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Business

Philippine budget carrier to expand operations

Cebu Air is seeking to reinforce its presence in a market of 600 million people. (Photo by Masayuki Kozono)

 MANILA -- Cebu Air, the operator of the Philippines' biggest budget carrier, Cebu Pacific Air, is poised to take the offensive in Southeast Asia, planning to launch new routes in the region in 2017.

Cebu Air Chief Executive Lance Gokongwei

     Cebu Air has replaced marine vessels with airplanes as the principal means of transportation in the Philippines, which consists of more than 7,000 islands. It has set an eye toward boosting earnings by reinforcing its presence in a massive market of 600 million people created by the establishment of the ASEAN Economic Community, or AEC.

     The plan was revealed by Cebu Air Chief Executive Lance Gokongwei during a recent interview with the Nikkei Asian Review.

     As the number of middle-income people is increasing in the Association of Southeast Asian Nations, Cebu Air plans to begin serving Thailand and Singapore more frequently in 2017 when the company receives the delivery of new aircraft, Gokongwei said.

     Cebu Air has set aside 15 billion Philippine pesos ($313 million) for capital spending in 2, he said.

     Cebu Air, the core company of leading Philippine conglomerate JG Summit Holdings, began operating in 1996 and currently has a fleet of 55 aircraft. It expects the delivery of 51 aircraft, including medium-range Airbus A320s, between 2016 and 2021.

More planes, more routes

While Cebu Air flies once or twice per day between Manila and Bangkok, it will be able to increase the number of flights when it expands its fleet.

     Cebu Air offers fares about 40% lower than those of Philippine Airlines, which used to be owned by the Philippine government, and other carriers. It has captured 60% of the Philippines' domestic market with unique promotions to attract travelers, such as free "zero peso" fares for allotted seats during a campaign period, requiring passengers to pay only airport and other fees.

     According to the Civil Aeronautics Board of the Philippines, Cebu Air carried 14.26 million passengers in 2014, up 9% from the previous year. The total included 3.19 million international flight passengers, a twofold increase from five years earlier. The number of domestic flight passengers showed a 50% gain during the same period.

     While a further rise in domestic passenger numbers is expected in light of the Philippines' economic growth and population increase, international operations have wider room for growth.

     Cebu Air began to serve the Middle East and major ASEAN cities several years ago to meet strong demand for homeward-bound flights among Filipinos working overseas. As a result, it now has 30 international routes, compared with 34 domestic routes.

     The company is set to reinforce operations within ASEAN as the transfer of people and goods is expected to multiply in the market of 600 million people created by the establishment of the AEC. In addition to opening new routes, it will also fly more frequently on existing routes to meet an expected increase in demand. 

     Further deliberations on an "open sky" agreement within ASEAN are also prompting Cebu Air to expand operations in the region. The agreement, if concluded, will enable airlines to open new routes and set flight numbers as they wish.

     Though a small country, the Philippines can gain wider access to the U.S., India and other countries in the world through its unification with ASEAN, a move beneficial to the country and its people, Gokongwei said.

Snag in the system

But the Philippines lags behind other countries in the liberalization of aviation services because Manila's Ninoy Aquino International Airport has little room left to accept more flights due to its chronic congestion. Also, the Philippine government has been unable to ratify an agreement to connect capital cities of ASEAN member states, the most important part of the regional open-sky accord.

     The airport is designed to handle 30 million passengers a year. But as the number of passengers using the airport increased to 34.1 million in 2014, congestion and flight delays constantly occur.

     Congestion not only lowers the quality of services for passengers but also causes the waste of fuel as airplanes are forced into holding patterns or just sit on the runway. But the government has been slow to address the bottleneck by expanding the airport.

     Cebu Air is thus considering using other airports in addition to Ninoy Aquino. Among candidate airports are Mactan-Cebu International Airport in the Central Visayas region and Clark International Airport north of Manila.

      The use of alternative airports will enable tourists from abroad to fly directly to Cebu, known for its resort island appeal, without going through the congested Manila airport, Gokongwei said.

Unique entertainment programs

Many budget airlines, including Malaysia's AirAsia, are staging fierce competition within ASEAN. "That cannot be avoided, every other business I'm in we compete head on head with them," Gokongwei said.

     Cebu Air is credited with the replacement of marine vessels with aircraft as the principal means of transportation in the Philippines. While offering no movie, meal or other entertainment services, it has lured passengers with "handmade" attractions such as music introduction quizzes with crew members singing to offer clues. It plans to promote such friendly services in a bid to differentiate itself from rivals.

     Cebu Air's 60% domestic market share, larger than AirAsia's 45%, enables the company to capitalize on increasing demand in the Philippines amid its economic growth. Lexter Azurin, research head at Unicapital Securities, said, "I guess the advantage of Cebu Pacific is it already has market share, so in terms of pricing, [it] can offer more attractive pricing to its customers. Relatively, they're cheaper."

     While maintaining its unique , friendly passenger services, the company needs to improve its efficiency in order to compete with rivals.

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