Opinion: Does the Philippine Aviation Market Lack Frills?

In recent debates of strategies employed by Philippine Airlines, many have suggested that the primary target market of the carrier, the Filipino market, is price-sensitive. Indeed, that may be true to some degree. But one of the first problems we must address is how can we define the Filipino market with millions of Filipinos living abroad in more affluent nations and with higher spending power. Clearly, there is a discrepancy in what "defines" the Filipino market as those residing within the Philippines and those abroad are in two very different market segments based on their ability to spend.

singapore airlines philippines
Copyright Photo: Angelo Agcamaran/PPSG
However, there is another aspect to this debate which questions whether Philippine Airlines could be more globally-oriented, thinking beyond the Filipino market for its international routes. After all, much of the price sensitive Filipino market is located within the Philippines and given those demographics, it is appropriate to allow its budget carrier, PAL Express, to care for that market.

For now, Philippine Airlines considers its main target market as unapologetically Filipino, believing that Ninoy Aquino International Airport is primarily for passengers who want to start and end journeys in the Philippines, rather than connect through it with perhaps even a brief stop for tourism purposes.

In this article, we will concentrate on the Filipino traveller, reviewing the travelling market that is the Philippines and evaluating why there may be limits to the foreign carriers currently serving the country. Is it because the local market lacks the spending power to support them? The reality may be far more complicated than that.


In the past, Ninoy Aquino International Airport was buzzing with western carriers. Even the iconic Pan American Airways served Manila during its prime. However, since the 1990's, Manila has gradually seen the vast majority of western carriers pull out of the country. United Airlines originally left Manila some time in 1998. But the carrier's brand reappeared when it merged with Continental Airlines, and its subsidiary, Continental Micronesia, which has consistently provided service between Manila and Guam.

Nearly half a dozen carriers from Europe also abandoned the Philippines with KLM Royal Dutch Airlines being the only carrier that remained behind, although on a one-stop basis with service to Manila via Taipei. Up until 2012, KLM offered the only non-stop service from Manila to Amsterdam but a dispute over the common-carrier tax allegedly prompted KLM to terminate the non-stop route, while discouraging other European carriers from entering the Philippines. However, others believe that KLM cancelled their non-stop route due to intense competition from carriers in the Middle East and East Asia. In their media statement at the time, KLM cited both as reasons for the suspension of the direct Amsterdam service.

It is no secret to most carriers that it costs far too much in fuel to operate a long-haul flight between two points, which is why it is imperative that airlines identify and establish their prospective markets before launching new routes if they want to see a return on investment.

Since the arrival of the Aquino administration, the Philippines has been lauded as an emerging economy in the Asia Pacific region. While there is indeed a large share of inequality and poverty found within the country, the same can also be said for countries including India, Nigeria, Brazil, and even Vietnam. But what does the Philippines have in common with those destinations? In terms of aviation, in spite of the poverty plaguing those nations, all of those countries have a considerable share of western carriers serving them non-stop. However, the Philippines does not.

It may even come as a surprise to many that a number of countries in Africa have lower GDP's than the Philippines. However, in spite of those figures, they still benefit from a number of non-stop routes operated by western carriers. In the case of the Ivory Coast, it had a mere GDP of only $24.68 billion in 2012, while the Philippines boasts a GDP of $250.6 billion. But despite that, the Ivory Coasts enjoys a non-stop service to Paris operated by Air France, and a non-stop service operated by Brussels Airlines.

In Nigeria, the GDP is only slightly ahead of the Philippines. The peace and order is the country is messy at best even in the capital where westerners are forced to drive to work with armed security. But surprisingly, there are a number of non-stop services operated by western carriers direct to Lagos with names such as Delta Airlines, British Airways, Iberia, Lufthansa, Alitalia, KLM, and United Airlines all included in the mix. Lagos is far from being a financial centre like Shanghai or Hong Kong, but it still manages to attract non-stop flights to the hubs of several western carriers. United Airlines presents an interesting case given that its 12-hour flight from Houston to Lagos is highly comparable to flights between the Philippines and the US West Coast. However, Nigeria does not enjoy the close historical roots with the US, that the Philippines enjoys with the United States. That's not all that surprising considering that Nigeria is a commonwealth nation.

