2016 seen as make-or-break year for Air Asia units in PH

The Philippine unit of Malaysian budget carrier Air Asia Bhd is seeing its outlook improve as it focuses on more international routes via secondary hubs and completes the consolidation of its brands, aviation consultancy CAPA-Center for Aviation said in a report.

Air Asia’s Philippine units represent the third major airline player in the Philippines, where they mainly compete with Philippine Airlines and Cebu Pacific Air.

CAPA said in its report that 2016 was a “critical year” for the Air Asia Group to prove that it can be a viable carrier in the Philippine market.

“If it meets its 2016 goal of becoming profitable, aspirations for an initial public offering within two years will become realistic, providing a foundation for consistent growth,” CAPA said.

“If the newly restructured [Philippines Air Asia] remains loss-making, its long-term survivability —and the AirAsia Group’s need for a Philippine affiliate—will again be questioned,” it added.

The group operates in the country mainly through its brands Philippine Air Asia and Air Asia Zest.

CAPA, citing its CEO Joy Caneba, said the combination of both units under a single brand would soon be rolled out.

“Turnaround efforts are banking on cost reductions driven by the transition to a single airline and higher yields that will be generated by a more international focused network,” CAPA said, adding that the business had been “highly unprofitable” since 2012.

Nevertheless, CAPA said the domestic business had been seeing improved load factor.

Moreover, it said Philippine Air Asia would continue to expand its fleet in 2016, reiterating a plan outlined by AirAsia founder Tony Fernandes.

CAPA said Air Asia Philippines was in the process of selling older planes to cut its fleet of 15 aircraft to 12 Airbus A320s.

“Strategically, PAA needs to resume expansion as it cannot afford to be stuck at its current modest capacity level. Cutting capacity and the fleet over the last year was necessary but is seen as a temporary measure to position the airline for future growth,” CAPA said.

It likewise supported the unit’s plan to develop more secondary hubs with international routes such as Davao, Iloilo, and Puerto Princesa.

“Over the last couple of years Air Asia has discovered that battling against PAL and much larger [low cost carrier] Cebu Pacific in the domestic market is generally a losing proposition,” CAPA said. “The focus on secondary international routes is logical as PAA needs to differentiate itself from its larger competitors.”