The Philippines-Australia market is seeing rapid growth in air passenger traffic, but questions over domestic carriers’ capacity to address the demand hangs, according to aviation consultancy firm Capa-Center for Aviation.
In a report, Capa said the Australia-Philippines market had doubled in size in the last five years, from 228,000 nonstop passengers in 2010 to 466,000 passengers last year, and was now facing “overcapacity concerns.” In 2015 alone, air passenger traffic between both countries grew 39 percent.
Capa said a big part of this growth came from budget carrier Cebu Pacific, which launched its Manila-Sydney route in 2014 and as of last year, cornered 41 percent of the market. It was also planning to launch direct flights to Melbourne.
The Philippines-Australia route is also served by flag carrier Philippine Airlines, which had 31.5 percent of the market, and Australia’s Qantas, which held 27.1 percent last year, Capa data showed. PAL, which flies to Sydney, Melbourne, Brisbane, Cairns and Darwin, saw its Australia traffic grow 17 percent in 2015.
“Additional capacity increases by Philippine competitors could start to impact Qantas. However, the bigger question marks are with Cebu Pacific and PAL—and specifically whether they will be able to maintain their Australia capacity,” Capa noted.
Still, Capa said there was potential growth here.
It said low fares could “stimulate new demand” in both inbound and outbound flights. But it also warned the market was highly seasonal, making it “hard to maintain high year-round load factors.”
According to the consultancy company, the average load factors, a measure of capacity utilization expressed as a percentage, for Australia-Philippines flights were at a “dismal” 60 percent for PAL and 64 percent for Cebu Pacific. Qantas, on the other hand, had a load factor of 91 percent in 2015.
“The preference would be to grow the local market and stimulate more demand from Filipinos. But there is a limit to this growth and the low load factors at Cebu Pacific and PAL is an indication of the challenges that lie ahead,” Capa said.
It added sustainable load factors could be achieved with “significant sixth freedom traffic beyond Manila.” Sixth freedom refers to the right of an airline to carry passengers or cargo between two foreign countries while making a stopover in its home country.
“However, given the intense competition in Australia’s international market and the fact PAL and Cebu Pacific are not well known brands outside the Filipino community any sixth freedom traffic would be low yielding and likely carried below cost,” Capa said.