The recovery of Philippine Airlines from disastrous financial losses over the past two years is under threat from rising competition from a growing number of startups with ambitions to launch on to key regional routes.
Grand Air and Cebu Pacific Air, which have both made inroads on domestic sectors, have announced plans to expand their fleets as they prepare to shift their focus onto regional destinations. Two other startups should win clearance from the Philippines' Aeronautics Board (CAB) for future international operations.
Grand International Airways, currently flying two A300s and a B737 domestically, has announced it will purchase two more B737s and a third Airbus A300 before year end. Cebu Pacific Air, with a fleet of four DC-9s, is to lease six more of the type to extend an operation styled on US success story ValuJet.
Both carriers are targeting regional destinations, including Hong Kong, Singapore, Kuala Lumpur, Indonesia, Korea, Japan and Taiwan. Indeed, GrandAir is already flying to Hong Kong and expects to add Seoul soon, with plans for other Asian cities before the end of the year.
Cebu predicts it will be operating internationally by the end of this year or early 1997 and wants to include direct Manila-US services in its network. Another operator, Air Philippines, is already flying domestically and a fourth, Asian Spirit, is expected to launch soon. Both have international ambitions.
It all adds up to growing pressure on PAL, which has recently launched a US$3 billion fleet modernisation programme on the back of a disastrous financial performance. In the 10 months from April 1995 to January 1996, PAL posted a net loss of US$77.6 million.
Hungry new competitors have already eaten into the flag carrier's domestic market share and are now poised to attack its monopoly on international routes. Local analysts say that if PAL is clinging to the hope that some of these new operators will fold, it is likely to be disappointed. Three earlier startups - Aerolift, Silangan Airways and Star Asia - operated scheduled flights mostly on the less lucrative, secondary domestic routes and collapsed principally because a series of corporate squabbles and financial problems.
But Fernadino Concepcion, a legal counsel for CAB, notes that the new batch of carriers appears to be far better financed. 'It is not likely that the new players will simply fold up. They are putting in big investments.'
Cebu Pacific is 49 per cent owned by JG Summit Holdings Inc, a company controlled by multimillionaire businessman Lance Gokongwei. GrandAir is owned by a group of local businessmen led by hotelier Rebecco Panlilio and its senior executives include several former senior PAL officials.
Air Philippines, which has flights to the central city of IIoilo, the southern city of Zamboanga and the industrial enclave of Subic, north of Manila, names Japan Air System as a foreign partner. The carrier was formed by local 'plastics king' William Gatchalian.
Tom Ballantyne
Source: Airline Business
