Cebu Pacific Capitalizes on Australia's Foreign Beach Love Affair

Cebu Pacific's decision to commence Manila to Sydney, New South Wales, Australia flights may have surprised some given that it previously announced that its first flights to the land down under would be to tiny Avalon Airport, near Geelong and 55 kilometres from Melbourne which is set to overtake Sydney as Australia's largest urban centre within 30 years.

Image Source: The Daily Telegraph
While Sydney Airport is gradually losing international air passenger market share to Melbourne and the west coast's Perth in particular, Sydney continues to account for more than 40 per cent of all international air passengers to and from Australia.

Sydney: A Natural Choice for Cebu Pacific

Sydney has the largest Filipino population in the country. Melbourne is second, while Brisbane in Queensland is third. Sydney was a natural choice for Cebu Pacific despite Sydney Airport's airline fees being higher than Melbourne Tullamarine or Melbourne Avalon.

With a population of 23 million, Australia might only have about seven per cent of the population of the USA or a tiny fraction of China's, but the 'land down under' packs an economic punch. Australia is widely regarded as one of the two most affluent nations worldwide, with Aussie spending power buttressed by a dollar that has refused to drop to the US 80 cents level that exporters like miners desire.

Despite a 37,000 kilometre coastline full of golden sands with more than 10,000 beaches, Australians love to escape to foreign beach destinations. Australian Bureau of Statistics figures revealed that while in April 1994, just 14,600 Australian tourists escaped to Indonesia to visit hotspots like Bali and Lombok.  By April 2014, 20 years later, the number had risen hugely to 87,800.

In the same 20 years, April visits to the Philippines increased from 3,900 to 19,700, while Australians visiting Thailand rose from 6,500 to 64,600 and Vietnam rose even faster from a minuscule 2,100 to 21,500, a tenfold increase. Malaysia rose a bit less in percentage terms than the Philippines from 5,800 to 30,200.

All these increases are way above population growth. They reflect a boom in independent travel, as Australians overwhelmingly prefer travelling on their own or with friends rather than Asian-style tour groups. Exceptions may be to parts of mainland China, but it is not considered a beach destination.

Can Cebu Pacific Stimulate Air Travel from Australia to the Philippines?

There is no clear nexus between the emergence of low cost carriers and increases in tourism from Australia. If the relationship was absolute, tourism to Malaysia would have risen the fastest, as AirAsia and its international offshoot AirAsia X have the highest profile of any foreign owned low cost carrier operating international flights to and from Australia.

Copyright Photo: Angelo Agcamaran/PPSG
Budget carrier Scoot, a Singapore Airlines subsidiary, has shown that operating low cost flights from Sydney, the Gold Coast (the latter south of Brisbane) and Perth can be challenging, as there is much competition despite continuing rises in international passenger numbers.

During peak season in January 2014, when Australian summer school holidays end, AirAsia X filled 92.2 per cent of its seats inbound to its extensive number of Australian destinations from Kuala Lumpur, with Scoot having 87.1 per cent occupied from its Singapore hub.

Yet in March 2014, which is not considered a peak month as Easter fell in April this year, both of these low cost carriers could only fill around 65 per cent of the seats in each direction. One in every three seats was empty, a good proposition for travellers but not as rosy for airlines. AirAsia X acknowledged recently that its Australian flights were loss making.

Another low cost carrier, Tigerair, flies only from Perth on Australia's west coast to Singapore.

Meanwhile, previously profitable but now loss making Qantas subsidiary Jetstar rounded up the LCC quartet with load factors on its Darwin to Tokyo via Manila flights of 75 to 78 per cent in March 2014. However, in a reaction to Philippine Airlines having commenced flights from Brisbane and Darwin to Manila, Jetstar has pulled out of the Filipino market from Darwin, although Jetstar Asia continues to operate Singapore to Manila flights.

Can Philippine Airlines Survive the Entry of Cebu Pacific?

This brings us to the so called legacy airlines. Philippine Airlines continues to lose money on its total network. It flies from Sydney four days a week to Manila, and from Melbourne, with Brisbane and Darwin a separate one stop flight, each three days a week. PAL downgraded its Sydney and Melbourne flights to Airbus A340's after the January 2014 school holidays in favour of operating its six Boeing 777-300ER's from Manila to London. PAL's Australia-bound passenger load factor in January 2014 was a healthy 95 per cent but in March 2014, its Australia to Manila percentage of seats occupied slumped to 65 per cent.

Image Source: Qantas
High cost and high loss making Australian airline Qantas is expected to lose an astounding A$1 billion in the financial year to June 30, 2014. Its international flights continue to bleed significantly, saddled with high crew salaries and allowances in a unionised environment. Qantas' failure to modernise its fleet a few years ago is showing in extremely high aircraft depreciation charges. It is renewing its fleet more slowly than PAL. In January 2014, its inbound Manila to Sydney load factor was an amazing 98.8 per cent while in March 2014, it had an impressive 90 per cent plus of all seats occupied in both directions. However, none of this means much if airlines are unable to extract sufficient yield -- the fare per passenger or available seat.

