Philippines’ low-cost carriers market is overcrowded and saturated

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:

Philippines Airlines (PAL) Destinations: 29 domestic, 31 international Fleet : 40 Owners: Lucio Tan and San Miguel groups
Cebu Pacific? Destinations : 32 domestic, 19 international  Fleet : 41  Owners: Gokongwei group
AirPhil Express Destinations: 30 domestic, 3 international  Fleet : 21  Owners: Lucio Tan and San Miguel groups
SEAir  Destinations: 10 domestic, 5 international  Fleet : 5 Owners: Tiger Airways, Filipino partners
Zest Airways Destinations: 14 domestic, 4 international  Fleet : 14 Owners: Alfred Yao group
AirAsia Philippines Destinations: 3 domestic, 3 international Fleet : 2 Owners: AirAsia Berhad and Filipino partners

 There is one big winner in this business: AIRBUS