Monday, August 31, 2015

MIAA: NAIA Not Capable of Handling the Airbus A380

Prior to the expansion of the air services agreement between the United Arab Emirates and the Philippines, it was suggested that Emirates consider operating A380 flights to Manila as a means to expand capacity. However, the Manila International Airport Authority stated last year that limitations at the country's main international gateway prevent it from adequately servicing the A380 on a regular basis.
emirates philippines
Image Source: Emirates
Emirates flew the Airbus A380, the world's largest passenger aircraft, on a special flight from Dubai to Manila last October 7 to commemorate the carrier's transfer from Terminal 1 to Terminal 3. However, many viewed the flight as a test to determine if the Ninoy Aquino International Airport in Manila could adequately service the aircraft. Emirates knew that it had to explore alternative measures for expanding service in Manila with the foreseen loss of their third daily flight due to bilateral limitations.
While the Manila Airport adequately serviced the aircraft on this special flight, the Manila International Airport Authority later admitted that the limited capacity of the airport would pose a challenge to hosting regularly scheduled A380 flights as the aircraft would "cause a lot of inconvenience and delay for other scheduled flights."
According to NAIA General Manager Angel Honrado, the large size of the wide-bodied aircraft meant that the A380 could only be on the runway, while a smaller aircraft is on the taxiway due to its massive wingspan. 
Although an effort was made to study the possibility of allowing an A380 to operate alongside an A320 on the runway or taxiway, it was determined impossible due to the limited clearance. "It could not be done because the clearance between the center line of the runway and taxiway does not conform to the safety requirement of wing-tip-to-wing-tip clearance," said Honrado.
Currently, Clark International Airport in Pampanga is the only airport in the Philippines that is capable of adequately handling the Airbus A380. Unfortunately, there is insufficient traffic at Clark to fill the massive passenger capacity of the double-deck A380. Emirates even had difficulty filling the smaller Boeing 777 aircraft, when it recently attempted non-stop flights between Clark and Dubai.
Although the latest expansion of the UAE-Philippines air agreement requires the UAE carrier that accepts the additional flight entitlements to operate service to Clark or Cebu within one year of signing the memorandum of agreement, it is most likely that the next attempt at flights outside of Manila will be in Cebu, which is better connected as a regional hub, given the poor performance at Clark.
The last time an A380 landed at Clark International Airport was in 2007 when Airbus Industries brought the aircraft to the Philippines to prove its ability to operate in the country.

Sunday, August 30, 2015

Philippine Airlines Considers Replacement & Expansion of Bombardier Fleet

Philippine Airlines is planning to replace its fleet of Bombardier turboprop aircraft in the coming year as the leases of five of the nine existing aircraft in its fleet expire. According to the national flag carrier, they will most likely replace the current fleet with the same type of aircraft.

Copyright Photo: Angelo Agcamaran/PPSG 

PAL Express currently operates a fleet of five Bombardier Q400 aircraft, which are fifteen years old and leased from Nordic Aviation. In addition, the carrier operates four Bombardier Q300 aircraft. Three of those aircraft are owned by the carrier, while the fourth is under lease.

According to Jaime Bautista, President of Philippine Airlines, the company is assessing its need for smaller aircraft in an effort to better serve the country's regional airports. "We have nine turboprop airplanes right now, we may replace them or add more. We are considering the same aircraft - maybe a Q300 or Q400, or even a smaller jet that can carry 50-70 passengers," said Bautista. "We have more than 70 airports in the Philippines and we serve only around 30 of them."

Philippine Airlines hopes to take delivery of the more efficient Q400 aircraft to strengthen its domestic operations in 2016. Earlier this year, Cebu Pacific made the decision to replace and double its existing fleet of turboprops when it placed an order for sixteen ATR 72-600 aircraft at the Paris Air Show. The budget carrier plans to use the aircraft to expand their regional operations from secondary airports and improve inter-island connectivity.

It remains unclear how many aircraft Philippine Airlines will order if it decides to expand its turboprop fleet under a lease or purchase agreement. Although PAL has expressed interest in continuing to operate Bombardier turboprop aircraft, it is unknown if there are other aircraft under consideration such as the Bombardier C-Series aircraft.

The Bombardier C-Series is the world's first new narrow-body aircraft design in twenty-seven years. The next generation aircraft is designed to offer up to 15 percent lower overall operating costs and up to 20 percent fuel savings versus competing aircraft from Boeing and Airbus. In addition, the C-Series is capable of taking off and landing at airports that Airbus aircraft are unable to use due to runway constraints.

