BY: Tracy Quek

DIRECT weekend flights between mainland China and Taiwan will likely cast a slight damper on Hong Kong's air travel business, but passengers stand to gain price- and choice-wise, analysts said.

For more than half a century, travellers on either side of the 160km Taiwan Strait have had to make time-consuming stopovers in Hong Kong, Macau and other third points as longstanding political tensions between the two sides prevented direct flights.

Hong Kong and Macau airlines thrived on the circuitous route. Some 60 per cent of air traffic between mainland China and Taiwan transits in Hong Kong, 30 per cent in Macau, and the rest at other points such as South Korea's Jeju island.

Taiwan accounted for 18 per cent of Hong Kong's 45 million passengers last year, but the new cross-strait direct flights could lessen that flow.

Over the long term, unlimited direct flights would shave HK$600 million (S$105 million) off Cathay Pacific's bottom line - about 8.5 per cent of the Hong Kong flagship carrier's net profit last year.

Cathay operates roughly 15 daily flights to Taiwan, and the routes account for up to 10 per cent of its revenue, said Reuters, citing financial services group Nomura.

Hong Kong's tourism industry could also suffer a big blow, potentially losing some 1.5 million tourist arrivals if all Taiwanese travelling to the mainland opt for direct flights.

Taiwanese transiting in Hong Kong spend an average of HK$200 per visit, which means the former British colony could lose up to HK$2.5 billion, or 0.2 per cent of its GDP, this year. This could balloon to HK$16.6 billion in 2012.

However, some experts remain upbeat, saying the direct flights will have only a short-term impact. For now, mainlanders are allowed to travel to Taiwan in tour groups only. As long as individual travel is restricted, Taiwan cannot serve as a transit hub.

Also, few Westerners will choose to pass through Taipei en route to the mainland as they worry about the carriers' safety records, a transport analyst told the South China Morning Post.

One thing is clear - the consumer ends up the winner, said Mr Jonathan Galaviz, a partner with research consultancy Globalysis.

He said: "The increased competition among Hong Kong carriers for a smaller number of cross-straits passengers could also lead to better prices for passengers still willing to make a stopover."

This article was first published in The Straits Times on July 2, 2008.

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