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Opinion: Will Philippine Airlines Cancel Flights to Dubai?

In its on-going battle to stop the airlines of the United Arab Emirates from obtaining additional flight entitlements to the Philippines, Philippine Airlines made a revelation this past weekend, suggesting that it and other carriers may cease to operate flights to Dubai and Europe if Gulf carriers are able to increase their market share.

philippine airlines a330
Copyright Photo: Angelo Agcamaran/PPSG
According to Jaime Bautista, President of Philippine Airlines, any move to increase flight entitlements of the Gulf carriers would undermine investments made by Philippine carriers in the region. "Should the UAE airlines get the additional entitlements they seek during the coming Philippine-UAE air talks, this will undermine the investments PAL and other airlines have made for the country in opening new routes to serve Philippine tourism and overseas Filipino workers," said Bautista. 

While Bautista's comments may be accurate, it is not the role of the Philippine government to carry out protectionist policies to protect private Philippine corporations at the expense of the travelling public. In any free market, it is the responsibility of the business to ensure that they can withstand the test of time by making prudent business decisions and ensuring they remain competitive. 

However, competitiveness is where the problem lies. Philippine Airlines feels threatened by Emirates, a highly-decorated, award-winning carrier, because it simply does not have a product to compete. Ramon Ang made the miscalculated move of entering the Dubai market with PAL Express, believing that all that mattered to Filipinos was that they obtain the cheapest fare regardless of the sacrifices that must be made in passenger comfort. 

Consequently, PAL entered Dubai with a cramped 414-seat bi-class configured A330-300 with only economy service and no in-flight entertainment to be found anywhere. According to a past passenger, there was no beer, in-flight magazine, newspaper, or television screen to be found anywhere. In short, it was a flying bus. But what added insult to injury for most passengers was the initial belief that they were travelling on board Philippine Airlines, rather than PAL Express, and being charged the corresponding airfares for what they believed would at least be a three-star service. But what they received was reminiscent of a low-cost carrier.

Philippine carriers lag behind the rest of the world when it comes to in-flight entertainment. At a time when Philippine Airlines chose to ditch traditional in-flight entertainment under the leadership of San Miguel Corporation, low-cost carriers in other parts of the world such as Norwegian chose to install personal television screens at every seat on both short and long-haul aircraft.

Philippine Airlines used to code-share with Emirates when it was unable to serve the Middle East profitably using its own aircraft. Currently, they codeshare with Etihad, which operates flights from Abu Dhabi. However, PAL does not seem to be concerned of any competitive threat from Etihad.

Cebu Pacific is in a different position. They enjoy an enviable reputation as a successful low-cost carrier that knows how to meet the needs of their passengers. While their long-haul fleet is indeed cramped and lacks amenities, it is in line with their fares and their passengers know exactly what to expect. In addition, they have added passenger comforts such as wireless internet for an additional fee to restore some sort of humanity to long-haul low-cost flying. The unbundled pricing of a Cebu Pacific ticket works well for their passengers as they get to dictate how cheap or expensive their ticket should be according to the services they desire. Cebu Pacific does not compete directly with Emirates in that they serve an entirely different type of passenger with a completely different set of priorities. Moreover, much of Emirates' traffic continues onwards to Europe. There is indeed room for competition but how much and how many carriers remains unseen. 

Although Gulf carriers are a formidable threat, it is not impossible for multiple carriers to survive. Philippine Airlines is already a code-share partner with Abu Dhabi-based Etihad Airways. Leveraging this partnership further would be an important first step in enhancing competitiveness, particularly code-sharing to additional cities in Europe. In addition, PAL must improve its on-board products and services if it is to compete effectively against a carrier like Emirates. After all, when was the last time Singapore Airlines or Cathay Pacific flinched at competition from Emirates?

If the national flag carrier is prepared to compete on a level playing field, then it must spend less time lobbying for protectionist policies and find ways to compete and survive on its own merit, rather than through government intervention -- a competitive environment that it has enjoyed for too many years at the expense of passengers. 

In Western nations with free-market policies and highly competitive environments, carriers do not uphold passenger rights or employ effective customer service policies because the government forces them to. They do so out of the competitive nature of their business alone because they all understand that to win the customer is to win the battle. 

