CAPA Analysis: Cebu Pacific To Expand Operations in China


The Center for Asia Pacific Aviation (CAPA), one of the world’s leading aviation think-tanks, said in a recent report that Cebu Pacific (5J) is expected to expand operations in China with the expected delivery of its brand new A321NEO that will allow the low cost carrier to open new routes and grow capacity. 

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Cebu Pacific ordered 32 Airbus 321NEOs

“Cebu Pacific is particularly keen to use the A321neo to open new routes deeper into China,” CAPA said in its report, noting that the aircrafts will also support plans for its North Asia expansion. Currently 5J has 17 weekly flights to four destinations in China.

“However, it is keen to add new flights to China, both scheduled and charters, in line with expected further rapid growth in the China-Philippines market,” it added.

Based on CAPA analysis, visitor numbers from China grew by approximately 20% in 2016, as China overtook Japan to become the country’s third largest source market for the Philippines. Aside from China, Cebu Pacific is also considering opening a branch office in Japan to help support future capacity growth in both markets.

“Cebu Pacific has expanded in Japan in recent years, adding three destinations for a total of four, and will likely use the A321neo to add capacity and new destinations,” it said in its report.

CAPA said Japan is now Cebu Pacific’s third largest international market after Hong Kong and Singapore, while South Korea is its fourth largest international market.

Cebu Pacific ended 2016 with a fleet of 57 aircraft — up only two from the beginning of the year. Cebu Pacific’s fleet was flat at 47 aircraft, while its turboprop subsidiary Cebgo expanded its fleet from eight to 10 aircraft.

Cebu Pacific Evaluates B787 and A350


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Aviation think tank CAPA, Centre for Aviation, said that Philippine low cost carrier Cebu Pacific (5J) is evaluating the acquisition of either Airbus 350 or Boeing 787 for its nonstop PH-US flights. Both the A350 and B787 are larger and long-range aircraft.

According to CAPA Analysis, Cebu Pacific is now entering the next phase of its longhaul plan after the delivery of its seventh and eight A330-300 this December 12, 2016 and January 2017 respectively.  These A330s are currently deployed primarily for its Middle East and Australia flights.

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This ‘next phase’ looks at larger planes with longer range. This makes the A350 and B787 the most ideal aircraft. By third quarter of 2017, 5J is set to offer formal invitations to both Airbus and Boeing.

 

No official word or announcement yet from Cebu Pacific when the CAPA Analysis was released yesterday.

 

Currently, national carrier Philippine Airlines has no competition in the lucrative direct PH-US trans-Pacific flights.

 

 

CAPA: Mactan-Cebu International Airport Grows Rapidly as Hub


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With passenger growth of 13% through the first 10 months of 2015, Cebu (Philippines) has emerged as one of the fastest-growing airports in Southeast Asia. The relaunch of several domestic routes by the Philippine Airlines Group, Cebu Pacific group and foreign carriers, Mactan-Cebu International Airport is poised for more rapid growth in 2016 as PAL continues to pursue expansion at its second hub, with more new domestic routes and the launch of services to Los Angeles, Cebu’s first long haul route. The Cebu Pacific Group also plans to expand its Cebu base in 2016, with at least two more turboprops.

Mactan-Cebu, the Philippines’ second largest airport, is well positioned for long-term growth as the airport’s new private owners have begun construction of a new terminal, which will increase annual capacity to 12.5 million annual passengers. The new terminal will enable Cebu to build as a hub for transit traffic, and to benefit further from infrastructure constraints at Manila, which are prompting Philippine carriers to base additional aircraft at secondary cities.

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Foreign and Philippine carriers alike face constraints on expanding in Manila. Cebu is a growing market in its own right – with strength in both the inbound and outbound sectors, but ultimately Cebu’s growth is enabled by the constraints at Manila and by its own expansion. Cebu is also currently operating above its designed capacity of 4.5 million annual passengers, but unlike Manila it has space, and a commitment to expand.

Mactan-Cebu was taken over in late 2014 by a consortium consisting of India’s GMR and Philippine company Megawide Construction. GMR-Megawide has a 25-year concession to manage and expand Mactan-Cebu Airport.

