The implications of the re-establishment of direct links across the Taiwan Strait on the aviation industries in Greater China

This paper investigates the economic implications of the liberalization of air transportation across the Taiwan Strait to the region's aviation industries. Our analysis suggests that (1) liberalization has brought substantial benefits to airports and airlines in Mainland China and Taiwan. Negative impacts to Hong Kong are largely compensated by traffic increase in routes linking Mainland China. (2) In general, Taiwanese airports and airlines have benefited more from liberalization compared to airports and airlines on the mainland and Hong Kong. Such asymmetric effect is due to the larger size of the Mainland Chinese aviation market, which allows Taiwanese airlines to exploit network-related benefits. (3) Our investigation suggests that foreign hub carriers and medium sized Chinese airports will benefit most from China's future liberalizations.