CAPA: Cebu Pacific’s Long Haul Operation. Part 2, Australia & Hawaii


Cebu Pacific is preparing to launch services to Hawaii by the end of 2015 and is also interested in launching Melbourne if it is able to secure additional traffic rights for Australia. Honolulu and Melbourne would be Cebu’s sixth and seventh long-haul destination, joining four in the Middle East and Sydney.

Cebu Pacific is also planning to start using its A330-300 widebody fleet to operate some of its flights to Hong Kong, Taipei and Tokyo. It currently uses the A330 on one of its daily Singapore flights and plans to add a second widebody frequency on ManilaSingapore, which is already its largest international route.

The new A330 flights will increase the utilisation rate of its widebody fleet, which is now low for LCC standards, and drive a 30% surge in total ASKs for 2015. The capacity growth is being achieved despite Cebu Pacific only expanding its fleet by three aircraft in 2015, including a single additional A330 as the carrier has shelved plans for adding two more A330s for a total of eight.

Cebu Pacific is eager to make Manila-Honolulu its next long-haul route

Cebu Pacific has been keen to launch services to Honolulu since the US FAA upgraded the Philippines to a category 1 safety rating in Apr-2014. The US prohibits the launch of any new services from airlines registered in countries with category 2 safety ratings.

Cebu Pacific initially had to wait to secure Extended Diversion Time Operations (EDTO) certification of 120min, which is needed to use the most direct and efficient routing for Manila-Honolulu. Cebu Pacific secured the certification in early Apr-2015 and is now waiting for final approval from the US TSA, which has to complete an assessment of Manila Terminal 3 before Cebu Pacific can serve the US.

Cebu Pacific remains optimistic it will be able to launch services to Honolulu by the end of 2015. It is also aiming to launch service from Manila to the US territory of Guam but this shorter route will be operated using Cebu’s A320 fleet.

Hawaii’s Filipino community will be the main target market for the planned Honolulu service. Manila-Honolulu is only currently served non-stop by Philippine Airlines (PAL) with five times weekly A330-300 frequencies. Hawaiian Airlines pulled out of the Manila market in 2013, leaving a potential opening for a second carrier.

But the upgrade to Category 1 has enabled PAL to expand in the Hawaii market ahead of Cebu Pacific. PAL has more than doubled seat capacity to Honolulu over the last year, according to CAPA and OAG data.

Total capacity in the Philippines-Hawaii market is now back to the early 2013 levels (prior to Hawaiian’s withdrawal). Cebu Pacific is banking it can stimulate demand and grow the market by breaking PAL’s monopoly and providing a new low-cost option.

Cebu Pacific expansion in Australia hinges on expanded bilateral

Honolulu is a key route as it will allow Cebu Pacific to diversify its long-haul network, which now relies heavily on the Middle East. Cebu’s only current long-haul route outside the Middle East is Sydney, which it launched in Sep-2015.

Cebu Pacific launched Manila-Sydney with an initial four weekly frequencies and added a fifth weekly frequency in Dec-2015. The increase to five weekly flights, which fully utilises its current allocation in the Philippines-Australia bilateral, was planned when it first announced the Sydney route and began sales in Australia in Jun-2014.

Since launching its long-haul unit in 2013 Cebu Pacific has pushed for an expanded air services agreement between the Philippines and Australia which would provide sufficient traffic rights to support a daily service to Sydney as well as Melbourne. Cebu Pacific is confident a new round of talks between the Philippines and Australia scheduled for 28-Apr-2015 will result in a significant increase in the current cap.

As CAPA has previously outlined, the capacity/frequency limit only applies to Sydney, Melbourne, Brisbane and Perth. All other Australian airports,  including Melbourne alternative airport Avalon, can be served by Filipino carriers without counting towards the cap. But Cebu Pacific is only interested – at least at this point – in serving Melbourne Airport, which also has been lobbying Australian authorities to forge a new air services agreement with the Philippines. The usually liberal Australian authorities have been in turn pushing Philippines officials to allow Australia beyond rights, for use by Australian airlines.

Cebu Pacific already has over 30% of seat capacity in Philippines-Australia market

Cebu Pacific is currently allocated 2,200 of the 6,000 available weekly seats for Filipino carriers while Philippine Airlines (PAL) is allocated the remaining 3,800. Based on the current five weekly flights schedule Cebu Pacific currently has 2,180 weekly seats to Australia as its A330-300s are in 436-seat single class configuration.

PAL also currently serves Sydney with five weekly flights using A330-300s but in 368-seat three-class configuration with economy, premium economy and business. PAL and Cebu Pacific compete in the Manila-Sydney market against Qantas, which operates four weekly flights on the route using A330-300s in 297-seat two-class configuration.

PAL is currently the only carrier operating non-stop flights from Manila to Melbourne, which it serves three times per week with A330-300s. PAL also serves Darwin with three weekly A320 flights that continue on to Brisbane.

PAL launched Darwin in Jun-2013 with seven weekly frequencies – including four that continued to Perth and three to Brisbane. But PAL quickly dropped the Manila-Darwin-Perth service in Sep-2013. PAL currently has about 3,400 weekly one-way seats to Australia compared to the 2,180 for Cebu Pacific and 1,188 for Qantas.

While PAL is currently not fully utilising its allotment for Australia it typically adds capacity during peak periods. For example PAL operated daily flights to Sydney in late 2014 and early 2015. PAL also has used a wide variety of aircraft types in recent years on the Melbourne and Sydney routes, including A340s and 777-300ERs.

Cebu Pacific seeks daily traffic rights for Sydney and Melbourne

Cebu Pacific executives said during the carrier’s 4Q2014 results presentation that it is keen to secure capacity entitlements to support 14 weekly frequencies to Australia. This would enable Cebu Pacific to operate daily flights to both Sydney and Melbourne, resulting in 6,104 weekly one-way seats in the Philippines-Australia market.

Assuming the current level of capacity from PAL and Qantas, total one-way weekly seat capacity in the Philippines-Australia market would increase to about 10,700, which represents nearly a 60% increase over current levels and about a doubling of capacity compared to Aug-2014 (prior to Cebu’s initial entrance). Cebu Pacific would capture a 57% share of capacity under such a scenario – but that assumes no competitive response by PAL, which could increase to capacity to Melbourne as it did when Cebu Pacific started to Sydney.

