The long-haul low-cost business model is "definitely more challenging" than its short-haul counterpart, but opportunities abound especially in destinations where there is a high concentration of Filipinos, says Cebu Pacific chief executive Lance Gokongwei.
Speaking to reporters at a round table session in Singapore, he says that medium- to long-haul operators lose the aircraft utilisation advantage that short-haul operators typically have over legacy carriers.
“When you operate [Airbus] A320s, you tend to have a 20-30% advantage over legacy carriers at least on asset utilisation,” says Gokongwei. “On medium to long-haul you don't really have that advantage on utilisation but we still have an advantage on seating capacity with 436 seats on the aircraft."
To create that unit cost advantage over full service carriers, Cebu Pacific distributes its tickets through the internet, charges for a la carte items to make up ancillary revenue and has over 100 seats more than what is typical on an Airbus A330-300.
He adds that the carrier faces pressure from competitors who are hub-and-spoke operators with "a lot of great feeds", but mitigates that by focusing on routes where there is a large Filipino diaspora.
“I think the most critical is also the strength of the Cebu Pacific brand, which is the dominant brand among Filipinos. We have more than 50% of the domestic market and a large share of the regional market. We will introduce this well loved brand into the longer haul market,” says Gokongwei.
Cebu Pacific launched long-haul operations on 7 October with a daily flight on the Manila-Dubai route. It picked Dubai because of the large Filipino population and because 70% of the traffic into the city make one or two transit stops.
In its first month, the carrier achieved a load factor of about 40%, but expects its A330s to fill up faster as the Christmas season approaches.
“Clearly we’re not going after Emirates here, but offering passengers an alternative from their traditional 1-2 stops. It’s more direct and at least 35% lower in price. Our experience is that whenever we offer that kind of value, we stimulate the market such that it grows in many cases three to four times,” says Gokongwei.
The carrier now has two A330s and expects to take delivery of another three in the first half of 2014, followed by the sixth by the first quarter of 2015. It will launch its second long-haul route in the second quarter of 2014 – either to the Middle East or Australia. Its research has shown that there are at least 2.5 million Filipinos residing in the Middle East.
“In long-haul you can lose a lot of money very quickly so you can expect a steep learning curve. Or deep pockets, or both," says Gokongwei.
Cebu Pacific faces competition from Philippine Airlines, which started a five times weekly Manila-Abu Dhabi service in October, marking its return to the Middle East. This month, it will also launch five times weekly services from Manila to Dubai and Doha. Services to Dubai will be operated by sister carrier PAL Express.
“Clearly there is going to be increased competition than we expected entering these markets. But the main point is that 70% of the market does not fly directly previously. This is an unstimulated market … so we think the market opportunity will be there,” says Gokongwei.