Vincent Lin, chairman of Taiwanese airline TransAsia Airways, was very much in demand at the recent Singapore Airshow. Just before a press conference was scheduled to begin, a gaggle of Taiwanese reporters burst into the meeting room and surrounded him, cameras out, bulbs flashing.

Lin is a scion of the Taiwanese family behind Goldsun Group, which has business interests ranging from construction to security services. In 1983, the group took control of the ailing TransAsia, and now Lin has big plans for the carrier’s future. “We want to be recognised as the region’s carrier, and not just a Taiwanese carrier,” he tells The Edge Singapore. “We want to make every market [TransAsia’s] home market.”

To be sure, TransAsia is still little known in these parts, having spent the last couple of decades plying mostly domestic routes and charter flights out of Taiwan. But the full-service carrier counts itself as Taiwan’s third largest airline by capacity, after network carriers China Airlines and EVA Airways. It started direct flights between Taipei and Singapore last July and quickly added a Kaoshiung-Hanoi route in November.

On Nov 1, 2011, TransAsia listed on the Taiwan Stock Exchange, raising some NT$5.5 billion (RM568.13 million) and paving the way for an international expansion that could see it fly as far as India, Australia and the Middle East. It now operates 38 routes throughout Asia, including to cities in mainland China and South Korea. And it is expected to start 28 weekly scheduled flights to Japan, converted from its charter flights, following the signing of an open skies agreement between the two countries.

Lin has said the carrier aims to double its route network over the next five years. There are also plans to increase seat capacity by 20% annually between now and 2020. TransAsia currently operates a fleet of 18 narrowbody planes: four Airbus A320s, five A321s, as well as nine ATR 72-500 turboprops. It has 20 more Airbus aircraft on order, including two A330-300s, one of which will be delivered this year. The widebody plane seats some 280 people in a two-class configuration and has a range of 10,800km, which will allow TransAsia to fly as far as Europe.

Some analysts in Taiwan are pointing out that this expansion out of Taiwan is coming at a time when domestic flights at home, and even across to mainland China, are becoming saturated. Analyst Steven Chen with MasterLink Securities, a Taiwanese brokerage, notes in a recent report that the growth in the number of Chinese tourists visiting Taiwan has softened recently, even as new flights were added in 4Q11, and estimates 2012 numbers to be similar to last year’s. Will TransAsia expand quickly enough overseas to grow its revenue options? Does its small size and flexibility mean agility in competing against the legacy carriers at home and the fast-growing low-cost carriers in the region?

Family affair
TransAsia was established in 1951 as the first privately owned airline in Taiwan, and had also served as a local agent for foreign airlines. By 1958, however, it had ceased flights when the owners wanted to focus on the agency business instead. After Goldsun took control in 1983, flights resumed domestically in 1988. In 1992, the airline started international chartered flights into Southeast Asia, and in 1995 the first international scheduled route between Taipei and Macau was launched.

“[The airline business] probably came from my grandfather’s desire to have a very developed travel-related business, so travel agencies and hotels were all part of the plan,” Lin said. “In fact, we did have a hotel, a travel agency and an airline. But it just happened that other businesses expanded much quicker.”

Goldsun, under Goldsun Development & Construction, is Taiwan’s largest concrete supplier and its holding company, Taiwan Secom, sells security products and services, including for home and building security. Both companies, led by Lin’s father Lin Shiaw-shinn as chairman, are listed on the Taiwan Stock Exchange.
The younger Lin says he has been “assigned” to the post of TransAsia’s chairman.

Indeed, it was only in December 2008 that TransAsia was able to tap into the huge demand for travel in its closest neighbour, mainland China, following the Three Links agreement between the two governments that restored direct flights, shipping and mail across the Taiwan Strait. In FY09, the airline just about broke even, posting NT$13 million in earnings after sales of NT$5.7 billion, following losses of NT$638 million the year before.

The following year, TransAsia posted a spectacular jump in earnings to NT$917.6 million, off the back of a 47% rise in revenues to NT$8.7 billion for FY10. The airline is due to report its FY11 results soon, but already for the nine months to September 2011, it has recorded a net profit of NT$629.3 million, on revenues of NT$6.5 billion.

“I think we can foresee the future, where the group may pursue that dream again, to have head-to-toe travel services,” Lin said. Nevertheless, he acknowledges that running an airline profitably is notoriously difficult. “That’s why you supplement it with other things. The group has been able to do that pretty well — our two other businesses are fairly solid,” he said.