Cebu Pacific is optimistic such a large surge in capacity can be supported as its low fares stimulate demand and grow the total size of the pie. Cebu Pacific executives point to a 42% increase in total Manila-Sydney traffic from Sep-2014 through Dec-2014, the first four months it was competing in the market. The growth in the Sydney market “convinces us that this is a market worth investing over time,” Cebu Pacific CEO Advisor Garry Kingshott said during the carrier’s 4Q2014 results presentation in late Mar-2014.

Under the previous PAL-Qantas duopoly the market would have never grown at such a fast rate but the entrance of an LCC competitor has succeeded in driving down fares and stimulating new demand. Australian airports experienced similar growth in other Southeast Asian markets as other long-haul LCCs entered, including Scoot in the Sydney-Singapore market and AirAsia X in the Melbourne-Kuala Lumpur and Melbourne-Sydney markets.

Cebu Pacific sees an even bigger potential opportunity to stimulate demand in Melbourne because Manila-Melbourne is currently only served by one carrier rather than two. Both Sydney and Melbourne have large Filipino communities, making both markets attractive to Cebu’s long-haul division. Cebu Pacific’s long-haul business plan mainly targets ethnic and expatriate or labour traffic although in the Australia market it also expects a growing segment of inbound leisure traffic as the Philippines emerges as a popular alternative tourist destination for Australians.

Maintaining year-round daily flights to Sydney and Melbourne will be challenging

Cebu Pacific’s aspirations for two daily flights to Australia, however, could prove overly ambitious. The Philippines-Australia market is extremely seasonal and at least for the short to medium term is unlikely to support such a large amount of capacity (over 10,000 weekly one-way seats) except during the peak periods.

Most Filipino expatriates as well as students return home during holiday periods due to their work or study schedules. It will be hard to stimulate sufficient demand from Australia’s Filipino community to fill up a 436-seat aircraft daily from Sydney or Melbourne on a year-round basis.

Cebu Pacific should be able attract some Australian outbound holiday traffic as well as connection traffic beyond Manila to destinations such as Hong Kong, South Korea and Japan – by offering significantly cheaper fares than the non-stop providers. But demand from such sectors also varies significantly depending on the time of the year. And competition in the one-stop Australia-North Asia market is extremely intense.

Even with the current Australia schedule of five weekly flights Cebu Pacific has been struggling during off peak and shoulder months. For example after a strong January Cebu Pacific saw a decline in its Manila-Sydney load factor in February, which is typically a relatively weak month for the Australian market as it falls between the southern summer holiday period and Easter.

Cebu Pacific temporarily cuts capacity to Sydney

Cebu Pacific seems concerned it could see similar drops during other off-peak periods as it has cut one weekly frequency from its Manila-Sydney schedule for Jun-2015, Aug-2015 and Sep-2015. Cebu Pacific will only operate four weekly flights during these three months but plans to operate the normal five weekly flights in Jul-2015 as well as in Oct-2015, Nov-2015 and Dec-2015, according to its online booking engine.

The temporary reductions to Sydney are sensible but are an indication of the challenges in maintaining a frequent service on a year-round basis.

Cebu Pacific obviously is keen to secure enough traffic rights for daily to Sydney and Melbourne, as this would give it the flexibility to gradually expand in the Australia market if market conditions warrant. But Cebu Pacific could end up with a schedule that only offers daily – or close to daily – services in both Australian markets during the peak periods.

Cebu Pacific continues to expand A330 short-haul flying

Quickly expanding to 14 weekly flights to Australia would also not be in line with Cebu’s generally conservative approach to expansion. Cebu Pacific has slowly expanded its long-haul operation since taking its first A330 two years ago and instead has been using a portion of its A330 fleet to operate short-haul routes. The use of the A330 on routes such as Cebu, Davao, Seoul and Singapore have been profitable and significantly reduce the overall risk that comes with launching a long-haul widebody operation.

Cebu Pacific is keen to add capacity to both Australia and the UAE, where it is also seeking more traffic rights which would support the potential launch of services to Sharjah. But such expansion would require that the A330 be removed from some profitable short-haul routes.

Cebu Pacific currently uses the A330 to operate three short-haul routes including 17 weekly flights on Manila-Davao, four weekly flights on Manila-Cebu and one daily flight on Manila-Singapore (based on OAG schedule data for week commencing 20-Apr-2015). Mr Kingshott said Cebu Pacific has secured approval to up-gauge a second daily Manila-Singapore frequency to the A330 and is also planning to start using the type on some flights to Hong Kong and Taipei.

Cebu Pacific currently operates 25 weekly flights on Manila-Singapore, 28 weekly flights on Manila-Hong Kong and 10 weekly flights on Manila-Taipei. Manila-Singapore is Cebu’s largest international route, slightly ahead of Manila-Hong Kong, as the A330 is already used on seven of the Singapore frequencies.

Manila-Taipei (TPE) and all four of Cebu’s current long-haul routes – Manila to Dubai (DXB), Sydney (SYD), Kuwait (KWI) and Riyadh (RUH) – are also among Cebu’s 10 largest international routes.

Cebu Pacific top 10 international routes ranked by weekly seat capacity: 20-Apr-2015 to 26-Apr-2015

Cebu Pacific to use A330 to add capacity to Hong Kong, Taipei and Tokyo

The use of the A330 on Hong Kong and Taipei is made possible by new air services agreements that significantly increase the total capacity available to Filipino carriers in both markets.

Deploying A330s on some Hong Kong flights is particularly logical given the slot constraints at Hong Kong. Cebu Pacific was previously unable to up-gauge any of its Hong Kong flights to A330s without sacrificing an existing slot because the Philippines-Hong Kong bilateral has seat capacity (rather than frequency) limits. Cebu Pacific has previously only operated a very small number of ad hoc A330 flights to Hong Kong during peak periods.

Cebu Pacific also has been keen to add capacity to Taipei for some time as demand in the Philippines-Taiwan market has been growing rapidly. Following the new bilateral agreement between the Philippines and Taiwan, which was forged in Mar-2015, Cebu Pacific is now free to add frequencies to Taipei. But the market is big enough to support A330s during peak periods.

