Cebu Pacific Update – An E-Commerce Company With Aeroplanes

Transcript

Rick Howell:So August 14th we launch 3 times a week Manila direct to Melbourne, which will be the second airline operating Manila direct to Melbourne. And what we're hoping to do for the Melbourne market is similar to what we did for the Sydney market. We entered Sydney within 6 months of entering Sydney direct to Manila. We doubled the size of the market, dropped the average fare by 30%, and become the dominant player on the market. It's actually a good news story for lots of people, perhaps not a good news story for some of our competitors, but I'm sure that— in fact, it's interesting that on the Sydney market, even though we of course doubled the size of the market and became dominant, One of our competitors who shall remain nameless but happens to be Australian-based actually has grown their market as well. So it's an interesting demonstration of market stimulation, something that I think is probably going to increase. We've over 200,000 people in the Sydney area that are either Which is? Philippine-born or of direct Philippine heritage. And Melbourne has, from my understanding, around 180,000— 160,000 to 180,000 Filipinos or Filipino heritage residents. At the moment, Filipinos are the 4th highest— sorry, are ranked 4th in the immigration tables to Australia. So depending upon which table you look at, India, China, England, but either way, In terms of skilled migration and family migration, the Philippines generally comes out 4th. So we have a really good connection between Australia, the major cities in Australia, and the Philippines. And unlike some of the airlines that I've worked for in the past, as a low-cost carrier, our brand is incredibly well known in the Philippines. We are the largest e-commerce company in the Philippines. Our brand is dominant. Unfortunately, that doesn't work here. Now, if you speak to a Filipino or speak to somebody of Philippine heritage here, they'll know who Cebu Pacific is. However, if you actually ask, you know, your average Australian looking for a beach holiday, what's a Cebu Pacific, they probably can't tell you. Now, I can actually point out that I joined a little airline in the '90s that had 12 aircraft, and it was operating to Melbourne once a— 4 times a week with an A310. The airline was called Emirates. Now, at the time, nobody had heard of it. I'm pretty sure everybody's heard of it now. I don't think Cebu Pacific is going to be Emirates, but I do think that what we're actually going to do is grow the market quite significantly and show a whole pile of Australians that there's actually really good leisure, really good alternatives to Bali in a Similar sort of timeframe, but, you know, the Philippines is a country of 7,000 islands. It has beaches that no one's yet found. It has one of the world's top 10 surf breaks, which we fly to multiple times a day from both Manila and Cebu. It's a little untouched if you think about it. For the Australian market. And what we actually have discovered in Sydney is that because we don't have the marketing budget that Emirates has, we can't just enter a market and drive growth. We're never going to sponsor the Australian cricket team, we'll never sponsor Collingwood, thank goodness. It's actually, you know, that's not the way we do business. Our marketing budget is much smaller. Our growth is organic, and it's actually demonstrated to be very successful. Sydney now, as I said, when we doubled the size of the market in about 6 months, the market's now at about sort of 300% of the size that it was when we entered. We're also the largest cargo carrier on the market as well, on the Sydney to Manila sector. We have freight that connects to the Middle East, North Asia. We're a traditional low-cost carrier above the wing, but if you actually happen to be a box and you're travelling below, we look like a network carrier. Unusual for an LCC. Most low-cost carriers actually don't consider freight as a significant component of their consideration. For us, Particularly for the long-haul aeroplane, for the 330, we see that cargo actually frequently constitutes 20-ish percent of the revenue on a particular route, which means that we can charge a lot less for the seats that we're selling upstairs, because if we're competing with somebody who's not carrying cargo, well, clearly we have the opportunity to make our offer even more attractive. even more competitive. Melbourne has a larger cargo market than Sydney in air freight terms, so expect that there'll be a lot of fresh fruit and— sorry, fresh food and reasonably symmetrical cargo between Melbourne and Manila. Obviously, developing a new long-haul destination takes time. We're not expecting that when we launch the service that we're going to be straight up into stratospheric load factors. And we do