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The new joint venture company began a three-year new terminal construction project in Jun-2015. The new terminal is designed to boost the airport’s capacity to 12.5 million passengers when it opens in 2018.

Given its current growth spurt, Cebu could pass the 10 million annual passenger milestone by 2018 and be close to processing 12.5 million passengers at the end of this decade. With the new private owners the airport should be able to continue expanding, and keep up with growing demand for an alternative hub in the Philippines.

 

Given the steady 6% to 7% per annum economic growth in the Philippines, options besides Manila are needed. As the second largest city Cebu offers a sizeable local market. With its position in the middle of the country Cebu also has the geography to emerge as a large hub linking secondary cities throughout the Philippines, as well as international destinations within the region and afar.

Source: http://centreforaviation.com/

 

Cebu Pacific Revenue Up 9% in 3rd Quarter 2015


Cebu Pacific revenue up 9% – financial highlights for three months ended 30-Sep-2015:

Image Source: Rappler.com
  • Revenue: PHP12,753 million (USD276.7 million), +8.7% year-on-year;
    • Passenger: PHP9313 million (USD202.1 million), +5.0%;
    • Ancillary: PHP2554 million (USD55.4 million), +25.5%;
  • Total costs: PHP11,756 million (USD255.1 million), -0.7%;
  • Operating profit: PHP997.1 million (USD21.6 million), compared to a loss of PHP107.4 million (USD2.3 million) in p-c-p;
  • Net profit (loss): (PHP1645 million) (USD35.7 million), compared to a loss of PHP1099 million (USD23.8 million) in p-c-p;
  • Total assets: PHP81,178 million (USD1762 million);
    • Cash and cash equivalents: PHP4584 million (USD99.5 million);
  • Total liabilities: PHP56,992 million (USD1237 million).

*Based on the average conversion rate at USD1 = PHP46.0826

Cebu Pacific (CEB), flew 4.4 million passengers in the 3rd quarter of 2015, posting a growth of 10.6% over the same period last year.

The airline carried a total of 13.7 million passengers from January to September, 2015, an increase of 9% year-on-year.

Growth in passengers carried by the Cebu Pacific Air group from January to September, 2015 can be attributed to increase in capacity in key domestic and long haul routes.

As of September 30, 2015, the CEB group operates 2,530 weekly flights in 62 destinations and 93 routes. We look forward to expanding our operations to even more domestic and international markets soon, says Atty. JR Mantaring, CEB officer-in-charge for corporate affairs.

CEBs Q3 2015 total revenues surged 9% year-on-year to P12.8 billion. This brings our total revenues for the first 9 months of 2015 to P42.3 billion, a growth of 10% year-on-year. Passenger revenues  increased by 5% to P9.3 billion. Ancillary revenues grew 26% to P2.6 billion driven by a 13% increase in ancillary revenue per passenger.

Cargo revenues also posted an increase of 8% to P886 million as we carried 44.5 million kilos of cargo, up by 4.2% over the same period last year.

CEBs 55-strong fleet is comprised of 8 Airbus A319, 33 Airbus A320, 6 Airbus A330, and 8 ATR 72-500 aircraft. It is one of the most modern aircraft fleets in the world. Between 2016 and 2021, CEB will take delivery of 5 more brand-new Airbus A320, 30 Airbus A321neo, and 16 ATR 72-600 aircraft.

 

Source: http://centreforaviation.com, Emmie Abadilla (http://www.mb.com.ph)

CAPA Analysis: PAL Pax Volume To Grow 20% This Year


AN AVIATION think tank said Philippine Airlines, Inc. (PAL) is on track to grow its passenger volume by an annual 20% this year, and will have more opportunities to boost its long-haul operations in late 2016.

“PAL is on track to carry about 6 million international passengers in 2015, a 50% increase compared to 2012,” the Centre for Asia Pacific Aviation (CAPA) said in a report released over the weekend.

“For the second consecutive year PAL will likely end 2015 with annual international passenger growth of about 20%.”

