Cebu Pacific Accepts Delivery of Fourth A330, Future Destinations Unknown

Cebu Pacific, the country's largest budget carrier, accepted delivery of its fourth A330 widebody aircraft bringing the total number of aircraft in the Cebu Pacific fleet up to 52. The new 436-seat aircraft is the second of three Airbus A330 aircraft that the airline will receive this year. 

cebu pacific airbus a330
Image Source: Cebu Pacific
The newest addition to the fleet arrived at Ninoy Aquino International Airport in Manila on May 18, 2014. Cebu Pacific will receive one additional A330 in August 2014. By the end of the year, the carrier will have five A330 aircraft in the fleet. Cebu Pacific has always had the intention of deploying these aircraft on long haul routes. But so far, the carrier has only launched one long haul destination: Dubai. 

Cebu Pacific received its first A330 aircraft in June 2013. That aircraft was deployed on routes to Singapore and Seoul Incheon. A second aircraft arrived in September 2013 that was deployed on the airline's first long haul route to Dubai. The third aircraft arrived early in 2014 and was deployed on domestic routes to Cebu and Davao. However, the domestic deployment was believed to only be temporary as the airline identifies more suitable long-haul destinations. 

It still remains unclear where Cebu Pacific will deploy its third and fourth aircraft. By now, most would have expected to have heard an announcement of another long haul destination. But it's not surprising that the airline has been silent given that it has much to consider. Its first long haul route to Dubai got off to a rocky start as the carrier failed to infiltrate the traditional distribution models used in this market. In addition, Cebu Pacific faced stiff competition as the market suffered from saturation triggered by extra capacity dumped in by Philippine Airlines and Emirates. The learning curve for Cebu Pacific has been steep as it attempts to stretch beyond its traditional business model and into the challenging long haul market. 

Cebu Pacific has a long list of potential future long haul destinations

The future does look bright for the carrier however, as the Philippines was lifted back to Category 1 status in the United States and Cebu Pacific was removed from the EU blacklist. Both of these developments represent significant opportunities for the carrier to enter markets that were previously unavailable. Cebu Pacific now has a difficult decision to make in order to identify which market they should enter next: Europe, Australia, the United States, or another country in the Middle East. 

a330 cockpit
Image Source: Cebu Pacific

Will it be Australia?

Cebu Pacific was rumoured last year to be planning to mount flights to Melbourne, Australia. But the airline currently only has sufficient entitlements to operate five weekly flights to Australia. Cebu Pacific has said in the past that it will not launch Australia until it obtains the flexibility to serve the market with daily flights. After launching its first destination, the airline had plans to look at a second Australian destination, which would likely be Sydney. According to the Centre for Aviation, the Philippines is now relatively under-served from Australia when compared to other markets in Southeast Asia. Authorities in Australia are eager to attract Cebu Pacific given the success that has been realised with the entry of other Asian low cost long haul carriers such as AirAsia X. These carriers have played a vital role in growing the market between Australia and countries such as Thailand, Malaysia, and Singapore. Although the Philippines will be a smaller market in the beginning for Australia compared to other Asian countries, the future potential is huge on both ends. 

Will it be Saudi Arabia?

It is generally believed by industry observers that Saudi Arabia is the most practical market for Cebu Pacific's third aircraft with the possibility of two new routes from Manila to Riyadh and Dammam. Cebu Pacific already holds sufficient traffic rights to launch both destinations. The airline wants to serve both cities with separate non-stop flights. One route would operate four times weekly, while the other would operate three times weekly. Cebu Pacific also considered serving Jeddah but determined that the city is more of a Haj rather than a migrant worker market. However, should the carrier change its mind, it has enough traffic rights to serve all three cities. 

Will it be Qatar?

Last year, Cebu Pacific was allocated two frequencies between Manila and Doha but the carrier wanted additional frequencies. Philippine Airlines held the other six frequencies available but was allowing its code-share partner Qatar Airways to use them on its behalf. Cebu Pacific has been seeking an interpretation from Philippine authorities on whether this is an acceptable practice. Although there is an opportunity to serve the 300,000 overseas Filipino workers in Qatar, there is a much higher risk of over-capacity and market saturation if Cebu Pacific chooses to compete with Qatar Airways and Philippine Airlines. Qatar has a much smaller overseas Filipino worker community compared to Saudi Arabia and the United Arab Emirates. After the harsh lessons learned in Dubai, it's unlikely that Cebu Pacific will pursue this market in the near future. However, the opportunity always exists to serve it on a limited basis with just two weekly flights to Oman and three or four weekly flights to Kuwait. Kuwait is an even smaller market with approximately only 200,000 overseas Filipino workers. But the competition is far less intense. 

