Clouds loom over Cross-Strait airline market as Taiwan faces political change. Hong Kong may benefit

The ruling, and pro-Beijing, KMT party is expected to lose the Jan-2016 elections in Taiwan. Under the KMT's leadership Beijing and Taipei have forged closer ties, including the launch of charter and then scheduled Cross-Strait flights between mainland China and Taiwan, which had been prohibited for decades. There has been growth, with increase in overall frequency as well as destinations available to be served in the still tightly-regulated market.

An outstanding gripe from the Taiwanese side was that, for complex reasons, their airlines were not permitted to carry transfer traffic from mainland China to Taiwan and beyond to other markets - such as Australia and North America, two popular long haul markets from mainland China and for which Taiwan is well positioned to be a hub. Earlier in 2015 when relations were warmer, Taiwanese carriers were expected to receive transfer traffic rights by the end of the year. But as the Taiwanese political situation has turned unfavourable to Beijing, an Oct-2015 meeting did not grant transfer traffic rights. The bigger risk is that cooling relations would slow Cross-Strait liberalisation - or at an extreme, recede. One outcome could be that visitor growth would instead funnel through the Hong Kong hub.