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The Republic of the Philippines is an archipelago comprised of 7,107 islands and is favourably located in Southeast Asia's main trade flows. Air travel is necessitated by the country's many islands spread over a large area. Domestic air travel in the Philippines is convenient and relatively cheap. A host of new domestic carriers have entered the market to bring down prices. The Civil Aviation Authority of the Philippines is charged with providing a safe, reliable and efficient air transport system as well as developing and regulating the technical, operational, safety and security aspects of civil aviation.
Philippine Airlines is the national carrier of The Philippines, with hubs at Manila Ninoy Aquino International Airport and Mactan–Cebu International Airport. The airline operates a network of services within The Philippines as well throughout Asia, North America, Australia and the Pacific. There are five main competing commercial airlines serving the domestic market: Cebu Pacific, Philippine Airlines Express, Airphil Express, Zest Airways and South East Asian Airlines.
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Southeast Asia airline market sees more rapid growth & high international low-cost penetration rates
Southeast Asia continues to post some of the highest growth rates in the global aviation industry, driven primarily by expansion in the region’s booming low-cost sector.
LCCs now account for over 50% of capacity in Southeast Asia’s four largest domestic markets – Indonesia, Malaysia, the Philippines and Thailand. Even more impressively, LCCs have been able to rapidly claim about a 50% share in the intra-Southeast Asia international market.
But there has also been growth in 2013 at nearly all of the region’s flag carriers. A large portion of this growth has been on regional routes as full-service operators have been able to join the LCCs in taking advantage of the generally favourable economic conditions in Southeast Asia.
The Philippines-Japan market is poised to see a huge influx of capacity, driven primarily by expansion from Philippine low-cost carriers. The expansion is made possible by a new air services agreement between the two countries and the lifting of restrictions by Japanese authorities on Philippine carriers.
Cebu Pacific Air, which currently only serves one destination in Japan with three weekly flights, is seeking the biggest expansion with at least 80 additional weekly flights and eight new destinations. AirAsia is planning to enter the Philippines-Japan market with 32 weekly flights while Tigerair is looking to enter with 56 weekly flights.
Philippine Airlines (PAL) and its regional subsidiary PAL Express are seeking to add 63 weekly flights. PAL is currently the market leader with 31 weekly flights to Japan. In the total there are currently only 76 weekly flights between the two countries, a figure which should quickly double and possibly triple depending on how many of the proposed new flights are implemented.
AirAsia is attempting to turn around its struggling operations in the Philippines by closing its base at Manila alternative airport Clark and focusing on expansion at Manila Ninoy Aquino International Airport using slots held by new partner Zest Air. AirAsia is also seeking approval for Zest to adopt the AirAsia brand, giving the LCC group two carriers in the Philippine market but a single product.
AirAsia has struggled in the Philippine market since it launched Philippines AirAsia in Mar-2012. The new affiliate’s base at Clark has been highly unprofitable with limited growth opportunities.
Shifting focus to Manila significantly improves AirAsia Group’s outlook in the Philippines. But AirAsia will still need to overcome intense competition from market leader Cebu Pacific, which has a much stronger position at Manila, as well as the Philippine Airlines Group and Tigerair Philippines.
Philippine Airlines (PAL) is planning to launch services to London in early Nov-2013, the first step in an ambitious plan for resuming flights to Europe. PAL has secured Heathrow slots but the flight times are not ideal as they do not support connecting services, which the carrier will likely need to sustain the new route.
PAL will face intense competition from several carriers in the Manila-London market as well as in planned new services to continental Europe. While PAL will be the only airline offering non-stop service between the Philippines and Europe, the market is well served on a one-stop basis by several Asian and Gulf carriers.
PAL announced on 17-Sep-2013 that London Heathrow will be its first European destination since 1998 with flights beginning on 4-Nov-2013. The Manila-London Heathrow route will initially be served with five weekly frequencies using 777-300ERs.
Southeast Asia continues to experience rapid LCC expansion even though some key markets are approaching saturation. The region’s LCC fleet is poised to grow by about 20% in 2013, approaching 500 aircraft at year-end. With some of the largest airline orders in recent years coming from ASEAN-focused LCC groups, rapid growth for the sector is assured for the medium to long term.
The LCC penetration rate within Southeast Asia is now above 50%, having steadily increased over the last 10 years from less than 5% in 2003. Even in the intra-Southeast Asia international market, which is about one-third the size of the region’s domestic market, LCCs now account for 50% of total seat capacity – a remarkable figure given that ASEAN has not yet moved to a single market concept like the EU.
Opportunities still remain for LCC market share gains in some countries, particularly Myanmar and Vietnam. These important pioneer markets have the lowest LCC penetration rates among the seven main ASEAN countries but LCC start-ups from both countries are expanding rapidly.
Beijing Airport remains on the brink of becoming the world's largest airport, Dubai International Airport is fastest growing, rising to fifth place worldwide, while Madrid and Rome Fiumicino languish.
It is interesting to compare IATA’s recently revised global traffic demand projections for 2013 with those airports that offered the greatest amount of seat capacity in 2012 and 1H2013 (to end June) and with those airports that are preparing for traffic increases by constructing additional infrastructure.
IATA upgraded its global outlook for the airline industry at the beginning of Jun-2013.
It now predicts revenues for the year will hit USD711 billion, with airline industry profits to rise from USD10.6 billion to USD12.7 billion with a net margin of 1.8% and a return on invested capital of 4.8%.