Spring Airlines and Juneyao Airlines enter cross-Strait market; market impact small - at first

Juneyao Airlines and Spring Airlines will make advances with their forthcoming entry into the highly lucrative cross-Strait market between mainland China and Taiwan, where yields approach an astronomical USD30 cents/km for the one to two hour flights. While they are due to initially serve Kaohsiung, a Taiwanese port city, they should gain entry on the key Shanghai-Taipei route later in 2013. The two privately-owned airlines are the most prominent of the carriers that launched mid-last decade during a period of relative liberalisation. Being new carriers, they have lean bases unencumbered with legacy baggage. Spring also has the distinction of being China's largest LCC by some degree, and will be the first LCC on the cross-Strait market.

The two will be expected to offer lower fares than competitors, but not by much, at least on the Shanghai-Taipei route. Demand far exceeds current supply, tightly controlled by the respective governments since scheduled cross-Strait services recommenced in 2008 as relations between the two governments warmed. There is little incentive to offer cut-throat fares as might be expected in other markets. The routes should do well for Juneyao and Spring from a marketing and profitability perspective, but their limited frequency against a backdrop of high demand means competitors should have little to worry about for the medium term. In the long term, however, these short point-to-point routes seem perfect for LCCs, if airlines are willing to make a fundamental change to their business.