The C-Series CS100 model is capable of taking off at maximum take off weight with just 3,999 feet of runway while landing at maximum landing weight requires just 4,400 feet. The Airbus A319 requires 7,100 feet of runway to take off at maximum take off weight. The CS100 will open up new route opportunities, especially from the new Caticlan Airport, as it carries a maximum range of 5,463 kilometres, which is unparalleled by any other aircraft in its class.


Image Source: AIN

The new Caticlan Airport is an ideal candidate for the C-Series aircraft. When the runway extension is complete, aircraft will have up to 6,889 feet to take-off. This gives the C-Series plenty of room to operate non-stop flights from Boracay-Caticlan to places as far away as Perth, Australia without payload restrictions. The aircraft is ideal for long and thin domestic or international routes.

A number of airports in the Philippines are unable to handle Airbus aircraft due to runway limitations. These airports include Busuanga, Basco, El Nido, Naga, and Virac among many others. The limitations of these airports have created new opportunities for specially designed aircraft with short take off and landing ability like the British Aerospace 146 operated by SkyJet Airlines. The Bombardier C-Series is likely to be an aircraft that Philippine Airlines will want to consider in the future given the limitations of the country's airports and limited resources for timely infrastructure development.

Meanwhile, Philippine Airlines is almost ready to announce an order for eight brand new wide-body aircraft. The carrier stated that a decision will be made within the year for either the Boeing 787 Dreamliner or Airbus A350 XWB.

The new aircraft will be used to cut the airline's fuel and maintenance costs, while increasing flights to the United States and Europe. The arrival of the aircraft in either 2017 or 2018 will also enable PAL to retire its ageing and unpopular A340-300 fleet. "There are proposals from Airbus and Boeing but we are not yet ready to announce which airplane we will choose," said Bautista. "It will be very efficient if we operate the same type of plane."

It is widely believed that Philippine Airlines favours the Airbus A350 XWB for its long-range capability, that would enable the aircraft to serve Manila to New York flights non-stop without payload restrictions. "Range is very important especially for non-stop flights. We want to be sure that these aircraft will fly to the destinations that we'd like to reach," added Bautista. "Secondly, we need to know the efficiency in terms of fuel."

Analysis: UAE Air Talks Yield Positive Results for Both Countries

The Philippine air panel ignored the pleas of the national carriers as they met with their counterparts to renegotiate and expand the existing air agreement between the Philippines and the United Arab Emirates. While both Cebu Pacific and Philippine Airlines opposed the renegotiation, the outcome is viewed as fair to both sides.

emirates clark
Copyright Photo: Angelo Agcamaran/PPSG
The new agreement increased the maximum flights per week between the two countries from twenty-eight to thirty-five. Although it remains unconfirmed which UAE carrier will utilize the seven additional entitlements, it is widely believed that Emirates will use them to relaunch its third daily flight between Manila and Dubai. 

Both Philippine Airlines and Cebu Pacific opposed any increase to the previous number of flight entitlements, citing that it would hurt local airlines, who are presently unable to maximise their existing number of entitlements. In addition, Philippine carriers accused the Gulf carriers of competing unfairly, claiming that they receive huge subsidies from their respective governments.

According to the Centre for Asia Pacific Aviation, the United Arab Emirates is presently the largest destination in the Middle East from the Philippines. More than half of the 80,000 weekly return seats from the Philippines to the Middle East are routed to the United Arab Emirates. In its report on the Philippines-Middle East market, CAPA stated that the "best scenario for Emirates and Filipino consumers would be an expansion of the UAE-Philippines bilateral."

Philippine Airlines recently argued that there was insufficient demand between the Philippines and the UAE to warrant additional flights. According to Jaime Bautista, President of Philippine Airlines, the national flag carrier has the data to prove that the majority of passengers on board Etihad and Emirates are bound for destinations outside of the UAE. 

"The figures that we got is that Emirates carries less than 30% of passengers who stay in the UAE," said Bautista. "So around 70% of its passengers are those that fly beyond Dubai. The other carrier, Etihad, is carrying passengers in the same percentage. Going by those figures, it shows that PAL and Cebu Pacific are actually carrying more passengers between the two countries so that's why we think there is an overcapacity in the market."

Bautista may indeed be correct in his assertions. However, the Philippine government has an interest in growing traffic from points beyond the Middle East to not only serve overseas Filipinos, but to attract more foreign tourists as well. Unfortunately, Philippine Airlines and Cebu Pacific do not have the aircraft or the demand to launch additional non-stop flights to Europe. Moreover, European carriers have expressed little interest in offering additional non-stop service to the Philippines, which leaves the Gulf carriers as the only carriers able to meet the growing demand and continue developing the market at the present time.

