Opinion: Providing Incentive to Low-Cost Carriers to Decongest NAIA

It is no secret that everything at Ninoy Aquino International Airport (NAIA) from the terminals to the runways is congested. The 33-year old Terminal 1 is running at almost twice its designed capacity.  But what is even more surprising is numbers released about Terminal 3, which revealed that out of its designed capacity of 13 million passengers, most of the 11 million passengers at Terminal 3 are bound for domestic destinations.

Copyright Photo: Bernardo Agulo
As we know, the carriers that operate domestic flights from Terminal 3 are primarily low-cost carriers (LCC's). It almost seems counter-intuitive and perhaps even unfair that the two largest LCC's get to operate in what is the nicest facility in the NAIA airport system. That is unless the Manila International Airport Authority (MIAA) intended Terminal 3 to be the world's nicest LCC terminal. But the recent move of five foreign carriers to Terminal 3 serves as a reminder that if MIAA wants to restore the facility to its original purpose of serving the foreign carriers, it will have to sort out what to do with the LCC's operating there.

Congestion in the terminals is merely one issue plaguing NAIA. The airport faces a bigger problem of runway congestion.  There are more take-offs and landings per hour than ever before. With limited slots for take off and landing, the chances of an accident could increase and so can delays. The growth of demand for air travel to and from the country's main gateway is expected to continue well into the future and until a new runway is built, one is left with no choice but to consider other existing facilities in the country in order to alleviate the congestion.

WHERE DO LOW-COST CARRIERS BELONG?

In most other countries, especially in western nations, LCC's operate primarily in secondary airports.  Even Singapore used to have a dedicated budget terminal, which housed most of Tiger Airways and Cebu Pacific operations.  Kuala Lumpur International Airport designates KLIA2 primarily for LCC's as well.

I observed that for the world's most infamous low-cost carrier, RyanAir, a crucial strategy that it employs to keep costs down is that it flies through more obscure airports. In fact, it is believed that RyanAir's presence in Europe led to the renaming of small airports to make it appear that they are within the metropolitan area of a larger city. For example, Stockholm Västeras Airport is actually over 100 kilometres away from downtown Stockholm. With airports all over Europe eager to attract RyanAir, the carrier is able to stand its ground getting a good deal on landing slots, because if it cannot find reasonable rates at major airports closer to urban centres, it will simply take its business elsewhere.

These smaller, more distant airports also attract less traffic. This is crucial for carriers that wish to maintain a high on-time performance. Late flights can mean hefty penalties for the carrier, not to mention disrupting the allocated aircraft's remaining schedule for the day. In the low-cost carrier world, this is incredibly important as LCC's operate on really tight timetables in order to maximise aircraft utilisation.

PROVIDING THE INCENTIVES

It's a natural law of supply and demand and a fundamental principle of real estate that if fewer slots are left to land or park one's plane, the higher the price for that privilege should be charged. The fact that something about the Ninoy Aquino International Airport is attractive to carriers (e.g. proximity to city centre) should already warrant high landing slot prices.

This very principle applies to passenger airline tickets and even hotel rooms. Hotels around NAIA know that their location provides them with a distinct competitive advantage that enables them to charge higher prices for their rooms. Moreover, if passengers need to travel on short notice to a particular destination, circumstance becomes the primary driver for travel, rather than cost. As the passenger's priority remains being in a particular place at a particular time, cost becomes secondary enabling air carriers to charge higher fares during peak seasons such as Christmas or the summer holidays.

Therefore, shouldn't the draw of an airport close to the city centre not be one of the main selling points that enables the Manila International Airport Authority to charge carriers higher fees? Given the limited capacity that NAIA is currently capable of servicing, carriers can also use that as a basis to charge passengers accordingly. In other words, if passengers want the convenience of using the airport closer to the city centre, they must pay for the privilege to do so.