Measured growth
For now, the plan is to develop TransAsia’s routes to and from Southeast Asia. The airline is set to start direct flights to Malaysia, Indonesia and Thailand “anytime”, Lin said. “The Asian market is growing 15% to 20% a year. There’s the demand right there,” he added. In fact, during the interview, Lin constantly pointed to Andrew Stephen, a British national with more than 30 years’ experience in airlines and who was brought on as general manager last August to spearhead TransAsia’s expansion into this region.

Stephen echoes Lin’s belief that TransAsia’s approach to growth is measured and prudent. With 18 aircraft and a market capitalisation of NT$10 billion, the carrier is still small compared with China Airlines’ NT$71 billion and EVA Air’s NT$64 billion in market value, or even some of the public-listed budget carriers in the region. But it is this manageable size that keeps TransAsia agile and allows it to adapt quickly to changes in demand and the market environment, the executives say.

“Some airlines do these, in my opinion, crazy things where they order 100 airplanes. We’re not doing that. We only have a relatively small number of airplanes for what we can see for the next five years,” Stephen said.

Both Lin and Stephen point out that the operating environment for airlines could change rapidly, and TransAsia’s expansion plans should allow them room to manoeuvre. “We are going at a pace where we’re comfortable with ourselves. We want to be able to watch [for change],” Lin said. “We may be in a time of boom right now but we have to think when the next downturn is coming. Like the cargo business right now. Five, maybe six years ago, it was still a boom market.
Look at where it is today. [The decline] was fairly quick. Now, it’s a business nobody wants. From that lesson, we would have to watch ourselves.”

The airline is currently only equipped to fly short haul. Other than the two widebody A330s to be delivered this year and next, it has orders for 12 A321s, including six with the new engine option. The A321 is the largest single-aisle plane in the Airbus family, with an extended range of up to 3,000 nautical miles (5,556km) and maximum seating of up to 220 passengers.

But TransAsia is not going to fight with the rapidly expanding low-cost carriers in the region, which are also growing in numbers. “Our point of differentiation, which we see as an advantage, is that we’re not a low-cost carrier and we don’t want to be a low-cost carrier. We’re a full-service carrier but we offer value-for-money fares. We’re a niche between the big network carriers and the LCCs.”

One issue that could hinder TransAsia’s plans, however, is the regulatory hurdles in the aviation industry. It was only last week that Lin reportedly complained on his Facebook page against a decision by the Taiwanese Civil Aeronautics Administration (CAA) to give only China Airlines and EVA Air the rights to direct flights between Taipei and Seoul, after a bilateral agreement between Taiwan and South Korea was inked. Following Lin’s post, the CAA reportedly said a third Taiwanese airline could fly the route.

“Air transport is still one of the most controlled and restricted industries in the world,” Stephen said. “The solution is not to try to compete for restricted routes, [but to] encourage the Taiwan government and the governments in other countries to have an open-skies agreement. Then, we can compete on a level playing field; compete on our service and our price.”

In a recent note, Freddy Yam of Primasia Securities, said TransAsia has the most to gain, among Taiwanese airlines, from open skies policies, particularly the recent agreement struck between Taiwan and Japan. “We believe TransAsia’s sales performance will continue to outperform … as the agreement opens up a new market to TransAsia,” Yam wrote.

Indeed, the Japan flights, as well as more of the high-margin cross-strait sectors and flights into Southeast Asia are expected to underpin TransAsia’s growth in the near future. “We believe TransAsia’s short-haul only nature may enable it to be the most defensive towards a possible passenger slowdown, owing to less direct impact from weakening European and US economic conditions and less sensitivity to fuel price volatility,” Yam wrote.

Meanwhile, MasterLink’s Chen has warned the route expansion into Japan could significantly raise the airline’s costs. “Operating expenses of the Japanese route is more expensive, compared with other routes. Coupled with initially [high] marketing and staff expenses, the aggressive expansion of the Japanese route is likely to hurt profit, if the contribution of the new route fails to emerge,” he wrote in a recent report.

Still, he conceded that “the airline enjoys superior profitability compared to China Airlines and EVA Air, given its flexible route allocation and … cross-strait direct flights”. According to the brokerage, TransAsia’s net profit margin for FY10 was 11%, compared with China Airlines’ 8% and EVA Air’s 12%. Estimates for FY11 are 9%, compared with 1% and 3% respectively.

Perhaps it is this flexibility that will allow Lin to fulfil his aim of TransAsia having a home in each market. “It’s a process that will take a little time,” he said. But he hopes that, eventually, in a market such as Singapore, a Singaporean, when asked what his local carrier is, will list TransAsia as one of them. — The Edge Singapore

This article appeared in The Edge Financial Daily, March 15, 2012.