Philippine Aviation: 2014 Year in Review

This year could quite possibly end as one of the best years in Philippine aviation. It was relatively incident free and filled with a number of significant milestones that will pave the way for a brighter future in the Philippine aviation industry. From the industry consolidation to the restoration of US Category 1 status, 2014 has provided the local carriers with all of the ingredients necessary for an even better 2015.

Copyright Photo: Angelo Agcamaran/PPSG

Industry Consolidation Leads to Healthier Competition

Last January, the Philippine aviation industry completed its final stage of consolidation as Cebu Pacific announced its purchase of Tigerair Philippines in a deal valued at $15 million for 100 percent ownership of the low-cost competitor. The purchase gave Cebu Pacific the largest share of slots at Ninoy Aquino International Airport at 38 percent, compared to 35 percent held by Philippine Airlines. 

Copyright Photo: Angelo Agcamaran/PPSG

After the Zest Air and Air Asia Philippines strategic alliance of 2013, the Tigerair-Cebu Pacific marriage reduces the Philippine aviation industry down to three key players: Cebu Pacific, AirAsia, and Philippine Airlines. That is a stark contrast to the six carriers that were once competing irrationally in 2012 with unsustainable pricing leading to unprofitable performance. Although the financial performance of the nation's air carriers are improving, the consolidation unfortunately led to an increase in air fares for travellers in 2014 due to the reduced competition.

Lifting of Safety Restrictions Opens Access to New Markets & Opportunities

In April, the Philippines achieved one of the most important milestones in its recent history: the restoration of US Category 1 status. The upgrade came six years after the nation was downgraded to Category 2, which prevented Philippine carriers from launching any new flights to the United States or changing the aircraft type used on existing routes. With the United States being home to the largest population of overseas Filipinos, it is a key market for the nation's air carriers, most especially Philippine Airlines. PAL had the most to gain from the news as it enabled the national flag carrier to replace its ageing Boeing 747 aircraft on lucrative US routes to San Francisco and Los Angeles with more modern and fuel efficient Boeing 777 aircraft. The introduction of the 777 to US routes enables Philippine Airlines to reduce its maintenance and fuel costs, increasing profitability. In addition, Philippine Airlines was able to increase flights to existing US cities in its network and introduce new cities such as New York, which is slated to launch in March of 2015. 

Copyright Photo: Angelo Agcamaran/PPSG

For Cebu Pacific, it provides the nation's largest low-cost carrier with access to an important market, which it was previously banned from serving. That news may not be good for Philippine Airlines, which has operated US routes for several years without direct competition. But travellers will undoubtedly benefit from the lower fares that Cebu Pacific will bring to the US market. Cebu Pacific is expected to launch its first route to the United States from Manila to Honolulu in 2015.

On the same day that the Philippines received its Category 1 upgrade, the European Union granted Cebu Pacific access to Europe. Philippine Airlines was lifted off the European blacklist in 2013, but Cebu Pacific was forced to wait until 2014 due to outstanding safety concerns and the disruption caused by Super Typhoon Yolanda. Cebu Pacific has not released any definitive plans for service to Europe and industry analysts do not expect any service to be launched in the near future.

The Queen Bids Farewell

Shortly after the restoration of Category 1 status, Philippine Airlines held a retirement ceremony on May 12 at Villamor Air Base for its Boeing 747 fleet. The "Queen of the Skies" was in service at Philippine Airlines for 35 years. It entered service with the airline in December 1979, when it took its position as the company's flagship aircraft. 

Copyright Photo: Angelo Agcamaran/PPSG

When it began its service with Philippine Airlines, the 747 was considered the largest and most modern passenger aircraft available at the time. But 747 fleets around the world are now being phased out in favour of more modern and fuel efficient twin engined aircraft. In the case of Philippine Airlines, the Boeing 777-300ER assumed the role of the carrier's flagship aircraft. Although the retirement ceremony was held in May, the last commercial Philippine Airlines Boeing 747 flight did not occur until September when the aircraft registered, RP-C7473, operated a flight from San Francisco to Manila.

Major Changes at the Nation's Two Largest Carriers

With the positive changes that occurred in the industry in 2014, both Cebu Pacific and Philippine Airlines geared itself for expansion once again. In the last half of 2014, Cebu Pacific stretched its international footprint considerably as it expanded its long-haul division to serve a number of new destinations non-stop from Manila including Riyadh, Dammam, Kuwait, and Sydney. The expansion introduced the Cebu Pacific low-cost long-haul product to Australia, Saudi Arabia, and Kuwait for the very first time. 

Copyright Photo: Angelo Agcamaran/PPSG

Philippine Airlines had expansion plans of its own under the leadership of Ramon Ang and San Miguel Corporation. The carrier had ambitions to serve a handful of key European cities and open new markets in the United States such as San Diego, New York, Chicago, and Florida. However, those plans, along with a decision to acquire additional long-haul aircraft in order to support an expansion, were put on hold while San Miguel Corporation and Lucio Tan Group negotiated control of the national flag carrier. In September, it was announced that Lucio Tan had regained control of Philippine Airlines in a deal valued at $1 billion. As part of the deal, Ramon Ang exited the company and Jaime Bautista was restored as the airline's President & Chief Operating Officer. 

