MANILA, Philippines – The Philippines’ low-cost carriers (LCC) market is overcrowded and saturated, the latest report of the Center for Asia Pacific Aviation (CAPA) warned.
Further gains are unlikely in the next year due to the high number of LCCs in the domestic market, the report said.
The Philippines currently has the world’s highest domestic LCC penetration rate at nearly 80%. There are now 5 low-cost airlines competing with one other over domestic routes: Cebu Pacific, Airphil Express, Air Asia, Zest Air and Seair.
“As LCCs already control over 80% of the Philippine domestic market, I wouldn’t expect further increases in market penetration domestically. I think we are instead potentially in for a year in which we may see some consolidation in the Philippines domestic market,” said Brendan Sobie, chief analyst at CAPA.
The share of budget carriers in Philippine aviation in the first 9 months of 2012 soared to an average of 60%, reflecting one of the highest in the world, according to business consultancy firm Innodata.
Almost 80% of the domestic market’s 15.5 million passengers, and about 30% of international’s 12.5 million during the period were flown by budget airlines.
The share of low-cost seats in 2012 for the domestic market was 78%, a big jump from 10 years ago when it was only 29%. The international market has a much lower penetration with the share of low-cost seats at 28% compared to 2% in 2005.
According to the CAPA report, over-capacity and stiff competition have resulted in losses last year for all Philippine carriers except Cebu Pacific.
Budget flights started being introduced in the Philippines in 2005 and grew exponentially on the back of competition which resulted in lower fares. Budget carriers also responded to competition by acquiring fuel-efficient aircraft, testing new markets and merging with new owners or partners with deeper pockets or wider reach.
Seeking new opportunites outside the overcrowded domestic market, many of the local airlines are now looking further at medium haul routes in the international market. This comes as the Philippine government targets to double foreign tourist arrivals to 10 million by 2016.
“As for the international market, there should be a further increase in the LCC penetration rate as several of the local LCCs continue to expand regionally in Asia, and as Cebu [Pacific], and possibly AirPhil, launch their new long-haul low-cost operations,” said Sobie.
Cebu Pacific is looking to launch new routes to the Middle East, Asia and potentially Australia in the next year. PAL is also considering expanding its long-haul operations.
However plans in introducing long haul operations are contingent on the Philippines being taken off the EU and US blacklist. Since 2008, the Civil Aviation Authority of the Philippines (CAAP), which regulates and oversees the airline industry, has failed to comply with minimum international aviation safety standards set by the International Civil Aviation Organization. CAAP is up for a reassessment in February. – Rappler.com