23-Nov-2013 11:22 PM

China Airlines and TransAsia to start LCC subsidiaries as low-cost carrier fever spreads to Taiwan

Analysis

After over a year of very public discussion about home-grown low-cost carriers, Taiwan in a matter of weeks has received commitments from both China Airlines and TransAsia Airways to start LCC subsidiaries in the next year, making Taiwan the last major market in Asia to have an LCC. The unusually public - and sometimes fanciful - discussion has perhaps rushed these decisions ahead of what a normal commercially-oriented process would produce. These "LCCs" are still sometime away from having a coherent strategy, and then maturing. But the upside seems to be support, both internally and from the government - critical and sometimes overlooked.

In announcing their own LCC subsidiaries, China Airlines and TransAsia are each embarking on a dual-brand strategy, a popular concept seldom achieved proficiently. The dual-brand strategy will be very different for these carriers, as between each other and from other global examples. Hub carrier China Airlines has 54 aircraft, only a quarter of which are narrowbodies. The use of narrowbodies is increasing as regional liberalisation opens thinner routes and expands frequencies. So as China Airlines begins to work through the intricacies of an LCC operation, it is also seeing its own business transform rather significantly. This creates opportunity to mould the future but also adds complexity. Meanwhile TransAsia only has 11 regional aircraft, creating a challenge to gain scale on the existing operation and new LCC.

There will be much reconfiguration as the carriers test the market and discover what it means to be an LCC (as opposed to merely a low fares airline) and as the region itself undergoes much change. So perhaps Taiwan's second-largest carrier, EVA Air, will also be well advised to reconsider its past statements that it has no interest in operating an LCC. But nor is there rush for it to move from its current position of sitting on the sidelines.

Summary

Taiwan is the last major market in Asia to have a low-cost carrier (LCC).
China Airlines and TransAsia Airways have both committed to starting LCC subsidiaries in the next year.
Both airlines are embarking on a dual-brand strategy, with China Airlines seeing its own business transform significantly.
All of Asia's top 10 national markets now have an LCC.
AirAsia and Tigerair have expressed interest in entering the Taiwanese market.
EVA Air, Taiwan's second-largest carrier, has not yet shown interest in operating an LCC.

All of Asia's top 10 national markets will now have an LCC

With home-grown LCCs, Taiwan becomes Northeast/Southeast Asia's last main market to have an LCC. The previous holdout was Hong Kong, but Hong Kong Express launched as an LCC in Oct-2013.

LCC subsidiaries will further the proliferation of such multi-brand approaches now evident in seven of Asia's top 10 markets.

In-service LCCs in Northeast/Southeast Asia's top 10 markets: 22-Nov-2013

Size	Market	LCC	Major Home Airlines and LCC Subsidiary
1	China	Spring Airlines West Air	Hainan - West Air
2	Japan	Jetstar Japan Peach Skymark	ANA - Peach JAL - Jetstar Japan
3	Indonesia	Citilink Indonesia AirAsia Lion Air Tigerair Mandala	Garuda Indonesia - Citilink
4	Thailand	Nok Orient Thai Thai AirAsia	Thai Airways - Nok
5	South Korea	Air Busan Eastar Jet Jeju Air Jin Air t'way	Asiana - Air Busan Korean Air - Jin Air
6	Malaysia	AirAsia AirAsia X Malindo	None
7	Hong Kong	Hong Kong Express	Hong Kong Airlines - Hong Kong Express
8	Singapore	Jetstar Asia Scoot Tigerair	Singapore Airlines - Scoot, Tigerair
9	Philippines	AirAsia Philippines AirAsia Zest Cebu Pacific Tigerair Philippines	None
10	Taiwan	None	None

China Airlines and TransAsia seemingly in race to announce LCC subsidiary

LCCs have been an unusually lively topic in Taiwan over the last year. Two factors seem to be at play. First is TransAsia Airways chairman Vincent Lin taking a more active role in the company. Mr Lin is a lively figure and comes from a business, not aviation, background (his family runs a conglomerate). He is willing to think outside the box that North Asian aviation in particular has confined itself in, and is willing to speak out loudly to stimulate discussion. He often brought up LCCs and at one point suggested - not too seriously - that all Taiwanese carriers partner together to create Taiwan's first LCC or that the government should take the lead.

