Philippines’ low-cost carriers market is overcrowded and saturated

AirAsia Philippines

CAPA, the Center for Asia Pacific Aviation published this week an analysis of  the international, regional and national airline markets in Asia focused on Low Cost Carriers (LCCs). 

The Philippines have the world’s highest domestic LCC penetration rate with 84%. There are now 5 low-cost airlines competing over domestic routes: Cebu Pacific, Airphil Express, Air Asia, Zest Air and Seair. 

Further LCC gains are unlikely. Instead, consolidation is likely to hit the Philippines in 2013. Over-capacity and irrational competition already resulted in losses throughout 2012 at all Philippine carriers except Cebu Pacific. The outlook for 2013 would improve significantly for all Philippine carriers if there is consolidation. Given their positioning, Cebu Pacific and the PAL Group will almost certainly weather the storm and stand to benefit from the inevitable consolidation. Zest Air might be the big looser.

Budget carriers also responded to competition by acquiring fuel-efficient aircraft, testing new markets and merging with new owners or partners with deeper pockets or wider reach.

Seeking new opportunities outside the overcrowded domestic market, many of the local airlines are now looking further at regional routes in the international market. This comes as the Philippine government targets to double foreign tourist arrivals to 10 million by 2016. But also these markets already show a big  LCC penetration of up to 48%.

Cebu Pacific is looking to launch new routes to the Middle East, Asia and potentially Australia in the next year. PAL is also considering expanding its long-haul operations.
But plans in introducing long haul operations depend on the Philippines being taken off the EU and US blacklists. Since 2008, the Civil Aviation Authority of the Philippines (CAAP), which regulates and oversees the airline industry, has failed to comply with minimum international aviation safety standards set by the International Civil Aviation Organization. CAAP is up for a reassessment in February.

The competitors:

Philippine Airlines
Philippines Airlines (PAL)
Destinations: 29 domestic, 31 international
Fleet : 40
Owners: Lucio Tan and San Miguel groups

Cebu Pacific Air
Cebu Pacific?
Destinations : 32 domestic, 19 international 
Fleet : 41 
Owners: Gokongwei group

AirPhil Express
AirPhil Express
Destinations: 30 domestic, 3 international 
Fleet : 21 
Owners: Lucio Tan and San Miguel groups

Destinations: 10 domestic, 5 international 
Fleet : 5
Owners: Tiger Airways, Filipino partners

Zest Airways
Zest Airways
Destinations: 14 domestic, 4 international 
Fleet : 14
Owners: Alfred Yao group

AirAsia Philippines
AirAsia Philippines
Destinations: 3 domestic, 3 international
Fleet : 2
Owners: AirAsia Berhad and Filipino partners

 There is one big winner in this business: AIRBUS


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