The Philippines' airline market is expanding but some operators are finding that increasing services is proving a challenge
Small Filipino carriers are branching out and trying to compete against the big players on international routes, while the big players in turn are muscling in on the smaller carriers' more profitable domestic routes. But it seems politics will determine the outcome.
The small, well-established airlines are Asian Spirit and Seair and their big rivals are Philippine Airlines/Air Philippines and Cebu Pacific. While Philippine Airlines and Air Philippines operate as separate businesses, they can be considered as one because both are ultimately owned by Lucio Tan, one of the Philippines' wealthiest businessmen.
The other big player, Cebu Pacific Air, is controlled by another Filipino-Chinese magnate, Lance Gokongwei.
Air Philippines and Cebu Pacific have ordered three Bombardier Q300s and 10 ATR 72-500s respectively. They plan to use these smaller turboprop aircraft to compete head-on against Asian Spirit and Seair. The first route is Manila-Caticlan. Asian Spirit operates mostly de Havilland Canada Dash 7s and BAe 146s, while Seair operates Dornier 328s and Let 410s.
The Manila-Caticlan route has traditionally been a cash cow for Asian Spirit and Seair because the larger airlines' jet aircraft are unable to land at Caticlan's runway which is only 950m (3,100ft) long. The route generates good revenue from wealthy western tourists that go to Caticlan as the gateway to the Philippines' famous Boracay beach strip.
The jet operators have to operate to an airport at Kalibo, which is less convenient for travellers, being at least one and a half hours' drive from Caticlan, where passengers then catch a ferry to Boracay, says Seair director, Nick Gitsis.
While Manila-Caticlan is by far the biggest domestic regional or secondary route in the Philippines "it is not the biggest compared to the trunk routes", says Gitsis. He says Seair operates 20 flights a day to Caticlan from five points in the Philippines including Manila. Asian Spirit executive vice president Joaquin Ernesto Po says his carrier has "at least 15 flights a day" to Caticlan from two points.
Gitsis says all passengers on the Manila-Caticlan route are foreign tourists whereas on the Manila-Kalibo route it is "about 75% or more".
Air Philippines put its first Q300 into service on 15 December, and operates the aircraft on four flights a day, says the airline's president chief executive, Edilberto Medina.
The second Q300 will be delivered in March and dedicated to the Manila-Caticlan route, says Medina, while the third aircraft will arrive in April, and will be used to increase the frequency on that route to 11 a day while also used to launch services on the Cebu-Caticlan route.
Air Philippines' Manila-Caticlan service is already fully booked until March, says Medina, adding that some international tourists travelling to the Philippines with PAL have onward bookings to Caticlan with Air Philippines. As a result Air Philippines has refrained from trying to undercut the incumbents, says Medina.
He declines to comment on whether he thinks there will be a price war in future but says Cebu Pacific has a habit of offering discount fares whenever it enters a new market.
Cebu Pacific says it plans to launch services on the route on 29 February with a five-times daily flight using its first ATR 72 and on 28 March it plans to launch services on the Cebu-Caticlan route, also using ATR 72s. Services on the two routes will increase as its takes delivery of other ATR 72s on order, it adds.
Medina at Air Philippines says his carrier might have to compete more aggressively on price if Cebu Pacific sparks a price war.
Medina says the turboprop operation has been so successful it has spurred Air Philippines to try and lease or purchase second-hand Bombardier Q400s and it hopes to get the first in April. It plans to have a total of six Q400s and this could later increase to 10, says Medina, adding that it prefers secondhand aircraft because new Q400s cannot be delivered until last quarter 2009.
Air Philippines will use these aircraft to operate on many of the domestic regional routes that PAL once served. PAL used to operate on secondary routes in the Philippines but abandoned this market when it phased out its Fokker 50s in the late 1990s. Medina says some of the cities Air Philippines is considering operating to using the Q400s include: Basco, Busuanga, Pagadian, Surigao and Ozamis.
While Air Philippines is preparing for a major expansion on secondary routes, Cebu Pacific and Asian Spirit are working to shore up their competitiveness on the Manila-Caticlan route. The two together are spending 30-40 million Philippine pesos ($680,000- $910,000) to lengthen the runway by 100m (300ft) so that Asian Spirit's 83-seat BAe 146s and Cebu Pacific's 70-seat ATR 72s can land fully loaded, says Asian Spirit' s Po.