This discussion played well into public consciousness, especially for the second factor: Taiwan was seeing growth in foreign LCC operations. Although CAPA's OAG database shows LCCs accounting for only 3.9% of seats to/from Taiwan in the 11 months to Nov-2013, the entry of high-profile new LCCs including Peach and Scoot attracted considerable attention. Scoot also exercised beyond traffic rights with local pick-up rights to fly to Tokyo Narita and Seoul Incheon. The public question seemed to be why so many foreign LCCs - now a dozen - were coming to Taiwan, yet Taiwan lacked its own.

LCC Capacity Share (%) of Total Seats to/from Taiwan: 2001 - 2013*

Change was also under way at TransAsia. As one of Asia's few independent full-service regional airlines, it was evaluating its business model. The opening of cross-Strait flights to mainland China were a financial boon for TransAsia as well as competitors, but elsewhere the business showed mixed performance. The carrier took delivery of two A330s as part of a long-term vision that in the short term lacked clarity. While TransAsia was optimistic about using the A330s to open a daily Singapore return flight, the (full-service) flights often worked out to be lower priced than LCC competitors.

TransAsia later pulled the service entirely; it did not even down-gauge it. Competing on the Singapore route was a steep challenge from the outset: there is service from three LCCs (Jetstar Asia, Scoot and Tigerair) and Singapore is one of Taipei's five largest destinations and has high frequency. Although a painful exercise, it showed that in a heavily contested environment, TransAsia could compete with neither LCCs nor full-service carriers.

China Airlines meanwhile began to explore the LCC model and in Mar-2013 became public about its exploration, much driven by chairman Huang-Hsiang Sun himself. As China Airlines reiterated its study, the launch of an LCC almost became inevitable. The conversation shifted in Oct-2013 as China Airlines said it was finalising a decision to be made by the end of the year. In early Nov-2013 China Airlines gave confirmation, albeit very limited, that it would launch an LCC.

China Airlines' evolving discussion that took place publicly was in sharp contrast to TransAsia's 20-Nov-2013 announcement that not only would it establish an LCC but it had already received government permission (what exactly this means is unclear).

While TransAsia technically made its announcement after China Airlines, it might be asked if China Airlines' basic commitment was made so that it could be seen to be the first to do so. Undoubtedly China Airlines - the flag carrier and indirectly government-owned - intimately knew TransAsia's plans. TransAsia angled its announcement as it was the first to receive government approval and, it is inferred, would be the first to operate an LCC rather than merely having announced one.

The sequence illustrates clearly how China Airlines (and EVA Air - if silent) are concerned about the much smaller TransAsia. TransAsia is only a fraction of the size, age, experience and reach of the other two, but the incumbents see it as agile and, if given the opportunity with right conditions, expansionist. A competitor can make up for size with smartness, and TransAsia seemed the most confident of knowing about the LCC model.

Any LCC will face typical first mover challenges: changing the mindset of authorities and business partners to support LCCs and building up online bookings, which are known to be exceptionally low for EVA Air and TransAsia.

Already largely resolved is Taiwanese market perception to LCCs and their service. In fact, whereas Peach typically carries more Japanese than foreign passengers on its international flights, the opposite is true for its Taipei services: most passengers are Taiwanese.

China Airlines will have further details in Dec-2013 - including a foreign partner? TransAsia releases basic information

China Airlines is expected to announce details of its LCC subsidiary in Dec-2013. The expectation is of a new subsidiary - and not a conversion regional carrier subsidiary Mandarin Airlines. China Airlines owns most - but not all - of Mandarin Airlines, which has been able to maintain a degree of autonomy. Converting Mandarin Airlines, while on paper pragmatic, is likely too challenging internally and politically. The question is if - or rather who - will be China Airlines' partner. Tigerair especially has been circling.

TransAsia's announcement was that the LCC - to be named by the public (the winner will receive unlimited free flights for 10 years) - is expected to launch in 2014 and with a fleet of new A320s/A321s. The working name of TransAsia's new airline is "Chuanmin Airlines", meaning "all the people". Mr Lin, known for his positive attitude, expects the LCC to be profitable in its first year of operation.