The entry of Cebu Pacific on the Manila to Sydney route four nights a week from September 2014 may have a significant influence on the performance of the existing legacy carriers. Despite the extremely high density seating on its Airbus A330's that will not be welcomed by Australians who are above 165 centimetres in height, recent history shows that Australians will put up with confined seating if the airfare savings are significant.

Tourist Traffic between Australia and the Philippines is on the Rise

A substantial proportion of Cebu Pacific's Australia route passengers will be Filipinos returning to their homeland. However, Filipino visitation to Australia (as distinct from migration) is also rising fast. In April 2014, despite a complicated visa approval process that is particularly harsh on unaccompanied female visitors, the number of Filipinos making a short term visit rose to 7,900 from 6,000 in April 2012 and 6,300 in April 2013.

A third market will be Australians holidaying in Philippines. With 213,000 visitors from Australia to the land of 7,107 islands in 2013, tourism is continuing to rise at a typical six to twelve per cent per annum. Australia - Philippines tourism has been consistent in these rises. While only a third the number of Australians visiting Thailand each year visit the Philippines, and the Philippines receives only a quarter of the number of Australians that visit Indonesia on the relatively short hop to Bali, it is encouraging that more Aussies are discovering the Philippines.

The recent Australian Federal Budget is curtailing future increases in some government welfare payments. Some of the media opposed to the Government have falsely explained this as 'immediate cuts.' This is adversely affecting consumer confidence and may result in at least a slight dampening in demand for overseas travel, although many Australians may prefer to reduce other expenditure where possible as overseas travel, including to beach destinations, is increasingly valued and regarded as 'normal.'

Philippine Airlines and Cebu Pacific Prepare for Battle

Cebu Pacific's entry is likely to result in a fare war with Philippine Airlines, even for migrants journeying permanently to Australia on one way tickets, a fairly major source of passengers. Neither airline offers or will offer in flight entertainment on the Australia routes,but PAL has the advantage of four Australian ports, compared to Cebu Pacific's sole destination. On the other hand, PAL's staffing costs must be higher, as unlike Cebu Pacific, it maintains contracted travel agencies that to the public appear as PAL offices in Sydney and Melbourne. Whether PAL sticks around remains to be seen, although publicly it claims that it remains committed to the Australian market with its good demographics and further potential for growth. However, PAL badly needs newer aircraft with IFE on the Australia route to differentiate itself from Cebu Pacific and justify what will normally be PAL's higher fares.

Cebu Pacific is unlikely to be pushed by travel agents who receive commissions when they sell tickets for PAL, Qantas or other mainline carrier flights. It will rely on its website and online promotions along with advertisements in the Filipino and Australian travel pages of major newspapers. It may also seek to emulate its Facebook success in the Philippines with similar encouragement to Australian resident Filipinos to subscribe to their 'CEB Club' online.

A perverse effect of Cebu Pacific entering the market may be to encourage loss making Qantas to replace its own metal branded A330's on the four day a week Manila run with cheaper Jetstar flights once that carrier has suitable available aircraft. Jetstar lacks some of Qantas' high costs although Jetstar is also encountering turbulence with aircraft sitting unused at airports such as Hong Kong where its proposed subsidiary faces opposition in starting a local airline from long established, privately owned Cathay Pacific.

Transit Opportunities Exist in Manila

Perhaps a tad unfairly, the Ninoy Aquino International Airport in Manila does not have a good reputation among Westerners, but this criticism is largely directed at Terminal 1, which is undergoing at least a cosmetic renovation. A preferable course of action would have been detonation and replacement with a new terminal. The other three terminals (especially T3) are broadly acceptable though none are similar to each other.

Copyright Photo: D.Wilson/PFN
Despite an airport's poor reputation, Australians will use some as transit points. While Royal Brunei Airlines now only serves Melbourne in Australia (it once flew to a number of other Aussie destinations), many use its new 787's to fly to London, Manila or Dubai. Its home airport is undergoing reconstruction but remains utilitarian at present.

Similarly, the recently closed Kuala Lumpur LCCT Airport became overcrowded in its dying days. Many passengers passing through were Australians. The surprise may be that Cebu Pacific discovers that the Aussie penchant for booking their own travel via the internet leads to positive growth in the number of Australians using Manila as a transit point, just as many did in the glory days of the 1970's when PAL ran Boeing 747-400's with advanced Skybeds to Europe, at one stage on a milk run via Karachi.

If past history is any guide, some Australians will take a mini break in the Philippines and visit Boracay or one of the numerous other great Filipino white sand beaches before onward travel to elsewhere in Asia, or perhaps even to London or elsewhere in Europe. Australians are regularly able to take 10 to 20 day holidays if they choose, unlike some other nationalities whose holidays during their working lives are short.

A sore back and legs from sitting in a 436 seat Airbus A330 is a small price to pay for a few days of lazing on the amazing white sands of Boracay.

-Surface Traveller


  1. Those who are taller might try for exit row seats.

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