Developing New Gateways to Decrease Congestion in Manila

The new agreement successfully addresses many of the concerns presented by Philippine carriers and helps to level the playing field in spite of whatever subsidies may exist for Gulf carriers. The Philippine Civil Aeronautics Board attached a condition that whichever UAE carrier picks up the additional seven flight entitlements, must launch separate service within one year from the UAE to either Cebu or Clark Airport. 

Although pioneering a new route may seem like a huge risk, it may work out favourably at Mactan Cebu International Airport, which is rapidly growing as a domestic hub. Even Philippine Airlines is planning to launch non-stop service from the airport to Los Angeles. Emirates previously attempted non-stop service to Clark International Airport, which was withdrawn within a year after launch due to weak demand. 

While there may be insufficient origin and destination traffic between Cebu and the UAE, Emirates or Etihad may be able to leverage connecting traffic to and from popular destinations in the Visayas, Palawan, Boracay, and Mindanao just as it has in Manila and connect these passengers to their global network that extends throughout the Middle East, Europe, and Africa. Many Filipinos in those regions would appreciate the opportunity to bypass Manila. If a UAE carrier fails to begin service to Cebu or Clark within a year of signing the agreement, they will lose the additional rights to operate to Manila.

Philippine Carriers Can Now Leverage Connection Opportunities

As Philippine Airlines indicated previously, much of the demand and success of the UAE carriers can be attributed to connecting traffic, which is heading to destinations beyond Dubai or Abu Dhabi. With the absence of code-share agreements with partner airlines, neither Philippine carrier was able to capture this traffic as their services terminate in the UAE.

However, the recent negotiations will now empower the Philippine carriers to tap into this market and serve other destinations beyond the UAE without the need for code-shares as they have been granted fifth freedom rights to Europe, the United Kingdom, United States, and Saudi Arabia. This enables either Cebu Pacific or Philippine Airlines to fly to the UAE, pick up passengers and continue onto a destination in any of those countries.

According to Carmelo Arcilla, Executive Director of the Civil Aeronautics Board, the fifth-freedom rights will help to level the competitive playing field between carriers of both nations. "This will improve Philippine connectivity and also the commercial viability of our routes to the UAE," said Arcilla.

Moreover, both countries also agreed to co-terminalization, which will enable a Philippine carrier to fly to Dubai and then onto Abu Dhabi without picking up passengers for the domestic leg. This will increase the viability of the existing flights of Philippine carriers to the UAE as they can now carry passengers bound for both Abu Dhabi or Dubai on the same flight and aircraft. Co-terminalization will apply to all cities in the United Arab Emirates and the Philippines. In the case of Emirates, the carrier could launch new flights from Dubai to Cebu and continue on to Davao. 

"This also improves connectivity and viability," added Arcilla. "Overall, the talks are a success for Philippine connectivity and network development. The Philippine government panel and our airlines view the exchange as more or less fair, as the increase in traffic rights for both sides, which our airlines opposed, is minimal."

Philippine Airlines Must Act to Improve Prospects

Philippine Airlines seems to be in the weakest position in the Philippines-UAE market. If the national carrier wishes to boost its load factor, it must leverage its current partnership with Abu Dhabi based Etihad and utilize the newly negotiated fifth freedom rights to expand flights to Saudi Arabia, the United States, or Europe.

According to the Centre for Asia Pacific Aviation, Philippine Airlines could begin utilising the seven unused rights from the previous set of entitlements to launch a second daily flight to Abu Dhabi to better leverage its partnership with Etihad. It could expand its code-sharing relationship with Etihad to cover destinations in the United States and Europe. At present, the code-share relationship only covers flights between Abu Dhabi and Manila, as well as domestic services within the Philippines. 

Manila is presently the second largest international market for Etihad after Bangkok. Any increase of Etihad's share of the Philippine market would come at the expense of Emirates. If Philippine Airlines does not wish to launch any further non-stop services to Europe, Abu Dhabi could serve as a transit point, where Philippine Airlines passengers could connect to Etihad and Etihad partner carriers to reach other destinations in Europe. 

Philippine Airlines currently does not have codeshare partners in Europe. However, the flag carrier is currently pursuing new partnerships with European and US based carriers. Etihad is an ideal partner as they have an extensive network in Europe and several stakes in European carriers that could partner with Philippine Airlines. 

In addition, Etihad could be used to serve additional destinations in the eastern United States. This would improve the position of Philippine Airlines in both the European and North American market. However, PAL must act quickly before Emirates gains further share. Moreover, it must improve its on-board product, loyalty programs, and alliances to enhance competitiveness.


Friday, August 28, 2015

Opinion: Does the Philippines Need More UAE Flights?

