5J Slipping fast against 2P Onslaught

As Domestic Traffic grew 13% on First Half

August 28, 2012

The JG Summit controlled airline accounted for a total of 4.99 million people in the first half, up 17 percent over last year. San Miguel Corporation's Airphil Express is shadowing closer at a fast 29 percent surge in domestic passengers to 2.39 million with seat increase at 36 percent to 3.286 million.

Low Cost Carrier Cebu Pacific may be the market leader today but its dominance is being eaten slowly by its fiercest rival Air Philippines as both airlines define the future of Philippine skies.

Cebu Pacific airline CEO Lance Gokongwei is feeling the heat as shares of Cebu Air slid by 2.22% to P61.40 a piece after Philippine Airlines (PAL) up the tempo on domestic supremacy ordering 36 narrow-body jets for its subsidiary Airphil Express. They got delivery schedule as close as January 2013 while Cebu Pacific is withdrawing A319 on its fleet sold to Allegiant Air.

The airline said that it needs to rethink its strategy to secure more narrow body jets, a tactic it believes could be needed to defend its position against a resurgent PAL.

"Cebu Pacific will revisit its fleet plans to determine what additional lift it may need to supplement its existing orders,” CEO-advisor Garry Kingshott said.

Philippine airlines ordered 56 narrow and wide bodies from Airbus aimed to upgrade services amidst slot restrictions at Manila's Ninoy Aquino Airport. 

The number of passengers on domestic flights is expected to grow further and with slotting problems, upgrading the fleet is the only option to serve more amidst aggressive airline expansion that resulted to lower ticket prices.

The Civil Aeronautics Board (CAB) showed that there were 11.017 million domestic passengers using NAIA from January-June period of 2012, equivalent to 13.33 percent year on year growth. A total of 14.64 million seats were offered by airlines during the six-month period, up from 12.12 million last year.

Despite fierce competition domestic airlines manage to grow the market giving the industry an average load factor of 75 percent, which means three of every four seats on every flight was occupied.

Garry Kingshott expressed concern that they failed to grow with the market and is now rethinking its strategy as it may try to secure more narrow body jets, to defend its market share against Philippine Airlines low cost subsidiary.

While Cebu Pacific added 25 percent more seats in the first half of 2012 equivalent to 6.37 million their load factor fell from 84 percent to 78 percent. Its average ticket prices also fell 3.7 percent to P2,257 per person due to stiff competition among airlines.

Philippine Airlines meanwhile continued to lose market share as its passenger count fell 3.8 percent to 2.29 million in the six-month period. The company also reduced its number of seats to 3.046 million from 3.101 million. Load factors were also down 2 percentage points to 75 percent.

But PAL’s lower numbers resulted to positive return earning them $1.7 billion in gross revenues last year while Air Philippines hauled in $270 million. PAL passenger deficit was also offsetted by the tremendous growth of passengers served by its low cost subsidiary, Airphil Express in the first half of 2012.

The PAL unit reported a 29-percent surge in domestic passengers to 2.39 million as seats increased by 36 percent to 3.286 million.

On the other hand, Southeast Asian Airlines posted a steep decline in domestic passengers to 17,565 in the first half from 97,326 last year, mainly from turbo prop operations as it abandon non-profitable routes. Its services to trunk line routes in the second half is expected to go up with the arrival of three A320's for domestic run.

Zest Airways meanwhile had 1.26 million domestic passengers in the period, up slightly from 1.14 million last year.

AirAsia Philippines on the other hand carried 60,381 passengers in the first half after starting operations in March at Clark. CAB notes that AGP had the industry’s worst load factor at 45 percent.