The Battle for Australia: Australians Await Arrival of Cebu Pacific

With just under a month to go, Australians and Filipinos residing in Australia are eagerly anticipating the launch of Cebu Pacific's low-cost long haul service between Manila and Sydney. The carrier will begin flying between the two cities four times weekly beginning on September 9.

Copyright Photo: Angelo Agcamaran/PPSG

Although many benefits are expected of this new service, comfort is not one of them as Cebu Pacific brings the most "tightly packed flights" ever to operate on a scheduled basis from any airport in Australia. Cebu Pacific's Sydney route will be operated by the company's Airbus A330-300 with a whopping 436 economy seats, making it the most densely configured A330 aircraft anywhere in the world. 

That may indeed work well for the Filipino population including those residing abroad in Australia. However, it remains uncertain if the airline's tempting prices will be enough to lure Australian tourists into the cramped conditions, which do not include any sort of in-flight entertainment. 

The aircraft is configured with nine seats across in a 3-3-3 configuration. That gives passengers just 16.5 inches (41.9cm) between armrests, which represents a 3.75-5 centimetre reduction off of the standard economy configurations found in aircraft cabins across Australia on domestic and international services. In addition, passengers travelling with Cebu Pacific can expect at least 5 centimetres less legroom compared to the normal industry standards in Australia.

Cebu Pacific will eventually increase the service to five times weekly later in the year. The airline will be competing with other budget carriers that currently fly Australian passengers to popular tourist destinations in the region including Singapore, Malaysia, and Indonesia. Low-cost carriers Jetstar, Tigerair, and Scoot all presently operate direct services between Australia and Singapore, while AirAsia operates direct service to Malaysia and Indonesia.

Copyright Photo: Angelo Agcamaran/PPSG

AirAsia Group is a force to be reckoned with offering Australian travellers low-cost flights to its hub in Kuala Lumpur, Malaysia. From there, passengers can connect to several destinations throughout Southeast Asia, China, India, South Korea, and Japan. AirAsia plans to compete directly with Cebu Pacific offering a connecting service to the Philippines via Kuala Lumpur. While the flight is not direct, passengers will have the ability to connect to flights bound for Manila, Cebu, Clark, or even Kalibo for those that wish to visit the famous Boracay Island. 

AirAsia X also operates a tightly configured A330-300 aircraft to Australia. However, the aircraft boasts more legroom compared to Cebu Pacific and it also features a small premium cabin with business class seating including lie-flat beds. Unlike Cebu Pacific's tightly packed 436 seat aircraft, AirAsia X only carries 377 seats. Cebu Pacific's aircraft will even carry more seats than the much larger three-class Emirates Boeing 777-9 when it enters service in 2020 or 2021. At present, Cebu Pacific's flights to Dubai carry only 53 seats less than a three class Emirates A380 in long haul configuration.

However, the trade off for passengers is unbeatable low fares that are nearly 30 percent less than what has been offered by competitors Qantas and Philippine Airlines on the Manila to Sydney run. When Cebu Pacific launched its new Sydney route, introductory fares were offered at just AU$ 99 each way, with additional fees for checked luggage and in-flight meals. 

Cebu Pacific hopes to capitalise on a 25 percent increase in the number of Australian tourists visiting the Philippines over the past two years. It is also targeting the large number of Filipinos currently living abroad in Australia. At the moment, Cebu Pacific is the largest low-cost carrier in the Philippines operating flights to 34 domestic destinations and 26 international destinations. It presently holds a 60% share of the domestic market in the Philippines.

In Australia, low-cost carriers presently hold a 16.1% share of total international passenger traffic as of March 2014, with that figure expected to rise with the entry of Cebu Pacific. Although Cebu Pacific has yet to begin service to Australia, the airline is so confident in the market that it is already lobbying for an increase in seat entitlements between the two countries.