The aircraft would be leased but TransAsia would invest about NTD3 billion (USD100 million) in the new LCC, which it would entirely own, although Mr Lin is quoted in local reports saying local and foreign investors are welcome, and he has received interest from non-aviation companies. In the event additional shareholders are introduced, TransAsia would seek to maintain a 51% majority shareholding. This would give critical final say, the importance of which was demonstrated with AirAsia Japan, 51% held by All Nippon Airways and proved to hold more sway the 49% owner AirAsia. This approach of announcing the airline first and finding investors later in some ways mirrors Jetstar Japan and Jetstar Hong Kong, which were announced were announced with a core group of investors but later welcomed additional investors.

Destinations, so far unannounced, would be within five hours of Taiwan, which is about the range of its A320s/A321s. Although not stated, the base is most surely Taipei Taoyuan, the country's major airport by far. Basing an LCC anywhere else in Taiwan would face a tougher task to be sustainable (except at Taipei Songshan, but that airport is heavily slot-restricted).

Taiwan top 10 airports ranked on seat capacity: 18-Nov-2013 to 24-Nov-2013

Flights are almost surely to be entirely international. TransAsia serves domestic routes but with ATR turboprops. Some routes are served less for profitability or connections and more to curry favour with the government, which hands out lucrative cross-Strait flights and international services. China Airlines and EVA Air do not serve domestic routes, although their subsidiaries, Mandarin Airlines and UNI Air, do. Mr Lin was later quoted saying the LCC will not serve domestic routes.

Taiwan is an outbound market, but inbound is growing - especially from China

TransAsia's emphasis on its launch announcement was promoting its Taiwanese and nationalist ties. TransAsia has been the third-largest carrier, by some distance, in Taiwan but is seeking to seize the LCC momentum and build its profile. Mr Lin said in a statement that summarises the atmosphere: "We are happy to announce that Taiwan will not be absent when all foreign LCCs are flying into Taiwan." Credentials were further stressed with Mr Lin's quote: "It will be not only the first LCC owned by Taiwanese, but also the one and only LCC that put Taiwanese demand and purchase habit in the first priority."

The announcement is all in good order for Taiwan's conditions as primarily an outbound market, with 10.2 million departures in 2012 compared to 7.3 million visitor arrivals. But the gap is narrowing as inbound visitors grow faster led by the opening of more cross-Strait flights to mainland China.

TransAsia's challenge: dual-brand strategy or shift everything to the LCC platform?

In a dual-brand strategy, which China Airlines and TransAsia will undertake, the easier part is creating the LCC. The more difficult part is making it work by itself and with the full-service carrier. For TransAsia, it can look at segmentation, following the Lufthansa/Germanwings example of largely having Germanwings take over certain routes compared to the Qantas/Jetstar example of having the two fly alongside each other on many routes.

Underpinning both of those scenarios is a healthy corporate/premium market that can sustain full-service (or in the case of Lufthansa, keep losses to a minimum). TransAsia might ask if it has such markets; peers around Asia do but often rely on long-haul traffic to sustain/offset it. There are exceptions: All Nippon Airways and Japan Airlines have large home markets that are endowed to their local carriers and pay prices well above world standards.

China's capacity is centrally planned - and LCCs are few but now growing - so most carriers enjoy good load factors in a high demand market. Elsewhere are strong business routes, such as Hong Kong-Beijing and Singapore-Bangkok.

TransAsia lacks both. It has no long-haul services and Taiwan has fewer premium routes to speak of. Where such routes do exist, TransAsia faces a frequency challenge with local and foreign carriers. It is also challenged by a lack of partners that limits the stickiness of a loyalty programme - a factor never to be under-estimated.

TransAsia does have considerations in its favour, including a surprisingly decent if under-appreciated premium service, from lounges to hard product (especially on its A330s) across its limited network. The challenge will be to continue to justify premium service and gain scale on it now that growth will seemingly be directed at the LCC, and undoubtedly the LCC will take over some routes, reducing the scale of the full-service network. TransAsia's fleet is 20 aircraft, but only 11 fly beyond Taiwan (the ATRs are for domestic services). It is difficult to achieve scale with 11 aircraft not affiliated to a parent airline. The LCC meanwhile will clamour for more destinations so it can achieve its own scale. A scenario not farfetched is TransAsia's LCC becoming larger than the full-service carrier in a few years.

TransAsia Airways Fleet Summary: as at 22-Nov-2013

Aircraft	In Service	On Order*
Total:	20	18
Airbus A320-200	4	0
Airbus A321-100	5	0
Airbus A321-200	0	6
Airbus A321-200NEO	0	12
Airbus A330-300	1	0
Airbus A330-300E	1	0
ATR 72-212A(72-500)	9	0

As it stands, TransAsia is effectively profitable. It did well in 2010 and 2011, as did most others, but conditions have since become more competitive. 2009 was also a weak year. Largely propping up the network is cross-Strait flights to mainland China. Those are lucratively profitable as demand outstrips capacity, tightly set by regulators.

