Tropical Island Airports Sought by Cebu Air’s Gokongweis


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(Bloomberg) — The family of Philippine billionaire John Gokongwei, which owns Cebu Air Inc., wants to branch out to airports in tropical destinations to boost regional flights.

JG Summit Holdings Inc. is in talks with Metro Pacific Investments Corp. for a venture that may bid for 30-year contracts to operate and expand six airports across the Philippines, President Lance Gokongwei said in an interview Wednesday in Manila. He said passenger growth at Cebu Air this year will be limited by congestion at Manila’s airport.

“The largest domestic airport we fly into, which is Manila, is constrained, so there’s also a limit on how quickly we can add capacity,” said Gokongwei, 48, who also runs Cebu Air. “Connecting the nation’s secondary cities with international destinations is where we see big opportunities.”

The Philippines, an archipelago of more than 7,000 tropical islands, attracts less than 5 percent of travelers to Southeast Asia. Thailand hosted more than five times the number of visitors in 2013. While cheaper oil and an open-skies policy within the Association of Southeast Asian Nations are positive for the airline business, Philippine carriers are hobbled by old and inadequate domestic airports.

Manila’s Ninoy Aquino International Airport handled about 30 million passengers in 2014, more than its annual capacity of 28 million, according to data on its website. The number of airline passengers in the capital and nearby provinces, which includes Clark International Airport, will climb to 49.8 million in 2020 and 75 million by 2030, from 31.9 million in 2012, the transportation department has said, citing a study by the Japan International Cooperation Agency.

Earlier Bid

While the government hasn’t decided on a Manila airport expansion, it plans to award a contract to operate and expand provincial airports for an estimated cost of 114 billion pesos ($2.6 billion) by March 2016. The airports are in Bacolod, Iloilo, Panglao, Laguindingan, Davao and Puerto Princesa, according to the Public-Private Partnership Center.

“It’s an excellent combination considering the background of JG Summit in airlines and Metro Pacific in infrastructure,” said Astro del Castillo, managing director at First Grade Finance Inc. “Given the capital required, it’s logical to form a consortium.”

Metro Pacific President Joey Lim confirmed that the company is in talks with JG Summit about airports. The two companies joined forces in 2013 to bid for the right to operate and improve the Mactan-Cebu airport, a project won by a venture that includes GMR Infrastructure Ltd.

Gokongwei said Cebu Air isn’t keen on acquiring regional carriers and will continue to focus on the Filipino market, where about 10 million nationals work overseas.

“There’s 100 million people, it’s an island country. The game is really growing the market and getting people to fly more often or to switch the boats and the buses to the planes,” Gokongwei said. “The market is still very large even by just focusing on the Philippines.”

Tourism Potential

Cebu Air is set to start flights to Tokyo’s Narita airport from Cebu this month, after introducing trips to Singapore and Hong Kong from the central Philippine areas of Iloilo and Kalibo. The carrier sees promise in North Asian destinations such as Japan and Korea, as the Philippines is the nearest “warm country,” Gokongwei said.

Many Philippine resort islands have the potential to be like Phuket in Thailand and Bali in Indonesia, Gokongwei said.

JG Summit controls 66 percent of Cebu Air, which expects to carry a little more than 18 million passengers this year, up from 16.9 million in 2014, Gokongwei said. Growth will slow from last year’s 17.5 percent expansion even as cheaper oil makes travel more affordable, he said.

“If they get the right partners for the airports, they can make aggressive bids and make money,” said George Ching, an analyst at COL Financial Group. The brokerage has a hold rating on JG Summit, saying the shares are fairly valued.

Cebu Air shares have lost 0.8 percent this year after today’s 1 percent decline. Parent JG Summit rallied for a fourth day to close at a two-month high while Metro Pacific gained 2.3 percent.

Fuel makes up about 50 percent of Cebu Air’s costs. Given the decline of oil to its lowest price in six years Wednesday, the carrier expects to realize savings of about 40 percent on the 70 percent of its fuel bill that isn’t covered by hedges, he said.

The budget carrier has 37 more planes arriving through 2021, a fleet expansion decided when oil was more expensive. Cebu Air, which started in March 1996, flies to 28 cities in 17 countries in Asia, Australia and the Middle East.