Copyright Photo: D.Wilson/PFN
If executed properly, the yield management of the landing fees at NAIA could be used to better manage the scarce landing and gate slots. In doing so, the MIAA should be able to deliver a more convenient and pleasant experience for travellers by controlling capacity at the airport, while ensuring better on-time performance for arrivals and departures.

A few years ago, Clark International Airport was beginning to earn its reputation as a low-cost carrier airport, attracting many regional low-cost carriers such as AirAsia, and also offering passengers lower fares. However, the intense low-cost carrier competition in the Philippines has undermined the development of Clark International Airport with carriers such as Cebu Pacific operating from NAIA, offering equally low-fares as those available from Clark. With the travel time and cost involved in getting to Clark Airport, there was simply minimal incentive to justify a passenger travelling from Metro Manila to Clark for a flight. AirAsia Philippines proved this when it decided to shift its operations to NAIA after failing to generate sufficient traffic or any profit from Clark.

If low-cost carriers were to shift some of their flights from NAIA to Clark, there would need to be a financial incentive that would provide lower operating costs for the carriers and cheaper flights to provide incentive to passengers. Many people comment on how the Filipino market can be so price-sensitive that passengers are willing to sacrifice in-flight amenities and convenience just for a lower ticket price. If this is indeed true, then such price sensitivity should include a willingness to travel the distance to a more distant airport such as Clark in order to obtain a cheaper fare. It could also mean taking a connecting flight rather than a direct flight.

Copyright Photo: Struzzovolante/Airliners.net
While the travelling time may be longer and the trip somewhat inconvenient, one benefit that will come of this is the greater likelihood of an on-time departure and arrival. On-time performance is imperative in order to keep costs low and delays imposed by a carrier or an external force can end up consuming much of a given flight's bottom line.

AUTHORITIES MUST TAKE ACTION

AirAsia's Tony Fernandes had a valid point when he suggested that carriers should pay equal fees for equal services and facilities at Ninoy Aquino International Airport. The AirAsia chief accused the Manila International Airport Authority of unfairness as a result of charging AirAsia the same fees to use the older and congested Terminal 4 as they are charged to use the modern and spacious Terminal 3. Fernandes cited the example of hotels where guests staying in a Shangri-La would expect to pay accordingly, but not the equivalent fees that guests would pay to stay in a budget hotel such as Tune Hotels.

Indeed, Fernandes has a valid point and this can be applied to airport slots. If the demand for slots exceeds availability at Ninoy Aquino International Airport, carriers should be charged a premium for using such slots, in addition to a premium that passengers and carriers should pay for the convenience of arriving and departing closer to the metro. If passengers want to save money and if Clark International Airport wants to attract more flights and carriers to use their brand new terminal, they should be pricing their fees accordingly -- well below what NAIA charges as there is an inconvenience to travellers from the metro in having to journey to Clark. This issue along is arguably why Clark continues to fail to attract passengers from Metro Manila as there is presently no incentive to travel to Clark.

As for the Ninoy Aquino International Airport, the root of the problem is that Cebu Pacific has been allowed to take too much advantage of its competitive position in Manila. Under normal circumstances, where experienced airport management are in place, the nature of NAIA as an international gateway and busy airport for legacy carriers should make it relatively hostile to the business model of Cebu Pacific and other low-cost carriers. Cebu Pacific should not be allowed to control as many slots as they do and they should be pressured with strong incentive to locate a significant amount of their operations, particularly domestic, to Clark. However, in order for such a proposal to be viable, Cebu Pacific would be need to be provided with sufficient cost advantage that would enable them to charge passengers an accordingly attractive fare that would lure them to make the trip to Clark. In addition, Cebu Pacific would need to control their own yield management and avoid offering peso fare promotions from NAIA.