So one argument is to convert TransAsia to an LCC - as difficult as that is - rather than maintain two brands that may only meet half of their objectives (more difficult in the long term).

TransAsia net profit (USD) and margin: 2009-2012

There is no available capacity for the profitable - cross-Strait - passengers to go to. Yields in regular non-holiday periods are upwards of USD30 cents/km. Spring Airlines, which has just entered the cross-Strait market, may very well prove that as long as there are seats, there will be passengers.

But if there is fear of a backlash, or a need to provide alternative routes, TransAsia has options. Cross-Strait flights could become hybrid with certain items included and middle seats blocked for the limited premium passengers, effectively making the flights full-service on a low-cost platform. Service does not need to be elaborate: the scheduled time from Shanghai to Taipei is under two hours while Beijing is just over three. Or the mainland China market could be split, with the main cities receiving the hybrid service while secondary and tertiary cities are more a la carte, which would help with the existing struggle to make such secondary and tertiary city-pairs profitable.

In short, concern about keeping the full-service carrier should not be about existing passengers. The profitable ones will most surely come since there are few alternatives. But with not much innovation - see Germanwings or Vueling to name but two examples - they can be catered for.

But there could also be company pride in having a full-service carrier, and this explanation - surprisingly common in the industry - is difficult to change.

See related reports:

China Airlines' challenge: learning about LCCs while its own business undergoes change

China Airlines' chairman supports operating an LCC, but mangement largely lacks LCC experience, which is also broadly the case at TransAsia, although the latter has as its president, who largely runs the day-to-days affairs, Yee Choong Chooi, once briefly a Jetstar Asia executive. It is not clear if consultants will be brought in, while the feeling is that China Airlines will form a partnership with an existing LCC (TransAsia's planned 100% ownership of its LCC indicates it will go it alone - but that could change if sufficiently good propositions emerge from other airlines).

This lack of expertise will be complicated by China Airlines' own business changes straining available resources. The expansion of cross-Strait routes is heavily political and so often unpredictable. The result has been that, as regulatory decisions are made, routes quickly become available and carriers want to seize them, so they have re-directed capacity from other markets into mainland China; 747s frequently ply the two and three hour routes. China Airlines in 2012 began to put capacity into markets previously decreased.

Outside mainland China, a Taiwan-Japan open skies agreement has once again created opportunities, although not as bountiful as cross-Strait flights. There is still more growth to come, but China Airlines needs to figure out how to cater for it. Outside of Tokyo and Osaka services, traffic is low-yielding and thin; in short, better for an LCC.

On the long-haul front, European services have hurt in line with the economic downturn and have not been aided by China Airlines having a fuel-guzzling fleet of A340s and 747-400s. This has made for a stark contrast on the North American routes where the government has said China Airlines is often loss-making whereas EVA Air has asserted its profitability, primarily due to using 777-300ERs. This is a similar story with Cathay Pacific reporting strong success from switching from 747-400s to 777-300ERs and then growing the trans-Pacific market, as all other carriers are seeming to do. Ten 777-300ERs were ordered at the end of 2012.

See related reports:

Amidst this change in the passenger business, China Airlines is saddled with the change in freight demand. China Airlines sees this as structural and wants to shift its revenue focus from freight to passenger, having already increased the share of passenger revenue from 55% a few years to 70% more recently. It has three 747 freighters officially parked; others are idle.

In short, there is enough change (in fact, nearly everywhere) to keep the carrier busy. An LCC mushrooms the burden, but it also creates opportunity. Depending how integrated it is with China Airlines, it could accommodate the cross-Strait and Japanese growth, to name but two markets. Pressure is further added by the spotlight - from the chairman and public - being on the LCC.

China Airlines, unlike TransAsia, has scale to work from to create a dual-brand strategy. Although its narrowbody fleet is not much larger than TransAsia's, a number of its widebodies (of which TransAsia has two) fly regionally. Subsidy Mandarin Airlines has seven E190s.