“The enemy of airlines is always hubris,” Gokongwei said, explaining that investments for the next five to seven years are made based on current conditions. “You’re making strategic bets on what’s going to happen in the future. So the question is: Will the long-term price of oil remain at $50? I hope so, but I don’t think so.”

Source: Clarissa Batino & Siegfrid Alegado

JG Summit Not Closing Doors On Philippine Airlines Buy-In


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MANILA – JG Summit Holdings Inc. is not closing its doors on the prospect of investing in Philippine Airlines (PAL), a senior company official revealed.

Bach Johann M. Sebastian, the firm’s senior vice president and chief strategist noted, however, that his company has yet to review if the prospective foray into a full-service airline would benefit the firm.

“We don’t have a business case [in] owning a full-service airline because [what we have now is a] low-cost airline. [But] we’re always looking at all opportunities,” he said in a chance interview.

Sebastian noted that there might be regulatory considerations for such a deal, as “the government might view that as too much concentration.”

He explained that [deals of this kind] “will have to be approved by Congress because we [need] a Congressional franchise [to operate an airline business] and we have to live up [to] our commitments [to the franchise]. The Civil Aeronautics Board will also have to [look into the matter] because they are sort of the fair trade commission of the airline industry. The CAAP [Civil Aviation Authority of the Philippines] will also have to weigh in on [any possible deal].”

Low-cost carrier Cebu Pacific is the airline unit of the Gokongwei family-controlled conglomerate.

The JG Summit executive, however, clarified that “we haven’t been approached by anyone. We haven’t signed any confidentiality agreement. We have always been asked but it’s not yet a question that we have to answer.”

PAL President Ramon S. Ang earlier expressed his confidence that the airline would be back in the black by yearend, after three consecutive years of losses.

Source: Lorenz S. Marasigan, BusinessMirror

JG Summit Ready To Join SMC For USD 10B Airport Project


MANILA, Philippines—Gokongwei-led JG Summit Holdings, owner of dominant budget airline Cebu Pacific, is open to partnering with San Miguel Corp. should the government approve the latter’s proposed $10-billion international airport in Manila Bay, company president Lance Gokongwei said. The planned airport, which was recently presented to President Aquino but still requires various approvals from several departments, was aimed at decongesting Manila’s Ninoy Aquino International Airport.

Gokongwei also welcomed San Miguel’s airport suggestion, citing Naia’s single runway as a factor behind congestion at the aging Naia complex, which handled about 32 million passengers last year.

“We will certainly consider [San Miguel’s airport] if we were approached,” Gokongwei said.

“Clearly, the limiting factor is now capacity. Any plan to increase access to a capital city like Manila should be thoroughly considered,” he added.

Airlines like Cebu Pacific and Philippine Airlines, partly owned by San Miguel, would benefit from a new airport. PAL, for example, claimed that it loses about $2 million per month due to delays related to airport congestion.

Ang’s proposal calls for a four-runway international gateway, which would occupy half of the 1,600 hectares San Miguel would need to reclaim in Manila Bay. Gokongwei was among three groups that Ang said San Miguel could partner with. He also cited Henry Sy’s SM Group and Ayala Corp., led by the Zobels.

Each of these companies also made unsuccessful bids for the P17.5-billion Mactan-Cebu International Airport public private partnership deal, which was bagged by Megawide Construction Corp. and India’s GMR Infrastructure last month.

SM confirmed in a stock exchange filing Tuesday that it would consider participating in San Miguel’s airport proposal. Ayala Corp. managing director Eric Francia said in an e-mail to the Inquirer there have been no discussions at this time.

The proposal was still in the early stage and the Department of Transportation and Communications said it would invite San Miguel to provide more details.

The proposal would be under a build-transfer-operate scheme and will have transport links including a proposed 15-kilometer Airport Expressway linking to Fort Bonifacio, Ortigas and Eastwood, with alternative routes to Makati City.

It also includes plans for an “airport express rail service” that would bring the total travel time between the airport and the Makati City financial district to 11 minutes. Ang said San Miguel would welcome an open bidding process should his proposal be accepted by the government.