In recent years, all Philippine carriers have been accused of failing to provide their passengers with a customer-centric experience. Whether it be cancelled flights, failure to provide fair compensation, or the inability to issue a refund in a timely manner, all carriers have left much room for improvement. But if even just one carrier proved to be reliable and customer focused, they would easily outperform the competition. However, Philippine carriers have gotten away with sub-standard customer service just as the Ninoy Aquino International Airport has gotten away with inadequate facilities for years simply because passengers have no choice. The truth is passengers pay the price in a protectionist or monopolistic environment. 

In a free market and competitive environment, passengers emerge as the winners, enjoying the best quality of service for the most competitive price. It's safe to say that even on Philippine Airlines' flagship routes from Manila to San Francisco and Los Angeles, if Cathay Pacific was given the opportunity to compete with direct, non-stop flights, PAL would feel the heat and be forced to step up its game. 

Philippine Airlines blames the Gulf carriers for forcing them out of the region between 1997 and 2006. PAL claims that the subsidies these carriers receive create an unfair advantage as Gulf carriers steal traffic from Philippine carriers. Philippine Airlines also blames the Gulf carriers for the suspension of routes to the Philippines by six European carriers. 

Indeed, in any business environment, there is should always be an element of competition. However, are the Gulf carriers solely to blame for the original demise of Philippine Airlines in the Gulf region and for the lack of European carriers serving Manila? 

One could argue that the demise of PAL in the Gulf region during the nineties, can be partially attributed to competition, but more so due to a failure on the part of Philippine Airlines management to maintain a competitive product, while introducing cost efficiencies in its own operations. In addition, PAL was hit severely by the Asian Financial Crisis, which forced the airline into receivership, cutting in several areas including domestic routes and reducing the size of its fleet. This suggests that the financial health of the airline and its operations were in question long before the entry of the Gulf carriers. 

As for the European carriers, they seem to tell another story. Pressure from Gulf carriers did indeed cause many European carriers to scale back on certain routes and pull out of some markets completely. But while the Gulf carriers have always presented a competitive element, the absence of European carriers in Manila should be attributed to an unhealthy economic climate, coupled with protectionist policies employed by the Philippine government, which for several years, gave Philippine Airlines an unfair advantage over its competitors as the Philippine government slapped foreign carriers with a 3% common carrier's tax and a 2.5% gross Philippine billings tax.

These government policies led to an unhealthy and uncompetitive operating environment for foreign carriers, which hurt the airlines dramatically at a time when the airline industry was already in rough shape due to rising fuel prices and a challenging economic environment. Ultimately, one only needs to look at neighbouring countries in Southeast Asia, which still continue to enjoy regularly scheduled service by European carriers in spite of the presence of the Gulf carriers. These carriers have continued to serve cities like Kuala Lumpur, Singapore, and Bangkok without disruption. 

While the future in the Gulf region does indeed remain uncertain for Philippine carriers, what is certain is that Ramon Ang's strategy of charging full-service carrier fares for a low-cost carrier experience did not work. As for Cebu Pacific, the operation is fairly transparent with passengers paying a fair price for the service that they expect. Now that Philippine Airlines is under the leadership of the Lucio Tan Group once again, hopefully, the national flag carrier can resolve its identity crisis once and for all and focus its energy on enhancing its competitiveness by forming more partnerships and strengthening its product, instead of trying to masquerade as a low-cost or hybrid carrier. 

As for the Filipino people, they owe the nation's carriers absolutely nothing regardless of the investments that have been made. Neither Cebu Pacific or Philippine Airlines invested in Dubai primarily as a mission to rescue overcharged overseas Filipino workers from the dreaded Gulf carriers or to promote Philippine tourism. They did it primarily for their own business interests, with the intent of stealing traffic from the Gulf carriers to grow their respective businesses. But if they fail to do so on the merit of their own products and services alone, then it is not a right for a Philippine carrier to operate the route any more than it is a right for a Filipino to travel with a Philippine carrier. Therefore, may the best carrier win.

The Philippine government must protect the consumer ahead of private corporations. While the government is free to create protectionist policies, they must first determine if it is in the best interests of passengers. Tourism will develop in spite of the Gulf carriers and foreigners especially overseas Filipinos can afford to pay the fares.

