Sep 142013

MANILA, Philippines – Think tank Center for Aviation (CAPA) expects the low cost carrier (LCC) segment in the Philippines to post a slow growth this year due to the consolidation of major players after experiencing an over-capacity last year.

In its latest aviation analysis entitled “Competition in Southeast Asia’s Low Cost Airline Sector Heats Up as Capacity Surges,” CAPA said the consolidation of major players in the industry has led to an improved outlook for the local airlines.

The study showed that the total LCC fleet in the Philippines is expected to grow in 2013 by a relatively modest 10 percent to 69 aircraft excluding the unit of national flag carrier Philippine Airlines – PAL Express.

CAPA said budget airline Cebu Air Inc. (Cebu Pacific) fleet is expected to grow to 48 this year from 41 in 2012, followed by AirAsia Philippines (from two to three), Tiger Air Philippines with five, Zest Airways Inc. of Ambassador Alfredo Yao to 13.

The think tank said LCCs accounted for 80 percent of domestic passengers in the Philippines last year, giving it the highest LCC penetration rate in the world among medium and large size markets.

But competition on many routes was irrational and four of the five LCCs were unprofitable – AirAsia Philippines, PAL Express, Tiger affiliate Tigerair Philippines, and ZestAir, CAPA said.

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CAPA noted that Cebu Pacific was the only local airline that ended 2012 in the black. The budget carrier accounted for 46 percent of the domestic market.

Early this year, two of the major players in the Philippines consolidated their operations with the rebranding of PAL Express from Airphil Express that took over the domestic routes of PAL as well as the acquisition by AirAsia Philippines of a 49 percent stake in ZestAir.

“Consolidation came in early 2013 as AirPhil Express rebranded as PAL Express and in the process transitioned to a regional full-service model. AirAsia Philippines also entered into a partnership and cross-ownership deal with Zest, which gives AirAsia access to the Manila market,” CAPA said.

The deal means there is now a more palpable three LCC players in the Philippines – AirAsia (including Zest), Tigerair Philippines, and Cebu Pacific, CAPA added.

This year, Cebu Pacific plans to expand its seat capacity by 11 percent as it adds seven aircraft for a year-end fleet of 48.

In the first half, Cebu Pacific reported an eight percent and six percent growth in passengers and seats, respectively.

AirAsia Philippines, on the other hand, plans to add one aircraft in the fourth quarter while affiliate ZestAir intends to add two more Airbus A320, bringing to 15 its number of aircraft by yearend.

For the entire Southeast Asia, CAPA said the region would continue to experience rapid LCC expansion even though some key markets are approaching saturation.

The region’s LCC fleet is poised to grow by about 20 percent this year approaching 500 aircrafts at year-end as the LCC penetration rate within Southeast Asia has increased steadily over the last 10 years to above 50 percent from less than five years in 2003, CAPA said.

“With some of the largest airline orders in recent years coming from ASEAN-focused LCC groups, rapid growth for the sector is assured for the medium to long term,” CAPA pointed out.

Opportunities still remain for LCC market share gains in some countries, particularly Myanmar and Vietnam. These important pioneer markets have the lowest LCC penetration rates among the seven main ASEAN countries but LCC start-ups from both countries are expanding rapidly, CAPA noted.

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