“Everybody will have an equal chance to build this airport using the same location, same idea and same study, which I have provided the government,” Ang said in an interview last week.

Source: Miguel R. Camus, PDI

SMC Reviews Airport Partners


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By Jennifer B. Austria, MST
Image Source: Angelo Agcamaran

San Miguel Corp. president and chief operating officer Ramon Ang said Tuesday he is studying offers from several conglomerates interested in teaming up with his company to build a $10-billion Manila Bay airport.

Ang said in an interview he received calls from SM Investments Corp. vice chairman Tessie Sy and JG Summit Holdings Inc. president and chief operating officer Lance Gokongwei about the proposed airport project.

International Container Terminal Services Inc. chairman Enrique Razon Jr. was also quoted as saying last week he was willing to team up with SMC on the venture.

“I am thinking about it,” Ang said, when asked whether he was ready to form partnerships with interested parties for the airport project.

San Miguel early this month presented the proposed $10-billion modern international airport project to President Benigno Aquino III.

Ang said under the plan, the airport project would be designed to have four runways capable of handling 150 million passengers annually and could accommodate 250 takeoffs and landings per hour.

The Ninoy Aquino International Airport has a capacity of only 40 takeoffs and landings per hour, he said.

Ang said while San Miguel could handle the financing of the project and it was willing to invite other businessmen such as the Sys, Gokongweis and Zobels to participate in the development of the project.

Ang said the airport would be built on the project started by Cyber Bay Corp., which has already reclaimed 157 hectares in Las Piñas and Parañaque.

Ang said as the whole project would require 1,600 hectares of land, San Miguel was in talks with a potential partner that would oversee the reclamation and construction of the project.

San Miguel, which also owns a stake in flag carrier Philippine Airlines, proposed to finance the $10-billion construction cost of the new airport project, including an expressway that will connect the airport to the Makati central business district.

Ang said to enable San Miguel to recover the huge investments, the conglomerate proposed to operate the airport for a long-term period.

He said the proposed airport project would be more modern than the airports in Hong Kong and Singapore, both of which only have two runways.

JG Summit Eyes More Airport Projects


Source: , Philippine Daily Inquirer

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Conglomerate JG Summit Holdings Inc. is keeping an eye on airport projects that the government would auction off other than the P17.5- billion Mactan-Cebu International Airport, which the Gokongweis are bidding for together with Metro Pacific Investments Corp.

JG Summit president Lance Gokongwei said last week that the company would consider airport deals in areas like Iloilo and Bacolod, which the Department of Transportation and Communications (DOTC) might bid out under the public private partnership (PPP) framework.

The DOTC in June said it might bundle three airports—Davao, Iloilo, and Bacolod—under a single PPP. This, according to the DOTC, would give the deal more scale and draw larger international operators and local partners.

“We will have to look at the terms of reference. I think that after Cebu, they (DOTC) are looking at Bacolod and Iloilo (and Davao). They might bundle it so it’s the same size as Cebu,” Gokongwei said.

It was not clear whether JG Summit would pursue future airport ventures alone or in partnership with Metro Pacific.

The two groups formed early this year MPIC-JGS Airport Consortium Inc., which would bid for the contract to rehabilitate, expand and operate Mactan-Cebu International Airport.

MPIC-JGS Airport Consortium was among the seven groups pre-qualified to bid for the airport deal, the first to be auctioned off by the DOTC. The others include the SM group, Ayala-Aboitiz partnership and San Miguel Corp as well as foreign partners such as Singapore’s Changi and Incheon of South Korea.

The PPP Center, which originally planned to bid out Cebu-Mactan on Aug. 28 but pushed back the schedule to refine the concession agreement, said the auction would push through by the end of next month.

Taken together, the air gateways in Davao, Bacolod and  Iloilo handled about 5.5 million passengers in 2011, government statistics showed. This is comparable to the 6 million passengers that Mactan-Cebu Airport handled during that period.

“You have to package it. So if we bid out Bacolod, Iloilo and Davao, the winner will operate all three,” Transportation Secretary Joseph Abaya said in a previous interview.