In short, if the economic conditions of a nation dictates the market demographics for aviation in a country, then there is a clear discrepancy between the Philippines and the African nations. If poverty and a lack of spending power is indeed the reason why western carriers do not serve countries such as the Philippines, then one would assume that African nations would be a prime candidate for the elimination of direct service given that their economic state is below that of the Philippines.

With peace and order in the region unstable, and countless people living below the poverty line in Africa, one can only wonder what attracts the western carriers there, or what holds the western carriers back from the Philippines. The Philippines is in an overall better condition than many of its African counterparts but yet the country is getting minimal attention from western carriers.

Overall, it's fair to state that while historical ties play an important role and a good economy is a positive incentive, it is by no means a guarantee of direct air service from western carriers. However, it also means that an underdeveloped economy does not preclude a nation either from enjoying the economic benefits of non-stop flights to more affluent nations.


The Philippines is not alone in losing its share of direct routes to the western world. Acknowledging that the Philippine economy plays little role in attracting foreign carriers at this stage, it is worthy to note that South East Asia as a whole is experiencing cut backs. For example, Scandinavian Airlines axed its service to Singapore, while service to Bangkok has been scaled back. Even Air France has reduced Bangkok service and no longer serves it as much as it once did. Bangkok, once a hive of European carriers, has seen a number of cut backs in recent years. Consequently, Thai Airways has cut back service to Manila as the number of passengers connecting through Bangkok has reduced. In Kuala Lumpur, the second most developed capital in the ASEAN region, only two flights are operated direct by European carriers, Lufthansa and KLM. In short, the Philippines is not alone, though it's fair to say that Manila attracts the least number of western carriers in the region. Many of the cutbacks to South East Asia can be attributed to difficult economic conditions in the western world and increased competition from Gulf carriers, making profitable competition a challenge.


Many people believe that one of the primary reasons why western carriers allegedly do not offer non-stop flights to Manila is because of the lack of premium traffic. So far, there is little correlation between the premium nature of a market and the ability to launch direct flights to the western world if we use Africa as our main example. That means there must be other reasons why western carriers neglect Manila.

One possibility is the increased competition, not from Philippine Airlines, but rather from carriers in the Middle East such as Qatar, Etihad, and Emirates. Asian carriers such as Singapore Airlines and Cathay Pacific are also forces to be reckoned with in the market. But notice how none of these carriers are low-cost airlines. If people believe that Manila and the Filipino market lacks the ability to produce higher-spending premium type travellers, then they must be sadly mistaken as almost every Skytrax rated five-star carrier serves the Philippines direct, with the exception of Hainan Airlines.

Cathay Pacific has the largest presence in Manila with up to six flights per day, while Singapore Airlines and Malaysia Airlines operate up to four flights daily. No foreign carrier operates more flights to Manila in a single day than these five-star airlines. In addition, Asiana Airlines operates three daily flights to South Korea, and All Nippon Airways recently launched a second daily flight to Japan. This leaves only one question: "If the Philippines is such a price sensitive market, how do these five-star carriers manage to operate profitably at the expense of Philippine Airlines?" If all Filipinos simply wanted the cheapest fare, naturally, there would be little room for these carriers with the likes of Cebu Pacific in the region.

To further debunk the theory that Manila and the Philippines overall is such a price sensitive market, many of these five-star carriers operate budget or regional affiliates. If the Philippines could not support the premium services of one of these five-star legacy carriers, then why not deploy the low-cost carriers exclusively such as Scoot, Silkair, Tigerair, and Dragonair? It is also worthy to note that most of these legacy carriers are not receiving massive oil subsidies.

Finally, the most obvious indication is that the majority of travellers flying aboard these five-star carriers are Filipinos themselves. Therefore, if no market existed, there would be no home for these five-star airlines in Manila. This illustrates that with the economic growth here in the Philippines and abroad, the market demographics of "the Filipino" is changing and can now be segmented as spending power changes. Just like in the United States and Europe, where there is always a market for passengers that prefer to fly with budget carriers at lower ticket prices, there is also a place for legacy carriers to serve passengers that want an enhanced or upgraded experience and are willing to pay for it. The Philippines is no exception to this.

