Manila’s category 2 status hurting budget airlines

The local budget carrier industry is starting to hurt due to the dismal grades the Philippines has received from several foreign aviation regulatory bodies, effectively keeping the country’s growing airlines out of key markets in the region.

In a recent study, the Center for Asia Pacific Aviation (Capa) said the country’s budget airlines continue to expand their operations as they take delivery of more aircraft amid the liberalization of the region’s aviation sector.

The aviation industry research group said three of the Philippines’ five budget airlines are already barred from flying to South Korea, the largest source of tourists to the country. A similar moratorium on local airlines has been imposed by the Japanese government.

The various bans stem from the country’s “serious safety concern” status with the International Civil Aviation Organization (Icao), which reflects the government’s failure to comply with minimum international aviation safety standards.

Apart from Icao, the United States Federal Aviation Administration (FAA) also ranks the Philippines as a “category 2” market due to safety considerations. The FAA grade bans local airlines from expanding operations in the United States.

The Civil Aviation Authority of the Philippines (CAAP), formerly the Air Transportation Office, since 2007 has failed to meet the FAA’s and the Icao’s minimum safety requirements due to lack of qualified personnel.

“Japan is currently blocking any expansion by any Philippine carrier until the Philippines passes an Icao audit,” Capa said in a report. “South Korean authorities have a different interpretation of the current situation, which has been in place for several years due to Icao concerns over the Philippines’ ability to regulate safety standards, and allows carriers already in the market to expand while banning new entrants.”

Capa added that the restrictions “in North Asia placed on Philippine carriers could partially explain the large amounts of capacity being directed by the country’s low-cost carriers to the already crowded domestic market.”

Government data released last month showed that industry load factors for domestic flights in the first half fell to 75 percent from 80 percent in the same period last year. The lower average load factor, which refers to the amount of seats filled on every flight, indicates stiffer competition among local airlines driven by the growth of budget carriers.

Capa, citing Innovata data, said that over the next three months Zest Airways plans to increase domestic capacity by a further 19 percent over current levels, while AirPhil and Cebu Pacific plan a 7-percent and 10-percent increase, respectively.

AirAsia Philippines has not yet loaded any new flights but domestic and international capacity increases are likely by yearend as the carrier plans to take delivery of two A320s in the fourth quarter of 2012, giving it a fleet of four A320s, Capa said.

“SEAir, which expanded its A320 family fleet from two to five aircraft in July 2012, has not yet unveiled plans for further capacity increases beyond its recent launch of seven domestic routes,” Capa said.