For the first half of the year, the flag carrier ferried 2.9 million international passengers, higher than Cebu Pacific’s 1.9 million and Philippines AirAsia’s 357,000, CAPA said, citing data from the Civil Aeronautics Board.

CAPA expects the carrier to “focus” its long-haul expansion on North American routes, which generated “most” of its profits and where it sees “relatively limited” competition.

Among PAL’s North American routes include Vancouver and Toronto in Canada, San Francisco, Los Angeles, Honolulu and New York in the United States.

PAL’s listed parent firm, PAL Holdings, Inc., reversed last year’s P322.16-million net loss as it swung to a P247.9-million profit in the third quarter, helped by the peso’s depreciation against the dollar and higher passenger revenues from new routes. For the first nine months, its net income ballooned by an annual 2,465% to P6.11 billion.

“PAL is planning to expand capacity to mainland North America over the next few years, a sensible move as competition will likely continue intensifying to the Middle East, Australia and, soon, Hawaii,” CAPA explained.

The airline also announced that its re-fleeting program will likely involve adding eight Boeing 787 or Airbus A350 XWB aircraft through a lease or purchase agreement to be sealed within the year to replace six of its existing Airbus A340, and “possibly” add two more of these, with delivery expected by 2017 or 2018.

PAL has yet to issue a formal decision on which plane to acquire, but in its report, CAPA said “PAL is close to committing to at least six A350-900s for delivery from 2017. A formal announcement is expected by the end of 2015.”

PAL Holdings President and Chief Operating Officer Jaime J. Bautista did not confirm the CAPA statement. Sought for comment, he said in a mobile phone reply on Sunday: “We have not issued such statement.”

The flag carrier operates a fleet of 59 aircraft, composed of 32 A320 family aircraft and 27 widebodies, across 36 destinations.

Shares in PAL Holdings ended unchanged last Friday at P4.52 apiece.

Source: Daphne J. Magturo, http://www.bworldonline.com

CAPA Analysis: PAL Closes In On A350-900 HGW


The A340-300s are now slated to be phased out as new generation wide body aircraft are delivered. PAL is close to committing to at least six A350-900s for delivery from 2017. A formal announcement is expected by the end of 2015.

PAL is looking to acquire a new high gross weight (HGW) version of the A350-900 which is available from 2017 and will enable non-stop Manila-New York flights in both directions without payload limitations. Airbus has informed PAL that it does not need the recently launched A350-900ULR, which will be available from 2018 and has been ordered by Singapore Airlines for non-stops to the US.

Trans-Pacific flights from Manila are about three hours shorter than flights from Singapore. But flights from eastern North America to Manila are still slightly too long for the current version of the A350-900 or the 777-300ER.

PAL is also looking at using A350-900 HGW aircraft to potentially upgrade Toronto to non-stop and launch a fourth destination in the US. Chicago is the most likely new destination for the A350-900 HGW.

PAL has also been evaluating other potential US markets in both the east and west coasts. New destinations in the western US can be launched using the existing wide body fleet, potentially as early as late 2016 as the two additional 777-300ERs are delivered. PAL previously served Las Vegas and at one point was considering San Diego, which has a large Filipino community.

A fleet of eight 777-300ERs and six A350-900s will enable modest growth of the long-haul network with a focus on North America. Even if PAL ultimately opts for a few more A350s the long-haul growth should be manageable.

PAL is likely to remain for at least the medium-term the only non-stop operator between Philippines and continental North America, which has a large a loyal Filipino population. PAL is fortunate to only have to compete against North Asian carriers in the Philippines-North America market as one-stops via the Middle East is a much longer option.

Source: http://centreforaviation.com

CAPA Analysis: Philippine Airlines’ Int’l Expansion Continues with 5 New Destinations, A350-900 HGW Orders


(Image Source: P. Pigeyre / Master Films Copyright Airbus)

Philippine Airlines (PAL) is further expanding its international operation as it grows its fleet and improves utilization of its existing wide body aircraft. PAL’s international network will exceed 41 destinations in Jan-2016 compared to only 25 in Jan-2013.