As bilateral talks progress between the Philippines and the United Arab Emirates, many are wondering what the future holds for the nation's carriers in the Middle East. Gulf carriers like Emirates are asking for more flights, while Philippine carriers cannot even fill theirs. Some Filipinos fear that additional flight entitlements for Gulf carriers would bleed our national carriers. But the Philippine government seems to view the issue differently. The issue requires more clarity and perspective than what the Philippine carriers are willing to offer.
emirates manila
Copyright Photo: Angelo Agcamaran/PPSG
Cebu Pacific and Philippine Airlines have been strongly opposed to re-opening air talks with the United Arab Emirates, suggesting that the market is already saturated with carriers and flights. But Gulf carriers are reporting completely sold out flights, having used all of their flight entitlements, while Philippine carriers have not even used their entire allocation of flights. 
In a joint statement, Philippine Airlines and Cebu Pacific asked "the Philippine government to resist any and all pressure to grant unfair advantage to the airlines of the United Arab Emirates in the form of unjustified and unnecessary disruptive additional rights to serve Manila."
Earlier this week, both Philippine carriers dared the Gulf carriers to attempt operating outside of Manila. This is a move that has already been made by Emirates and Qatar Airways, when they launched service to Clark International Airport in Pampanga. Although the Emirates route did not survive, the Gulf carriers demonstrated more courage than Philippine carriers, which have never attempted to operate Middle East flights outside of Manila in recent years. If PAL believes Cebu and Clark are viable markets for Middle East flights, PAL should put its money where its mouth is. After all, the national flag carrier has excess aircraft that need routes to fly. In addition, Clark Airport would like to see the return of non-stop service to the United Arab Emirates.
The Philippine carriers claim that additional entitlements to Manila are unnecessary because supply exceeds the actual demand for the UAE market. However, this statement requires further clarification. The current supply of seats exceeds the demand for Philippine carriers. However, it does not exceed the demand for Gulf carriers like Emirates, which are operating most flights at 100% capacity in economy class. In short, the services of Gulf carriers are in demand, while those of Philippine carriers are not.
Is that something that we should blame the Gulf carriers for? When Cebu Pacific launched flights to Dubai, Emirates did not attempt to match or undercut their fares. Therefore, the travelling public has spoken. If there is anyone to blame, let it be the passengers, most of whom are the overseas Filipinos that the Philippine carriers are targeting. If Philippine carriers are so vital or important to the UAE market, then why aren't the passengers choosing them out of their own free will?
If Filipinos truly believe in standing behind their national carrier, then perhaps they should protest the decision of the Philippine government to re-open air talks by using their wallets and "Flying the Flag." After all, Emirates would not be looking to increase flights if they did not believe the demand was there. 
But again, Philippine carriers are trying to force the travelling public to fly with Philippine carriers by denying them the right to choose out of fear that they might indeed choose the Gulf carriers. We could understand the unfairness of the situation for Philippine carriers if subsidized Gulf carriers were offering the lowest fares but we know that Cebu Pacific has the lowest fares and still fails to attract the same demand. 
According to Emirates, since the carrier lost their third daily flight to Manila, the two remaining daily flights have been operating at near capacity. "Since the removal of the third daily flight, Emirates' two daily flights on the Dubai-Manila route have been operating at 100 percent capacity in economy class on most of the flights - with no seats left for international tourists and overseas Filipino workers," said Emirates Country Manager Abdalla Al Zamani. "Taking this into consideration, we are confident that the restoration of Emirates' third daily flight to Manila will ensure widespread and sustained benefits to all stakeholders." He added that there is a significant gap between the supply and demand for seats.
Philippine carriers are concerned that an increase in flights by Emirates will undermine the investments Cebu Pacific and Philippine Airlines have made in Dubai. But what about the investments that Emirates has made in the Philippines? Having served Manila for the last 25 years, it is safe to say that Emirates played a vital role in both trade and tourism, which has led to job creation. Is denying them the right to grow and satisfy demand for flights to the Philippines the right way to thank a partner and investor in the country, particularly when national tourism goals are at stake?
Having said all of this, it is fair to say that not all the passengers travelling aboard Emirates are bound for Dubai. A good portion of them are connecting to other destinations in Europe and the Middle East. These are important markets for sourcing potential tourists. Unfortunately, it doesn't seem like the market in European cities is large enough for Philippine carriers to serve with more direct flights. Therefore, the Gulf carriers are currently the only hope of attracting more tourists from that part of the world.
If Philippine carriers wanted to obtain their fair share, they could utilize their own existing partnerships to replicate the Emirates model. Cebu Pacific could partner with low-cost carriers based in the UAE to attract more connecting traffic in the region, while Philippine Airlines could work with Etihad to obtain more feeder traffic from cities in Europe. However, neither Philippine carrier has made a move.
What we do know for sure is that the Philippine government wants to build traffic and increase visitor arrivals in order to continue developing the fledgling tourism industry. As noted above, the Gulf carriers are the only airlines with the financial capability and muscle to further connect Europe, the Middle East, and Africa with the Philippines in an effort to grow traffic by providing more flights. Let's be honest, international airlines from the west are not exactly beating down the door to fly to the Philippines. Therefore, if the government wants to even come close to meeting their tourism targets, they must attract sufficient capacity from whatever airline is willing to offer them.