The Gulf carriers are without a doubt a threat to Philippine carriers and other airlines around the world. However, they alone are not enough to put another carrier out of business. Airlines are complex operations with several variables that influence their financial performance. Malaysia Airlines, Thai Airways, and Garuda Indonesia are currently facing financial struggles of their own.

As the Centre for Aviation reported when Philippine Airlines launched its non-stop flights to London, it was recommended that the national flag carrier concentrate on the lucrative US market, rather than compete in risky areas such as Europe and to a lesser extent, the Middle East. The Centre for Aviation noted that these markets would be a major challenge for Philippine Airlines to penetrate given that major Asian carriers and Gulf carriers have more established brands, along with strong loyalty programs, airline alliances, and premium products and services.

Philippine carriers already carry an advantage in the fact that Filipinos are generally loyal to their own. But the greatest loyalty is shown to those who offer value. If Philippine Airlines can strengthen its product to a world-class standard, it would have a much better chance of competing against these established global carriers. 

The Philippines and United Arab Emirates are set to hold air talks in Manila on August 27 and 28.

40 comments:

  1. Good article! PAL really has to step up its amenities. As a "full service" airline, they really have to think again on their current concept IFE and seat configs. Middle east routes might on the edge but other routes of PAL seems to be okay, I guess.

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    1. North American routes of PAL is still shaky until it becomes a 4-star or 5-star airline like ANA, JL, OZ, SQ, KE, CX, EVA. I have flown them all for the last 31 years of my residency here in the USA. I will recite this litany again and again when the other Chinese carriers are again a threat to PAL's business success! So compete!!

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    2. I think that is the reason why PAL is realigning its 777 and A340 fleet - streamline its North American destination. I wonder how they'll do when the two remaining 777s arrive.

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  2. Now I remember right....protectionism by slapping (with tariffs and crazy taxes) those European airlines like Lufthansa, KLM, Air France, Swiss Air did nothing for the Philippine government, much less, Phil Airlines. Now that the Big 3 of the Middle East are here, there are apparent signs of "business hostilities" again from the Phil government and the old Phil Airlines! Where is the free market economy here? How can the Philippines prosper or start to resuscitate its perennial economic problems if it does not allow all world airlines to try their "beaks" in Manila. My gosh, that is still a Spanish attitude running in most Pinoys blood! It is now 21st century, people, wake up to reality!!!!!!!!!! Terrible......................................................

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    1. Do not be afraid if Emirates is able to fly to Panama City and Rio or Buenos Aires carrying your Pinoys and Pinays who are bold travelers, adventurers, job finders or seekers of life-changing adventures! Come on, life is short, give grace or chance to everyone!

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  3. And then there's Australia, where the flag carrier was given a majority, albeit seemingly token, share of the overseas market. Emirates rules down under.

    Don't get me wrong. I'm all for competition. Asian carriers aren't really much in a disadvantaged position. Otherwise, the likes of VN, SQ, TR or MH won't be flying to Europe any longer.

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  4. its no brainer that if i'm going to pay the same amount for an airfare between a gulf carrier and PAL, i will choose any of the gulf carriers. it's simply for one reason, you will get the best out of what you paid in a full service airline. PAL is just a rip off, you get charge of a full service airline service at a cost of budget airline service.

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  5. Like PAL, the American cariers, have been crying foul over the "unfair" competition with the Middle Eastern airlines. The problem with PAL and those American airlines is their service sucks and their flight attendants ar rude and ugly. Emirates isn't cutting into their market, PAL and the Americans are giving it to them on a silver platter. Great article, by the way.

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    1. PAL and the US3 airlines service really sucks due to their geriatric flight attendants who are whinners and just love to gossip instead of attending pax needs..

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    2. Modern planes, ample pantry (food, snacks, beverages, wine, drinking water, etc.) Young and energetic flight crews - male or female. IFE (which Pinoys are fond of utilizing), spacious widebody jets, among others.
      These are the things that make me fly an airline!

