Battle of low-cost carriers

Battle of low-cost carriers
Saturday, 11 February 2012 18:37
Lenie Lectura / Reporter

IT doesn’t take a genius to deduce that the presence of low-cost carriers (LCCs) has, indeed, heated up competition in the country to the benefit of passengers, of course.
Promo fares, heftier discounts for passengers with less or no carry-on baggage, and bundled air fare with hotel accommodation.
These are the irresistible come-ons to ticket buyers.
“In a country where people are frugal, they patronize the carrier that sells the cheapest fare. Consumers are wise nowadays.
They research via the Internet to scout for the most affordable fare and even make comparisons just so they can be sure that they are availing themselves of the best deal,” said Carmelo Arcilla, executive director of the Civil Aeronautics Board (CAB).
A low-cost carrier is an airline that generally has lower fares but fewer comforts; no food is served on board, for one.
However, fares are definitely cheaper by thousands of pesos.
That’s why Cebu Pacific, Airphil Express, Zest Air and Seair are often referred to as no-frills, budget carriers.
To make up for revenue lost in lower ticket prices, the LCC may charge for extras like food, priority boarding, seat allocating and baggage.
Arcilla said the LCC penetration rate in the country is currently pegged at 85 percent, led by Cebu Pacific and Airphil Express.
He noted that the penetration rate of domestic LCCs is much higher than in other emerging markets.“Certainly, the LCCs dominate the market.
Their presence stimulates the travel appetite of Filipinos who are sensitive to prices,” said the CAB official.
Rock-bottom fares
CEBU Pacific resumed offering its P1 seat sale in a bid to help promote the country’s tourism industry.
The P1 fare is exclusive of government tax and fuel surcharge but applies to all of the airline’s 18 international and 34 domestic destinations.
“It has always been fun for us at Cebu Pacific to give away seats at P1, because more local and foreign tourists get the chance to explore the Philippines on our trademark lowest fares.
With this unbeatable travel deal, passengers can spend their airfare savings on more adventures,” said Candice Iyog, Cebu Pacific vice president for marketing and distribution.
The airline posted a seat sale teaser with the words “We’re the #JuanforFun” on its official Cebu Pacific Air Facebook Fan Page and @cebupacificair Twitter account on January 19.
The teaser was inspired by the Department of Tourism’s national initiative “#1FORFUN,” with a call to stay tuned for the seat sale’s launch.
The tickets for the P1 fare are valid from June 1 to December 15 of this year.
Cebu Pacific’s P1 fare promo was introduced in 2007 and has since become extremely popular.
Cebu Pacific, which is operated by listed Cebu Air Inc., is the listed airline of JG Summit Holdings Inc. of the Gokongwei family, which has interests in telecommunications, banking, hotels and food manufacturing, among others.
Airphil Express, the budget airline which is 99-percent owned by the Lucio Tan group and Philippine Airlines’ (PAL) sister company, has posted on its web site a list of its year-round promo. Their seat sale includes P1, P8, P88, P488 and P888 promos.
Airphil Express seeks to increasingly corner a considerable share of the budget-airline market by offering travelers with compelling value propositions.
Among these is the “free 15-kilo check-in luggage allowance plus seven-kilo hand-carry baggage” that used to be standard among budget carriers.
It also offers a 20-percent discount to students.
Moreover, it recently launched a customer loyalty program where loyal Airphil Express travelers can receive a free ticket after logging in 10 trips under the program.
PAL, on the other hand, is not a budget airline but it does offer promo fares from time to time.
It had just launched its Valentine’s Day promo offer dubbed as “Let Your Love Fly Free.”
Under the promo, the passenger will need to buy a regular-priced business-class ticket to avail himself/herself of another one for free.
The promo is from January 17 to February 13, and is valid for travel from January 23 to March 31.
The promo is available on the following PAL routes: San Francisco and Los Angeles in California; Las Vegas, Nevada; Honolulu; Guam; Hong Kong; Macau; Taipei, Taiwan; Bangkok, Thailand; Singapore; Ho Chi Minh, Vietnam; Jakarta; Malaysia; Xiamen, Shanghai and Beijing in China; Delhi, India; Tokyo, Nagoya, Fukuoka and Osaka in Japan; Sydney and Melbourne in Australia.
For domestic destinations, PAL’s promo applies to the following: Laoag, Legazpi, Puerto Princesa, Bacolod, Cebu, Dumaguete, Iloilo, Kalibo, Roxas, Tacloban, Tagbilaran, Butuan, Cagayan de Oro, Cotabato, Davao, Dipolog, General Santos, Ozamiz and Zamboanga.
The airline earlier reported that its December 2011 bookings increased by 23 percent, driven by a 27-percent increase in international bookings.
“Even if we are not a budget airline, we still offer affordable rates,” said PAL President Jaime Bautista in an interview.PAL is 95-percent owned by tobacco and beer magnate Tan.
The rest of the LCCs—Seair and ZestAir—also offer competitive rates.
More affordable rates are even offered if an airline has to fly out of Clark. Domestic air travel on the rise
THE successful take-up of promo airfare has, indeed, lifted passenger count.
Based on latest figures provided by the CAB, domestic air travel in the country continued to soar at end-September last year mostly because of the price war among the LCCs.
The CAB said domestic passengers rose by 14.3 percent to 14.03 million in the first nine months of the year from 12.28 million in the same period last year.
The airlines’ seat capacity grew 16.42 percent to 18.01 million from last year’s 15.47 million, resulting in an average passenger load factor of 76.6 percent.
