Tim Culpan is a technology columnist for Bloomberg Gadfly. He previously covered technology for Bloomberg News.

David Fickling is a Bloomberg Gadfly columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.

In a victory for free markets, if not aviation safety, the traveling public did what regulators failed to do: ground Taiwan's oldest civilian airline.

Flying a mix of ATR turboprops and Airbus jets on domestic and short-haul international flights, TransAsia Airways Corp. came to international prominence in July 2014 when a flight hit trees and crashed into buildings on Taiwan's outlying Penghu islands, killing 48 people.

Within days of the accident it became apparent to investigators that pilots hadn't followed procedures, though it would be months before the final report was handed down.

Steep Descent
TransAsia shares declined after successive fatal crashes
Source: Bloomberg

Even before that fatal day, Taiwan Aviation Safety Council records showed a string of other incidents where transgressions occurred. Eventually, months after the July crash, the Civil Aeronautics Administration became so concerned about the risks from pilots rushing through safety checks that it took the unprecedented step of imposing minimum waiting times specifically for TransAsia and its ATR pilots, to take effect January 2015. TransAsia pleaded for a delay of implementation and the CAA acquiesced.

Five weeks later, on Feb. 4, a further 43 people died after, once again, factors including poor training and the failure to observe standard practices led to a second ATR hitting an elevated freeway and crashing into a Taipei river. The pilots wouldn't have met the new minimum wait period. It's impossible to know whether more time would have helped them be better prepared for the engine failure that happened minutes later.

Even after that February crash, the regulator didn't pull TransAsia's license, instead ordering the airline to send its pilots for more training.

Conversations that Bloomberg reporters had with travelers after that second disaster found that while most were wary, passengers on some routes had no choice but to use TransAsia. Often it was one of just two carriers to ply under-served domestic routes and flights sold out quickly. Yet the second crash cemented one fact in the minds of passengers and the airline: While they may not have had much say in which carrier to take, they could simply decide to fly less.

That's exactly what they did, with 379,000 fewer passengers buying tickets in the June quarter of 2015 compared with a year earlier, a 39 percent drop.

Bumpy Landing
Trailing 12-month passenger numbers at TransAsia slumped after its second crash
Source: Bloomberg

That sealed TransAsia's fate. Airline profits are derived from a fine balance of elements including supply and demand for tickets, as well as available space on planes and a carrier's cost structure. When load factor -- the percentage of seats occupied by paying passengers -- drops too low, a plane becomes unable to cover its operating costs with ticket revenue.

In theory, carriers can cut prices to drive demand and fill up remaining seats, but only to the point where operating costs are covered. With most airlines operating on single-digit margins, there's little scope for emergency discounting.

Voting With Their Feet
TransAsia's load factor -- the percentage of seats filled on flights -- slumped after two fatal crashes in seven months
Source: Bloomberg

TransAsia's load factors fell off a cliff at the same time as its passenger revenue, and never really recovered to the 70 percent-and-above range that these days is considered the minimum healthy territory for airlines.

Indeed, of 78 airlines worldwide for which Bloomberg has load factor data, just three leave a larger proportion of seats unsold -- Tunisia's Syphax Airlines, which suspended flights last year amid financial difficulties, and U.S. and Australian regional carriers Great Lakes Aviation Ltd. and Regional Express Holdings Ltd. Elsewhere, Ryanair Plc, Easyjet Plc and Spicejet Ltd., the whip-smart budget carriers that dominate in Europe and India, all achieve load factors above 90 percent.

For TransAsia, the result of that falling traffic and declining load factor was the same as for any company facing a cash crisis: an inability to service its debts. At a press conference Tuesday, after earlier announcing a single-day suspension of operations, the company said it couldn't repay convertible bonds due next week and thus its board decided to dissolve the company.

In the end, safety-conscience passengers did what regulators wouldn't, but it took two fatal crashes and more than 90 deaths to get there.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the authors of this story:
Tim Culpan in Taipei at
David Fickling in Sydney at

To contact the editor responsible for this story:
Matthew Brooker at