July 31, 2014 12:00 am JST

Expansion-minded TransAsia reels from crash

DEBBY WU, Nikkei staff writer

TAIPEI -- A crash that killed 48 has left Taiwan's TransAsia Airways with uncertain prospects for following through on plans to explore new routes and tap into the budget carrier market.

     The accident on July 23 came just as Taiwan's third-largest airline appeared to be improving its business.

     TransAsia flies domestic and regional routes, with regular service to Japan, Thailand and several Chinese cities, including Shanghai. Its fleet consists of Airbus A320, A321 and A330 jets, which it uses for international routes, along with ATR 72-500 and ATR 72-600 turboprops for domestic flights. The carrier's passenger load factor -- a key indicator of how well an airline fills its seats -- increased to 69.1% in the first quarter, from 66.4% a year earlier.

     The airline booked a profit of 49.6 million New Taiwan dollars ($1.65 million) during the January-March period. China Airlines and Eva Airways, Taiwan's two leading full-service international carriers, lost money.

     Founded in 1951, the Taipei-based TransAsia is now controlled by Taiwan cement manufacturer Goldsun Group, which bought it in 1983 and took it public in 2011. The carrier has long struggled to generate consumer excitement, due to its limited network and weak branding. But since Chairman Vincent Lin took office in 2010, that has started to change.

     Under Lin, whose family owns Goldsun, the carrier has become more ambitious. It has been adding routes and preparing to start a low-fare unit, V Air, later this year. It also wants to move beyond Asia: Lin was on a business trip to the U.S. when the crash occurred.

     Even before the accident, however, TransAsia faced structural challenges, according to Primasia Securities analyst Michael Lee. Domestically, it is overshadowed by China Airlines and Eva Airways, which often get better time slots. Regionally, it faces stiff competition from budget airlines in Southeast Asia. Sandwiched between Singapore's Scoot and Australia's Jetstar Airways, TransAsia pulled out of Taipei-Singapore service last year.

     Lee said the tragedy could impact the company in various ways. "TransAsia's load factor will drop again following the crash," he said. "The accident may also affect new air rights arrangements for the airline this year."

     Some are now questioning whether TransAsia will be able to launch V Air on schedule. Either way, Lee said it is doubtful the budget airline will make money in the near term, since it may be unable to secure choice time slots and profitable routes.

     TransAsia shares fell 5.46% on July 24 but rebounded slightly the next day, closing up 2.22% at NT$11.50.

Failed landing

Taiwan officials have not confirmed the cause of the crash, but most speculation contends bad weather was to blame. Typhoon Matmo blasted Taiwan with heavy winds and driving rain on the day of the accident.

     TransAsia flight GE222 took off from Taiwan's southern city of Kaohsiung at 5:43 p.m. An hour and a half later, the 13-year-old ATR 72-500 lost contact with the control tower at its destination, the Penghu Islands. The pilot had requested approval to try to land a second time, after failing at the first attempt.

     The crash site was soon found in the village of Xixi on Penghu, 50km off Taiwan's west coast. Of the 58 on board, including four crew members, only 10 survived.

     Taiwan's government-owned Central News Agency has reported that local life insurance companies' payouts to families of the victims could reach as much as NT$100 million. Taipei-based Cathay Life Insurance said it expects to pay out more than NT$50 million.

     Cathay Century Insurance, the lead insurer for the TransAsia aircraft that crashed, has not specified a likely amount but said the claim will not have a significant impact on its finances, since it relies heavily on reinsurers.