China Airlines Fleet Summary: as at 22-Nov-2013

Aircraft	In Service	In Storage	On Order*
Total:	72	3	26
Airbus A330-300	22	0	2
Airbus A340-300X	6	0	0
Airbus A350-900XWB	0	0	14
Boeing 737-800	13	0	0
Boeing 747-400	13	0	0
Boeing 747-400F	18	3	0
Boeing 777-300ER	0	0	10

China Airlines has come some way since mid-2012 when it dismissed the LCC concept, saying conditions were not right. (This had a grain of truth but there has since been partial liberalisation, regulatory change and attitude from those responsible for matters like low cost carriers.) But TransAsia appears to have the advantage of time, thinking and planning about its LCC for much longer; China Airlines did not begin earnest exploration until mid-2013.

AirAsia and Tigerair are circling over Taiwan

It is not just local carriers that have explored what a Taiwanese-based LCC would look like. So too have foreign carriers, namely AirAsia and Tigerair and maybe Peach too. Even Scoot - which also currently operates to Taiwan - has been mentioned.

AirAsia's entry seems inevitable so long as the regulatory conditions are right, of which foreign carriers are not yet convinced. AirAsia, still with vivid memories of its now-dissolved JV with All Nippon Airways, is likely to be more careful in partnering with another airline again. Tigerair however is more willing, especially as it seeks to overturn a history of poorly performing affiliates. Tigerair needs a wider footprint in Asia and also affiliates with which to place aircraft. (Its Indonesian affiliate, Mandala, needs more capacity but prefers to lease used A320s rather than source more aircraft from the group.)

Tigerair has much to gain and thus likely to be most flexible in partnership propositions. It has two Asian ventures in the Philippines and Indonesia, both of which have struggled. A Taiwanese venture may be its most orthodox yet. Jetstar is surely uninterested as it looks to bed down Japan and launch Hong Kong.

The Taiwanese government has sought to breakdown barriers and make entry conditions clear. But it seems the hurdle in the eyes of foreign LCCs is if the government will be transparent about the approval process, and if it will favour entirely local carriers over a JV.

As CAPA previously wrote:

A new Taiwanese airline - full-service or low-cost - must have majority ownership from a Taiwanese company in the air or sea transportation or trade enterprise business. Additionally, the company must have had TWD6 billion (USD200 million) of revenue each year for three proceeding years, a requirement lowered from the previous TWD10 billion (USD333 million) requirement, Taiwan's CAA has told CAPA.

Although this is a broad pool of local suitors, it is not all encompassing. It also limits prospective foreign airlines to partnering with a Taiwanese company of a substantial size that would consequently like to have considerable day-to-day interest in the LCC. This contrasts to JV subsidiaries elsewhere where a foreign carrier finds a silent local shareholder.

While there had been confusion in the past if a new Taiwanese carrier would first have to fly in the domestic market, regulations once the norm in India and South Korea, a new entrant in Taiwan would be free from day one to serve international routes, although the CAA would like to see domestic routes in order to encourage domestic travel. This is a fading market: Taiwan's area is small and some 90% of the population is linked by the high-speed rail on the west coast. Eventual improved rail access on the east coast will further reduce the domestic market. What is left are a number of tiny islands off the coast of Taiwan. But these are too small to attract the attention of a LCC.

The Taiwanese domestic market started to dramatically contract in 2007 when high-speed rail service commenced.

Available domestic seats in Taiwan: 2003-2013

And EVA Air waits on the sidelines

While EVA Air has said it is uninterested in LCCs, it has also maintained that it needed to see dynamics play out. Caution is often prudent when new ventures are considered, but on this occasion it implies EVA is unwilling to take the initiative, unfortunate as it is pushing out in other areas. There are many details still to come from China Airlines and TransAsia, but the premise - LCC arrival - is clear.

Now EVA Air needs to see how that impacts its network, which arguably is more exposed to short-haul flights than other Asian network carriers. As CAPA previously wrote:

EVA is heavily exposed to short-haul (82% of seats) with a small long-haul network comprising 18% of seat capacity. Even with planned growth, this will be small compared to Asian network carriers: long-haul is 28% of seats for Cathay Pacific (this excludes regional subsidiary Dragonair), 24% for Korean Air, 30% for ANA and 34% for Singapore Airlines (this excludes regional arm SilkAir).

