Clark International Airport

AirAsia Philippines and Zest Air outlook improves following tie-up, but challenges remain

This is the second part of a series of articles looking at the outlook for Philippine carriers. The first part, published on 19-Mar-2013, analysed the strong position of market leader Cebu Pacific.

Part 2 looks at the recent tie up between AirAsia Philippines and Zest Air, which along with new Tiger Airways affiliate SEAir are looking to improve their relatively weak positioning in the highly competitive Philippine market. Part 3 will look at flag carrier Philippine Airlines and the recent rebranding and strategy shift at PAL Express, previously known as AirPhil Express.

AirAsia Philippines and privately owned Zest Air unveiled a strategic partnership on 11-Mar-2013 which included an equity swap, with AirAsia Philippines taking a 49% stake in Zest in exchange for a 15% stake in AirAsia Philippines. The partnership is expected to result in the AirAsia brand entering the Manila market, using the slots and traffic rights held by Zest. AirAsia currently only serves Manila's alternative airport, Clark.

Tiger returns to profitability but still faces challenges in Australia, Indonesia & the Philippines

Tiger Airways enters 2013 more upbeat after ending a string of seven consecutive quarters of losses and returning to profitability in the last three months of 2012. But the Singapore-based low-cost carrier group still faces a challenging 2013 as it tries to reverse the losses at its subsidiaries or affiliates in Australia, Indonesia and the Philippines.

Tiger’s original Singapore operation has recorded an encouraging improvement to its bottom line after going through a rough patch in late 2011 and early 2012, when over-capacity led to a decline in yields and load factors. The outlook for Tiger Singapore remains relatively bright, particularly as the carrier starts to see benefits from its new connection product.

But LCC competition in Singapore is intense, making it challenging for Tiger and rival Jetstar Asia to post high profit margins. Market conditions in Tiger’s other three home markets are even more challenging, with profits in the short-term unlikely although the group remains optimistic about its long-term prospects in Australia, Indonesia and the Philippines.

Tiger looks to catch-up after rights issue and departure of founding CEO Tony Davis

Tiger Airways is trying to move forward after surviving the most challenging chapter in its six-year history, capped off recently by a further shake-up in Tiger’s executive team, with founding CEO Tony Davis leaving the group, and a rights issue. Tiger's position going forward is significantly improved, but it still has several challenges to overcome if it has any chances of catching up with rival LCC groups AirAsia and Jetstar, which have successfully established pan-Asian footprints while similar efforts at Tiger have so far failed.

AirAsia Philippines impact on Cebu Pacific & PAL should be minimal – at least initially

Cebu Pacific, which has remained in the black in 1H2011 despite soaring fuel costs, does not expect the Oct-2011 launch of AirAsia Group’s new Philippine affiliate to curtail its growth or impact its profitability. Philippine Airlines (PAL), which was back in the red for the three months ending 30-Jun-2011, should also not be significantly impacted by AirAsia’s entry into the dynamic Philippine aviation market although the flag carrier continues to struggle against some of its existing low-cost competitors including Cebu Pacific.

JAL eyes domestic LCC; Qantas moots cuts as fuel bites; IATA reports shares drop 10%

Japan Airlines – which officially emerged from court-promoted bankruptcy this week – has a domestic LCC on its radar with Jetstar the most likely partner. Jetstar will reportedly outline the business case for the Japanese to the Qantas board in coming weeks, according to reports in Japan and Australia.