During the early 1990s, the airline became one of the few Taiwanese carriers to operate wide-body aircraft under a secondary brand, and it played a key role in Taiwan’s aviation diplomacy by serving routes that were politically sensitive for China Airlines. However, the Asian financial crisis of 1997–1998 and increasing competition began to reshape the airline’s strategy. At the same time, China Airlines initiated a major restructuring of its subsidiaries, aiming to reduce duplication and improve operational efficiency.

A major turning point in the airline’s history occurred in 1999, when Mandarin Airlines merged with Formosa Airlines, a smaller domestic carrier in Taiwan. This merger marked a decisive shift in Mandarin Airlines’ role, transforming it from an international operator into a primarily domestic and regional airline. Following the merger, Mandarin Airlines transferred its international routes and wide-body aircraft back to China Airlines, and instead concentrated on domestic services within Taiwan

The fleet was progressively standardized around smaller aircraft more suitable for high-frequency, short-distance routes, including the introduction of Fokker 50 turboprops and Fokker 100 Jets for domestic operations in 1999.

Mandarin Airlines began introducing the Boeing 737-800 into its fleet in 2000, marking a significant step in the airline’s transition toward a more modern and efficient narrow-body operation. The first aircraft was delivered in mid-2000, at a time when the airline was restructuring its network following its 1999 merger with Formosa Airlines and shifting its focus toward domestic and short-haul regional services. (The airline operated 6 units until 2019)

Throughout the 2000s, Mandarin Airlines solidified its position as a key domestic carrier in Taiwan while gradually expanding its regional presence. The airline operated an extensive domestic network linking Taipei, Kaohsiung, Taichung, and outlying islands such as Penghu, Kinmen, and Matsu, providing essential connectivity within the archipelago. At the same time, it began to rebuild a modest international network, focusing on short-haul routes to mainland China, Japan, and South Korea. This expansion was facilitated by the gradual easing of cross-strait travel restrictions between Taiwan and mainland China, particularly after the late 2000s when direct flights were permitted. Mandarin Airlines became an important operator of cross-strait routes, serving cities such as Shanghai, Guangzhou, and Xiamen.

Fleet modernization became a central focus during this period. The airline introduced Embraer E-190 and E-195 regional jets in 2007, replacing older turboprops and Fokker Jets. The airline also gradually phased out the Fokker 50 fleet, completing its transition to an all-jet fleet for most operations, although turboprops continued to play a role in serving smaller domestic airports for a time.

In the 2010s, Mandarin Airlines continued to refine its dual role as a domestic lifeline carrier and a regional feeder airline for China Airlines. The airline expanded its presence in Northeast and Southeast Asia, launching and maintaining routes to destinations such as Okinawa, Hanoi, and various secondary cities in mainland China.