Analysis: UAE Air Talks Yield Positive Results for Both Countries

The Philippine air panel ignored the pleas of the national carriers as they met with their counterparts to renegotiate and expand the existing air agreement between the Philippines and the United Arab Emirates. While both Cebu Pacific and Philippine Airlines opposed the renegotiation, the outcome is viewed as fair to both sides.

emirates clark
Copyright Photo: Angelo Agcamaran/PPSG
The new agreement increased the maximum flights per week between the two countries from twenty-eight to thirty-five. Although it remains unconfirmed which UAE carrier will utilize the seven additional entitlements, it is widely believed that Emirates will use them to relaunch its third daily flight between Manila and Dubai. 

Both Philippine Airlines and Cebu Pacific opposed any increase to the previous number of flight entitlements, citing that it would hurt local airlines, who are presently unable to maximise their existing number of entitlements. In addition, Philippine carriers accused the Gulf carriers of competing unfairly, claiming that they receive huge subsidies from their respective governments.

According to the Centre for Asia Pacific Aviation, the United Arab Emirates is presently the largest destination in the Middle East from the Philippines. More than half of the 80,000 weekly return seats from the Philippines to the Middle East are routed to the United Arab Emirates. In its report on the Philippines-Middle East market, CAPA stated that the "best scenario for Emirates and Filipino consumers would be an expansion of the UAE-Philippines bilateral."

Philippine Airlines recently argued that there was insufficient demand between the Philippines and the UAE to warrant additional flights. According to Jaime Bautista, President of Philippine Airlines, the national flag carrier has the data to prove that the majority of passengers on board Etihad and Emirates are bound for destinations outside of the UAE. 

"The figures that we got is that Emirates carries less than 30% of passengers who stay in the UAE," said Bautista. "So around 70% of its passengers are those that fly beyond Dubai. The other carrier, Etihad, is carrying passengers in the same percentage. Going by those figures, it shows that PAL and Cebu Pacific are actually carrying more passengers between the two countries so that's why we think there is an overcapacity in the market."

Bautista may indeed be correct in his assertions. However, the Philippine government has an interest in growing traffic from points beyond the Middle East to not only serve overseas Filipinos, but to attract more foreign tourists as well. Unfortunately, Philippine Airlines and Cebu Pacific do not have the aircraft or the demand to launch additional non-stop flights to Europe. Moreover, European carriers have expressed little interest in offering additional non-stop service to the Philippines, which leaves the Gulf carriers as the only carriers able to meet the growing demand and continue developing the market at the present time.

Developing New Gateways to Decrease Congestion in Manila

The new agreement successfully addresses many of the concerns presented by Philippine carriers and helps to level the playing field in spite of whatever subsidies may exist for Gulf carriers. The Philippine Civil Aeronautics Board attached a condition that whichever UAE carrier picks up the additional seven flight entitlements, must launch separate service within one year from the UAE to either Cebu or Clark Airport. 

Although pioneering a new route may seem like a huge risk, it may work out favourably at Mactan Cebu International Airport, which is rapidly growing as a domestic hub. Even Philippine Airlines is planning to launch non-stop service from the airport to Los Angeles. Emirates previously attempted non-stop service to Clark International Airport, which was withdrawn within a year after launch due to weak demand. 

While there may be insufficient origin and destination traffic between Cebu and the UAE, Emirates or Etihad may be able to leverage connecting traffic to and from popular destinations in the Visayas, Palawan, Boracay, and Mindanao just as it has in Manila and connect these passengers to their global network that extends throughout the Middle East, Europe, and Africa. Many Filipinos in those regions would appreciate the opportunity to bypass Manila. If a UAE carrier fails to begin service to Cebu or Clark within a year of signing the agreement, they will lose the additional rights to operate to Manila.

Philippine Carriers Can Now Leverage Connection Opportunities

As Philippine Airlines indicated previously, much of the demand and success of the UAE carriers can be attributed to connecting traffic, which is heading to destinations beyond Dubai or Abu Dhabi. With the absence of code-share agreements with partner airlines, neither Philippine carrier was able to capture this traffic as their services terminate in the UAE.