PAL is adding five international destinations over the next two months, including two destinations in the Middle East and three in Australasia. Long-haul growth will resume in Mar-2016 with the launch of services from Cebu to Los Angeles, which will be PAL’s first wide body international route from Cebu.

Opportunities to further growth the long-haul operation will come in late 2016 as PAL adds two more 777-300ERs. The expected acquisition of a new higher gross weight version of the A350-900 will be used to upgrade New York to non-stops in 2017 and potentially be deployed to upgrade Toronto to non-stop and launch a fourth US destination.

Source: http://centreforaviation.com

CAPA Warns Of Capacity Glut


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Southeast Asia’s aviation sector remains an extremely competitive market with a high risk of continued overcapacity given the region’s huge aircraft orders , according to Centre for Asia Pacific Aviation’s recent analysis.

The centre said competition with and between LCCs will continue to intensify as LCCs account for over 70% of outstanding aircraft orders in Southeast Asia.

“Among all regions and sub-regions, Southeast Asia has the highest ratio of orders to current fleet (about 0.9). While the rate of capacity growth has slowed somewhat for the short-term following a spate of deferrals and subleases, the unprecedented high ratio of orders to current fleet indicates that overcapacity could be a challenge over the long-term.”

“If airlines are disciplined with capacity and fuel prices remain low, Southeast Asian airline profitability should continue to improve. But in the highly dynamic Southeast Asian market place it is hard imagine all airlines refraining from ambitious or strategic expansion. Meanwhile low fuel prices along with political and economic stability can never be guaranteed.”

CAPA said the 16 publicly traded airlines in Southeast Asia, including affiliates or subsidiaries which report financial figures, turned a combined operating profit of about USD641 million in the first half of the year.

The same group of airlines incurred over USD500 million in operating losses in the first half of last year, representing a year-over-year swing of over USD1.1 billion.

Of these 16 carriers, 15 saw their profitability improve in the first half of this year. The only exception was Indonesia AirAsia, which saw a slight increase in operating losses following the 28 December 2014 crash of one of its A320s.

In 1H2014 only five carriers in this group of 16 were profitable. All five –Malaysia AirAsia, Cebu Pacific, Philippine Airlines, Bangkok Airways and SilkAir – were able to further growth operating profits in 1H2015.

Of the 11 airlines that were unprofitable in 1H2014 five swung to profits in 1H2015 – Singapore Airlines, Thai Airways, Thai AirAsia, Garuda Indonesia and Citilink – and two posted break-even results – Nok Air and Tigerair Singapore. Three carriers were able to narrow their losses – SIA Cargo, Philippines AirAsia and Malaysia AirAsia X.

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Note: All figures are for six months ending 30 June 2015 and 30 June 2014.
Conversions to USD are based on average conversion rates for 1H2015 and 1H2014.

*All figures are for individual airline except for Cebu Pacific and Thai Airways, which only reports operating figures at the group level. Therefore in only these cases subsidiaries (Cebgo and Thai Smile) are not listed separately and are combined with their parent airlines.

Source: CAPA – Centre for Aviation, , http://www.ttrweekly.com

For full report visit http://centreforaviation.com/analysis/southeast-asian-airline-sector-returns-to-profitability-in-1h2015-but-long-term-challenges-remain-242947.

CAPA Analysis: AirAsia Drives Growth At Philippines’ Puerto Princesa Airport As Palawan Visitors Surge


Puerto Princesa Airporthttps://i0.wp.com/centreforaviation.com/images/logos/capa-306x90.png could experience major growth as the Philippine island of Palawan emerges as a popular tourism destination. AirAsia is particularly keen to pursue major growth in Palawan and use Puerto Princesa as an international hub.

The small airport, which currently only handles domestic is flights and international charters, has been operating well above capacity. But a major expansion project is expected to be completed by early 2017, providing a new terminal and international facilities.

Philippines AirAsia (PAA) plans to launch scheduled international flights from Puerto Princesa to China and potentially other international destinations including Malaysia. For now Philippine market leader Cebu Pacific has no plans for international operations at Puerto Princesa but could be swayed to relook at the market if PAA’s focus on Palawan proves successful.

