Repositioning for success

This article was written by Oscar Chung and published by the Taiwan Review on September 1, 2007. It reports that with the opening of the high-speed rail service, other public transportation operators in Taiwan are seeking niches and diversifying their products.

Although the high-speed trains can take passengers from central Taiwan's Taichung City to Taipei City in the north in only three hours, it costs approximately NT$700 (US$21). This is the reason why some people still prefer taking conventional trains, or even buses, because these are much cheaper ways of traveling. For round-trips, many bus companies even offer discounts and concessions for people like students and soldiers.

Another reason why many people still take buses and conventional trains is that they have stations in almost every big and small towns, which is convenient. In comparison, the high-speed railway only has 12 stations in major cities between Taipei and Kaohsiung.

Indeed, existing bus companies are mainly for student, soldiers and people earning a lower income, while the high-speed railway is targeting at those who can afford to pay more and save time. Thanks to measures taken by the government to enhance the competitiveness of buses, such as the replacement of old buses running on long-distance trips, the impact on the revenues of many bus companies has been minimal.

However, in the case of the Taiwan Railway Administration (TRA), a branch of the Ministry of Transportation and Communications (MOTC) that operates nearly all of Taiwan's conventional trains, things are getting tough. For trips over 200 kilometers, the TRA is losing out heavily to the high-speed trains. Having operated for 120 years in Taiwan, the TRA is now facing a challenge that is even more serious than the one it faced after the lifting of the ban on domestic air travel in 1987.

Between March 1 and May 31, 2007, the TRA's revenues from short-distance (less than 50-kilometer) and medium-distance (between 50- and 200-kilometer) rides on the west coast line dropped by 1 percent and 3 percent respectively. However, long-distance journeys (those over 200 kilometers) suffered a 13-percent drop as a result of direct competition against the high-speed railway.

According to the TRA, the revenues from the west coast line have traditionally accounted for 85 percent of its total income, while the remaining 15 percent comes from the east coast line. The four-hour trip on the TRA's expresses between Taipei and Kaohsiung has been a very significant source of revenue, but even this cannot compete against the high-speed railway. Indeed, A Taipei-Kaohsiung ticket on a TRA express costs NT$845 (US$25), when compared with the high-speed train's NT$1,490 (US$45). It remains to be seen how many cost-conscious passengers such pricing difference can retain. (According to this article, a bus ticket on the same route costs between NT$400 and NT$500 [US$12-15], but the journey time is more than five hours.)

On the other hand, domestic airlines are feeling huge pressure. The experience of Japan and South Korea shows that for routes under 500 kilometers in length, airlines simply cannot compete with high-speed trains. With the opening of the high-speed train service, occupancy on domestic routes along the west coast could drop by more than 50 percent.

Since April 2007, all four airlines in the domestic market are reducing the number of flights. Mandarin Airlines, the only airline that flies between Taipei and Taichung, canceled the route for good in May. Meanwhile, Uni Air, the only carrier that operates between Taipei and the southern city of Chiayi, is expected to cancel the service at any time.

Although it takes only 50 minutes to travel from Taipei to Kaohsiung by air, compared with between 90 and 120 minutes on the high-speed train, many passengers think such time difference to be of little significance, specially considering the trouble of checking in at often inconveniently located airports. However, with Taipei-Kaohsiung fares at between NT$1,650 and 1,750 (US$50-53) weekdays and NT$1,500 (US$45) at weekends, planes can compete on price. There is yet no sweeping victory for the high-speed railway mainly because many of its stations are also located far from city centers.

Nonetheless, Taiwan's domestic airlines have been experiencing financial problems even before the high-speed rail services opened. Expecting the rapid opening of direct flights between Taiwan and China, they have made considerable investments in new planes in recent years. As direct flights are yet to materialize, such investments have turned into a major financial burden. Soaring oil prices, industrial migration out of Taiwan and the nation's sluggish economic development have all combined to reduce revenues. As a result, Taiwan's domestic air travel market has shrunk by 10 percent annually over the last three years.

All four domestic airlines and the TRA are trying to improve their services in order to win back customers. For example, in 2003, Far Eastern Air Transport launched new flights to South Korea's Jeju Island, from which passengers can travel on to Beijing and other cities in China. As more passengers now choose the Korean island over Hong Kong as a transit spot to save time, the route is expected to replace the Taipei-Kaohsiung line as the airline's largest source of revenue.

Meanwhile, the TRA plans to focus on providing better services for commuters and passengers traveling on short-distance routes. New spots are being added to its existing lines and the vast majority of new rolling stock purchased is intended for commuter services. More significantly, tilting trains were introduced in May 2007, running on the Taipei-Hualien route. Featuring a mechanism that serves to counteract the centrifugal force generated on curved parts of the track, the tilting train travels at a higher speed than a normal express, reducing the travel time between Taipei and Hualien from three to two hours. According to the TRA, tilting trains will be used on more routes connecting the east coast line and the west coast line, completing the TRA's rail network circling the whole island nation.

Finally, the TRA is devoted to developing tourism-oriented services. It is currently talking with travel agencies about developing package tours that combine sightseeing with rail trips. The TRA further plans to develop branch lines and tourist railroads that are already popular with sightseers, by renovating stations and allowing passengers to travel from the main line to the branch without having to change trains.

According to this article, various bus companies are seeking new opportunities as well, such as home delivery and car rental services. His kind of innovation and improvement of services, created in response to competition from the high-speed railway, can only be good for Taiwan's society as a whole. In the words of MOTC officials, ”The entry of new public transportation tools into the equation will certainly trigger market share reallocation, but the new challenge is also likely to make the pie bigger”. More importantly, in Taiwan where energy saving and environmental protection are the new catchphrases, all governments are encouraging people to reduce their use of private transport. As railway and road transport operators rush to develop new products in order to compete with the high-speed railway, they are winning over customers who are used to traveling by car and motorcycle.