Cebu Pacific Air profits drop; PAL, Philippines AirAsia remain in the red. But outlook is improving

The Philippines market has gone through unprecedented consolidation since the beginning of 2013 with three LCCs exiting, leaving one full-service and two low-cost players. But reduced competition and more rational domestic capacity levels has not yet led to an improvement in profitability. Cebu Pacific Air recorded a sharp drop in profits for 1Q2014 while Philippine Airlines (PAL) and Philippines AirAsia (PAA) again incurred large losses.

Cebu Pacific, which acquired much smaller low-cost competitor Tigerair Philippines in Mar-2014, has been impacted by losses at its new long-haul operation. PAL has been impacted by ambitious international expansion, including the resumption of services to Europe and the Middle East. PAA, which has been highly unprofitable since its 2012 launch, continues to struggle despite its merger with another Philippine LCC, Zest Air.

But the outlook for the Philippine market, particularly the LCC sector, is relatively bright compared to most other Southeast Asian markets as only the Philippines has seen significant consolidation.