According to the General Manager of Cebu Pacific's long haul division Alex Reyes, the Australia-Philippines market is currently underdeveloped compared to other popular tourist destinations such as Thailand and Malaysia. That is in spite of the fact that there are nearly 300,000 Filipinos currently living in Australia.
Reyes believes that the airline's lower fares will stimulate travel enhancing the frequency that friends and relatives visit the Philippines and that it will also lead to a potential surge in tourism for both countries.

"On the tourism side, we think the Philippines has a lot to offer," said Reyes. He added that Manila is closer than Bangkok, but Australian tourist arrivals to the Philippines are currently between a quarter to a fifth of Australian arrivals in Thailand. "Our Tourism Department is making a big push to attract more Australians into the Philippines," added Reyes.

Cebu Pacific is building new partnerships with travel agents in Australia to market packaged holidays to the Philippines but any possibility of future growth is currently constrained by the Australia-Philippines aviation agreement. Under the current agreement, only 6000 seats per week are permitted between the two countries and that current weekly entitlement is already being used up entirely by Philippine carriers with Philippine Airlines using 4000 of those seats.

"We only have 2,200 seats out of the 6,000," said Reyes. "So we've been asking our government to have another round of air talks because we are interested in actually expanding services." He added that the current allocation between the Philippines and Australia is incredibly low compared to other countries in the region such as Malaysia which boasts 37,000 weekly seats to Australia.

At present, the lower average per capita income in the Philippines is undermining the spending power of some 20 million middle-income earners in the country. "In terms of the available market for Australia, it's the same size as the Malaysian market is," Reyes added. At a recent CAPA Aviation Summit in Australia, Reyes noted that bookings for Cebu Pacific's new route to Sydney are "quite good" especially during the December 2014 peak season. In the Australian market, Cebu Pacific plans to promote connecting services to North Asian cities and connections to popular tourist spots including Boracay Island and Palawan. 

Meanwhile, unconfirmed reports suggest that Philippine Airlines may be looking at expanding its Australian services as early as October. According to PAL President Ramon Ang, the airline may consider expanding services to Melbourne, Sydney, Darwin, and Brisbane. In addition, the airline may restore Perth to its existing Australian route network.  

Copyright Photo: Kenny Li/PPSG

If an expansion should occur, Sydney, Melbourne, and Darwin would be served daily, while Brisbane and Perth would receive new direct flights operating three to four times weekly. Brisbane is currently served as an extension of the Darwin service, while Perth is not served at all. But rumours suggest that Perth may be relaunched by the end of October. 

In order to support the expansion, PAL may lease additional aircraft such as the Boeing 757 from Boeing Capital Corporation until the national flag carrier accepts deliveries of new Airbus A321neo aircraft sometime in 2016. Sources indicate that PAL may also launch services to Auckland, another city that Cebu Pacific has been targeting, through intermediate points in Australia. However, it is more likely than any expansion in Australia will likely be put on hold while the dispute over the ownership and management of PAL is resolved between San Miguel Corporation and the Lucio Tan Group.

For now, both Philippine Airlines and Australian carrier Qantas will await the arrival of Cebu Pacific, which will ultimately lead to increased competition and price wars on the Manila to Sydney route. Although Philippine Airlines currently has a dominant presence in Australia, that presence is being undermined by a recent downgrade in service from the airline's flagship Boeing 777 fleet to older A340 aircraft. 

Image Source: Qantas Australia

Unlike the modern Boeing 777 that is equipped with personal in-flight entertainment and video on demand, the A340 aircraft operated by Philippine Airlines are ex-Iberia models that only offer mainscreen entertainment. Australian travellers to the Philippines have already publicly expressed their dissatisfaction with the decision, which moves PAL closer to Cebu Pacific in its on-board product. With Cebu Pacific's tempting fares, it may be a hard sell to the Australian market to justify spending extra to fly with the Philippine flag carrier. Meanwhile, rumours are also circulating that Australian flag carrier Qantas will respond to the entry of Cebu Pacific by having its low cost subsidiary Jetstar take over on the Manila to Sydney route. However, no formal announcements have been made.