But should Filipinos remain worried about Philippine carriers? Firstly, it is highly unlikely that Cebu Pacific will drop out of the market given the demand for low-cost travel. Emirates will never dip into this market so Cebu Pacific is pretty safe with a wide margin against competing airfares. As for Philippine Airlines, they are not in as strong a position particularly with their inadequate on-board product and the absence of code-sharing relationships to destinations beyond Dubai or Abu Dhabi. 
If PAL ends up pulling out, blame the passengers. After all, it is they who voted PAL out of the market with their wallets. Will jobs be cut dramatically? Perhaps at Dubai Airport, but PAL will find another route to fly their aircraft profitably in a less competitive environment. It will not affect any of PAL's other operations. Besides, PAL has pulled out of other markets in the past, where they failed to turn a profit such as Kuala Lumpur. Did anybody cry foul then? 
A similar phenomenon happens in Hong Kong and Singapore, where Cathay Pacific and Singapore Airlines manage to fill multiple wide-body flights per day from Manila, while Philippine Airlines primarily fills narrow-body aircraft. This illustrates once again that demand is higher for foreign carriers that offer higher standards and greater connection opportunities. 
Philippine Airlines is merely jumping on a bandwagon that was triggered by US and European carriers, who are also complaining about the threat of the Gulf carriers in their own respective markets. However, American carriers have far more to lose than Philippine carriers do. Philippine aircraft could easily be redeployed to Russia, Australia, or New Zealand where PAL has a real opportunity to develop promising markets.
Traffic from foreign carriers grew by an unprecedented 47 percent in the Philippines to 2.8 million passengers in the first quarter of 2015. This far outpaced the growth of Philippine carriers. In addition, international commercial air traffic soared by 28 percent with the addition of Turkish Airlines and Oman Air. 
According to Tourism Secretary Ramon Jimenez, pursuing air talks with the United Arab Emirates follows the government's objective to increase tourist arrivals. PAL President Jaime Bautista believes that more entitlements should be coming from the nation's top source markets for tourism such as South Korea, Japan, China, and the United States instead. However, the Department of Tourism is eager to grow and develop tourism from other markets such as the Middle East and Europe, where capacity is presently limited in comparison to the number of flights offered within Asia. Tourist arrivals from markets in the Middle East and Europe cannot grow without sufficient airline capacity.
If jobs do end up being lost in the Philippines resulting from this battle for market share, the Philippine government is banking on the increased number of tourists arriving, which will help to drive growth in other industries such as hotels and restaurants, which will create more jobs. The truth is that there is far more for the Philippines to gain in the development of the tourism industry, than there is to lose in the aviation industry from Dubai. In addition, if Emirates does bring more Filipinos and tourists to Manila, they will most likely connect to flights operated by Philippine Airlines and Cebu Pacific as Emirates does not fly to Boracay or Palawan. The increase for domestic travel will fuel job growth once again.
The two Philippine carriers suggested that they "are not afraid of competition" because they have not objected to Ethiopian Airlines, Turkish Airlines, or Oman Air flying to the Philippines. However, none of these carriers are a competitive threat to either Philippine Airlines or Cebu Pacific in the first place as none of the Philippine carriers fly any of these routes with the exception of Cebu Pacific's service to the Sultanate of Oman. 
According to Maria Elben Moro of the Civil Aeronautics Board, people should come ahead of profits. "More than the competition among the carriers, we should promote the welfare of the overseas Filipino workers," said Moro. In fact, Filipinos in the United Arab Emirates indicated that more flights between the two countries are needed.
Meanwhile, Emirates continues to challenge allegations that the Dubai based carrier receives subsidies or competes unfairly. According to a statement released by the carrier, the accusations are patently false. In the case of the United States, Emirates noted that denying them further access to the US market would only harm American consumers, communities, and the national economy.
Emirates released a detailed statement responding to each allegation. According to Emirates CEO Tim Clark, the carrier has been profitable for 27 years straight and never depended on government bail-outs or protection from competition like their accusers. He added that the government of Dubai told the carrier from the start that they must deliver profit and stand on their own as Dubai has no oil reserves, which is why it diversified its economy through tourism and air transportation. 
"That directive is what led us to pioneer a successful business model as an efficient long-haul connector that offers customers a best in class experience," said Clark. "Our global expansion is funded from our own cash flow, and debt raised in the open market through banks and financial institutions. Our success is due to superior commercial performance. To date we have paid our shareholder, the Dubai government, more than $3 billion in dividends. All of this is laid out in our financials, audited by Pricewaterhouse Coopers. We are financially transparent, and have published fully audited accounts for over 20 years."
Emirates believes that their opponents are complaining out of their own narrow interests. The Aquino administration has stepped away from the protectionist governments of the past and advocated in favour of Open Skies. Emirates says that they proudly contribute to the goals of Open Skies, which are greater competition, increased flight frequency, consumer choice, promotion of business travel and tourism, improved service, and customer-centric innovation. 
Emirates serves the Philippines by offering flights to more than 50 cities that are not directly served by any Philippine carriers. They transport tourists, business travellers, and goods, connecting them to some of the fastest growing economies in the world, in Africa, Europe, and the Middle East. Emirates says that travellers should not become the victims of a protectionist campaign.

