Cebu Pacific-Tigerair Deal Concerns Legislators

The pending takeover of Tigerair Philippines by Cebu Pacific, the country's largest airline, is beginning to concern legislators that fear the deal will have a negative impact on air fares within the country. According to Representative Terry Ridon, the House Committee on Transportation is concerned of the deal's impact on competition in spite of the relatively small size of Tigerair Philippines. 

Copyright Photo: Angelo Agcamaran/PPSG

The transaction that was approved last month by the Civil Aeronautics Board involves Cebu Pacific acquiring 100 percent of Tigerair Philippines for $15 million. Tigerair Philippines operates a fleet of five Airbus aircraft. The takeover has resulted in the Philippine commercial aviation sector being reduced to just three players: Cebu Pacific, Philippine Airlines, and AirAsia Zest.

"We are providing fair warning to Cebu Pacific that the business model of airlines cannot be determined just by market forces," said Ridon. "It's a public utility and they have a particular social commitment to the public not to raise rates dramatically." He added that the decision of Cebu Pacific and Tigerair Philippines to apply for fuel surcharge increases, which forms part of the ticket price, is just another means of pushing higher fares. However, Cebu Pacific claimed that the fuel surcharge increase was triggered by higher fuel costs and a weakening peso.

Cebu Pacific remains the dominant player in the Philippine market commanding 50 percent of weekly seats and flights. It operates 61 different domestic routes competing with PAL Express and AirAsia Zest. In addition, the airline operates 33 international routes from the Philippines. Hong Kong is the most frequently served city with 45 weekly services from Cebu Pacific's hubs in Manila, Iloilo, Cebu, and Clark.

Meanwhile, Cebu Pacific partnered with Standard Chartered Bank to finance the lease of two Airbus A320-200 aircraft that were delivered in December 2013 and January 2014. The bank will be providing 10-year financing on the two aircraft that form part of Cebu Pacific's fleet expansion program.

The airline's fleet expansion is designed to support the expansion of the carrier's route network in Asean, North Asia, and the Middle East. "We are glad to be a partner of Standard Chartered," said Lance Gokongwei, Cebu Pacific President. "Their continuous support allows Cebu Pacific to offer its trademark low fares to even more travellers around the globe."

Cebu Pacific is set to accept delivery of an additional 13 Airbus A320 aircraft, 30 Airbus A321neo aircraft, and 3 Airbus A330 aircraft between 2014 and 2021.