Cebu Pacific is also planning to again use the A330 on some flights to Tokyo Narita, which it currently serves with one daily flight. Cebu Pacific operated the A330 on some of its Tokyo flights in 2014 during the peak northern summer months. In addition Cebu Pacific previously operated the A330 on some flights between Manila and Seoul, which it currently serves with one daily A320 flight.

Cebu Pacific to boost A330 utilisation rates

Cebu Pacific will continue to take a flexible approach to using the A330 on short-haul route, making several adjustments depending on the time of the year and market conditions. As a result it is unlikely to use the A330 on Cebu, Davao, Hong Kong, Taipei, Tokyo and Singapore all at once. But the A330 deployment plans for the remainder of 2015 show a general increase in the number of short-haul flights even with Cebu Pacific launching a fifth long-haul route, Manila-Doha, in Jun-2015.

Cebu Pacific should be able to achieve this as it is currently only using its A330 fleet an average of 11hrs per aircraft per day. This will increase slightly, to about 11.5hrs, in early Jun-2015, when Cebu launches two weekly flights to Doha but reduces Sydney to four weekly flights.

Cebu Pacific current A330 network and weekly utilisation levels

Route  Apr-2015

frequency 

Scheduled

block time

per flight

Total weekly

block time

per route

Manila-Dubai-Manila Daily 9:00/8:30 122:30
Manila-Kuwait-Manila 4 times weekly 10:40/9:40 81:20
Manila-Sydney-Manila 5 times weekly 7:50/7:55 78:45
Manila-Riyadh-Manila 3 times weekly 10:30/9:55 61:15
Manila-Davao-Manila 17 times weekly 1:45/1:45 59:30
Manila-Singapore-Manila Daily 3:30 /3:30 49:00
Manila-Cebu-Manila 4 times weekly 1:15/1:15 10:00
TOTALS 47 weekly flights 462:20 = 77hr per aircraft

Higher utilisation rates will reduce unit costs and also enable Cebu Pacific to meet its capacity targets for 2015 without significant fleet expansion. Cebu Pacific is projecting a 15% increase in seat capacity for 2015 and a 30% jump in ASKs.

The ASK increase is driven partially by the full-year effect from Kuwait, Riyadh and Sydney – which were all launched in the latter half of 2014. Even with the relatively low utilisation levels the A330 fleet currently accounts for about one-third of total Cebu Pacific ASKs (but only about 10% of total seats).

Cebu Pacific system-wide weekly ASKs by aircraft type: 20-Apr-2015 to 26-Apr-2015

The Cebu Pacific Group (includes subsidiary Tigerair Philippines) is expanding its A320 family fleet in 2015 by only two aircraft from 32 to 34. Two A319s are exiting in 2015 as part of a recent sale of six aircraft to Allegiant Air while four new A320s are being delivered.

Cebu Pacific also only added two A320 family aircraft in 2H2014. But Cebu Pacific has been able to free up A320s by using its new A330 fleet to take over short-haul flights previously operated by A320s.

Cebu Pacific Group fleet plan: end 2014 to end 2017

As Cebu Pacific expands its long-haul operation, particularly if Melbourne and Sharjah are launched, it will need to relook at expanding its A330 fleet or pulling A330s off short-haul routes. Pursuing the latter is unlikely as the A330s have been profitable on short-haul routes and Cebu Pacific needs this capacity given the relatively limited expansion of its narrowbody fleet.

Cebu Pacific holds off on expanding its A330 fleet beyond six aircraft – for now

Cebu Pacific’s original business plan for the long-haul unit envisioned a total of eight A330s. But Cebu Pacific never committed to the seventh or eighth aircraft, which Cebu Pacific was initially looking to lease from 2015. Instead Cebu Pacific recently decided to stop – at least for now – at six aircraft.

Taking a break from widebody fleet expansion is a sensible approach. Cebu’s long-haul operation has so far been unprofitable, as highlighted in the first part in this series of reports, and there are opportunities to squeeze out more capacity by improving utilisation of the existing six aircraft.

With the current A330 fleet it is hard to imagine the airline operating more than six long-haul routes, which Cebu Pacific will be operating once it launches Honolulu. If Sharjah, Melbourne and other potential new route opportunities become available Cebu Pacific will need to revisit acquiring the two additional widebody aircraft in the original business plan.

For now Cebu Pacific is wisely taking a wait-and-see approach while in the meantime seeking additional traffic rights and working to improve its performance in the Australia and Middle East markets. Now is not the time to rush into acquiring additional widebody aircraft. Meanwhile, the outcome of the Apr-2015 bilateral talks with Australia will be an important factor in that planning.

Source: CAPA, http://centreforaviation.com

CAPA: Cebu Pacific’s Long-Haul Operation. Part 1 The Middle East


Cebu Pacific Air is planning further expansion of its long-haul network in 2015 but, at least for now, has shelved plans for growing its widebody fleet beyond six aircraft. The Philippine LCC is wisely waiting to see how its long-haul operation, which had a load factor of only 53% in 4Q2014, matures before committing to more A330s or new-generation widebody aircraft.

Cebu Pacific took delivery of its sixth A330-300 in Mar-2015. The airline is currently using its widebody fleet to operate only four long-haul routesDubai, Kuwait, Riyadh and Sydney – but the type is also currently being used on three short-haul routes.

Manila-Doha is being launched as Cebu’s fifth long-haul route – and fourth to the Middle East – in Jun-2015. Cebu Pacific is also seeking additional traffic rights to the UAE which would be used to launch services to Sharjah. While the Middle East remains the main focus of Cebu’s long-haul unit, the LCC also aims to begin serving Honolulu by the end of 2015 and is keen to secure more Australia rights to enable the launch of services to Melbourne.

Cebu Pacific’s long-haul operation struggled in 4Q2014 as new routes were launched

Cebu Pacific launched its long-haul unit in 2013, when it took delivery of its first two 436-seat A330-300s and began services services to Dubai. Cebu Pacific did not launch its second long-haul route until Sep-2014, at which point it had a fleet of five A330-300s.

The airline initially focused primarily on using the A330 to increase capacity on domestic and regional international routes. This was a sensible approach given the initial performance on the Manila-Dubai route and the opportunities Cebu Pacific had to up-gauge short-haul flights from A320s to A330s.

