Jockeying for position

Philippine carriers are eager to grow but constrained by safety rulings


For a country that is still catching up regionally in terms of visitor arrivals, the Philippines’ major aviation players are forging ahead with expansion plans.

The global financial crisis and skyrocketing fuel prices have reshaped travel patterns, shifting Philippine airlines’ focus on travel within South-east Asia – from where the country derives about 48 per cent of all its air traffic – and North Asia.

This year, additional capacity has largely come from South Korea for 19,500 more seats, while a recent pact with Thailand for more Bangkok-Manila flights has yielded 1,480 seats. Both ASEAN neighbours have agreed on unlimited traffic rights between points outside the capital cities, which should see traffic from secondary Philippine hubs soar.

But travel trade insiders have vocalised concerns that the market may be too small for the ambitions of these airlines, especially while the US Federal Aviation Administration (FAA) Category 2 status and European Union (EU) airline ban remain a spanner in the works.

LCCs dream big
Philippine LCCs have continued to add destinations throughout Asia and within the country.

Zest Air is focusing on the South Korea market out of Manila, upping frequencies for Cebu-Incheon and Clark-Incheon this winter season, and launching a Clark-Busan route in December. It will also start three domestic routes in December: Cebu-Puerto Princesa, Cebu-Davao and Kalibo-Clark (one-way).

Clark-based newcomer AirAsia Philippines is wooing northern Luzon outbound travellers, but remains hobbled by the lack of aircraft, which it leases from Airbus. Though the airline will begin Clark-Singapore and Clark-Taipei services in December, it will reduce Davao and Kalibo flights and suspend routes to Macau and Puerto Princesa.

SEAir, now 40 per cent owned by Tiger Airways, kicked off seven new domestic routes from Manila in July and August, as well as Clark-Kalibo and Clark-Kota Kinabalu services.

The launch of “premium destination” airline SEAir International (SEAir I) is also awaiting approval. Patrick Tan, SEAir CEO, said the airline would continue SEAir’s flights to “resort and specialised destinations” such as Batanes and El Nido. By going in the opposite direction of the low-cost model, the full-service SEAir I is intended to serve missionary routes and help develop destinations like Palawan by keeping these otherwise underserviced routes viable cost-wise.

Earlier this year, major contender Cebu Pacific (CEB) added Manila-Siem Reap and reinstated Manila-Hanoi, while recently announcing it would start Manila-Bali. The airline is also strengthening its web of secondary routes outside Manila, launching Iloilo as its fifth hub in July, and Kalibo in August as the sixth. New routes from Cebu to Kuala Lumpur and Bangkok are also set to launch next month. By pursuing such a strategy, CEB is avoiding flight congestion in the capital, as well as responding to competition posed by foreign carriers flying into secondary airports under the government’s “pocket open skies” policy.

CEB is also casting its sights on the longhaul market, keen to operate services by 3Q2013 with its four new Airbus A330s. Currently with 39 planes, it has ordered 21 more A320s and 30 A321neos from 2012 up until 2021.

Bring on the rivalry
Philippine Airlines (PAL) has had to fight off competition from CEB, which held 45 per cent of the domestic market and 16 per cent of the international market as of 1H2012, according to figures given by the LCC. The Civil Aeronautics Board (CAB) reported that PAL held only 23 per cent of the domestic market in 2011, and sister LCC Airphil Express, 20 per cent.

PAL is repositioning itself by withdrawing from the domestic sector to focus on longhaul, beginning with a new service to Toronto via Vancouver end-November. It has transferred domestic operations to sister Airphil Express – presently awaiting approval to rebrand itself back to PAL Express – and it currently codeshares on 19 Manila routes and 24 regional routes.

PAL itself has increased frequencies to Macau and Jakarta in the fourth quarter, while turning its Melbourne and Sydney routes into direct, non-stop flights. It also added Bali earlier this year.

Meanwhile, successful talks with Saudi Arabia in September saw the Gulf country grant Airphil, CEB, Zest and AirAsia permission to fly, in addition to PAL. CEB has requested for at least half of PAL’s seat allotments. PAL is expected to revive its Manila-Riyadh route, as well as add Manila-Jeddah and “points to Dammam in unlimited frequencies outside Manila”, a CAB official said.

The flag carrier is aiming to expand its fleet of 54 aircraft to 100, aided by a new US$7-billion refleeting plan for 34 A321s and 10 A321neos.

Who wins?
In the race for airspace, airlines are unlikely to come out tops. CEB’s CEO, Lance Gokongwei, has been blunt in his assessment of the situation, saying: “The Philippines cannot support five players.”

On the other hand, the country’s secondary destinations are reaping the fruits of increased access.

Aileen Clemente, president of the Philippine Travel Agencies Association and president of Rajah Travel, said direct connections to destinations like Iloilo and others in central Philippines create new opportunities. “(These locales are) attracting a lot of investments, especially in Bacolod.”

The expansion has especially benefited Puerto Princesa, which has seen inbound flights grow from less than a dozen flights daily early this year to close to two dozen from different points. “(Inbound flights to these new destinations) are a good start – we can’t sell destinations without flights,” said Aurora Tadeo, Baron Travel Corporation’s general manager inbound leisure Local airports stand to gain as the Philippine government scrambles to respond to the swift growth taking place, promising renovated terminals, expanded runways and night lighting.

However, direct flights are of no relevance for  European travellers, for whom the EU’s ban on Philippine carriers presents insurance concerns and as a result choose to travel overland from Manila.

“(Travel consultants) will continue telling you the same thing. As long as the ban stays in place, we’ll have a hard time competing,” Tadeo said.

Although South Korea was interested in designating more Philippine carriers, the Philippines’ return to FAA Category 1 status was “a condition”, said SEAir’s Tan. The country has also been reluctant to reinstate Airphil’s carrier designation while safety issues linger.

It seems major longhaul opportunities will not appear until the Philippines satisfactorily meets these international standards. However, this is not stopping airlines from looking elsewhere for growth opportunities and from keeping their fingers crossed in the hopes of an improved safety rating for more room to spread their wings.

This article was first published in TTG Asia, November 30 issue, on page 4. To read more, please view our digital edition or click here to subscribe.

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