Will it be the United Arab Emirates?

Cebu Pacific has indicated in the past that it was also considering Abu Dhabi and Bahrain. However, with Philippine Airlines launching flights to Abu Dhabi and PAL Express flying to Dubai, it's unlikely that Cebu Pacific would consider Abu Dhabi at this point given the fierce competition it endured in Dubai. The performance of the Dubai route would need to improve first before any further consideration was given to a second UAE destination. Although Bahrain is an open skies market, it is also very small with just 100,000 overseas Filipino workers. The market is already served daily by Gulf Air using an A330 aircraft. With the market that small, it's unlikely that it could sustain a second carrier. Furthermore, Gulf Air has an advantage in that it can offer connections to larger Middle Eastern markets. 

Will it be the United States?

Cebu Pacific has always said that it was interested in serving Hawaii using its A330 fleet. But up until recently, that market has been off the table as the carrier was prevented from entering the US because of the Category 2 designation that was bestowed upon the Philippines. With the recent upgrade to Category 1 status, Cebu Pacific now has a realistic opportunity to serve not only Hawaii but Guam as well. Cebu Pacific has not ruled out serving mainland US destinations but has admitted that it will need to seek another type of aircraft first. Guam will most likely be served by Cebu Pacific's A320 fleet leaving Honolulu open for the A330.

Will it be Europe?

Like the United States, Cebu Pacific has indicated a desire to serve destinations in Europe but the airline faces the same challenge in that it does not have an aircraft capable of serving the major markets of London, Paris, Frankfurt, Amsterdam, Rome, or Madrid direct from the Philippines. Until recently, Europe was off the table for Cebu Pacific as the carrier remained on the EU blacklist. But with the recent removal off the blacklist, the carrier can now begin to seriously look at the European market once again. As Cebu Pacific prefers widebody routes of less than ten hours, it is unlikely that it will serve Europe in the immediate future as the economics of longer routes are challenging and the airline has yet to master its existing long haul business model. 

If it was to seriously consider Europe, Russia could be at the top of the list as it is within the preferred range. Cebu Pacific has also applied for rights to serve Israel but neither Tel Aviv or Moscow have been mentioned in the plans for 2014. These could be challenging markets as they would not rely on overseas Filipino workers but rather inbound tourist traffic. Both routes could be viable if supported by the Philippine tourism sector on a low frequency basis. The Philippines also holds fifth freedom rights giving Philippine carriers the right to pick up passengers in Tel Aviv and continue on to Madrid, Spain. This presents another opportunity for the carrier to enter the European market. However, it remains unclear how tall Europeans would react to the cramped configuration of Cebu Pacific's A330 economy class. 

Opportunities exist for Cebu Pacific in the Long-Haul market

If the Middle East operation proves to be unprofitable after a year, Europe, Australia, and the United States present intriguing alternatives. Cebu Pacific will need to be open minded and willing to look beyond its initial strategy of targeting overseas Filipino workers. When the carrier rolled out its initial long haul business plan, it likely did not factor in the ambitious long-haul expansion that PAL unveiled a few months later. The Philippine Airlines expansion has not only made the Middle Eastern market more competitive, it has also saturated it in some instances. 

cebu pacific airbus a330-300
Image Source: Airbus
However, despite challenging market conditions, Cebu Pacific can still carve a niche for itself in the long haul market. Given that it has already committed to lease six A330 aircraft, the airline doesn't have much choice and will need to identify the appropriate markets in a timely fashion. But the airline is in a much more favourable position now than it was when it entered into those lease agreements as the United States and Europe are now open for business. While losses should be expected at Cebu Pacific's long haul division in the short term, the long term prospects are bright. With the opportunities in the US and Europe, it is likely that Cebu Pacific will order additional long haul aircraft to serve these markets. But the reality remains: although the Philippine long haul market may have been under served when Cebu Pacific decided to enter the market, it's not under served any more and Cebu Pacific will need to plan its next moves carefully.

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