Cebu Pacific’s long-haul division began a new chapter in early Sep-2014 as it launched four routes within a span of only five weeks – Dammam, Kuwait, Riyadh and Sydney. Not surprisingly the rapid network expansion proved to be challenging as new long-haul routes typically have a longer spool-up period than short-haul routes. Cebu Pacific also quickly realised Manila-Dammam was a particularly challenging route and decided to suspend Dammam from 30-Mar-2015.

Cebu Pacific reported in its 4Q2014 results presentation an average load factor across its five long-haul routes (including Dubai and the four new routes) of only 53% for 4Q2014. Cebu Pacific had a similar initial experience with the Dubai route after its Oct-2013 launch. Cebu Pacific recorded an initial load factor of only 36% in its first month of operating Manila-Dubai.

Performance on the Dubai route has gradually improved over time. For the full year in 2014 Cebu Pacific’s average load factor on long-haul routes was 61%. This mostly reflects its performance in the Dubai market as the UAE (Dubai or Sharjah, which was served temporarily during runway works at Dubai) accounted for more than 60% of total Cebu Pacific long-haul ASKs for the year.

Cebu Pacific’s long-haul operation incurred over USD20 million in losses in 2014

Cebu Pacific executives said during the carrier’s 4Q2014 results briefing that its long-haul operation incurred a loss of about PHP1 billion (USD23 million) in 2014. This includes continued losses on Manila-Dubai as well as start-up costs for Dammam, Kuwait, Riyadh and Sydney. The profits the A330s generated on short-haul routes, which Cebu Pacific stated were substantial, are not included in the PHP1 billion figure.

Cebu Pacific should continue to see improvements in Dubai and is confident it will also see gradual improvements in 2015 across the three new long-haul routes it has maintained. In the Manila-Dubai market Cebu Pacific should benefit from Emirates‘ reduction at the end of Jan-2015 from three to two daily flights.

Cebu Pacific currently operates one daily flight to Dubai, a schedule it plans to maintain although for some of 2014 it cut back to a less than daily schedule. Sydney, which was launched on 9-Sep-2015 with four weekly frequencies, is currently served with five weekly flights. Kuwait, which was launched on 2-Sep-2015 with three weekly flights, is currently served with four frequencies. Riyadh, which was launched on 1-Oct-2015, is served with three weekly flights. Dammam was also served with three weekly flights during the six months it operated (5-Oct-2014 to 30-Mar-2015).

According to Cebu Pacific’s online booking engine Sydney is being reduced back to four weekly frequencies in Jun-2015 as Cebu Pacific launches Doha, which will be served with two weekly flights from 4-Jun-2015.

Cebu Pacific’s A330 schedule on short-haul routes – which currently includes 17 weekly flights to Davao, four weekly flights to Cebu and one daily flight to Singapore – will remain unchanged in Jun-2015 (based on schedules in OAG).

But Cebu Pacific is planning to start using the A330 on more short-haul routes in 2H2015, which should enable the carrier to boost average aircraft utilization levels. CAPA will examine these plans and the overall use of the A330 fleet in the next installment in this series of reports.

Cebu Pacific sees opportunity in Qatar market

Competing in the Manila-Doha market could be challenging as Qatar has a much smaller community of Filipinos than Saudi Arabia or the UAE and a slightly smaller community than Kuwait. But Cebu Pacific is taking a low risk approach as it is launching Doha with only two weekly flights (all its other long-haul routes have launched with at least three weekly flights).

Cebu Pacific believes Doha is a relatively predictable market that could prove to be more easy to manage in the spool-up phase than its other Middle Eastern routes. Cebu Pacific is offering initial one-way fares including taxes on the Manila-Doha route from PHP3,558 (USD82), which should help stimulate demand among the Filipino expatriate population living in Qatar. Fares on its other three Middle East routes currently start at PHP5,558 (USD126) including taxes. (Checked bags, food and drinks are sold separately as Cebu Pacific follows a pure LCC model.)

PAL’s withdrawal from the Manila-Doha route, which it operated for about six months in late 2013 and early 2014, leaves a potential opening for Cebu Pacific. Qatar Airways also reduced capacity in late 2013 on the Manila-Doha route from two to one daily frequency. Qatar has since operated one daily flight to alternative airport Clark but Manila is generally considered a much more convenient airport for most Filipinos.

The shift of second frequency to Clark was necessary after Qatar ended an unusual codeshare arrangement with PAL, which enabled Qatar to use PAL’s traffic rights for its second Manila frequency although the flight was Qatar-operated. Emirates more recently was similarly forced to cut its third frequency to Manila after the same type of codeshare partnership with PAL ended. Cebu Pacific was a staunch opponent of these arrangements as Gulf rivals were able to use traffic rights intended for Philippine carriers.

Cebu Pacific is targeting a different sector of the Philippines-Middle East market from those of its Gulf competitors although there is obviously some overlap. Cebu Pacific is focusing almost entirely on migrant worker and visiting friends and relatives (VFR) traffic. In deciding in 2012 to establish a long-haul unit Cebu Pacific determined most of this traffic was flying between Manila and the Middle East on one-stop carriers. While Emirates, Etihad and Qatar carry a relatively large volume of Filipino workers based in the Gulf, they focus more on markets beyond their hubs, particularly the Philippines-Europe market.

Kuwait Airways, Oman Air and Saudia also serve Manila. Cebu Pacific competes against Kuwait Airways on the Manila-Kuwait route but Cebu Pacific is the only non-stop operator as Kuwait’s six times per week Manila service operates via Bangkok.

Oman Air launched services to Manila in late 2014, resulting in a new one-stop competitor in the Manila-Middle East markets served by Cebu Pacific. The new route from Oman has been successful but Oman Air is mainly focusing on the local Manila-Oman market and connections to Europe.

Cebu Pacific’s share of capacity in the Philippines-Saudi Arabia market drops to 13%

Saudia serves Manila from Jeddah, Riyadh and Dammam with a total of 12 weekly frequencies, according to current schedules in OAG. Saudia is a tough competitor as it focuses mainly on the local Philippines-Saudi Arabia market. PAL also competes in the Manila-Riyadh market, which it entered in late 2013 and currently serves five times per week.