Palawan Attracted Almost 1M Visitors in 2014

Caticlan, which a 10min ferry from the popular tourist island of Boracay, is currently the 14th largest airport in the Philippines based on current seat capacity. The rapid growth over the last several years in visitor numbers to Boracay has mainly been accommodated by Kalibo Airport, which is about 70km from Boracay and Caticlan. As CAPA highlighted in the first report, Kalibo is now the fourth largest airport in the Philippines after Manila, Cebu and Davao.

Manila, Cebu and Davao are all major population centres while Kalibo and Puerto Princesa relies almost entirely on inbound traffic. Aklan province, where Kalibo and Boracay are located, reported 1.5 million visitor numbers in 2014 while Palawan province reported just under 1 million visitors.

Palawan is positioned for potentially faster growth than Boracay and could eventually overtake Aklan as the second largest tourist region in the Philippines after Central Visayas. Central Visays, which includes Cebu and nearby islands, has about 3 million annual visitors.

Boracay is already well developed and has become congested. Palawan is a much larger island is still largely undeveloped. The island is about 500km long (but very narrow) and has a population of less than 1 million.

Puerto Princesa Airport Is Now Operating Well Above Capacity

The Puerto Princesa Airport currently handles about 1.5 million annual passengers but was designed to accommodate only about 350,000 annual passengers. A major expansion project began in 2014 with the awarding of a USD83 million project to a Korean construction company.

Construction began in late 2014 and is expected to be completed by early 2017. The project includes a new passenger terminal with capacity to handle 2 million annual passengers, a cargo terminal, apron, taxiways and new navigation equipment. The new terminal has been designed to handle regular international flights, which the Palawan tourism sector is keen to attract.

The Philippine and Palawan governments expect the new airport to meet international standards and see the facility as a key component in a plan to attract more tourists to Palawan island. Philippines president Benigno Aquino III visited the airport and construction site on 29-Jun-2015, an indication of the importance the government has placed on developing an international airport to help support growth of Palawan’s promising tourism sector.

AirAsia Sees Opportunities To Grow in Palawan

In Mar-2015 the Palawan government along with AirAsia and other partners launched a tourism campaign to promote the island, which was voted in 2014 as the “best island in the world” by Conde Nast Traveller readers. The “World’s Best Island” campaign is designed to increase awareness among both domestic and international travellers and make Palawan more affordable through more seats, cheaper fares and new hotel packages.

The campaign aims to double the number of visitors to Palawan in 2015 to 2 million. But such a goal seems unrealistic as seat capacity at Puerto Princesa has increased only slightly. AirAsia pledged as part of the campaign to add a fifth daily flight on the Manila-Puerto Princesa route but its schedule for Jul-2015 and the remainder of 2015 show it will maintain four daily frequencies.

AirAsia has identified Puerto Princesa as one of two or three new international hubs that the group plans to open in the Philippines as PAA/AirAsia Zest restructures its network. The new business plan for the two carriers, which are expected to eventually transition to a single air operators’ certificate, focuses on developing under-served leisure destinations.

As CAPA has previously highlighted, AirAsia’s Philippine operation has struggled financially since it was launched in 2012. But the group sees emerging leisure destinations in the Philippines such as Puerto Princesa as having huge opportunities for growth while staying under the radar screen of Cebu Pacific.

Cebu Pacific for now is studying potential opportunities at Puerto Princesa but the typically conservative carrier is unlikely to make a move until the market becomes more mature. PAL is also unlikely to launch scheduled international flights at Puerto Princesa and instead stick to charters which have little or no risk as they are underwritten by agents in key source markets such as Taiwan.

AirAsia Expects To Serve China From Puerto Princesa

The AirAsia strategy for Puerto Princesa envisions launching several scheduled routes to mainland China. AirAsia plans to wait for the new international terminal and customs facility, which could potentially be completed by the beginning of the 2016 northern winter season.