Thursday, August 27, 2015

Southeast Asian Carriers Face Mixed Fortunes Flying to the United States

Carriers across South East Asia have faced mixed fortunes in sustaining operations to the United States.  Whilst some have pulled out service altogether, others are not yet done expanding.

Singapore Airlines at Los Angeles International Airport
Image source: Wikimedia

Last year, Malaysia Airlines ended its Los Angeles flight via Tokyo.  It previously operated a flight to New York's Newark Airport via Stockholm, which ended in 2009.  The decision to end US flights came as a result of financial difficulties the Malaysian flag carrier already faced even before twin disasters of MH370 and MH17 struck it.

Thai Airways will bite the dust on its US service come October 25 2015.  By then it will end its flights to Los Angeles via Seoul.  Things were not always like this for Thaiand's flag carrier.  In the 1980s, it even had services to Seattle and Dallas.  It also attempted to fly nonstop from Bangkok to Los Angeles and New York in the mid-2000s.  These nonstop routes were operated using an Airbus A340-500 aircraft.  Rising fuel prices and a global economic downturn contributed to Thai Airways rolling back their New York and Los Angeles nonstop flights back in 2008 and 2012 respectively.  

However, not all is bad news for Southeast Asian carriers in these recent years.  In fact, Philippine Airlines has made good on its promise to expand its existing US operations.  Earlier this year, it reopened a Manila-New York flight flying four times a week.  Moreover, it will upgrade the aircraft used on that flight to a Boeing 777 later in the year.  Next year, the flag carrier will open a Cebu-Los Angeles flight, the first direct flight to the US mainland from the Visayas or Mindanao region.  These are all on top of existing services to Honolulu, San Francisco, Los Angeles and Guam from Manila.  It is still uncertain how the Philippine's flag carrier will fare on these new routes, however it has previously hinted that it is not yet done with expansion as it considers flights to Chicago and cities in Florida.   

In addition, Singapore Airlines is holding steady on its existing flights to the US.  It currently serves San Francisco (via Hong Kong and Seoul), Los Angeles (via Tokyo), New York-JFK (via Frankfurt), and Houston (via Moscow).  It previously had the world's longest flight between Singapore and New York, as well as a nonstop flight between Singapore and Los Angeles.  Those flights were discontinued in 2013 amid high costs.  However, Singapore Airlines has not ruled out reinstating such flights in the future.

Carriers that are close enough to Southeast Asia have also showed their commitment to expanding flights to the US.  Passengers from Manila, Singapore, Jakarta, Bangkok and Kuala Lumpur can easily fly to Hong Kong or Taipei to catch a flight to the US and vice versa.   

For instance, Taiwan's EVA Airways launched a nonstop flight to Houston.  In addition to Houston, EVA Airways is expected to open a flight to Chicago next year.  The Centre for Aviation (CAPA) indicates that Southeast Asia is crucial to the Taiwanese carrier's success in the US market.  The Centre also says that it could benefit in Houston from strong demand on local traffic, cargo and its partnership with United, which has a hub in that city.  

Moreover, Cathay Pacific has also expanded its flights to the US.  Earlier this year, it launched a Hong Kong-Boston flight.  CAPA suggested that Hong Kong's flag carrier expected to benefit from US-China trade.  In addition, Cathay Pacific has a footing in San Francisco, Los Angeles, New York (both JFK and Newark Airport), and Chicago.  Whilst most Southeast Asian carriers rolled back services between their respective hubs and New York, Cathay has steadily increased its flights to New York (including one flight to Newark).  

Sources: CAPA 

Wednesday, August 26, 2015

Opinion: Will Philippine Airlines Cancel Flights to Dubai?

