Behind the two crashes that sank the company were some critical business mistakes.
For Taiwan’s erstwhile No. 3 carrier, TransAsia Airways, the end came mercifully. For nearly two years before it declared bankruptcy last November, TransAsia had struggled to fill flights, its load capacity falling to 60%. Even slashing prices to as little as NT$1,500 (about US$50) for certain domestic flights, such as the Taipei-Hualien route, failed to attract business.
Chairman Vincent Lin blamed falling Chinese visitor numbers, high fuel prices, and a resurgent U.S. dollar for the company’s losses, which totaled NT$2.2 billion (US$72 million) in the first three quarters of 2016. Speaking at a news conference at the Taiwan Stock Exchange, chief executive officer Liu Tung-ming said, “Despite our best efforts to devise a new business model, the company could not produce an effective turnaround plan to repair its deteriorating finances.”
It was an unfortunate turn of events for TransAsia, Taiwan’s first private civil carrier. The firm had previously thrived on a somewhat innocuous reputation. It lacked the resources and scale of its competitors EVA Airways and China Airlines, but was less expensive – and until its last two years of operation, nearly as safe.
That changed when two fatal crashes claiming 91 lives occurred within seven months of each other (July 2014 and February 2015), sapping consumer confidence in TransAsia. Investigators ruled that pilot error caused both crashes, rather than engine failure or inclement weather conditions.
Aggravating matters, local TV stations and social media users constantly replayed footage of the second crash, recorded by a passing car’s dashboard camera and showing the plane careening over an elevated highway in Taipei and into the Keelung River. In Taiwan, “TransAsia Airways” became synonymous with the risks of flying.
“The crashes frightened people,” says Hwang Tay-lin, an associate professor of aviation and maritime management at Chang Jung Christian University. “They felt TransAsia couldn’t guarantee their safety on flights.”
From its inception in 1951 under the name Foshing Airlines through 2007, TransAsia chiefly flew domestic routes. One of the most important of those was Taipei-Kaohsiung. At the zenith of Taiwan’s domestic aviation market in the mid-1990s, that route was served by 3,000 flights a year. Competition was fierce. Some carriers offered a package of 10 pre-paid tickets for frequent travelers, with a one-way ticket costing about NT$800.
But over the next decade, the Taiwan economy decelerated, and many factories in the South moved their operations to China, decreasing domestic business travel. Then the high-speed rail arrived in 2007, dealing a crushing blow to the domestic aviation industry. That year, Taipei-Taichung and Taipei-Chiayi service were canceled. The following year brought an end to the Taipei-Tainan route. Finally in 2012, the once-lucrative Taipei-Kaohsiung route was terminated.
The high-speed rail affected all of Taiwan’s carriers adversely, but it hit TransAsia especially hard. Compared to China Airlines and EVA, “TransAsia was much smaller, so it was harder for the company to absorb the losses,” says Chang Jung Christian University’s Hwang.
Had things continued that way, TransAsia might not have lasted much longer. Indeed, its counterpart Far Eastern Air Transport (FAT) collapsed in early 2008. What saved TransAsia was the launch of direct cross-Strait flights and the opening of Taiwan to Chinese tourists in the first year of former President Ma Ying-jeou’s administration. Between 2009 and 2013, TransAsia’s revenue doubled on the back of cross-Strait flights. The company went public in 2011.
“The cross-Strait routes were very profitable,” says Chen Ming-ming, chief executive officer of the KKday e-commerce travel platform and a veteran of the tourism industry. “In terms of distance, Taipei-Shanghai isn’t much farther than Taipei-Kaohsiung, but TransAsia could charge three or four times as much (NT$12,000-NT$16,000 compared to NT$4,000).
As TransAsia’s fortunes improved, the company embarked on an aggressive expansion effort. Its fleet of aircraft grew to 27, flying to 27 destinations, 13 of which were in China. TransAsia also flew to six cities in Japan, and launched flights to Singapore, Thailand, and Vietnam.
In the throes of that expansion, the company made a critical mistake in purchasing four costly Airbus A330 aircraft, says Hwang Tay-lin. The planes, which were part of a total plan worth US$480 million and required a down payment of roughly US$38 million, put significant fiscal pressure on the company at a time when revenue was already suffering following the July 2014 Penghu crash.
With the new equipment, TransAsia began flying to Singapore, Seoul, and Tokyo – cities that attract lots of business travelers, KKday’s Chen notes. “Business travelers drive revenue for airlines, but TransAsia didn’t have enough flights,” he says. “Business travelers often buy tickets at the last minute, and they need an airline to have a number of options.”
Yet chairman Vincent Lin reportedly believed TransAsia’s future lay in further international expansion. Following the company’s announcement in December 2014 that it would purchase four more new Airbus planes, it set its sights on U.S. territories in the Pacific. TransAsia said it expected to launch a chartered flight service to the Northern Mariana Islands in 2015.
The company also launched V Air, Taiwan’s first low-budget carrier, in December 2014. Lin estimated the cost of that venture to be NT$2 billion NT$3 billion (US$65.6 million to US$98.4 million).
V Air flopped, carrying just 500,000 passengers before bowing out in September 2016. In a research note at the time, the Australian-based Centre of Aviation (CAPA) said: “V Air’s collapse is not self-inflicted but rather, a failure of TransAsia.” Given TransAsia’s “small size and undefined market position, instead of the sum of the two airlines being greater than the individual parts, having two sub-scale airlines fragmented both,” CAPA said.
Meanwhile, the situation worsened. A steady personnel exodus robbed TransAsia of its top talent, as Chinese carriers lured away pilots with higher pay and the chance to fly a larger variety of routes. Morale among employees lagged as the company struggled to restore its reputation.
In July 2016, Taiwan’s Aviation Safety Council (ASC) published a devastating report that found negligence on the part of TransAsia Airways played a role in the fatal February 2015 crash. Investigators found that the captain of Flight GE235 had been unable to smoothly handle emergency situations such as engine failure during training sessions, but TransAsia failed to address the problem. The captain failed a flight simulator test in May 2014 as he could not manage an engine flameout occurring during takeoff.
The 16.2% drop in Chinese visitors to Taiwan last year hastened TransAsia’s demise. The most profitable routes for the company started to lose money from mid-2016 when the inauguration of President Tsai Ing-wen caused Beijing to put a damper on cross-Strait relations.
There was still a chance to save TransAsia from bankruptcy. But the Lin family feared that continued poor performance by the airline would hurt other companies in the group to which TransAsia belonged (The Goldsun Development & Construction Co.), says KKday’s Chen.
From December 1, the Civil Aeronautics Administration (CAA) suspended all TransAsia flights, temporarily designating China Airlines to take over the flights through January 20. The CAA further supervised the use of an NT$600 million trust fund for severance payments to TransAsia’s employees, while an additional NT$600 million was earmarked for refunds to customers and travel agencies, observes Lin Kuo-shian, director-general of the CAA. “We have done our best to ensure that travelers and employees’ rights are protected,” he says.
Ultimately, the bankruptcy proceeded smoothly, says Hwang Tay-lin, adding that TransAsia’s employees were able to find jobs with other Taiwanese airlines.
Given the extent of the company’s fiscal distress, “bankruptcy was the most reasonable option for TransAsia,” Hwang concludes.