Capa upbeat on PH aviation industry

The Philippine commercial aviation business is seen to improve further this year as dominant budget carrier Cebu Pacific Air acquires Tigerair Philippines, cutting down competition and stemming eroding margins, a report by Center for Aviation showed last week (Capa).

Capa likewise said Cebu Pacific would become more dominant with a market share nearing 60 percent from about 50 percent last year.

Capa, which is based in Australia, is a global aviation consultancy firm.

“Competition however was more rational toward the end of the year (2013) and the outlook for 2014 is rather bright as Cebu Pacific’s acquisition of Tigerair Philippines leaves only two competitors,” Capa said. It was referring to the Philippine Airlines group and the domestic units of Malaysian budget carrier AirAsia Bhd., including AirAsia Zest and AirAsia Philippines.

It noted that the consolidation of low-cost carriers helped bolster margins starting 2013.

“But there were again signs of irrational competition in the third quarter of 2013. Even Cebu Pacific, which has generally been the only profitable Philippine carrier, posted a rare loss in the third quarter as its average passenger yield dropped by 10 percent,” Capa noted.

Cebu Pacific, operated by the Gokongwei family through Cebu Air Inc., announced this month that it was buying 100 percent of Tigerair Philippines for $15 million. The deal, still subject to the approval of regulators and lawmakers, also involved a wide-ranging alliance with Tigerair Philippines’ parent firm, Tiger Airways of Singapore.

The immediate effect would be a larger slice of the market for Cebu Pacific, which has a fleet of 48 mid-range and long-range planes versus five mid-range aircraft for Tigerair Philippines.

“Cebu Pacific will further build on its already leading 50 percent share of the market as it takes over Tigerair’s 5 percent share while also continuing to expand the Cebu Pacific operation,” Capa said.

It noted that final figures in 2014 would depend on the competitive response of AirAsia and Philippine Airlines, whose shareholders said they were committed to expanding operations.

Philippine Airlines, now managed by San Miguel Corp., is the in midst of a massive refleeting strategy involving 64 new planes from European manufacturer Airbus SAS.

During the nine-month period last year, Cebu Pacific cornered 50 percent of domestic flights, followed by 34 percent for Philippine Airlines, 10 percent for AirAsia and 5 percent for Tigerair Philippines, data collated by Capa showed.