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  6. WHO CARES!!!!!!!!!!!!!!!!!!!!!!! LET EMIRATES ALLOW THEIR 3RD FREQUENCY,,,,,,IM OFW IN THE MIDDLE EAST...........WE STRONGLY SUPPORT ETIHAD AND EMIRATES TO ADD MORE FLIGHTS IN MANILA.........

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    1. I disagree!!!!!! how about the filipinos or your relatives(if theres any?!) working on pal? Do you have the guts looking at them jobless?

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    2. You're obviously enjoying pal's mediocre service only for the sake of da pinoy prayd you ultranationalist! Have you forgotten that there are a lot of Filipinos working for those ME3 airlines? And so what if we will fly ME3 because they have far more better and cheaper services than pal? We're still Filipinos.

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    3. Last time I checked - half the PAL's check in staff work for service providers. They don't even make a decent wage while the airline brags about profits!

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  7. you are spot on with pointing out the areas of improvement for our airlines, and may have been on point when it comes to comparing the service and the amenities of the philippine carriers and the gulf carriers. on the other hand, some things are not parallel. for one, the middle eastern airlines are funded by their deep pocketed government and while it is rather unfortunate that we cannot say the same for PAL and Cebu Pacific, it should not be their fault either. The reason our nation is not progressive is that we have no regard for our own. we will not hesitate to throw someone under a bus, even if it's our own countrymen, if it serves us for the moment. people fail to see that giving in to their request is going to deal a heavy blow on the phil carriers.

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  8. Flawed naman yung arguments, it's like comparing apples to oranges. How can you fairly compete when market/competitive forces are distorted!? Para kang pinapunta sa gyera at inaasahan na mananalo, gamit ang yantok at walis tingting dahil nagsasarili, kontra de kevlar at naka semi automatic galing sa katas ng sobra sobrang langis. Protectionist din naman UAE ha, sila lang pwede, satin hindi?? E kung dun lang sa negosasyon may pagkakataon maging patas yung laban?

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  9. I think much of the blame should be placed on Ramon Ang. He just simply did not know how to run an airline. At least Lucio Tan had experience and though his first stint had its problems the current management team is on the right track. However, the damage has been done. Let's just hope that with PAL's refleeting they may still be able to make up for lost time.

    Also, what's taking PAL so long to finalize their order for the A340 replacement (whether it be the A350 or the 787)? It seemed that they were impressed by the A350, why couldn't they have ordered it at the time of the Paris Air Show?

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    1. It's just not about impressions. They need to look at the price of the plane, type of operation, and importantly, who can deliver the plane to PAL more earlier.

      Rumors has it that Airbus decided to cut down on Singapore Airline's order of the A350 to another airline. It could be PAL. But there are also talks about the Boeing 787-9 Dreamliner.

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    2. Also I have read that there are engine improvements on the 787's thrust rating thus could increase its range and JFK may be viable non-stop without restrictions. Also, they could develop all crew for their long-haul fleet with the same training as 787 maintains operational commonality with the 777.

      As for the current A340 crews, they could easily adapt with the new A350 if they go that direction or can be redeployed on the regional fleet since there are still some new A321 coming in the pipeline.

      -wEel^

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  10. sobrang agree ako dun sa nagsabi na hindi patas ang laban at madaming bagay ang hindi pwedeng ipagkumpara sa mga nasabing airlines. ilang beses na din akong nakasakay ng PAL and Cebu Pacific and nakapag byahe na din naman ako once sa Etihad at once sa Emirates. While I agree na maganda talaga ung mga airlines nila, when it comes to service, hindi naman mashadong malayo ang serbisyo na binibigay ng PAL, in fact, most of my relatives from the US still prefer to take PAL over other airlines, kahit sabihin pang may mga flights na available na mas mura. ang malungkot nito, hindi maintindihan ng maraming tao ung rason baket umaalma ang PAL and CebuPac na pagbigyan tong mga Middle East carriers, and this is all because majority ng mga Pinoy ay walang keen sense of business. Kung ikaw ay may mini grocery sa palengke na gusto mong palakihin, paano mo to palalakihin ng gaya ng supermarket kung hindi ka magdadagdag ng kapital? shempre para makapagdagdag ka ng kapital, uutang ka sa bangko di ba. pano mo ngayon babayaran ung inutang mo kung ung supermarket na katabi mo eh gigipitin ka sa mas lalo pang pagbababa ng presyo? makakalaban ka ba? shempre hindi. pinag iigihan naman ng mga philippine carriers ung serbisyo nila at iniimprove naman ang facilities, wag lang nating asahan na next month eh bago na lahat ang eroplano nila no.