Many of the overseas Filipino residents in western nations enjoy the same income, privileges, affluence, and benefits as their local counterparts. As a result, they enjoy the spending power to choose their airline. Given the lengthy time they spend away from their families in the Philippines and the desire to enjoy oneself on vacation, it should come as no surprise that many of them want to choose a carrier that offers the frills of travel and are not solely after the cheapest option, but rather the option that provides the greatest value.


Indeed, Philippine Airlines may be missing this or may be all too eager to concentrate on the local Filipino market and leave the overseas workers to be cared for by the other carriers in the region. However, is the local Philippine market as poor as everyone thinks? As the General Manager of Cebu Pacific's long-haul division recently stated in an interview, currently, the lower average per capita income in the Philippines is undermining the spending power of some 20 million middle-income earners in the country. He added that it puts the Philippines on par with Malaysia in terms of market size, yet Malaysia enjoys more direct flights to foreign countries such as Australia.

Naturally, the hidden 20 million middle-income earners in the Philippines is perhaps just one aspect that precludes the growth of direct flights operated by western carriers, leading people to believe that the country is a price-sensitive market that lacks any desire for frills. But there are a number of other issues that play a role including congestion at Ninoy Aquino International Airport, dated bilateral air agreements, tourism, the influence of politics on the business climate, and an unfair competitive environment as highlighted by the common carrier tax. In addition, it has been no secret that much of the recent economic growth in the Philippines has failed to spread, which as a result, is not expanding the market for foreign carriers. This means that the country may not be able to support additional services.

Overall, while the Philippines may be limited or even saturated as a market, it is clear that a "premium" market does exist in the country and one that is perhaps being overlooked by Philippine Airlines as it seeks to focus on the budget traffic. Perhaps the situation was described best by one of our readers that posted on our website, "If carriers do not find the Philippines profitable at all, then we would be using Super Ferry to even get to Hong Kong just to take a plane elsewhere." Clearly, this is not the case. Although low-cost carriers undoubtedly "democratised" and stimulated air travel in the country allowing more passengers to travel than ever before, there is still a home for five-star carriers and they do not seem to be going anywhere any time soon.  That should be telling in itself.



  1. Most just have the Philippine market pegged as price sensitive, which to some extent is correct, but this article really makes a good argument. Props!

  2. Aren't SilkAir and DragonAir regional carriers and not low-cost carriers? I mean, they provide full service (food, entertainment, check-in baggage...)

    1. It is stated in the article that "many of these five-star carriers operate budget or regional affiliates." Indeed, DragonAir and SilkAir are considered regional carrier and not budget in the traditional sense. However, from the perspective of the airline, they serve the same function as a budget carrier: lower operating costs to operate routes that are not viable served by the legacy. For example, Singapore to Davao/Cebu/Kalibo.

    2. Ok, thanks for the clarification! (:

    3. Most of western carrier cant compete to the services with the likes of those 5 star Airlines. Most poeple who are on a budget prefer the middle eastern airlines as they are relatively cheaper while other Airlines such as cathay, Singapore and asiana provides a better service and a many connecting flights to choose from compare to non stop flights that has no flexibility to choose for flight timing.

  3. Definitely, there is a premium market to/from Manila. PAL used to provide that first class/business class service but failed to sustain market interest. So today, that market segment is serviced by various airlines.

  4. You really never fail to amaze me. Good point hybridace! :)

  5. The PAL and PAL Express combination would have worked great! Now its all confusion and an identity crisis.

    PAL never had a great business/premium product. They had small strides I experienced, i.e. new menus, cabin crew improvements, on time performance for a while. But their seats, IFE, aircraft interior, were all below standard.

    I firmly believe that a premium economy product like CX or ANZ would have paid off well for PAL. However, their premium economy product is just regular economy with 3 inches more of legroom.

    I think their strategists have not flown enough to experience best practice benchmarks by other airlines.

  6. Case in point is MNL-SIN-MNL: SQ has 8x 777/A330 flights per day = 2400 pax per day. PAL has 8x A320 flights per day = 1200 pax per day. Price sensitive?