Since Lucio Tan Group regained control of Philippine Airlines, the future has remained unclear. News emerging from Philippine Airlines has been much quieter under the Tan leadership. It is expected that in traditional Tan fashion, PAL will now undertake a much more conservative and practical approach to expansion. Philippine Airlines only just posted a profit for the first time this year after several years of losses and Tan is eager to maintain a steady course. Unlike his predecessor, Ramon Ang, who seemed to be shifting PAL in the direction of a hybrid or low-cost carrier to compete more effectively with Cebu Pacific, Bautista's vision is to transform Philippine Airlines into one of the premier airlines of Asia in order to compete with the likes of Singapore Airlines and Cathay Pacific. 

The future remains unclear and all that is known for now is that Bautista will continue with the decision of the previous administration to launch service to New York in March 2015. But it seems that all other expansion is on hold for the mean time. However, Philippine Airlines will need to keep a close eye on Cebu Pacific, which stands to steal a considerable portion of its market share internationally, as it expands into the US market in 2015. The good news is that Philippine Airlines is in much better condition heading into 2015 than it was heading into 2014.

Ninoy Aquino International Airport Receives a Makeover

In the midst of on-going discussions to construct a brand new international gateway at Sangley Point, the Philippine government pushed through with plans to improve the passenger experience at the country's existing international gateway, the Ninoy Aquino International Airport. Both Terminals 1 and 3 were slated for upgrades in 2014 in an effort to improve efficiency and the passenger experience at the airport, which has constantly been rated as one of the world's worst airports. In 2015, the government hopes to shed that image as it completes work on Terminal 1. 

Image Source: Kenneth Cobonpue

Improvements at Terminal 3 were already completed in July, making the terminal fully operational and able to handle a number of new international carriers including Singapore Airlines, Cathay Pacific, and Emirates. Although no announcements have been made regarding a replacement for NAIA, the national government continues to work with the existing airport complex to meet the needs of the country. Other plans have been discussed to build a fifth terminal and to connect Terminals 1 and 2. There have also been discussions about constructing a third runway. It is likely that news of further development will emerge in 2015. Meanwhile, Mactan-Cebu International Airport is another gateway to keep an eye on as it prepares to embark on a major expansion under new management. 

Not the Best Year in Southeast Asia Aviation

Although it was not a bad year for the Philippine aviation industry, the same cannot be said for its neighbours. It has been a particularly devastating year for Malaysia, which has suffered from a string of accidents. In March, a Malaysia Airlines Boeing 777-200ER aircraft with 239 passengers and crew on board disappeared mysteriously as it was travelling from Kuala Lumpur to Beijing as flight MH370. The aircraft has still not been found to this day. In July, another Malaysia Airlines Boeing 777-200ER aircraft with 298 people on board crashed after it was shot down over the Ukraine. The aircraft was travelling from Amsterdam to Kuala Lumpur as MH17. Most recently, an AirAsia A320-200 aircraft travelling from Surabaya to Singapore with 162 people on board went missing over the Java Sea. 

According to the Airline Leader Journal, Southeast Asia is one of the world's hottest aviation markets with lots of opportunity for growth, but competition is intense. In spite of a rapidly expanding middle class and healthy economic growth, the region is ripe for airlines, but the market is not profitable due to the unhealthy competition. The Centre for Aviation says that out of 17 airlines in Southeast Asia that report earnings, only four posted profits in the first quarter of 2014. Of the nearly 50 carriers that are based in Southeast Asia, nearly 80 percent were not profitable in the first quarter of this year. The markets have suffered due to overcapacity and economic instability. However, the outlook for 2015 looks more favourable as conditions begin to stabilise and airlines address overcapacity by slowing expansion or cutting existing capacity. 

Looking Ahead to 2015

January will begin with an exciting start as plane spotters anxiously await the arrival of Pope Francis on his first trip to the Philippines. Although commercial expansion may be slowed in 2015, the year promises to be an exciting year in the Philippine aviation industry. Cebu Pacific will continue its international expansion into the United States as it accepts delivery of additional A330-300 aircraft. Philippine Airlines will launch its much awaited New York flight in March. It will be the first time that the carrier has served the Eastern United States in more than a decade. 

Copyright Photo: Angelo Agcamaran/PPSG

Meanwhile, AirAsia plans to continue challenging the two main players in the Philippines as it anxiously awaits congressional approval to consolidate its two local affiliates, AirAsia Philippines and AirAsia Zest. When that happens, AirAsia has announced that it intends to invest $500 million to expand its Philippine operations. Until then, we can expect further growth from AirAsia out of Davao, Cebu, and Kalibo with new international destinations expected to come online later this year.

Philippine Flight Network would like to take this opportunity to wish our readers, partners, and contributors a joyful holiday season and happy skies in 2015. We also extend our thoughts and prayers to the victims of the air disasters that have claimed lives this year. We wish to especially thank our valued and loyal contributors: Paranoid Traveller, Travelling_BK, HybridAce101, TamarindWalk, Surface Traveller, and Angelo Agcamaran. In addition, special thanks goes to the Philippine Plane Spotters Group for being our eyes and ears on the tarmac, in the cockpit, and in the skies. Thank you all for your support and helping us to become one of the nation's most trusted online publications dedicated to promoting aviation and travel in the Philippines!