Cebu Pacific currently accounts for only about 13% of non-stop seat capacity in the Philippines-Saudi Arabia market compared to about 38% for PAL and 49% for Saudia, according to CAPA and OAG data. Cebu Pacific briefly captured over 20% of capacity in this market while it operated to Dammam. Even with Cebu pulling out of Dammam total seat capacity in the Philippines-Saudi Arabia market has more than doubled since late 2013.

Cebu Pacific could bolster its position in the Philippines-Saudi Arabia market if it is able to implement a potential partnership with flynas. The Saudi Arabia-based LCC would give Cebu Pacific an opportunity to sell domestic connections beyond Riyadh, including Dammam.

Short-haul international connections are also possible beyond Riyadh. By using Riyadh to serve offline markets in the Middle East as well as parts of Eastern Europe Cebu Pacific could potentially increase capacity on Riyadh beyond the current three weekly flights.

Cebu Pacific seeks additional traffic rights for the UAE

A potential partnership with flynas as well as UAE-based LCC Air Arabia would enable Cebu Pacific to not rely entirely on the point to point market. While the business case for the Cebu Pacific long-haul unit was always based purely on local traffic the opportunity to provide connections beyond its Middle Eastern gateways should boost load factors and the overall performance of its long-haul operation, particularly during off-peak periods.

Cebu Pacific had a marketing tie-up with Air Arabia during its time serving Sharjah in mid-2014 while there was runway works in Dubai. As CAPA previously outlined, Cebu Pacific has since been keen to launch regular services to Sharjah, which would enable it to forge a more comprehensive and permanent partnership with Air Arabia.

The Sharjah flight would complement and not replace Dubai as Cebu Pacific sees Sharjah as a separate market with strong local demand from Filipinos working in that part of the UAE plus connections on Air Arabia.

Cebu Pacific is now in the process of applying for additional Philippines-UAE traffic rights, which it would use to launch services to Sharjah. The rights should be available as Filipino carriers are currently only using 18 of their 28 available weekly entitlements. This includes 11 weekly flights from the PAL Group and seven for Cebu Pacific. The PAL Group currently operates five weekly flights to Abu Dhabi and six weekly flights to Dubai, according to OAG. The Dubai flight was recently handed from PAL Express to PAL mainline, which already operated the Abu Dhabi route.

But there is no guarantee Cebu Pacific will receive additional traffic rights for the UAE. The PAL Group also is interested in increasing its capacity to the UAE. More flights to Abu Dhabi are likely for PAL given the flag carrier’s recently expanded codeshare partnership with Etihad. Currently Etihad operates two daily flights to Manila and is unable to expand on the route on its own as the UAE carriers are now fully utilising their 28 weekly entitlements (the restrictions are imposed from the Philippine side).

The PAL Group, which launched both Abu Dhabi and Dubai in 2H2013, currently has about a 24% share of non-stop seat capacity between the Philippines and the UAE. Cebu Pacific has a 17% share while Emirates has seen its share of the market drop to about 30%. Etihad also has nearly a 30% share of capacity in the Philippines-UAE market.

Total seat capacity in the Philippines-UAE market is currently up by about 33% compared to Apr-2013 but is down about 23% compared to Apr-2014. The reduction, which was driven mainly by the cut at Emirates, should leave an opening for further expansion by Cebu Pacific and/or PAL.

The Philippines-UAE market could potentially support more capacity, particularly during peak periods. Naturally it took time for the sudden surge in capacity by Filipino carriers from 2H2013 to be absorbed.

Cebu Pacific quickly gains a foothold in the Philippines-Middle East market; but challenges remain

In the broader Philippines-Middle East market, total non-stop seat capacity has increased by about 60% over the past two years. Cebu Pacific will account for about a 19% share of non-stop capacity in this market in Jun-2015, at which point it will be operating four routes to four countries in the region, compared to zero Jun-2013.

Cebu Pacific has a much larger share of the actual market as a majority of passengers carried by the three main Gulf carriers, which still account for about 40% of total capacity, are connecting to flights beyond the Middle East.

Cebu Pacific has been successful at securing a significant share of the Philippines-Middle East market in a relatively short period and has stimulated demand with its low fares. But Cebu Pacific’s operation in the Middle East, which was always the main target for its long-haul unit, has faced challenges and has so far been highly unprofitable.

Cebu Pacific is confident its long-haul operation will broadly break even in 2015. The airline expects an average load factor across its long-haul network in 2015 of more than 70%. Higher yields and lower fuel prices will also help drive the hoped for turnaround.

Cebu Pacific has already noticed a significant improvement on Dubai, Kuwait and Riyadh in 1Q2015. “My sense is we are over the hump with the long-haul operation,” says Cebu Pacific CEO Advisor Garry Kingshott.

The anticipated improved performance of the long-haul operation hinges on a significantly better performance in the Middle East market, which will account for approximately 75% of its long-haul capacity in 2015.

Cebu Pacific could potentially increase capacity to Australia (its only current long-haul destination outside the Middle East) and is planning to launch services to Hawaii, but not until late 2015.

Cebu Pacific is banking on the Middle East as it tries to prove it made the right decision in 2012 in taking the long-haul low-cost plunge. Given the reduction in fuel prices and the fact Cebu Pacific has now had plenty of time to iron out the initial kinks and get accustomed to the intricacies of the Middle East market, 2015 is likely to be a make or break year for the long-haul operation.

Source: CAPA, http://centreforaviation.com

AirAsia Philippines Adds More Flights To KL; Adds HK


MANILA, Philippines – Low-cost carrier AirAsia  Bhd. of Malaysia is beefing up its Manila to Kuala Lumpur flights to accommodate the increasing number of passengers between the two destinations.

AirAsia said in a statement that it would fly three times a day to Kuala Lumpur from Manila starting July 12, instead of two times a day.

Likewise, it added it would also increase the number of flights between Kuala Lumpur and Banda Aceh to 10 times a week starting July 16 from the current seven times a week.

AirAsia  would operate both flights with the flight code AK.

The budget carrier connects Malaysia to the Philippines with daily flights to Clark and Kalibo from Kuala Lumpur as well as to Cebu from Kuala Lumpur three times a week.

