06.05.2001
Hong Kong-Taiwan Air Service Agreement hits stumbling block on China

• Negotiations on the Hong Kong-Taiwan Air Service Agreement have been temporarily put on hold, as China declined Taiwan's Mainland Affairs Council (MAC).

• The current agreement becomes valid on June 12. However, the deadline for reaching a new agreement has been extended to December this year, meaning flights will continue as usual until then. China Airlines (CAL, 2610 'Hua Hang'), EVA (5606 'Chang Rong Hang'), Cathay Pacific (HK) and DragonAir (HK), all operating existing routes in the region have the opportunity to renegotiate the current agreement.

• VB Primasia Investment Opinion: We believe EVA and DragonAir will fight for more access under any new agreement, as they currently have limited access to the Taipei-Hong Kong route. CAL and Cathay Pacific are also looking to increase flights on the same route. We believe a new agreement will lead to capacity addition and increased airfares. However, with negotiations delayed until the end of this year, a price war will be averted for the time being.

LindaLiu@Primasia.com +886-[0]2-2547-8867