Over 50% of EVA Air's traffic is transfer. Even if every passenger on a long-haul seat connects to another flight, that leaves considerable intra-Asia transfer passengers, who often go for the cheapest option, making them a volatile bunch to bet the house on, especially as Southeast Asia-Northeast Asia flows are increasing, opening the opportunity for direct flights or other one-stops. Greater LCC traffic also impacts the pricing structure of point-to-point passengers that make transfer traffic cheaper.

North American and European carriers have long led the way in exploring how to more inexpensively move short-haul passengers. In Asia that discussion is young, with really only Thai Airways attempting an option with Thai Smile, which did not turn out as inexpensive as hoped.

But what EVA Air leaves out is the possibility of an LCC to open new city-pairs a full-service carrier cannot. EVA Air is seeing the same dynamics as Taiwanese peers: some cross-Strait flights are unprofitable while opportunities are opening around Asia that require more narrowbodies. EVA Air, like China Airlines, has relied on widebodies. EVA Air and TransAsia have narrowbodies on order while China Airlines expects to order more in 2014.

China Airlines and TransAsia clearly see an opportunity and growth for an LCC. It is difficult to believe EVA Air does not see the same rationale, especially now that it must factor in two LCC rivals.

Liberalisation, LCCTs and regulatory support: some arrivals with more due

There is movement on liberalisation, LCC terminals and launch incentives. As CAPA previously wrote:

While international access may be granted, there are some restrictions. The lucrative cross-Strait market to mainland China is tightly controlled and competition high for new routes. The CAA awards new flights based on criteria, such as past performance and safety. Outside of mainland China, Taiwan's biggest limitation is with South Korea, a concern born out of Taiwan's concern for Asiana and Korean Air potentially dominating Taiwanese cargo, a huge component of the business at China Airlines and EVA Air. The concern is especially high now with the freight market depressed. Additional services to Hong Kong can be added by mutual agreement between Hong Kong and Taiwan. Matters with the Philippines are currently delicate given a territorial dispute. Southeast Asian markets like Cambodia, Indonesia and Laos are also restricted.

But elsewhere there is liberalisation, including to Malaysia, Japan, Singapore and Thailand - huge markets. Scheduled capacity between Japan and Taiwan is up 37% since 2011, prior to open skies in 2012.

To try to spur development at Taiwan's secondary airport, the CAA is reducing landing fees - although this will probably not be enough to see a LCC set up a base there. Landing fees at Taichung and Kaohsiung airports will be reduced by 10% from Jul-2013 while landing fees at Taipei Songshan will increase by 30% to reduce congestion. Airlines that add 30 flights to Taichung or Kaohsiung will also receive a 50% discount in landing fees at those airports; up to 70 flights they will receive a 70% discount; and over 70 flights will have landing fees entirely waived. A 50% discount in landing fees will also be introduced at the smaller airports including Hualien, Taitung, Kinmen, Makung, Chiayi and Tainan.

Taiwan is having an ongoing discussion about how to accommodate LCCs - foreign or home-grown - in terms of terminal space. Whereas the CAA once had a view that a low-cost carrier terminal would not be possible until Taoyuan's terminal three opened sometime around 2018, the CAA has shown a warmer attitude and considered converting a former catering facility into a LCCT that could open prior to 2015.

A small but dynamic and growing market for LCCs

Taiwan has been dismissed by some foreign LCCs as too small to establish a base. Taiwan is smaller than other options with no domestic market to speak of, but it is growing admirably with many opportunities left unturned. And that excludes expansion and liberalisation of the cross-Strait market, the potential of which no one seems to be able to state. Not much imagination is needed when yields approach USD30 cents/km in normal periods. For now, the local carriers will create the industry. But with moves being made, the window of opportunity for foreign LCCs starts to narrow. At least one will surely bite.

For the carriers that have elected to launch an LCC, there are different outlooks.

TransAsia needed a change to its business. It is early days, but a dual-brand strategy does not seem appropriate. The dual-brand strategy is even challenging for its neighbour slightly south, Hong Kong Airlines, which is much larger. China Airlines has an incumbent position that it can use to move volumes at an LCC, and China Airlines has a strategic need for a LCC vehicle, so responding is in good order, especially so TransAsia does not capture all of the inevitable imagination from the public and support from tourism authorities, which are keen to build Taiwan's tourism.

Taiwan's airlines have been slow to wake up to the movement all around them. That does not mean that haste to get to market with their own LCC models is now the key driver; getting it right will be the key. Also, assessing and sorting through partnership proposals will be important.