RPT-China, Taiwan airlines to see lift from new flights

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(Repeats earlier story)

By Joseph Chaney

TAIPEI, June 29 (Reuters) - Direct weekend flights between China and Taiwan starting this week are likely to give a boost to carriers on both sides of the Taiwan Strait at the expense of Hong Kong, but probably not until all restrictions are lifted.

Beijing and Taipei on June 13 signed a deal to launch the first regular weekend flights since 1949 after a decade-long stalemate between the world's No. 4 economy and the neighbouring island it claims as its own.

Most flights between China and Taiwan now need to stop at a third external destination such as Hong Kong or Macau, providing a boost for airlines in those hubs. [ID:nSP105393]

Over the long term, unlimited direct flights would wipe nearly a 10th off the bottom line of Hong Kong's flagship carrier, Cathay Pacific (0293.HK), which had hitherto enjoyed a large chunk of the business of flying passengers on the roundabout route, according to Nomura.

But the deal set to take effect this week will be relatively limited, allowing for a small number of direct flights only on weekends (defined as Friday through Monday) that still must pass through Hong Kong airspace.

New Taiwan President Ma Ying-jeou has said he wants to make the flights daily and more direct as soon as possible, with a broader deal possible as soon as next year.

Analysts say Taiwan's China Airlines (2610.TW) and Eva Airways (2618.TW) and China's China Eastern (0670.HK) (600115.SS) will benefit most from full direct flights.

Other top Chinese airlines like Hainan Airlines (600221.SS) (900945.SS), Air China (0753.HK) and China Southern (1055.HK), have also clamoured to take business from Cathay.

"Certainly this represents a circuit breaker and growth opportunity for airlines in Taiwan," said Derek Sadubin, chief operating officer at the Centre for Asia Pacific Aviation.

He added that the shift will be gradual, noting that as long as the new routes pass through Hong Kong airspace, the time savings won't be huge.

China has claimed self-ruled Taiwan as its territory since the end of the Chinese civil war in 1949 and pledged to bring the island under its rule, by force if necessary. But relations have improved notably in the last two months under a newly elected China-friendly administration that took office in May.

UNEQUAL DIVIDENDS

The June 13 deal allows for up to 18 round-trip chartered weekend flights starting July 4, and for now analysts believe demand for cross-straits flights will outstrip supply.