This record is a partial extract of the original cable. The full text of the original cable is not available.

C O N F I D E N T I A L SECTION 01 OF 03 TAIPEI 003523 
 
SIPDIS 
 
DEPT FOR EAP/TC, EB/TRA/OTP 
 
E.O. 12958: DECL: 11/05/2014 
TAGS: EAIR PREL ECON CH TW
SUBJECT: CROSS-STRAIT CHARTER FLIGHTS - AIRLINES 
UNENTHUSIASTIC, TIME RUNNING OUT 
 
REF: A. 2003 TAIPEI 219 
 
     ¶B. 2004 TAIPEI 84 
     ¶C. 2004 BEIJING 17510 
 
Classified By: Acting AIT Director David J. Keegan, Reason 1.4 (B/D) 
 
Summary 
------- 
 
¶1.  (C) Largely for symbolic reasons, the Taiwan government 
is pushing once again for cross-Strait charter flights to 
bring Taiwan investors in the Mainland home to Taiwan for 
Lunar New Year 2005.  After losing money in 2003 and never 
getting off the ground in 2004, Lunar New Year charter 
flights in 2005 are not commercially attractive to Taiwan's 
air carriers.  Taiwan has shown some readiness to overcome 
Beijing's objection to 2004 charter flights, but they remain 
reluctant to allow full participation for Chinese airlines. 
Taiwan's carriers can make much more money on other routes 
during the busy Lunar New Year travel season, but if the 
Taiwan government asks them to participate, they will comply. 
 Nevertheless, Taiwan's December 11 legislative elections 
could prevent charter flights from returning this year. 
Taiwan airline officials have warned us that unless the 
Taiwan government reaches an agreement with the PRC soon, 
there wouldn't be time to arrange the flights.  Mainland 
Affairs Council (MAC) Chairman Joseph Wu told AIT/T that 
Beijing has shown a willingness to move forward on charter 
flights, but not before the December 11 Legislative Yuan (LY) 
elections.  Charter flights are still a possibility, but the 
clock is ticking and will run out very quickly after the 
elections.  (End Summary) 
 
Lost Money in 2003, Grounded in 2004 
------------------------------------ 
 
¶2.  (U) In February 2003, the six Taiwan airlines made 
history by successfully completing Lunar New Year charter 
flights between Shanghai and Taipei via Hong Kong and Macau 
to provide transportation for Taiwan businessmen and their 
families in the PRC (ref A).  Charter flights could not be 
arranged in 2004 for four main reasons: 1) the PRC demanded 
that its carriers be allowed to participate, 2) Taiwan 
insisted on semi-official talks to arrange the flights, 3) 
Taiwan's carriers were reluctant to participate in a venture 
that was likely to be unprofitable, and 4) the political 
situation at the time was particularly tense leading up to 
Taiwan's presidential election (ref B). 
 
¶3.  (U) President Chen in his October 10 National Day speech 
this year and the Mainland Affairs Council (MAC) on several 
occasions in the last month have publicly declared Taiwan is 
eager to implement cross-Strait charter flights again during 
the Lunar New Year in February 2005.  MAC has already taken 
steps toward resolving some of the problems that prevented 
charter flights in early 2004.  MAC has said that Taiwan is 
willing to allow PRC airlines to participate.  Moreover, both 
sides have indicated that industry representatives acting on 
behalf of government authorities can negotiate the conditions 
for charter flights.  Government officials would probably act 
as unofficial advisors to industry representatives during 
discussions. 
 
High Opportunity Costs in 2005 
------------------------------ 
 
¶4.  (U) However, concerns about the profitability of Lunar 
New Year charter flights remain.  Airline officials have told 
AIT that all of the airlines that participated in the 2003 
charter flights lost money.  Lunar New Year is the busiest 
time for airlines throughout Asia.  They can make a lot of 
money on other routes that will be far more heavily booked 
and don't have spare equipment to dedicate to unprofitable 
charter flights. 
 
¶5.  (U) The charter flights lost money primarily due to two 
factors.  First, airlines were only allowed to carry 
passengers one-way each trip.  At the start of the Lunar New 
Year, the airlines had to fly empty planes to Shanghai to 
pick up passengers.  At the end of the holiday, after 
passengers returned to Shanghai, empty planes flew back to 
Taipei.  On October 13 2004, MAC vice-chairman Chiu Tai-san 
stated publicly that Taiwan would allow airlines to carry 
passengers both ways without an intermediate stop. 
Accordingly to airlines, this would significantly improve 
profitability. 
 
