When PAL owner Lucio Tan bought a 70% share in Air Philippines last year, the country's domestic airline market was reduced to just two real competitors on major routes: PAL and Cebu Pacific Air. A fourth carrier, Asian Spirit, has a monopoly on thin turboprop routes to rural and resort destinations.
According to figures from the Philippines Civil Aeronautics Board, PAL's domestic market share shrank from 79% in 1996 to just 50% in 1999, while Cebu Pacific Air took 24% of the market in 1999, Air Philippines 22%, and Asian Spirit 4%. In all, 6.01 million passengers flew domestic flights in 1999, a 12% increase on 1998. Asian Spirit had the highest load factor in 1999 at 72%, followed by Cebu Pacific at 64%, PAL at 63%, and Air Philippines at 58%.
The battle for market share has heated up. PAL is adding capacity, and the market has stopped growing. "We're all used to traffic growth of 12 to 15%, and this year it's not growing that fast. It has pretty much flattened out," says Ron Ridgeway, Cebu Pacific managing adviser. PAL president Avelino Zapanta says the flag carrier is returning to its former dominance of the domestic market, and has taken a 70% market share so far this year.
PAL can charge a premium on domestic routes by advertising its new Airbus A330s and A320s. Cebu Pacific will counter with a new fleet of its own: it is finalising an order for 14 Boeing 717s, with delivery to begin in 2001. Cebu Pacific has low operating costs and a clearly defined strategy: one aircraft type and point-to-point flights to the country's 11 biggest cities. It has made a profit for the past three years, and its break-even load factor is below 60%.
Cebu Pacific plans to challenge PAL on overseas routes, beginning with Jakarta and Singapore. There is no air service between Jakarta and the Philippines, as PAL and Garuda Indonesia have both dropped the route. Cebu Pacific will launch charters to Taiwan in June, and has already flown charters to Palau. PAL co-opted a former competitor, Air Philippines, when Tan took over last year.
Air Philippines is losing money, says the airline, although it was close to break-even before a Boeing 737-200 crash near Davao on 19 April that killed 131 people. The airline's load factors have fallen as a result of the accident.
Air Philippines plans to acquire ATR 72s and lease a newer model of 737, it says, although its relationship with PAL has thrown its future into doubt. The two carriers have divided up major routes, and meet regularly to establish fares. "We will complement PAL, not compete with them," the airline says.
The fourth carrier, Asian Spirit, operates turboprop routes from its twin hubs in Manila and Cebu. "About 95% of our routes were formerly operated by PAL," says Asian Spirit president Antonio Buendia. "We now have a virtual monopoly on all sectors." Like Cebu Pacific, Asian Spirit is profitable, says Buendia. Asian Spirit plans to retire its fleet of YS-11s, and purchase additional IPTN CN-235s if the two now in its fleet prove adequate, says Buendia.
Safety remains a concern in the Philippines. Besides the Air Philippines crash in April, an Asian Spirit Let L-410crashed last December, while in 1998 PAL lost an Airbus A320 and Cebu Pacific a McDonnell Douglas DC-9 in Mindanao.
Cebu Pacific has received AQS and ISO certification, as part of an ongoing safety campaign, while the Philippines Air Transport Office is upgrading their supervisory capabilities. "It's slower than we want it, but it's progress," says Ridgeway.
Source: Flight International