In its on-going battle to stop the airlines of the United Arab Emirates from obtaining additional flight entitlements to the Philippines, Philippine Airlines made a revelation this past weekend, suggesting that it and other carriers may cease to operate flights to Dubai and Europe if Gulf carriers are able to increase their market share.

philippine airlines a330
Copyright Photo: Angelo Agcamaran/PPSG
According to Jaime Bautista, President of Philippine Airlines, any move to increase flight entitlements of the Gulf carriers would undermine investments made by Philippine carriers in the region. "Should the UAE airlines get the additional entitlements they seek during the coming Philippine-UAE air talks, this will undermine the investments PAL and other airlines have made for the country in opening new routes to serve Philippine tourism and overseas Filipino workers," said Bautista. 

While Bautista's comments may be accurate, it is not the role of the Philippine government to carry out protectionist policies to protect private Philippine corporations at the expense of the travelling public. In any free market, it is the responsibility of the business to ensure that they can withstand the test of time by making prudent business decisions and ensuring they remain competitive. 

However, competitiveness is where the problem lies. Philippine Airlines feels threatened by Emirates, a highly-decorated, award-winning carrier, because it simply does not have a product to compete. Ramon Ang made the miscalculated move of entering the Dubai market with PAL Express, believing that all that mattered to Filipinos was that they obtain the cheapest fare regardless of the sacrifices that must be made in passenger comfort. 

Consequently, PAL entered Dubai with a cramped 414-seat bi-class configured A330-300 with only economy service and no in-flight entertainment to be found anywhere. According to a past passenger, there was no beer, in-flight magazine, newspaper, or television screen to be found anywhere. In short, it was a flying bus. But what added insult to injury for most passengers was the initial belief that they were travelling on board Philippine Airlines, rather than PAL Express, and being charged the corresponding airfares for what they believed would at least be a three-star service. But what they received was reminiscent of a low-cost carrier.

Philippine carriers lag behind the rest of the world when it comes to in-flight entertainment. At a time when Philippine Airlines chose to ditch traditional in-flight entertainment under the leadership of San Miguel Corporation, low-cost carriers in other parts of the world such as Norwegian chose to install personal television screens at every seat on both short and long-haul aircraft.

Philippine Airlines used to code-share with Emirates when it was unable to serve the Middle East profitably using its own aircraft. Currently, they codeshare with Etihad, which operates flights from Abu Dhabi. However, PAL does not seem to be concerned of any competitive threat from Etihad.

Cebu Pacific is in a different position. They enjoy an enviable reputation as a successful low-cost carrier that knows how to meet the needs of their passengers. While their long-haul fleet is indeed cramped and lacks amenities, it is in line with their fares and their passengers know exactly what to expect. In addition, they have added passenger comforts such as wireless internet for an additional fee to restore some sort of humanity to long-haul low-cost flying. The unbundled pricing of a Cebu Pacific ticket works well for their passengers as they get to dictate how cheap or expensive their ticket should be according to the services they desire. Cebu Pacific does not compete directly with Emirates in that they serve an entirely different type of passenger with a completely different set of priorities. Moreover, much of Emirates' traffic continues onwards to Europe. There is indeed room for competition but how much and how many carriers remains unseen. 

Although Gulf carriers are a formidable threat, it is not impossible for multiple carriers to survive. Philippine Airlines is already a code-share partner with Abu Dhabi-based Etihad Airways. Leveraging this partnership further would be an important first step in enhancing competitiveness, particularly code-sharing to additional cities in Europe. In addition, PAL must improve its on-board products and services if it is to compete effectively against a carrier like Emirates. After all, when was the last time Singapore Airlines or Cathay Pacific flinched at competition from Emirates?

If the national flag carrier is prepared to compete on a level playing field, then it must spend less time lobbying for protectionist policies and find ways to compete and survive on its own merit, rather than through government intervention -- a competitive environment that it has enjoyed for too many years at the expense of passengers. 

In Western nations with free-market policies and highly competitive environments, carriers do not uphold passenger rights or employ effective customer service policies because the government forces them to. They do so out of the competitive nature of their business alone because they all understand that to win the customer is to win the battle. 

In recent years, all Philippine carriers have been accused of failing to provide their passengers with a customer-centric experience. Whether it be cancelled flights, failure to provide fair compensation, or the inability to issue a refund in a timely manner, all carriers have left much room for improvement. But if even just one carrier proved to be reliable and customer focused, they would easily outperform the competition. However, Philippine carriers have gotten away with sub-standard customer service just as the Ninoy Aquino International Airport has gotten away with inadequate facilities for years simply because passengers have no choice. The truth is passengers pay the price in a protectionist or monopolistic environment. 