Cebu Pacific should be part of the global trend that low-cost carriers usually prefer to operate out of smaller, more obscure airports. Naturally, this is not always possible when no such airport exists within 200 kilometres of each other. However, in the case of NAIA, Clark International Airport is well within this range.

qatar airways clark
Copyright Photo: Anas Qasem
Cebu Pacific once prided itself on having a consistent on-time performance exceeding 90 percent. However, the congestion at NAIA has now driven that down to somewhere between 70 and 85 percent. It is in the interests of Cebu Pacific to consider relocating most of its flights to Clark as long as the respective airport authorities provide a distinct cost advantage in terms of slots, landing fees, and even terminal fees for passengers. If a fear exists of losing customers, then one must evaluate why they chose to operate at the Ninoy Aquino International Airport in the first place. If the airline can get away with charging additional fees for everything from snacks to seat selection, it must find a way to educate the travelling public that the costs of operating from NAIA with its scarce remaining slots is equally costly and should be charged accordingly.

The Manila International Airport Authority must exercise control and effective management of the valuable real estate that is in its hands including the terminal and runway slots. As slots are scarce, higher fees should be charged for landing and parking rights. However, Clark International Airport, as a competitor, should adjust rates accordingly to ensure that there is sufficient financial incentive for both passengers and carriers. Ultimately, this is the same practice that travellers willingly accept with respect to last minute airline tickets when few seats remain, or last minute hotel rooms, when few rooms remain.

If the Philippine government wishes to continue operating the nation's airports, then they should prove that they are competent and capable of doing so. The government and respective airport authorities are more than aware of the congestion problems and inconveniences that passengers endure on a daily basis. As a city, Manila is already filled with too much congestion. We should not give foreign tourists that same negative experience or impression as they arrive at the country's main international gateway.

-HybridAce101

23 comments:

  1. Unbelievably stupid commentary.

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  2. I agree this article is completely asinine. So the writer would much rather sacrifice the convenience of 11 million passengers just because they are "local" than for foreign tourists to have a "negative impression" of our airports! And why the bias against our LCCs who are in fact doing a great job of providing affordable air travel to millions of our fellow countrymen?

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    1. We are not trying to inconvenience passengers. We are rather pointing out the reality that because NAIA is congested as it is, we have to encourage carriers to take alternative steps.

      Cebu Pacific wants to expand but if it stays in NAIA, it will not realise this.

      Again, this principle also holds true when you buy an airline ticket. When there are few seats left, you have to pay more. That's what's supposed to happen with the congestion situation.

      EasyJet (and RyanAir) does not use Heathrow Airport for good reasons. It is the world's busiest airport and if they take their chances here and get delayed, it will cost them money and mess up their schedule.

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    2. That is great for major hubs and European destinations which attract a lot of traffic. Here in the Philippines, we don't attract that much of traffic and that might have negative consequences especially in our tourism industry.

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  3. NAIA 3 was built and meant to replace the decrepit NAIA 1 which was voted the "Worst airport terminal in the world"

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  4. on the perspective of decongesting the airport you have a point, however the revenue and jobs that would be loss if this happens will impact surrounding business and cities. We need a long term solution! Like a new aiport that should be a priority and a GREAT infrastructure that supports it i.e roads, railway system and a good public transportation...okay now let me wake up from this dream! lol

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  5. Cebu Pacific is literally the most important airline in the Philippines. This would decongest NAIA but then you transfer the most important airline 2 to 3 hours away? Doesn't make sense

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    1. How bout us coming from central and northern luzon? Can you even imagine the hell that we have to go through just to get to naia? Your complaining bout the 2 to 3 hrs travel to clark, yet you havent seen that we've been long enduring this problem. We travel more than 3 hrs because of land traffic, on top of that we have to bear additional hrs of waiting because of flight delays. Have you ever thought of how much that cost us? Time & money. Shame on you for thinking what is only convenient for you. Shame on you for thinking that this doesnt make sense. If you're too boastful to say that you have flown to Europe, why not bear the additional cost of traveling 2 to 3 hrs to clark.

