PAL, Cebu Pacific launch landmark UAE flights

MANILA, Philippines – In October, two local carriers — Philippine Airlines (PAL) and Cebu Pacific — will mount direct flights to destinations in the United Arab Emirates (UAE) for the first time in years. 

Previously, the lucrative routes were flown only by foreign carriers as local airlines either struggled with financial mess or were still scaling up. 

Gokongwei-led Cebu Pacific, the country’s biggest budget carrier, announced in January that its first long-haul destination would be Dubai. Its 7-a-week, 9-hour-long direct Manila-Dubai flights will start on October 7. 

Legacy carrier PAL, now controlled by diversified conglomerate San Miguel Corp., announced on March 7 that it would commence its direct Manila-Abu Dhabi flights on October. While it has not yet been formally announced, PAL’s low-cost brand, AirPhil Express, may take up the direct Manila-Dubai route. 

UAE-based Emirates also announced that it would begin daily, non-stop flights between Dubai and Clark starting October 1. 

With these recent launches, the airlines are looking to benefit from a price-sensitive market, which primarily consists of migrant workers.

Having local airlines fly to UAE is a landmark turn of events on the regulatory front, and it highlights the current financial might of the two largest Philippine carriers in a highly competitive industry. 

Bilateral air rights

Cebu Pacific’s and PAL’s new Philippine-UAE services came about after the two countries agreed to double their maximum flight allocations to 28 a week for each side or a total of 56 for both. 

For years, the two countries allocated 14 flights per week to their respective local airlines. This ceiling is negotiated during bilateral air talks, which mark the restrictive and highly regulated nature of global commercial aviation.

“We concluded an agreement with the UAE that increased entitlements from the current 14 flights per week to 28 for each side between Manila and UAE,” Civil Aeronautics Board (CAB) executive director Carmelo Arcilla told Rappler in an interview on March 7. CAB is part of the Philippine air panel, which negotiates then assigns these flight entitlements to local airlines.  

Before this increase, all the 14 flights that the Philippine panel awarded to PAL were “rented out” via a code-share agreement with UAE-based airline Emirates. Thus, all 28 allocations for the Philippines and UAE were mostly used by Emirates. Etihad Airlines was also given flight allocations.  

The route has high traffic as Dubai has the 4th largest overseas Filipino population in any single area. The regulatory limit of 14 flights — or 28 that the foreign airlines were using — was choking the market. Some Dubai-bound overseas Filipino workers had to wait for days or weeks to get an airline seat in the direct flights, or book one with a stopover in an Asian hub like Singapore, making the travel longer and more expensive.  

New air talks

In 2012, Emirates sought additional flight allocations in addition to the 14 weekly frequencies, which PAL initially looked to block. 

In the same year, low-cost carrier Cebu Pacific announced it was eyeing the Middle East in its plans to fly long haul, or more than 4-hour flights. By then, the Gokongwei-led budget carrier had scaled up and was capable to expand its business model after it already grabbed most of the domestic market share from PAL.

In June 2012, Cebu Pacific joined calls for new round of air talks to increase the ceiling of 14 flights a week. At first, regulatory restrictions and being a new entrant to these routes worked against Cebu Pacific. CAB initially denied its request. 

By December 2012, the two countries’ air panels finally concluded their negotiations, which led to the increase in the weekly limit from 14 to 28 between Manila and the UAE destinations, with additional 7 flights between UAE and Clark. PAL also withdrew its opposition to Emirates’ previous request.

On February 18, Emirates announced that it would mount daily flights between Dubai and Clark starting October 1. This makes Clark its second destination in the Philippines and Emirates’ bet to capture the OFW market in central and northern Luzon. 

Clark is a former US airbase sitting in a sprawling area that does not face the physical constraints of congested Manila airport facilities, and is a catchment area of 17 million people that has fueled its exponential growth.

New aircraft orders

Local airlines are now able to compete in these lucrative routes because they have beefed up their war chest. 

PAL had been financially bleeding after its bankruptcy a decade ago, and it took years to nurse it back to health. Its labor woes also disrupted operations, resulting in some flight cancellations. 

PAL used to fly to various destinations in the Middle East but had to pull back to focus on its most lucrative route: the trans-Pacific. PAL’s lucrative Philippines-US routes, however, were later hit by another regulatory issue: the US Federal Aviation Authority downgraded its peer regulator, the Civil Aviation Authority of the Philippines, to Category 2, resulting in the freezing of new and additional flights that any Philippine carrier can mount to the US.  

In April 2012, the Lucio Tan group, which acquired PAL from the government when the airline was privatized in the 1990’s, sealed a deal with diversified conglomerate San Miguel for the sale of 49% stake in as well as management control of the airline.

Under San Miguel, PAL pursued its re-fleeting and modernization program feverishly. PAL announced plans to acquire up to 100 new aircraft. Its $10-billion deal with Airbus for the acquisition of 64 new aircraft is the Philippines’ biggest airline deal on record. 

PAL’s massive aircraft deals have played out in the international market as global aircraft makers Airbus and Boeing scrambled for a piece of it. The succeeding Malacañang visits of French and British officials have painted PAL’s aircraft orders as part of bilateral trade partnerships.     

Cebu Pacific, on the other hand, has evolved from strength to strength. After deciding in 2004 to fully embrace the low-cost model, the Gokongwei group, which bought the airline in the 1990s but struggled to shed remnants of being a legacy airline model, saw its no-frills service serving a pent up demand for travel. 

Its parent firm, diversified conglomerate JG Summit Holdings, has also found a strategy to build up a cash reserve that Cebu Pacific can spend for its expansion plans. 

In February 2012, Cebu Pacific announced that it will lease up to 8 Airbus A330-300 aircraft for its long-haul operations. 

Migrant traffic

Joey de Guzman, spokesperson for PAL said the airlines would be able to differentiate themselves in the services they offer. “Timing is very important. If you offer flights that land early in the morning people will have to spend a lot more on cab when the public transport is not working.”

“Dubai is the largest long-haul market to and from the Philippines. IATA PaxIS data indicate more than 70% of passengers in this route take multiple stops and connecting flights because no home carrier offers a non-stop service,” said Cebu Pacific’s long-haul division head, Alex Reyes.

There are about 700,000 OFWs in Dubai. According to the data from Philippine Overseas Employment Administration, the UAE ranks second to Saudi Arabia in terms of number of land based new hires and re-hires.

Aside from the UAE, other local airlines have been eyeing destinations, such as Saudi Arabia and United Arab Emirates in the Middle East, where 2.3 million Filipinos currently live and work. – Rappler.com