Cebu Pacific becomes latest Tigerair partner. Can LCC alliances counterbalance AirAsia and Lion?


Tigerair has forged an alliance with Cebu Pacific as part of an agreement to sell the group's small Philippine affiliate to the country's largest low-cost carrier. As it essentially only involves interlining and coordination on overlapping routes, the partnership is not that deep - at least not initially. But it has broader potential ramifications for Asia's dynamic and fast-growing LCC sector.

Cebu Pacific will be Tigerair's third partner following Indian LCC SpiceJet and Singapore Airlines long-haul low-cost subsidiary Scoot. More partners will follow, including potentially Thai Airways' LCC affiliate Nok, which has a new partnership with Scoot.

Cebu Pacific, Tigerair and SpiceJet are similarly sized. Combined, the three have the scale and network to match their much larger competitors - leading Asia-Pacific LCC groups AirAsia, Lion and Jetstar.

  • Tigerair and Cebu Pacific have formed a strategic alliance, allowing them to extend their networks and offer new destinations to their passengers.
  • The partnership will initially focus on interlining and coordination on overlapping routes, with potential for further cooperation in the future.
  • Cebu Pacific will acquire 100% of Tigerair Philippines for USD15 million, allowing Tigerair to focus on its other markets.
  • The combined fleet of Cebu Pacific and Tigerair will give them improved scale and competitiveness in the Asian LCC sector.
  • The alliance between Tigerair and Cebu Pacific, along with their other partners SpiceJet and Scoot, will create a network that rivals the larger LCC groups in the region.
  • While alliances may not be the ideal alternative to consolidation, they provide smaller LCCs with the opportunity to compete more effectively against larger players like AirAsia and Lion.

Tigerair and Cebu Pacific extend network reach through partnership

Tigerair and Cebu Pacific announced plans on 8-Jan-2014 to enter a strategic alliance. The partnership will virtually extend their networks, opening up a wide array of new destinations for their respective passengers.

For Tigerair, the interline will immediately open up North Asian destinations that are out of narrowbody range from the group's bases in Singapore, Indonesia and Australia. For Cebu Pacific, the interline opens up South Asia and over 10 additional destinations in Southeast Asia. The Tigerair group currently serves over 50 destinations while Cebu Pacific has a network of 24 international destinations and 33 domestic points in the Philippines.

The partnership also envisions joint operations on common routes between Singapore and the Philippines. But this is of limited significance as Tigerair and Cebu Pacific currently only have two overlapping routes, Singapore to Cebu and Manila. The two carriers will seek approval to coordinate schedules and potentially pool revenues on these routes, but do not plan to enter into a full joint venture with profit sharing.

Tigerair Philippines also operates two routes to Singapore (from Clark and Kalibo) along with two other international routes (Clark to Bangkok and Hong Kong) and eight domestic routes. Of its 12 routes the eight largest are also served by Cebu Pacific. Only four Tigerair Philippines routes, which are served less than daily, are not currently served by Cebu Pacific.

Cebu Pacific to take over Tigerair Philippines

Cebu Pacific has agreed to buy 100% of Tigerair Philippines, which is 40% owned by Singapore-listed Tiger Airways Holdings and 60% by private Filipino shareholders, for USD15 million. This will allow Tigerair to recoup only a portion of its investment in the Philippine carrier, which incurred losses of about USD65 million in the first 13 months after Tigerair acquired its stake in Aug-2012. As CAPA reported on 7-Jan-2014, the divestment will allow Tigerair to focus on Singapore, Indonesia, Australia and its planned new affiliate in Taiwan.

See related report: Cebu Pacific eyes Tigerair Philippines. Should Philippine authorities allow a takeover?

Cebu Pacific plans to retain the current Tigerair Philippines operation - including network, air operators' certificate (AOC), management team and workforce. The Tigerair brand will be retained initially but a re-branding would be logical in the medium term. In the meantime Cebu Pacific will start to use its own distribution network to sell Tigerair Philippines flights, which should yield significant improvements to the carrier's yields and profitability.

Cebu Pacific will re-time some Tigerair Philippines flights to avoid overlap, likely starting with the northern hemisphere summer schedule at the end of Mar-2014. Some network adjustments are possible in a later phase.

Tigerair Philippines' current fleet of five aircraft will be returned and re-deployed to other Tigerair affiliates. The carrier's two A319s will be returned when the transaction closes, which is expected in late Feb-2014 or Mar-2014. Its three A320s are expected to be returned by the end of 2014. Cebu Pacific will move over its own A320 family aircraft to Tigerair Philippines to replace the aircraft as they are returned to Tiger Airways Holdings.

Tigerair and Cebu Pacific seek scale in pursuing combination

The Tigerair group currently has a fleet of 51 aircraft, including 25 in Singapore, 12 at Tigerair Australia, nine in Indonesia at Tigerair Mandala and the five at Tigerair Philippines. Cebu Pacific currently has a fleet of 48 aircraft.

The combined fleet of 99 aircraft gives the two carriers improved scale in the increasingly competitive Asian LCC sector. Cebu Pacific and Tigerair began talking about a potential partnership in Feb-2013, recognising that an alliance would provide synergies and give them a scale approaching the scale enjoyed by their larger competitors.

As of 31-Dec-2013, Lion had an LCC group fleet of 133 aircraft while there were 172 aircraft operated under the AirAsia brand and 116 aircraft under the Jetstar brand. (The Lion figure includes all affiliates and subsidiaries except Batik as Batik follows the full-service model. The AirAsia figure include affiliates and subsidiaries under AirAsia Berhad and AirAsia X.)