On the other hand, guests from Kota Kinabalu and Sabah could connect to Manila with daily flights as well as Cebu with four weekly flights via AirAsia Zest.

AirAsia’s network  in the Philippines includes Puerto Princesa in Palawan, Tagbilaran, Kalibo, Tacloban, and Cebu via flights of AirAsia and AirAsia Zest.

The airline operates more than 250 weekly flights connecting Malaysia and Indonesia covering 16 cities as well as hubs in Malaysia from Kuala Lumpur, Johor Bahru, Penang and Kota Kinabalu to Balikpan, Bandung, Bali, Lombok Jakarta, Medan, Jogjakarta, Padang, Palemban, Pekanbaru, Pontianak, Semarang, Solo, Surabaya, and Makassar.

Earlier, AirAsia founder Tony Fernandes confirmed plans that AirAsia Philippines and AirAsia Indonesia would pursue an initial public offering (IPO) to raise funds to finance the group’s expansion.

“We can confirm today that AirAsia Indonesia and AirAsia Philippines will be IPO (sic). Subject to respective board approvals,” Fernandes said in his Twitter account.

The airline executive pointed out that AirAsia’s business in both countries is improving.

“Business in both Philippines and Indonesia doing real well. Great support from both governments,” he added.

Source:  (The Philippine Star)

Image Source: Wong Chi Lam, http://www.planespotters.net

Starting May 8, 2015, AirAsia Philippines will be flying to Hong Kong. It will begin its HK-MNL route with a four flights a week, every Monday, Tuesday, Friday and Saturday.

To introduce and celebrate this new route, the airline is offering an introductory rate of PHP1 one-way base fare. Travel period is from May 8 to Oct 23, 2015.

You can book these flights online or through AirAsia’s mobile app both on iOS and Android, as well as its mobile site.

AirAsia Philippines has been voted the World’s Best Low Cost Carrier for six consecutive years.

Source: http://manila.coconuts.co

CAPA: Southeast Asia Airlines Endure Rough & Unprofitable 2014; Outlook For 2015 Is Brighter


Of the 18 publicly traded airlines or subsidiaries/affiliates in Southeast Asia which report financial results, five saw a reduction in operating profits in 2014 – Bangkok Airways, Malaysia AirAsia, Singapore Airlines (SIA), SIA regional subsidiary SilkAir and Thai AirAsia. Another four saw their operating losses widen – Indonesia AirAsia, Malaysia Airlines (MAS), Tigerair Singapore and Thai Airways – and three swung from a profit to a loss – Garuda Indonesia, Nok Air and Malaysia AirAsia X.

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The six which improved profitability were Cebu Pacific, Philippine Airlines (PAL), Philippines AirAsia, Tigerair Philippines, Garuda Indonesia budget subsidiary Citilink and SIA Cargo. The latter four remained in the red while Cebu Pacific managed an improvement in profits and PAL was the only airline to swing from a loss to a profit.

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The Philippines was an exception, led by a huge improvement at Philippine Airlines

Four of the six airlines which saw profits improve are based in the Philippines, which bucked the general trend in the region as market conditions improved. The Philippine market benefitted from consolidation and capacity reductions while overcapacity plagued all the other major markets in Southeast Asia.

The consolidation included the early 2014 acquisition by Cebu Pacific of Tigerair Philippines, which Cebu Pacific was able to quickly turn around. Tigerair Philippines incurred a net loss of only USD4 million between 20-Mar-2014, the date the acquisition closed, and 31-Dec-2014. The LCC incurred a loss of about USD54 million in 2013 and a loss of about USD15 million in the first 80 days of 2014, based on figures from the Singapore-based Tigerair Group.

Philippines AirAsia acquired Zest in 2013 and the two carriers are now in the process of merging. The AirAsia Group is confident its Philippine operation can turn the corner in 2015 after narrowing losses in 2014. (Note: Philippines AirAsia financial figures include Zest.)

But by far the biggest improvement in the Philippine market and Southeast Asia overall has come at flag carrier Philippine Airlines. PAL, the last of Southeast Asia’s publicly listed airlines to report results for 2014, recently posted an operating profit of USD7 million for 2014 compared to an operating loss of USD283 in 2013. CAPA will take a detailed look at the Philippine market in an upcoming series of analysis reports, produced for CAPA Members.

Of the five main Southeast Asian markets, only the Philippines managed an improvement in market conditions and profitability in 2014. The airline sectors in Indonesia, Malaysia and Thailand were all unprofitable in 2014 after posting profits in 2013. The Singapore airline sector was profitable in 2014 but only modestly and saw a drop compared to 2013.

Thailand was set back by a prolonged period of political instability, which significantly impacted inbound demand, while Indonesia was impacted by the depreciation of the Indonesian rupiah, weaker economic growth and a presidential election. In Malaysia, the MH370 and MH17 incidents contributed to a weaker demand environment. Singapore saw a slowdown as it relies heavily on all three of these markets as well as China, which saw a large drop in outbound visitor numbers across Southeast Asia.

Asia Airline Sector Operating Profit/Loss Or EBIT (in USD) By Carrier: 2014 vs 2013 (Source: CAPA, http://centreforaviation.com)

Rank Airline  Country             2014

operating result 

         2013

operating result 

1. Malaysia AirAsia Malaysia  $261m profit $293m profit
2. Singapore Airlines Singapore  $166m profit $197m profit
3. Cebu Pacific Philippines  $97m profit $57m profit
4. Bangkok Airways^ Thailand  $49m profit $82m profit
5. SilkAir Singapore  $24m profit $43m profit
6. Thai AirAsia Thailand  $9m profit $74m profit
7. Philippine Airlines Philippines  $7m profit $283m loss
8. Nok Air Thailand  $13m loss $36m profit
9. Citilink Indonesia  $14m loss $60m loss
10. Tigerair Philippines Philippines  $19m loss $54m loss
11. Philippines AirAsia Philippines  $22m loss $29m loss
12. SIA Cargo Singapore  $37m loss $87m loss
13. Indonesia AirAsia Indonesia  $48m loss $12m loss
14. Tigerair Singapore Singapore  $64m loss $6m loss
15. AirAsia X Malaysia  $67m loss $10m profit
16. Malaysia Airlines^ Malaysia  $303m loss* $107m loss*
17. Garuda Indonesia Indonesia  $419m loss $86m profit
18. Thai Airways^ Thailand  $523m loss $95m loss
TOTAL   $916m loss $145m profit

Philippine Aerospace Industry Expected To Earn US 1Billion


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The Philippine aerospace industry expects to generate $1 billion in revenues this year, up by 25 percent from $800 million in 2014.