Asian Spirit's Dash 7s can land on the old runway fully loaded but Asian Spirit wants to only use the BAe 146s there because jet powered aircraft are faster than turboprops. Po says the airline has received in-principle approval for the runway extension and hopes to receive the official approval documents in time to complete the runway extension by the end of May.
Asian Spirit leases a Boeing MD-83 from United Aircraft Leasing in Singapore and operates it from Kalibo and Laoag in the Philippines to Seoul Incheon. South Korea was the first major international market Asian Spirit targeted because South Koreans form the largest group of foreign visitors to the Philippines.
Po says the carrier is seeking to lease one more MD-83 and plans to launch more services to South Korea from other points in the Philippines such as Cebu and Manila. But he is unable to give more details because "it depends on approval from the Civil Aeronautics Board" in the Philippines.
Philippines start-up Pacific Pearl Airways, which launched late last year and has two Boeing 737-200s, also wants traffic rights to South Korea.
And Seair wants to operate internationally but its efforts so far have been bogged down in red tape. In September 2006, Seair and Singapore low-cost carrier Tiger Airways announced a deal in which Tiger would lease Airbus A320s to Seair. Seair would license the Tiger brand name and use Tiger's sales channels to sell tickets on Philippine domestic trunk routes as well as international routes mostly out of Manila's secondary airport, the former Clark airbase, now called Diosdado Macapagal international.
Philippine president Gloria Macapagal-Arroyo is from the province where the airport is located and renamed it after her father, former Philippine president Disodado Macapagal. Her close affinity with the area and desire to see the airport develop has meant Tiger's chief executive, Tony Davis, has had several meetings with the president.
But despite having the apparent goodwill of the president, and Seair's good reputation for safety, Tiger's attempt to have a Philippine carrier operating by February last year were thwarted following objections from quarters such as PAL.
The objections led the country's CAB to hold hearings to determine whether Seair should be allowed to operate A320s. The carrier has never had a fatal crash but despite its unblemished safety record it is up against competitors that have a lot more political clout. "We are coming up to the one year anniversary since we applied on 22 January" 2007 to have A320s included on Seair's air operator's certificate (AOC), says Gitsis.
The airline is still waiting for a decision from the CAB but it "keeps getting delayed and deferred", he says. "We believe there has to be a breakthrough soon because this is the longestapplication process" that any airline in the Philippines has had to go through with regards to an aircraft lease, he adds.
"One issue they [the CAB] have with us is that we are partly foreign owned," says Gitsis, who is US-born and established the airline in 1995 with long-time friend Iren Dornier, who is the airline's chairman and the grandson of Claude Dornier, the famous German aircraft designer who founded the Dornier aircraft company.
The other issue the CAB has focused on is whether Seair is strong enough financially to take on A320s because operating an A320 is a big step up from Dornier 328s and Let 410s.
At a CAB hearing in early January the airline was asked to provide updated financial figures, says Gitsis, adding that the CAB normally holds a hearing once a month although they are are often cancelled two or three times in a row.
While Tiger and Seair have been tied up in hearings, competitors such as PAL and Cebu Pacific have been working furiously to build up their presence at Diosdado Macapagal. Cebu Pacific announced in August that it planned to make Diosdado Macapagal its third international hub - after Manila and Cebu - but two months later disclosed that several foreign governments had rejected its application to operate scheduled passenger services from the former military base.
The disclosure by Cebu Pacific highlighted an apparent discrepancy.
The government issued an executive order in January 2006 - rescinded in August the same year - granting foreign carriers unlimited traffic rights to Clark but failed to ensure Philippine carriers operating from the airport enjoyed the same air traffic rights from the relevant foreign governments.
PAL, meanwhile, has taken a sudden interest in Clark and worked hard to generate awareness for its new efforts to invest there.
In June 2006, PAL issued a statement quoting the airline's president Jaime Bautista as saying "our chairman Lucio Tan is excited at our plan to join in the development of Clark.
"The Clark investment will entail at least 30-50ha of property, over 25 years, where PAL will construct its catering, ground handling and aircraft maintenance facilities," says Bautista, adding that the investment will create at lease 2,000 jobs.
Bautista says PAL also plans to launch international services from Clark but it "hinges on the results of ongoing negotiations with the Clark Development Corp".
Source: Flight International