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  6. Stupid and ridiculous comment. this guy has his own mind. Just forget about his comment

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  7. an opinion coming from a guy kicked out from SQtalk because he had to ask so many thing....and not even in the aviation industry. PFN, if you want someone's opinion, please ask someone work in the industry. not just some random guy who just finished studying in the UK.

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    1. We welcome the contributions of people from various backgrounds. If someone who is part of the airline industry is willing to step out from beyond the anonymous mask, we would be pleased to welcome their contributions. However, we also acknowledge that one does not need to be within the airline industry to offer meaningful and valid opinions. In this particular instance, the author has presented a solution to the existing congestion at NAIA. While a new airport is ideal, it is still ten years away and a solution is needed now. Ultimately, the argument is, if you want convenience -- pay for it.

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    2. All the while I thought this site was the one needing to "step out". Your PAL posts outnumber the other airlines' posts COMBINED.

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  8. You have a point but were not a European country that have a good transport fascility. I flew with Ryanair to bcn and I used the alternative airport in girona instead of the main airport in El prat, the bus from girona only took an hour to reach the city centre. Just imagine I'm from paranaque and I have to take a 3hour bus ride to Clark. It's not an issue of decongesting but the effort from the government to start building a new airport in sangley and expediting the construction of the third runway in manila.

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  9. It's very obvious that there's an urgent need for a newer and bigger airport to serve as the gateway to the Philippines. What's puzzling though into everyone's mind is how come so many quarters are still very much against the construction of that much needed infrastructure which will immensely benefit the entire Philippine aviation industry and yet would still prefer to just simply upgrade that decrepit NAIA which can no longer expand due to limited space and has reached its full capacity.No longer can the Filipinos and visitors to the country afford to suffer decades of congestions and delays because of the ineptitude and utter neglect of those officials overseeing NAIA operations.

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  10. Don't blame Cebu Pacific....This Government Sucks!

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  11. The writer and most governments suck. What is Cebu Pacific going to do with their international traffic ramping up? Shuttle those important tourist dollars to Metro Manila? Really? What about Air Philippines? Aren't they an LCC, too? They compete on the same routes that Cebu Pacific does. So are you going to ask them to move their operations to Clark, too? Why doesn't the government want RSA to build a new airport with private money? Oh, hang on. That means the current MIAA/NAIA managers would be out of a job!!! OMG!!! That would be such a shame now wouldn't it? LOL!

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  12. "Cebu Pacific should not be allowed to control as many slots as they do".

    And they don't. A third party manages slot allocation in NAIA. It is Airport Coordination Philippines an affiliate of Airport Coordination Australia.

    Slots are very expensive these days, one costs about $15M.. (5J buys DG)

    "It almost seems counter-intuitive and perhaps even unfair that the two largest LCC's get to operate in what is the nicest facility in the NAIA airport system".

    You should have made a quick look back at the terminal's history. By the government's request, it is 5J and 2P who took risk and invested in T3 so that it can be utilized. You are the one who's unfair to them ^_^.. Relocate them when T5 (LCC terminal) is ready. Also it is not the nicest facility, like T1, acoustic panels also falls from the ceiling.

    "Cebu Pacific once prided itself on having a consistent on-time performance exceeding 90 percent. However, the congestion at NAIA has now driven that down to somewhere between 70 and 85 percent".

    Since the management of aiport slots are now being handled by a third party (used to be managed by PAL). LCC's flights had been re-timed. This coincides in compliance also to the 45 minute ground time imposed by CAAP. It can be the reason PFN publishes airline schedule changes almost every month.

    Result? https://www.cebupacificair.com/about-us/Pages/news.aspx?id=962

    For me, I don't see these air carriers moving out of MNL unless the government lays out a concrete long term and sustainable plan that will benefit all and give plenty of opportunity for growth say for the next 100 years. It is difficult, but if the government has the will, it can be done.

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