“All projections depend on the assemblers whether they assemble more planes. There are three million parts and we’re building some of them. If everything will grow as expected, then we’ll also grow,” Aerospace Industries Association of the Philippines president John Lee said in an interview.

He said the forecast revenue would be on top of the contribution of another group in the maintenance, repair and operations sector in the Philippines.

“But there is a newly formed MRO group. These companies are really big and we expect that their revenues will be big as well, bigger than tier 2 manufacturers like us,” he said.

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The Philippines has three of the world’s largest MRO providers, including Lufthansa Technik Philippines, Singapore Engineering Philippines and Hong Kong’s Metrojet Engineering.

Lufthansa Technik is a joint venture between Philippine Airlines’s affiliate MacroAsia Corp. and Lufthansa group of Germany while Singapore Engineering in Clark International Airport caters to wide-bodied aircraft.

Metrojet is the second MRO locator in Clark, occupying three hectares in the former US military base.

Lee said earlier the Philippine aerospace industry aimed to be the region’s hub for aircraft interior market.

He said the industry was counting on government support to help foreign aerospace companies to set up operations in the Philippines.

Lee said opportunities would be bigger, when going into the original equipment manufacturing and assembly as American and European assemblers had over ten years of backlog in aircraft production.

Asia is currently the biggest buyer of aircraft, accounting for 37 percent of the global market and the Philippines would like to capitalize on this, according to the group.

Source: Othel V. Campos, http://manilastandardtoday.com

Airbus Offering 11-Abreast A380 Seating From 2017


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HAMBURGAirbus has decided to formally offer an 11-abreast economy-seat configuration in the Airbus A380, despite Emirates Airline’s decision not to further pursue that arrangement.

Airbus A380 operators will have the choice of operating the aircraft with 10-abreast economy seating on the main deck, or 11 seats.

Two manufacturers—Zodiac and Geven—have agreed to deliver the seats. The seats are to be installed on the existing rails so that no extra floor work is needed, Airbus Vice President-Cabin Innovation and Design Ingo Wuggetzer said at the Aircraft Interiors Expo here. The new configuration will become available in 2017.

With one seat added per row, Airbus sees a need to make some changes to the inboard bins, which will be harder to reach from the aisle. The bins will be moved slightly outboard for easier access.

How many seats can be added in total depends upon whether airlines opt for the new configuration on the entire main deck and specific layouts. The main deck typically accommodates 45 rows of economy seating.

Emirates was initially behind the idea of an 11-abreast economy section as part of its drive to make the existing A380 fleet more efficient. But the airline became increasingly concerned that such a move would dilute its image as a high-quality economy-class operator, even though Airbus says the 11-abreast rows would still allow for 18-in.-wide seats.

Wuggetzer says that the legacy three-class layout no longer reflects market trends. Airbus believes that more innovation should be going into economy cabins. “In the past most innovation went into premium products, but that is only for 6% of the travelers,” Wuggetzer says.

And the trend is clearly pointing towards economy: The premium share dropped from near-7%, before the 2008 financial crisis to well-below 6%, and it has not recovered since. Wuggetzer believes many corporate clients have introduced more stringent travel guidelines that do not allow executives to fly business class and have not relaxed the new rules since.

Airbus believes the premium-economy segment will therefore grow strongly. Already, 26 airlines are offering premium economy—that is equivalent of around 30% of long-haul available seat miles (ASMs). Five of 11 Airbus A380 operators have introduced the class between economy and business. Wuggetzer believes that airlines can increase revenues by $20 million-per-aircraft per year with the addition of around 60 premium-economy seats.

But as the eleven-abreast drive on the A380 indicates, Airbus also sees growth in what it calls the “budget economy” segment. Airbus will offer configurations maximizing the number of seats per row across its long-haul products in the “budget” category—nine on the A330, 10 on the A350 and 11 on the A380.

The standard-economy cabin would feature one fewer seat per row and in premium economy a second seat would be taken out. “The issue of seat width has been underestimated. For years we have only talked about seat pitch,” Wuggetzer says.

He believes that airlines may not offer all of the sub-cabins in economy on the A330 or A350 because they would become too small to be economical, but he can see four-class A380s with two or even three different economy sections.

Airbus is also offering airlines other ways to create more space on the A380. Operators now have the option to remove the sidewall storage on the upper deck. In herringbone arrangements in business class, where seats face outboard, another row of seats could be added after every sixth row effectively converting storage space into more room for seats.

Source: Aviation Daily

Philippine Airlines Sets Sights On New Zealand Route


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MANILA, Philippines – Flag carrier Philippine Airlines Inc. (PAL) is looking at flying to New Zealand as part of efforts to further expand its international presence.

PAL president Jaime Bautista said the airline is studying the viability of flying to Auckland in New Zealand as it is set to launch flights to Jinjiang, China and Port Moresby in Papua New Guinea in the next few months.

“Maybe this year. We are still studying it. It will actually depend on the numbers,” Bautista said.

Auckland is the largest and most populous urban area in New Zealand.

Rival airline Cebu Air Inc. (Cebu Pacific) had also earlier signified its intention to fly to New Zealand. The budget carrier has been given the green light by the Civil Aeronautics Board (CAB) to fly to New Zealand seven times a week.

PAL has a total of 67 routes comprised of 37 international routes including Jinjiang and Port Moresby as well as 30 domestic routes including Tablas in Romblon launched yesterday.

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PAL is also scheduled to fly to Jinjiang in China soon, bringing the number of destinations in China to seven. It currently flies to Beijing, Guangzhou, Hong Kong, Macau, Shanghai, and Xiamen.

It is also awaiting the green light from CAB to fly to Port Moresby in Papua New Guinea.

