Domestic Airline remains bullish on the Philippines

10 June 2009

Kuala Lumpur -Airlines operating in the Philippines remains upbeat on their growth potential despite bleak forecast on international travel reported by the International Air Transport Association (IATA).

IATA has announced that airline losses are seen to double this year and may reach a whooping $9 billion, twice the $4.7 billion estimated in March says IATA Director General Giovanni Bisignani during the 65th Annual General Meeting and World Air Transport Summit held in Kuala Lumpur, Malaysia. The Geneva based organization represents 93 percent of global airline routes.

“There is no modern precedent for today’s economic meltdown," says the IATA Director stating that “this is the most difficult situation that the industry has faced." Bisignani said revenues would drop an “unprecedented" 15 percent to $448 billion in 2009 from last year’s $528 billion.

Airlines in Asia Pacific were slower to feel the impact of the downturn, but have arguably been the worsted affected.
Andrew Herdman
“We have felt the brunt, more so than the USA and Europe,” says Andrew Herdman, director general at the Association of Asia Pacific Airlines which represents 17 of the major carriers in the region.

He explains this is because most major Asia Pacific carriers rely heavily on the market segments which have been most adversely affected: cargo, premium travel and long-haul services.

Herdman says international cargo traffic was the first to feel the impact of the downturn, and will be the first to recover along with short-haul leisure traffic.

However, domestic air traffic figures in the Philippines has consistently defied world recession and is projected to grow further by whooping 14% this year despite international decline of passengers.

CAB deputy executive director Porvenir Porciuncula said domestic traffic for the first quarter of the year has already grown 21 percent more than last year while international traffic was down 5% from 3.03 million to 2.9 million in the first quarter of 2009. Domestic travel however grow from 2.8 million to 3.4 million passengers also on the first quarter of the year.

Meanwhile, Philippine Airlines (PAL) remains optimistic on its domestic growth and hopeful that its international operations would grow this year as it intend to go “back to basics" by improving its service to its customers.

Asia's first airline has been reputed in the past to have poor service performance but recently it managed to register an on time flight performance of over 90 percent in the last three years after successfully going out of its rehabilitation program.

Part of this initiative is to maintain PAL’s On time Performance, which is "better than industry standards." says PAL president Jaime J. Bautista during the World Air Transport Summit.

“Improving customer service both on ground and in the air, and offering competitive and affordable rates to loyal customers and new passengers will entice them to fly more and patronize Philippine Airlines," Bautista said.

The airline hopes to “adapt and cope with the current market volatility by focusing on product improvement, asset and cost management and business efficiency,"he added.

The company also expressed its “cautious optimism" about its three-pronged strategy which will focus on “contribution margin, cost efficiency, and risk management."

The said strategy will help tide the company over “during these difficult times," Bautista said. He added that the airline would continue to look for ways “to improve its operations and control costs without compromising passenger safety and comfort."

Low cost carrier Cebu Pacific Airlines on the other hand expects to meet its goal of transporting nine million passengers this year as it failed to meet its goal of transporting 7 million passengers in 2008 due to countersale-strategy by Philippine Airlines. Cebu Pacific flew 23 percent more passengers last year with 6.7 million as compared to 2007 figures. Lately, it booked 1.59 million as compared to 1.2 million passengers for the first quarter.

The airline is ranked as the third largest low-cost carrier in Asia Pacific next to Air Asia of Malaysia and Lion Air of Indonesia, and considered the 22nd largest LCC in the world based on passengers carried. Cebu Pacific maintained a mixed fleet of 8 ATR 72, 10 A319 and 11 A320, with 2 ATR 72 orders joining the company this year.

Cebu Pacific's projection for this year “stays the same" as market conditions during the period “have been anticipated," Candice Iyog, Cebu Pacific Air Inc. Vice President for marketing and distribution said on the same forum.

Zest Airways on its part will continue its expansion mode as it recently introduced a double daily service to Davao.

The used to be Asian Spirit airline will intend to re-introduce old routes it left in the past as it expands its domestic service under the Zest name. It recently made an order for 6 more Xi'an MA-60 to grow its fleet and service more secondary domestic destinations in Visayas and Mindanao. It also bought a brand new Airbus 320 plane from Europe based aircraft manufacturer Airbus for expansion to the Asia Pacific region.

Zest Air Chairman Donald Dee said that the two MA-60 will be stationed in Cebu while the third one will be stationed in Zamboanga to restore and expand its old domestic network.

"We have a good fighting chance, we are competing head-on with the big two market players for Caticlan, Cebu and Davao," Dee said.

Established barely a year, the airline is closely outpacing Air Philippines, a subsidiary of Philippine airlines, and running a poor fourth on the race for now but will become the 3rd largest domestic carrier by the first half of the year.

It flies from Manila to Virac in Catanduanes, Busuanga, San Jose (Mindoro), Marinduque, Cebu, Davao, Calbayog, Catarman and Caticlan, as well as new services to Puerto Princesa, Naga, Legaspi, Iloilo, Kalibo, Tacloban, Bacolod and Tagbilaran.

Within the year, the company is also expected to launch its regional routes when the international aviation industry rebounds again and that may include destinations to Hong Kong, Macau, Beijing, Xiamen, Kota Kinabalu, Kuala Lumpur, Singapore and Japan.

By operating locally, ZestAir has been shielded by uncertainty as it continue to grow its domestic operation despite recession and that is exactly their advantage.

Although it expects to post losses for its first year, the company, like all local carriers, is “least affected in the region," said Alfredo Yao. He agreed that his airline's future lies with the domestic market for now.

“Domestic travel is good. Our passengers has increased by 20 percent in the first quarter unlike those in the western side," he said referring to the United States.

Seair President and CEO Avelino Zapanta also expressed optimism that local travelers could pull up the local airline industry to a double-digit growth this year against the effect of recession.

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