In a free market and competitive environment, passengers emerge as the winners, enjoying the best quality of service for the most competitive price. It's safe to say that even on Philippine Airlines' flagship routes from Manila to San Francisco and Los Angeles, if Cathay Pacific was given the opportunity to compete with direct, non-stop flights, PAL would feel the heat and be forced to step up its game. 

Philippine Airlines blames the Gulf carriers for forcing them out of the region between 1997 and 2006. PAL claims that the subsidies these carriers receive create an unfair advantage as Gulf carriers steal traffic from Philippine carriers. Philippine Airlines also blames the Gulf carriers for the suspension of routes to the Philippines by six European carriers. 

Indeed, in any business environment, there is should always be an element of competition. However, are the Gulf carriers solely to blame for the original demise of Philippine Airlines in the Gulf region and for the lack of European carriers serving Manila? 

One could argue that the demise of PAL in the Gulf region during the nineties, can be partially attributed to competition, but more so due to a failure on the part of Philippine Airlines management to maintain a competitive product, while introducing cost efficiencies in its own operations. In addition, PAL was hit severely by the Asian Financial Crisis, which forced the airline into receivership, cutting in several areas including domestic routes and reducing the size of its fleet. This suggests that the financial health of the airline and its operations were in question long before the entry of the Gulf carriers. 

As for the European carriers, they seem to tell another story. Pressure from Gulf carriers did indeed cause many European carriers to scale back on certain routes and pull out of some markets completely. But while the Gulf carriers have always presented a competitive element, the absence of European carriers in Manila should be attributed to an unhealthy economic climate, coupled with protectionist policies employed by the Philippine government, which for several years, gave Philippine Airlines an unfair advantage over its competitors as the Philippine government slapped foreign carriers with a 3% common carrier's tax and a 2.5% gross Philippine billings tax.

These government policies led to an unhealthy and uncompetitive operating environment for foreign carriers, which hurt the airlines dramatically at a time when the airline industry was already in rough shape due to rising fuel prices and a challenging economic environment. Ultimately, one only needs to look at neighbouring countries in Southeast Asia, which still continue to enjoy regularly scheduled service by European carriers in spite of the presence of the Gulf carriers. These carriers have continued to serve cities like Kuala Lumpur, Singapore, and Bangkok without disruption. 

While the future in the Gulf region does indeed remain uncertain for Philippine carriers, what is certain is that Ramon Ang's strategy of charging full-service carrier fares for a low-cost carrier experience did not work. As for Cebu Pacific, the operation is fairly transparent with passengers paying a fair price for the service that they expect. Now that Philippine Airlines is under the leadership of the Lucio Tan Group once again, hopefully, the national flag carrier can resolve its identity crisis once and for all and focus its energy on enhancing its competitiveness by forming more partnerships and strengthening its product, instead of trying to masquerade as a low-cost or hybrid carrier. 

As for the Filipino people, they owe the nation's carriers absolutely nothing regardless of the investments that have been made. Neither Cebu Pacific or Philippine Airlines invested in Dubai primarily as a mission to rescue overcharged overseas Filipino workers from the dreaded Gulf carriers or to promote Philippine tourism. They did it primarily for their own business interests, with the intent of stealing traffic from the Gulf carriers to grow their respective businesses. But if they fail to do so on the merit of their own products and services alone, then it is not a right for a Philippine carrier to operate the route any more than it is a right for a Filipino to travel with a Philippine carrier. Therefore, may the best carrier win.

The Philippine government must protect the consumer ahead of private corporations. While the government is free to create protectionist policies, they must first determine if it is in the best interests of passengers. Tourism will develop in spite of the Gulf carriers and foreigners especially overseas Filipinos can afford to pay the fares.

The Gulf carriers are without a doubt a threat to Philippine carriers and other airlines around the world. However, they alone are not enough to put another carrier out of business. Airlines are complex operations with several variables that influence their financial performance. Malaysia Airlines, Thai Airways, and Garuda Indonesia are currently facing financial struggles of their own.

As the Centre for Aviation reported when Philippine Airlines launched its non-stop flights to London, it was recommended that the national flag carrier concentrate on the lucrative US market, rather than compete in risky areas such as Europe and to a lesser extent, the Middle East. The Centre for Aviation noted that these markets would be a major challenge for Philippine Airlines to penetrate given that major Asian carriers and Gulf carriers have more established brands, along with strong loyalty programs, airline alliances, and premium products and services.

Philippine carriers already carry an advantage in the fact that Filipinos are generally loyal to their own. But the greatest loyalty is shown to those who offer value. If Philippine Airlines can strengthen its product to a world-class standard, it would have a much better chance of competing against these established global carriers. 

The Philippines and United Arab Emirates are set to hold air talks in Manila on August 27 and 28.