Shanghai would be a logical initial route for AirAsia’s new international hub at Puerto Princesa as PAA/AirAsia Zest already serve Shanghai from Kalibo and has been looking at resuming service to Shanghai from Manila. There are several other potential Chinese routes from Puerto Princesa as the AirAsia Group already serves 13 Chinese airports from its hubs in Thailand and/or Malaysia.

AirAsia is keen to leverage its strong presence in the Chinese international market, where it is the leading LCC, by opening new routes to popular leisure destinations throughout Southeast Asia. AirAsia is already serving China from several secondary airports, including Krabi in Thailand and Kalibo in the Philippines, and is expected to add several more including Puerto Princesa over the next few years.

The new AirAsia business plan for its Philippines operation also envisions the launch of flights to Japan, Singapore and Taiwan. But at least for now the focus is on launching flights to Taiwan from Manila and to Japan and Singapore from Cebu.

PAA/AirAsia Zest currently operates 10 scheduled international routes, connecting three Philippine airports (Cebu, Kalibo, and Manila) with seven destinations – Busan, Hong Kong, Kuala Lumpur, Kota Kinabalu, Macau, Seoul and Shanghai.

Seoul is served from all three bases while Busan and Shanghai are only currently served from Kalibo. Hong Kong, Kuala Lumpur and Macau are only served by PAA/Zest from Manila although sister carrier Malaysia AirAsia serves Cebu, Manila alternative airport Clark and Kalibo from Kuala Lumpur. PAA/Zest now serves Kota Kinabalu from both Cebu and Manila, having launched Cebu-Kota Kinabalu in late Mar-2015.

AirAsia May Link PPS With Kota Kinabalu

PAA has stated it is interested in also serving Kota Kinbalu from Puerto Princesa. The two airports are only about 500km apart as Palawan is in the westernmost portion of the Philippines while Kota Kinabalu is located on the island of Borneo in eastern Malaysia.

Previous attempts to connect Kota Kinabalu with Puerto Princesa have been short-lived. Most recently Malaysia Airlines regional subsidiary MASwings operated the route from Nov-2013 to Aug-2014. Philippine regional carrier SEAir also briefly served the route in late 2008 and early 2009.

AirAsia has the advantage of leveraging strong sales channels in both Malaysia and the Philippines and marketing Kota Kinabalu-Puerto Princesa to foreign tourists that rely on AirAsia to hop around Asia. AirAsia also has a hub and transit product in Kota Kinabalu, which would provide passengers from several Southeast Asian cities (including Jakarta, Kuala Lumpur, Penang and Singapore) an opportunity to access Puerto Princesa without backtracking through congested Manila.

A Puerto Princesa-Kota Kinabalu link could be used to target source markets for the emerging Palawan tourism sector in Southeast Asia while Puerto Princesa-Manila and potentially a new Puerto Princesa-Cebu service could be used to target source market in North Asia that do not get new direct flights from Puerto Princesa. But at this point it is hard to imagine sufficient demand for regular A320 service between Kota Kinabalu and Puerto Princesa given the challenges other carriers faced in filling up much smaller aircraft on this route.

Puerto Princesa Has Big Potential But Also Big Challenges

The Puerto Princesa market clearly has huge long-term potential as tourists from within the Philippines and abroad are attracted to Palawan’s unspoiled beaches, particularly as other Philippine holiday destinations such as Boracay become increasingly crowded. But there could be challenges in developing international routes after the Puerto Princesa Airport is upgraded.

While AirAsia is extremely optimistic on the prospects for Palawan, other Philippine carriers are taking a more cautious wait and see type of approach. For example Cebu Pacific is now focusing on expanding international operations from other secondary airports in the Philippines although it will almost certainly make a move at Puerto Princesa in future if the market matures and it sees opportunities.

Therefore AirAsia will likely be the litmus test when the Puerto Princesa Airport starts to handle scheduled international flights.

A hub at Puerto Princesa could pay big dividends for AirAsia’s struggling Philippine joint venture and become a profitable niche. But it also represents a big gamble as AirAsia tries to turn around its Philippine operation.

Source:

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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