See related report: Asia-Pacific 2014 outlook: faster growth for low-cost airlines as LCC fleet reaches 1,000 aircraft

Adding SpiceJet to the Cebu Pacific-Tigerair combination would result in even more scale with a combined fleet of 155 aircraft. Scoot currently operates six aircraft, giving airlines in the new Tigerair alliance a total fleet of 161 aircraft.

Asia-Pacific LCC groups ranked by fleet size: as of 31-Dec-2013

Group Total fleet Narrowbodies Turboprops Widebodies
AirAsia/AirAsia X 172 154 0 18
Lion 133 102 31 0
Jetstar 116 103 13
Tigerair 51 51 0 0
Tigerair Alliance* 161 130 23 8

SpiceJet began interlining with Tigerair on 1-Jan-2014. Scoot and Tigerair began interlining in late 2012 and recently applied to Singaporean competition authorities for anti-trust immunity to start coordinating schedules and pursuing joint sales on overlapping routes. As in the case with Tigerair and Cebu Pacific, Tigerair and Scoot are not planning to share profits on overlapping routes.

See related reports:

The new alliances can be seen as an attempt by the smallest of Asia's four main LCC groups and some of the region's independent LCCs to counterbalance AirAsia and Lion, which have emerged as the market leaders in the Asian LCC sector and are expanding ambitiously with order books that are un-matched globally. SpiceJet and Cebu Pacific are the second and third largest Asian LCCs not affiliated with one of the main groups. India's Indigo, which operates a fleet of 73 aircraft with 191 more on order, is the largest.

Nok, with a fleet of 16 aircraft plus five wet-leased turboprops, is also one of the larger independent LCCs in Asia. Nok could be a candidate to join the Tigerair alliance as it recently forged a joint venture with Scoot to establish a new Thailand-based medium/long-haul LCC.

See related report: NokScoot plans 2H2014 launch with two 777s, targeting Thailand-Japan and other North Asian markets

With Nok, the Asian LCC alliance group that is emerging under the leadership of Tigerair would include the key markets of India, Thailand, Indonesia, Australia, Singapore and Philippines. Taiwan will be added to the mix in 2014 as Tigerair Taiwan launches. (Tigerair Taiwan will likely inherit some of the aircraft coming out of Tigerair Philippines.)

Are LCC alliances able to unlock sufficient synergies without equity?

While creative and asset-light, the alliance strategy now being pursued by Tigerair is not exactly a match to the cross-border joint venture model used by AirAsia, Lion and Jetstar - which have significant stakes in all their partners. Tigerair also originally followed this model but is now focusing more on alliances, with its decision to divest Tigerair Philippines, to acquire only a 10% stake in Tigerair Taiwan and not to pursue equity stakes in Cebu Pacific or SpiceJet. An equity swap with Cebu Pacific and even a merger were options also considered as well as retaining 40% of Tigerair Philippines and having Cebu Pacific only take over the other 60%, but ultimately Tigerair elected not to pursue any of these in line with its new asset-light strategy.

The group structures in place at AirAsia, Lion, Jetstar (and still to some extent at Tigerair) are used to acquire aircraft and pool resources. They also allow for a common brand, reservations platform and in most cases website. The alliances being forged by Tigerair at least initially will be limited to network synergies.

Cebu Pacific and Tigerair (and perhaps other partners) plan in future to discuss other potential areas of cooperation including joint purchasing and maintenance. A joint order could be in the cards - Tigerair, Cebu Pacific and SpiceJet currently have less than 100 aircraft on outstanding order compared to nearly 600 for Lion and nearly 400 for AirAsia/AirAsia X.

But typically such areas of cooperation fail to materialise under alliances. Regardless, the network benefits are tangible and allows the smaller LCC groups and independent carriers to provide a level of connections that only the large groups are now able to offer.

AirAsia and to a lesser extent Jetstar have particularly built up a strong pan-Asia network. Lion, which until last year was predominately a domestic player in Indonesia, is also now quickly building up a network using its new affiliates in Malaysia and Thailand. AirAsia and Lion each currently account for about an 18% share of total LCC capacity in Asia-Pacific while Jetstar accounts for 10%, according to CAPA and OAG data.

Tigerair currently accounts for only slightly more than a 4% share of the approximately seven million weekly LCC seats in Asia-Pacific. But the Tigerair-Cebu Pacific-SpiceJet trio accounts for a more meaningful 15% share. Adding in Scoot brings it up to 16%. When also including Nok, the potential Tigerair-led alliance group would capture a 19% share of the market, giving it slightly more than AirAsia and Lion.

Asia-Pacific LCC capacity and capacity share by group: early Jan-2014


Number of AOCs

Number of countries Weekly seats Weekly seat share
AirAsia/AirAsia X 6 4 1,290,000 18%
Lion 4 3 1,239,000 18%
Jetstar 5 4 715,000 10%
Tigerair 4 4 315,000 4%
Tigerair Alliance* 7 5 1,126,000 16%
Tigerair Alliance plus Nok 8 6 1,303,000 19%

Alliances may not be the ideal alternative to consolidation in the intensely competitive Asian LCC sector. But they could provide sufficient benefits to allow the smaller groups and independent carriers to compete more effectively against AirAsia, Lion and Jetstar.

Asia's smaller and medium-sized LCCs cannot sit idle as AirAsia and Lion continue to pursue rapid expansion and build enormous scale.

Part 3

In the third part in a series of analysis articles on the implications of the Cebu Pacific-Tigerair tie-up, CAPA will look at what Cebu Pacific may do with the Tigerair Philippines AOC and how the purchase impacts its fleet and capacity plan for 2014. The first part looked at the potential competitive implications which will be reviewed by the Philippine Civil Aviation Board (CAB).

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