¶6.  (SBU) Airlines also lost money due to low passenger 
loads.  Overall, the 2003 charter flights were only 70 
percent full.  The inaugural China Airlines (CAL) flight was 
only 30 percent full.  Because the charter flights were 
arranged hastily, there was little time to market the 
flights.  Lunar New Year is a busy travel time, and travelers 
book early.  Eva Airlines (EVA) claims it did fairly well in 
2003 and flew at near capacity.  CAL officials told AIT/T 
that because of its experience in 2003 and more developed 
infrastructure in the Mainland, it would be easier for CAL to 
sell tickets for 2005 charter flights.  Nevertheless, both 
airlines said that participation in charter flights in 2005 
would hurt the carriers' bottom lines. 
 
An Invitation They Can't Refuse 
------------------------------- 
 
¶7.  (SBU) Despite the likelihood of losing money, the six 
Taiwan airlines enthusiastically participated in the 2003 
charter flights, if only for the public relations value. 
Having already reaped the publicity benefits, they will be 
less eager to participate in 2005.  However, they are not 
likely to refuse the Taiwan government's invitation to 
participate if Taiwan and PRC can agree on the conditions. 
The government still owns about 70 percent of CAL's shares. 
In addition, airlines will want to facilitate any government 
effort to move closer to regular cross-Strait direct air 
links.  CAL and EVA officials were both confident that if the 
government asks the airlines to conduct charter flights, all 
of Taiwan's carriers will participate. 
 
Political Delay May Preclude Charters 
------------------------------------- 
 
¶8.  (C) The election cycle is having an impact on the 
possibility of charter flights again.  Both CAL and EVA 
officials told us that they do not expect to see any 
substantial progress on the negotiation of charter flights 
before the December 11 LY election.  They also warned that if 
Taiwan and PRC authorities cannot reach an agreement almost 
immediately after the election, there would not be enough 
time for airlines to make the necessary arrangements.  EVA 
officials told us that negotiating charter flight conditions 
would take much longer if PRC airlines participate.  They 
speculated that Taiwan's Civil Aeronautics Administration 
(CAA) might require special inspections for PRC aircraft, 
possibly even require that CAA officials accompany the 
flights.  One MAC official told us that it would be much 
easier to implement charter flights if the PRC backed away 
from insisting on PRC airline participation ostensibly as a 
humanitarian gesture for Taiwan businessmen in the Mainland. 
 
¶9.  (C) In its October 27 press briefing, the PRC's Taiwan 
Affairs Office pointed out that Taiwan had not yet identified 
local partners to work with Mainland organizations on charter 
flights (ref C).  MAC Chairman Joseph Wu told AIT/T that they 
saw this pragmatic statement as a very positive sign from the 
PRC.  Using an aviation industry contact as an unofficial 
channel, MAC inquired whether this comment represented a new 
opening and whether there was the possibility of moving 
forward before the December 11 LY elections.  According to 
Wu, the PRC indicated that the statement was sincere, but 
that Beijing would not make any real policy adjustments until 
after the elections.  MAC Senior Vice Chairman Chiu Tai-san 
speculated that the constructive October 27 statement may 
have been in response to Secretary of State Powell's request 
earlier in the week that Beijing show flexibility in it 
approach to Taiwan. 
 
¶10.  (C) Wu said that the Taiwan government will tone down 
its public statements on charter flights before the election 
for fear that a negative reaction from Beijing will allow the 
Taiwan Solidarity Union (TSU) to make cross-Strait issues a 
focus of the campaign.  Wu said that MAC had informed Taiwan 
airlines that they could independently apply to PRC 
authorities for permission to conduct charters, per the 2003 
practice, but has not explicitly urged them to do so.  Under 
those conditions, airlines are unlikely to respond.  In 
addition, MAC passed the word to PRC authorities that 
Mainland airlines could apply to Taiwan's Civil Aeronautics 
Administration for permission to conduct charter flights. 
 
¶11.  (C) Comment: These developments suggest that even though 
time is running out, there is still some possibility that 
charter flights could take place.  A key indicator will be 
whether any Chinese airline takes up MAC's offer and 
approaches Taiwan civil aviation authorities about 
participating.  We don't expect to see significant progress 
between now and December 11.  If the Taiwan government is 
determined to see charter flights in February and moves very 
quickly after the election, there may still be time to make 
it happen )- but not much.  (End comment.) 
PAAL