    1. thats not how you determine price sensitive market. In order for you to see how the market is actually very price sensitive is by looking at the penetration of low cost carrier within the country, Philippines lcc market is almost 90% of total market. SQ and CX market are mostly corporate and expats or overseas filipino travelling to EU or somewhere

    2. Firstly, the LCC penetration in the country proved to be artificial as the airlines themselves could not sustain the competition without consolidation. Furthermore, the penetration applies to the domestic market. That is not what this article is about. Everyone accepts that the domestic market can and should be served to the standards of a LCC given its price sensitive nature. This article is discussing whether the Philippines is "too price sensitive" for an international full-service legacy carrier to thrive. Indeed, if SQ and CX can attract corporate, expats, and overseas Filipinos, why can't PAL? The issue here is that Philippine Airlines serves two very distinct markets: a domestic market (price-sensitive) and an international market. The argument is being made that for the international market, PAL needs a stronger product and not a LCC product. The Philippines is not as price-sensitive in the international market, which is why carriers like SQ and CX can operate to Manila profitably. Why doesn't PAL try to grab a share of that business instead of trying to chase Cebu Pacific?

    3. because the prospects on that business is low. PAL Group wants to make as much money as possible so they will focus on the business with a brighter future. Explains all of the A321 orders.
      "The PAL Group outlook also improves as the overall market conditions in the Philippines become brighter and as it finally has been cleared to pursue expansion in the US, one of its largest markets. But it is not as bright as Cebu Pacific or PAA because PAL no longer has a play in the budget sector, which dominates the Philippine market as it is a highly price-sensitive market."

    4. Very nice comment on PAL having two distinct markets. I think PAL is doing great on its domestic and short haul international segment and that they have appropriate product for this market, but I think that their international long haul segment needs extreme development as the product is not competitive for the international long haul market except for the routes being served by the B777s.

    5. The prospects of the business are not low. You are taking the CAPA comment out of context. The market conditions "within the Philippines" dictate LCC service -- that is where the money is. The Philippines is only a highly price sensitive market if you are focusing on the domestic market alone. Unfortunately for PAL, they are not merely a domestic or regional carrier. They are a full-service legacy airline with a long-haul network. That means they have to compete with CX and SIA. Indeed, their future could be as bright if they choose to focus on the domestic market alone and battle with the other LCC's but that's not the strategy. The plan is international expansion in long-haul markets which necessitates a higher standard of service -- NOT LCC. But you say the prospects of "that business" is low? So what do you suggest? PAL transforms into a regional/domestic LCC and ditches all long haul routes?

    6. Focusing on one thing does not mean completely letting go of others. I just answered your question but you it to the extreme. PAL is not doing so great in domestic segment. ceb pac has ~55% reaching ~60% of domestic market share while pal only has ~35%. hence a321s

    7. The problem is PAL is letting go of others. They are too focused on their LCC strategy. What people are suggesting is to further distinguish PAL Express - let them compete with Cebu Pacific to claw back domestic market share. But don't let that cloud the judgement of what PAL should truly be as a long-haul carrier and that is not a LCC. It's sad because PAL actually could make it work as a full-service with the outstanding Philippine hospitality. But the aircraft need better amenities. The A321's only proves that PAL wants to focus on the regional market but even that their product is below par. Who wants to fly 4 hours to Japan or Australia without IFE? Again, they are trying to be Cebu Pacific when there is room for everyone. They just need to compete better with the other Asian legacies.

    8. I can justify a four hour flight with Cebu Pacific because I paid less for it. But I can't justify a flight on PAL where I pay a comparable price to other Asian legacy carriers, but I receive less service and less in-flight amenities? What idiot would pay a full-service legacy carrier fare to be treated like a LCC passenger? You would have to be a complete moron.

  7. airfrance has pulled out from bangkok entirely? last time i checked they still fly to BKK. Airfrance also resuming CGK ( Jakarta)

    1. Sorry about that... we meant to say it has scaled back Bangkok-Paris flights. It used to be daily, now its just 5x/week. Still the point is that they don't fly as much as they used to. We will edit it as soon as possible.

  8. In the premium market, PAL should know how to create the environment for customers to choose PAL over the competition. Just compare the lounge of PAL and the lounge of the Foreign Airlines at the airport. Just by looking at those lounges you know PAL has lost its touch in the premium market. PAL has to look at two directions and not just in the direction of the LCC to make money. Sadly, it seems no one in PAL understands how the premium market works.


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