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  11. here's my 2 cents on this matter.

    you want PAL to be at par with the Gulf carrier. - we all want that of course! - better service, newer planes with power house in-flight entertainment system, who doesn't want that? but that my dear friends, all requires capital. How then do you pump more money into your company to raise your capital, of course that means increased sales. How then will the sales increase when you want to give a bigger chunk of the pie to these carriers? You mention protectionism? Well, what's wrong with that? We all know that there is barely any form of tax in the middle east as compared to what we have here, so why then are you crying over the fact that the government is requiring our own carriers to pay only 2.5% and is imposing a much higher rate for the other players?

    somehow your mention of protectionist policies reminds me of what happened a few years back to the marikina footwear industry, when the government decided to forego any form of protectionist policies and more than generously allowed importation of very low priced goods, which of course eventually, nearly shut down the marikina footwear industry. and that was all because of a handful of people who thought they know better, who firmly believed that allowing the influx of very low priced (and may i add, low quality - im referring to the shoes okay, this is not parallel to the airlines) footwear be welcomed all in the name of free trade and inspiring competition.

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    1. Dear, pal has shallow pocket.its a stand alone business without support or subsidy.i work in middle east and i flew almost airline there including el-al israel airlines, but i keep flying with pal with sense of patriotism.now i believe pal will shine once again now that they post profits.salamat sa mga loyal at patriotic na mga country men im so proud of you(whoever you are)

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  12. Philippine carriers already carry an advantage in the fact that Filipinos are generally loyal to their own. But the greatest loyalty is shown to those who offer value. If Philippine Airlines can strengthen its product to a world-class standard, it would have a much better chance of competing against these established global carriers. After all this is just our hope but it is still not an excuse that we will not improve in our services

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    1. I agree with you. PAL should really improve their products. And advertise them good.

      I could see right now, they are so proud of their B777s but compared to other airlines, its product is way to outdated. PAL should focus really on improving products and advertisements. AND PRESSURE THE PH GOVERNMENT IN BUILDING A NEW AIRPORT. Coz for me, being in T2 isn't strategic form them.

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    2. PAL's B777-300ER are cramped just like their A330! The standard configuration of B777 is 3-3-3 not 3-4-4!

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    3. Sorry 3-4-3 not 3-4-4

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  13. baket feeling nyo ba ang rason ng pamimilit ng etihad at emirates ng additional flights ay para magpaka savior sa mga ofw natin? pareho lang sila ng PAL at Cebu Pacific na in it for business no. and between philippine carriers and the gulf carriers, im sure mas basis ang claims ng philippine carriers na aside from the profit, pinasok nila ang middle east market dahil madaming ofw na nandun para serbisyuhan ung mga ofw natin dun.

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  14. Protectionism for the worst Kind, Pal were happy to see airlines like KLM virtually run out of town with unfair taxes = now they go via Taiwan because of unfair taxes set in the Philippines. Pal if you cant complete with Middle eastern airlines head on then go out of business

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  15. it's not about competition. both PAL and CebuPacific did not have any qualms when Oman and Turkish airlines requested for more flights in the past, as they can very well handle the competition. this, though, is an entirely different matter, as they already have more than 70% of the market share, which is already unfair. now you guys want to give them more? how in the world does that make it fair? you might want to revisit the definition of the said word if you will insist on tipping the scale towards their favor.

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  16. they're just threatened with the gulf carriers since they know for themselves passengers will opt for greater service. PAL will not cancel flights to Middle East, it's their bread and butter.

    PAL is still on the process of "improving" their services but gulf carriers are already 5 steps ahead of them.

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  17. A compromise perhaps? Out of the 14 additional flights, may be 4 can be granted to uae and the 10 to be split with PAL and CP, that still favors the Philippine carriers. Giving it to Uae carriers solely is ensuring our carriers ultimate exit from the playing field.