Arcilla said the industry’s increasing load factor reflects a steady growth in passenger demand.
Cebu Pacific carried 6.17 million as against PAL’s 3.4 million.
The Gokongwei-led airline had a load factor of 81 percent during the period, against PAL’s 75 percent.
Airphil Express, the country’s fastest-growing airline, flew 2.72 million passengers, up 142.86 percent from 1.12 million last year.
Alfredo Herrera, Airphil Express senior vice president for marketing and sales, said the huge increase in passengers was driven by the airline’s competitive fares and increased capacity.
He said the airline has been successful in snatching passengers from rivals, while gaining new travelers.
Airphil had predicted it would end 2011 with more than 4 million domestic and international passengers.
ZestAir, meanwhile, recorded a total of 1.58 million passengers, higher than last year’s 902,935, while Seair suffered a decline to 115,525 from 159,086.
Foreign LCCs give local airlines a tough fightTHE air fare rates “war” could further heat up competition among the LCCs with the entry of foreign LCCs such as AirAsia Philippines Inc. and the joint venture between Tiger Airways and Seair.
Recently, the CAB granted seat entitlements to AirAsia and Seair for flights between Clark and destinations in Malaysia.
“The LCCs are expanding. Foreign or local, both are eager to serve not only the domestic market but regional markets as well,” said Arcilla.
“As such, local airlines should adjust so they can withstand the onslaught of the new carriers.”
AirAsia awaits a permit from the Civil Aviation Authority of the Philippines (Caap) before it can launch its maiden flight.
Its main hub of operation is at the Diosdado Macapagal International Airport in Angeles City, Pampanga.
One of the airline’s investors, Antonio Cojuangco Jr., said AirAsia will give Philippine budget airlines a tough competition by offering fares that are cheaper than Cebu Pacific’s.
“Yeah, that’s our motto.
Lower than existing market,” he said.
Expansion not only covers additional destinations but also growth in fleet, added the CAB official.
AirAsia plans to buy as many as 10 aircraft in the next three years.
Two, said Cojuangco, arrived last year.
When asked of the airline’s plans in terms of acquiring more aircraft, Cojuangco said, “We have plans but all of these are subject to what we can actually achieve.
Best-case scenario, in the next three years, we may have eight to 10 planes.
All Airbus,” he said.
Seair, meanwhile, will use Airbus 319s and 320s for its planned new international destinations.
At present, Seair flies to Singapore, Hong Kong and Macau from its hub in Clark, using two Airbus planes leased from Tiger Airways.
Moreover, Seair would be tapping the reservation system of Tiger Airways for its marketing and booking needs.
Seair will also use aircraft from Tiger Airways for domestic flights to Cebu and Davao. The CAB recently lifted the cease-and-desist order (CDO) it issued on these two routes because of alleged cabotage violation.
PAL, Cebu Pacific and Airphil Express complained that mounting these routes rules violated cabotage rights.
Such rights, which involve the transport of goods and passengers between two or more points within the Philippines, are only for domestic airlines.
Local airlines feared that allowing Seair to fly these routes would, in turn, allow Tiger Airways to access the Philippine market and fly domestic routes.
“But the CDO had been lifted and we are ready to fly to these routes soon,” said Seair President Avelino Zapanta.
Seair and Tiger Airways launched flights to Singapore and to Hong Kong.
The CAB official added airlines are using Clark as jump-off points to take advantage of the rising regional travel demand. “These are flights that take no more than four hours.
Most of the budget airlines expand their presence in these routes,” Arcilla added. LCCs take caution against high fuel prices
THE vibrant budget-carrier sector continues to be plagued by spiraling jet fuel prices.Fuel accounts for 40 percent of an airline’s operating cost per passenger and is considered the second-highest next to labor.
That’s why airlines are allowed to seek upward adjustments in fuel surcharges before the CAB as a means of a temporary relief to help them recover losses they incur from higher jet fuel prices.
Last year, Cebu Pacific started recharging fuel surcharge of ticket holders.
It’s been two years since the Gokongwei-owned airline removed fuel surcharge in the ticket price of its domestic and international flight bookings.
The removal of the surcharges then allowed passengers to easily compare airfare with the fares of buses and ferries.
But the rising price of fuel in the world market is hurting airlines.
“We have to augment due to rising fuel costs.
We still have the lowest fares even with fuel surcharge since all other airlines are also charging the same fuel surcharge,” said Iyog.
Airlines seeking adjustment in fuel surcharge will have to pay P6,000 per application before the CAB.
Once approved by the CAB, the airlines are allo
wed to implement the new rate for the next three months.
Airlines hedge their fuel requirements.
This means that they buy their fuel requirements at almost 60 percent in advance at a fixed price.
Arcilla said LCCs are able to shield themselves from high operating costs, particularly on fuel, simply because they have to.
“They find ways to cut costs.
As LCC, they should operate efficiently by improving their turnaround time so that no fuel is wasted.
So, they purchase fuel-efficient aircraft,” he said.
“There is an impact on our bottom line but we are managing it,” said Iyog.
Recently, Cebu Pacific announced it will be leasing up to eight Airbus A330-300 aircraft to serve long-haul routes in the third quarter of next year.
This type of aircraft is more fuel efficient, it said.
Cebu Pacific expects to end the year in the black, but cautioned against fuel prices that will still affect the firm’s profitability.
Its nine-month net income declined by 54 percent to P2.22 billion in January to September 2011, as the increase in revenues was not enough to cover the rise in expenses.