However, the recent negotiations will now empower the Philippine carriers to tap into this market and serve other destinations beyond the UAE without the need for code-shares as they have been granted fifth freedom rights to Europe, the United Kingdom, United States, and Saudi Arabia. This enables either Cebu Pacific or Philippine Airlines to fly to the UAE, pick up passengers and continue onto a destination in any of those countries.

According to Carmelo Arcilla, Executive Director of the Civil Aeronautics Board, the fifth-freedom rights will help to level the competitive playing field between carriers of both nations. "This will improve Philippine connectivity and also the commercial viability of our routes to the UAE," said Arcilla.

Moreover, both countries also agreed to co-terminalization, which will enable a Philippine carrier to fly to Dubai and then onto Abu Dhabi without picking up passengers for the domestic leg. This will increase the viability of the existing flights of Philippine carriers to the UAE as they can now carry passengers bound for both Abu Dhabi or Dubai on the same flight and aircraft. Co-terminalization will apply to all cities in the United Arab Emirates and the Philippines. In the case of Emirates, the carrier could launch new flights from Dubai to Cebu and continue on to Davao. 

"This also improves connectivity and viability," added Arcilla. "Overall, the talks are a success for Philippine connectivity and network development. The Philippine government panel and our airlines view the exchange as more or less fair, as the increase in traffic rights for both sides, which our airlines opposed, is minimal."

Philippine Airlines Must Act to Improve Prospects

Philippine Airlines seems to be in the weakest position in the Philippines-UAE market. If the national carrier wishes to boost its load factor, it must leverage its current partnership with Abu Dhabi based Etihad and utilize the newly negotiated fifth freedom rights to expand flights to Saudi Arabia, the United States, or Europe.

According to the Centre for Asia Pacific Aviation, Philippine Airlines could begin utilising the seven unused rights from the previous set of entitlements to launch a second daily flight to Abu Dhabi to better leverage its partnership with Etihad. It could expand its code-sharing relationship with Etihad to cover destinations in the United States and Europe. At present, the code-share relationship only covers flights between Abu Dhabi and Manila, as well as domestic services within the Philippines. 

Manila is presently the second largest international market for Etihad after Bangkok. Any increase of Etihad's share of the Philippine market would come at the expense of Emirates. If Philippine Airlines does not wish to launch any further non-stop services to Europe, Abu Dhabi could serve as a transit point, where Philippine Airlines passengers could connect to Etihad and Etihad partner carriers to reach other destinations in Europe. 

Philippine Airlines currently does not have codeshare partners in Europe. However, the flag carrier is currently pursuing new partnerships with European and US based carriers. Etihad is an ideal partner as they have an extensive network in Europe and several stakes in European carriers that could partner with Philippine Airlines. 

In addition, Etihad could be used to serve additional destinations in the eastern United States. This would improve the position of Philippine Airlines in both the European and North American market. However, PAL must act quickly before Emirates gains further share. Moreover, it must improve its on-board product, loyalty programs, and alliances to enhance competitiveness.


  1. This was a great surprise, the new agreement is indeed fair and balanced. I think many of us didn't believe it would be. Credit is due to the negotiators, a job well done.

    Now the onus is on Philippine Airlines & Cebu Pacific to up their game and truly compete. As stated in the article, onboard product, loyalty programs, and even banking and scheduling need to be updated to compete.

    Come on Philippines, stop be a follower and become an INNOVATOR! You are a small boutique airline... start acting like one.

  2. I'm actually okay with this. Looks like there's more to this than a simple yes or no.


  4. I hope EK & EY utilize this opportunity to commence their Fifth Freedom Rights to Cebu with onwards flight to Davao. This will really help our Visayas and Mindanao Kababayans to connect directly through DXB/AUH & to all points in Middle East, Europe, Africa, North & South Americas without going to MNL due to extensive networks of this 2 UAE carriers. It will also help our Muslim brothers to go straight to Makkah via Jeddah & Medina. Kudoos to our Filipino negotiators. Thank you for not allowing yourselves to the pressure of PAL & CEB. The success of any Airline business are not only rely with the Airfare but Services. Not all Filipinos are in need of Low Air Fares. Filipinos deserved to be treated well.


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