Philippines aviation Part 2: Renewed domestic capacity growth impacts Cebu Pacific, PAL & AirAsia

The Philippines domestic market has seen a surge in domestic capacity in 2H2015, pressuring yields and profitability. More domestic capacity increases are likely in 2016, driven by the up-gauging of flights at Manila and new point to point flights from Cebu and other secondary cities.

The Philippines domestic market did not experience any growth in 2013 and 2014. Consolidation and a more rational approach to capacity led to a significant improvement in market conditions in the Philippines.

The recent capacity increases should be absorbable over time given the lack of growth in 2013 and 2014. But at least for the short to medium term there will be pressure on yields as competition intensifies between the three remaining domestic players.