think it'll be quite asymmetric for a period of time. Firstly, we do advertise the fact that we're launching to Melbourne within the Philippines. We have no help from Tourism Australia. Tourism Australia, for their own reasons, have actually not spent any money in the Philippines, although the top 25% of the Filipino economy— top 25% of the Filipino population actually have almost identical buying power to Malaysia. Now Malaysia, of course, is a country of about 25 million people. Philippines is a country of about 105, 110 million people. The top 25 million Filipinos are almost identical to the 25 million Malaysians. Tourism Australia has been heavily promoting Australia into Malaysia but hasn't promoted Australia into the Philippines at all. So all of the development work we've done on Sydney has been done without any help from Tourism Australia. So now obviously the Philippine Tourism Department has actually been strongly promoting Philippines as a destination, but it doesn't work quite the other way around. The other challenge we have, of course, is that right now our airfares are cheaper than the visa for a Filipino to come to Australia. So it's not just the airport fees, it's not just the government fees, at the airport, but if you actually apply for a— if you're a Filipino and you apply for a visa to come to Australia and you pay more for the visa than you do for the airfare, it's very difficult to convince Filipinos to take that first step. It needs to be compelling, and right now without any assistance from Tourism Australia, it's actually a little bit hard to get the market to We've been in discussion with a couple of other cities. Right now we have a fleet of short-haul aeroplanes, A320s, A321s, which don't really have the range to reach other parts of Australia. The A330 that we have is a 436-seat aeroplane. The only 2 cities in Australia that actually have the capability to support that size of aircraft to Melbourne and Sydney. Within the next 3 months, we receive our first A321neo. The A321neo is going to be a very interesting aeroplane. It turns a narrow-body aircraft into a sort of a, you know, a competitive 6-7 hour offering, which means that we can fly then the A321neo as far as Perth. We can certainly touch Brisbane. Darwin's within easy reach. And it actually changes the economics because the economics of operating the 321neo will actually become almost as convincing as operating the A330 in our configuration. But we don't have to have a market as large, which is actually quite interesting. And of course, the other thing that we've— we made a decision Our A321s started delivering early this year, and our A321 fleet is all coming with a containerised belly, which is again unusual in LCC terms except for those airlines that actually have a freight market. It's been very beneficial for us because we can turn the aircraft around quite quickly. If you're hand-loading baggage into the belly of the aeroplane, it actually takes takes quite some time to load an A321 because it's quite a lot longer. So you have more people in the belly moving the bags and stacking them, whereas the containerised aeroplane means that we can actually just load the containers like you would a large or widebody aircraft. But it also gives us the ability to carry palletised freight, which again separates us from a lot of our LCC competitors, particularly with the 321neo. And the available freight again gives us the opportunity to offer even more competitive seat prices because generally freight forwarders don't want to have their boxes handled by people stacking them in the aeroplane and breaking them and knocking things over, which is actually again good news for us. And we're very hopeful it'll actually be really good news for people who might want to take the opportunity to come and visit the Philippines and see one of the 7,107 islands at high tide. There are opportunities, yes, but again, the balance for us is that we're not very well known in the market here at the moment. So until such time as we become not necessarily a household name, but until such time we, you know, we're known in Melbourne and Sydney reasonably well, it's probably not a high priority for us to launch into, you know, into the other cities, particularly the aeroplanes with the A321neos with a longer range give us the opportunity to touch other larger cities throughout Asia, which we might not yet be serving.

Copyright policy: All transcripts on this site are the copyright of CAPA - Centre for Aviation. Our reproduction policy is as follows: you may quote up to 400 words of any transcript on the condition that you attribute the transcript to CAPA - Centre for Aviation and link to the original video page. All other use is prohibited. While we aim for 100% accuracy in the transcript, there may be some minor transcribing errors.