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  18. Ever since pal took the route from pal express it had beer, inflight magazine, wifi(at a cost) and wireless entertainment system to name a few. And ticket pricig depends really on the proximity on your date of departure. But they need to refurbish their cabin load from 414 pax to a more "full service" number

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  19. Ultimately, the consumer will make the last decision. May the best airline win!

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  20. Filipinos should be wary of the intrusion of Middle East carriers who have unfair advantage through subsidies and cheap fuel. Once they have captured the market through reduced air fares and PAL and CEB have withdrawn from the market up will go the airfares again. I watched this occur a few years back on routes between Australia and New Zealand

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  21. If the UAE carriers get more flights, and our flag carrier cannot compete, that would leave us in the gutters. I know international carriers may have better offers, but it would destroy our flag carrier, which would have national and financial drawbacks.

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  22. at the moment uae carriers already has the upper hand in terms of market share, awarding them more flights will not be a win win situation for everyone.if there is a spike in volume of flights necessary, Cebu Pacific and PAL can very well take on the volume.

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  23. We keep hearing the government bragging about the Philippines as an investment haven in their aggressive campaign to attract foreign investors, but what are they doing to protect the Philippine owned companies???? PAL & Cebu Pacific are merely resisting to keep the healthy competition going, which as is still in favor of the UAE carriers given that both Etihad and Emirates each have 14 weekly flights in the gulf region where as only 7 flights are there for PAL and Cebu Pacific. Now you want to give them more flights? The people in the RP Panel joining the talks today should show allegiance towards our flag carriers.

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  24. Yan tayo eh, kaya di tayo umuunlad kasi kung pwede lang ibenta ang pilipinas malamang naibenta na sa dami ng gahaman dito sa gobyerno. wag kayong tanga, hindi patas ang laban dito. alam naman nating lahat na ang haba ng pisi ng mga arabong yan, tapos gusto nyo makipagsabayan ang mga carriers natin??? Pano? may competition ek ek pa kayong nalalaman, eh kung di nyo po naiisip pag pagbibigyan pa yan sila, wala ng halos competition kasi konting konti na lang monopoly na un. so ano pabor ba kayo dun? tsk.

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  25. If were looking at all ends here, form the view point of a passenger, this will give him the benefit of opting for these gulf carrier services. From the Gulf carriers point, added revenues to these additional flights. From the PHL carriers, additional competition on a cut throat environment. Looking further, the Gulf carriers are receiving subsidies from their government (Etihad Got $2.5 Billion Capital Injection from Abu Dhabi) whilst the PHL carriers has nothing.

    What's at stake here, since the effect will not be outright, providing this unfair privilege to the former will affect the later's revenues. Furthermore, if it sinks the bottom-line and reflect on marginal or even negative revenue, how will the PHL carriers improve their current facilities and services? If this struck badly, and operations will be reduced or cancelled of the PHL carriers, how will it affect us Filipinos? Reduced manpower, job cuts, reduced domestic flights, etc. (If you ever suffered when you can't get domestic flights due to these closures and cancellations, and imagine re-booking your flights, doubling the fares and waste of time). PHL carriers have invested on these business, not as classy as the Gulf carriers, but these are capital intensive business.

    If the government cant provide cash infusions to these carriers carrying the PHL flag abroad, how can they protect these investments from private sectors. Provide them a just and playing field. If the government is intending to reach its goals in terms of tourist arrivals, then the other airports such as CRK and CEB is able to accommodate them with arms wide open. This can be beneficial for passengers in the north, central and southern as this brings them closer and regional hubs esp Cebu is being developed. Also, majority of the tourist destinations are in these areas, so if tourists are their targets, then this is the outright answer. Additional flights in the crowded MNL-NAIA airport cant help the congestion issues also there. How can you accommodate this without expanding?

    If you are complaining for the lack of IFE on your flight home then you should consider your rights of air passengers, file a class suit if you deem so these has impeded your right as a passenger.

    Since the government is now holding a bilateral talks here, it should see the benefit as a whole, the current situation of congestion in MNL-NAIA and in the long term to every Filipinos here and around the world.

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  26. Philippine Airlines must continue flights to Dubai because Emirates has only 2 flights to Manila

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