Cebu Pacific: Greater Opportunities Under ASEAN Common Market

Cebu Pacific, the largest low cost carrier in the Philippines, is eagerly anticipating the possibility of an integrated, single market economy among the Association of Southeast Asian Nations. Should this occur some time in 2015, the budget carrier expects its business to thrive given the new route opportunities that would open up. 

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Copyright Photo: Ajig Ibasco/PPSG
According to Bach Johann Sebastian, Senior Vice President of JG Summit Holdings, owner of Cebu Pacific, the single market economy would open up the doors to more tourism growth. "It means more cities to fly to, more frequencies, more tourism," said Sebastian. "The upside is really tourism."

Sebastian highlighted Malaysia based AirAsia Group as a force to be reckoned with and the primary competitor in the region's low-cost airline industry. "AirAsia is the biggest in Asia so they're a tough competition," said Sebastian. "We just have to learn how to compete better. Open skies will really be good for Cebu Pacific. And we know our costs are in line with theirs. We should be able to compete with them."

With a fleet of more than 120 aircraft, AirAsia has the scale, which gives it a competitive advantage securing aircraft at lower prices for all of its subsidiaries in Malaysia, Thailand, Indonesia, Japan, India, and the Philippines. It is currently Asia's largest low cost carrier.

However, Sebastian says that Cebu Pacific is also in a position to be a competitive force. The carrier currently operates a fleet of 50 aircraft with an additional 43 aircraft to be delivered between 2014 and 2021. "We're not small either," said Sebastian. "We can get enough discounts to make our aircraft cheaper."

Meanwhile, the General Manager of Cebu Pacific's Long-Haul division Alex Reyes was at the CAPA Australia Pacific Aviation Summit discussing Cebu Pacific's plans for future growth, highlighting the current strengths of the carrier. 

Reyes noted that as of June 2014, the average age of Cebu Pacific's aircraft was four years old. As the airline takes delivery of new A321neo aircraft, it intends to use the new additions to the fleet to support network expansion and keep the average age of the fleet low. He added that the carrier's existing fleet of ATR 72 aircraft was "a key piece of equipment" in expanding the carrier's domestic network given that between 20-25 airports in the Philippines can only handle narrow-body jet operations and cannot support aircraft the size of an A320.

Cebu Pacific is planning to increase passenger traffic from 13 million to 17 million in 2014. It currently holds a 60% domestic market share operating to 26 international destinations and 36 domestic destinations in the Philippines. In 2014 and 2015, Cebu Pacific is poised to focus on international expansion with two billion people living within range of its A320 fleet. The airline currently has its eyes set on the 10 million Filipinos that live overseas, particularly the three million residing in the Middle East.

For now, the carrier is concentrating on its newest long-haul route to Sydney, Australia, which is due to commence on September 9. Reyes noted that bookings for the route are "quite good," especially for the December 2014 peak season. The new route is designed to serve the rising Filipino population in Australia, while attracting Australian tourists to the Philippines. Cebu Pacific will be promoting connecting services to North Asia cities, but also domestic services to popular tourist spots like Palawan and Boracay Island. Reyes added that the airline is already planning to launch additional services to Australia, pending the renegotiation of the Australia-Philippines air agreement to allow for capacity allocation increases. 

Cebu Pacific also reaffirmed that it was likely not going to consider acquiring a stake in Philippine Airlines. According to Sebastian, such a deal would likely become a regulatory issue as the government could view it as too much concentration. He noted that any deal would have to pass through multiple levels of government including Congress, the Civil Aeronautics Board, and the Civil Aviation Authority of the Philippines.

"Apart from regulatory issues, PAL's financial statements are not public," said Sebastian. "We don't know the business case and we don't have a business case for owning a full service airline because we are a low-cost airline." He added that there's no basis for me to make a judgement as to whether PAL is interesting or not.

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