China Airlines also transformed itself into a private company and went public in 1993.

During the ’80s and ’90s, as Taiwan’s economy took off and became one of Asia’s Four Dragons, China Airlines saw a smooth transition into commercial operations. It continued to offer attractive remuneration to employees.

But all of a sudden, at 6 a.m. on Feb. 8, over 600 pilots or over half of all the airline’s pilots staged a strike, the first time in its history that it was hit by a pilots’ strike, forcing the company to cancel flights.

The pilots are demanding additional backup pilots for long-haul flights.

Management has agreed to their demand for four pilots for flights lasting 12 hours or more. But a stalemate continues over their bid for three pilots for flights lasting 9.5 hours or more.

The company’s concerns over cost apparently largely stem from the difficult operating environment.

China Airlines is already facing lackluster demand due to the economic slowdown in Taiwan in recent years.

It is also encountering intense competition from budget airlines like Peach and TBL on its most profitable routes to Japan. Mainland airlines such as Air China, China Eastern Airlines and China Southern Airlines also threaten their position in cross-strait routes.

China Airlines has responded by cutting the ticket prices. As a result, revenue rose 10 percent to NT$126.2 billion (US$4.1 billion) in the first three quarters of 2018 from the year earlier. But its net profit slumped 49.6 percent to NT$3.1 billion due to lower ticket prices and higher oil prices.

Also, the company’s net gearing ratio spiked to 150 percent, while its total debt reached NT$108.2 billion. China Airlines is grappling with a high debt pile and rising costs.

This article appeared in the Hong Kong Economic Journal on Feb 12

Translation by Julie Zhu

[Chinese version 中文版]

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RT/CG

Hong Kong Economic Journal columnist