To mark its 74th founding anniversary, PAL started flying to New York four times a week via Vancouver last March 15. New York marks the fifth US city in PAL’s network, following Los Angeles, San Francisco, Honolulu, and Guam.

The Tan Group has decided to defer the complete delivery of close to 40 brand new aircraft from Airbus after successfully taking back full ownership of the airline from San Miguel Corp. (SMC).

The orders, Bautista explained, has deferred the delivery of 38 Airbus A321 aircraft to 2024 instead of 2020 without any additional cost from the national flag carrier. It also ordered two additional A321 neo aircraft.

Source:  (The Philippine Star)

AirAsia Philippines Eyes Initial Public Offering


The budget carrier’s rivals – PAL Holdings Incorporated and Cebu Air Incorporated – are being traded at the Philippine Stock Exchange.

MANILA, Philippines (UPDATED) – AirAsia Philippines and Indonesia are set to go public, the airline’s founder, Tony Fernandes, announced via his Twitter account.

Pending board approval, the initial public offering is eyed since business in both Philippines and Indonesia is good.

“Great support from both governments,” Fernandes tweeted.

Shares of PAL Holdings Incorporated, the parent firm of national flag carrier Philippine Airlines Incorporated (PAL) of taipan Lucio Tan, and budget airline Cebu Air Incorporated (Cebu Pacific) of tycoon John Gokongwei are currently being traded at the PSE.

AirAsia Incorporated (Philippines’s AirAsia) is 60% owned by Filipino shareholders, including entrepreneurs Marianne Hontiveros, Antonio Cojuangco Jr, Dr Michael Romero, and Ambassador Alfredo Yao.

AirAsia Berhad of Malaysia, through wholly-owned subsidiary AirAsia International Incorporated, owns the remaining 40% of Philippines’ AirAsia.

Philippines’ AirAsia (PAA) was established in December 2010. Yao’s Zest Airways Incorporated was rebranded to AirAsia Zest after it was bought by PAA in 2013.

PAA is currently seeking 100% ownership of AirAsiaZest, pending approval of the Civil Aeronautics Board and the Civil Aviation Authority of the Philippines.

AirAsia Zest CEO Joy Caneba confirmed that the airline will go public and said the details of the offering are still discussed and will be presented to the board.

AirAsia Zest now services 9 domestic and 4 international routes from the Ninoy Aquino International Airport (NAIA) using a fleet of 13 Airbus aircraft.

It is by far the Philippine carrier with most flights to and from Kalibo, the gateway to the popular resort island of Boracay.

AirAsia flies to 90 destinations. AirAsia Philippines also operates a fleet of 15 aircraft.

Fernandes, who transformed a floundering carrier into Asia’s biggest budget airline, faced his first major crisis after an AirAsia plane went missing in 2014.

AirAsia Flight QZ8501 went down in stormy weather on December 28, 2014, killing all 162 people on board. Rescuers called off the hunt for the remaining passengers on March 17 this year.

Source: Rappler.com

EU Assesses Philippines Air Safety Measures


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A European Union delegation is now in the Philippines to assess the safety systems of Philippine air carriers still on the list of carriers banned from flying over the skies of Europe.
The assessment will focus on Air Asia Inc., Air Asia Zest, Air Philippines Corporation, Island Aviation Inc., Magnum Air, South East Asian Airlines and South East Asian Airlines International.
Only flag carrier Philippine Airlines and budget carrier Cebu Pacific are out of the EU’s list of airlines that fail to meet international aviation standards.
Apart from the airlines, the EU delegation will also check how regulator Civil Aviation Authority of the Philippines has tackled previous problems in the air industry.
“The EU safety assessment visit to the Philippines will seek to confirm that the CAAP has addressed the root causes of previous areas of concerns and is able to conduct effective oversight of air carriers certified in the Philippines,” CAAP said in a statement on Thursday.
The safety assessment will be conducted by experts from the European Commission, the European Aviation Safety Agency (EASA) and member states of the European Union headed by team leader Captain Richard Miller. The team also includes Per-Erik Oberg, Vincent Lambotte, Sebastian Zacharias and Mureil Belzunce.
The team, accompanied by EU Ambassador Guy Ledoux, met with CAAP director general William Hotchkiss III and discussed their safety assessment procedure.
Also in the meeting were Air Asia Inc. representative Marianne Hontiveros, Air Asia Zest’s Josephine Joy Caneba, Air Philippines’ Bonifacio U. Sam, Island Aviation Inc.’s Capt. Benhur Gomez, Magnum Air’s (Skyjet Inc.) Capt. Teodoro Fojas, Southeast Asian Airlines’ (Tiger Airways) Michael Shau and South East Asian Airlines (SEAIR) International Inc.’s Avelino Zapanta.

In 2010, the EU banned Philippine carriers from European airspace after the Philippines failed to comply with international safety standards.

PAL and Cebu Pacific were restored and allowed to fly to European Union countries again in July, 2013 and April, 2014 respectively.

22 Most Dependable Airlines In The World: Philippine Airlines Ranked 21st


Airlines can make even the most patient passenger grumpy at times, with their nickel-and-diming ways and lackluster customer service.

But when you need to get somewhere relatively quickly, flying is generally the best way to do it.

And when you need a reliable carrier to get you there, certain airlines stand out as the ones to choose.

Travel site WanderBat looked across the globe to find which airlines were the most dependable, ranking each carrier in three areas: On-time performance, low costs to check bags, average age of an airline fleet.

The site came up with a pretty interesting list. You won’t find some major U.S. airlines on here, but you will find some surprises — names you may not be familiar with.

22. Air Berlin (Germany)

21. Philippine Airlines

20. China Airlines (Taiwan)

19. Aeroflot (Russia)

18. Qantas (Australia)

17. Southwest Airlines (US)

16. Malaysia Airlines

15. Etihad Airways (Abu Dhabi, UAE)

14. EgyptAir

13. Japan Airlines

12. Tam Airlines (Brazil)

11. Lan (Chile)

10. Cathay Pacific (Hong Kong)

9. Saudia

8. British Airways

7. Air China

6. Ethiopian Airlines

5. China Southern Airlines

4. Singapore Airlines

3. China Eastern

2. Emirates (Dubai, UAE)

1. Qatar Airways

Source: Kim Peterson, http://www.cbsnews.com