In conjunction with yesterday’s announcement that the Philippines has been restored to Category 1 status by the US Federal Aviation Administration (FAA), the two largest Filipino carriers, Cebu Pacific Air and Philippine Airlines, have already begun to outline their expansion plans to more US markets, a liberty that has not been granted to either carrier since the Philippines was downgraded to Category 2 back in 2008.
PREVIOUS POST: Philippine carriers restored to US FAA Category 1 status
PAL has ambitious expansion plans to more US markets
Currently, Philippine Airlines (PAL) operates 11 weekly flights from its Manila base to Los Angeles, using a mix of 747-400s and Airbus A340s, a daily flight from Manila to San Francisco on a Boeing 747-400, a 5-weekly service to Guam on an Airbus A320, and a 3 weekly service to Honolulu on an Airbus A340.
According to Philippine Flight Network, a Filipino-based commercial aviation blog, PAL CEO Ramon Ang has announced that the carrier will launch new routes to New York, Chicago, Florida and additional cities on the US East Coast within one year. PAL has previously served New York and Chicago in the past. Services to New York (Newark) operated via Vancouver on an MD-11, and ended in the late 1990s. The Chicago O’Hare flight operated via Honolulu (once weekly) and San Francisco (twice weekly) on a Boeing 747-200 in the 1980s. Both of the new routes, if materialized, will operated on a nonstop basis from Manila on a 777-300ER. The New York flight will also fly into New York JFK airport this time instead of Newark Liberty.
Elsewhere in its existing network, PAL has already announced capacity adjustments. Its LAX flight is being up-gauged to a twice-daily route with three additional weekly frequencies. The 77W will replace the Boeing 747-400 and Airbus A340 used on the 11 current frequencies, but a spare Airbus A340 will be deployed to absorb the additional 3 weekly flights that are being added. San Francisco will remain daily, but its aircraft will also see the 747 phased out in favor of the 77W as well.
PAL is also allegedly more than doubling capacity to Guam (from 5 weekly to 14 weekly) and Honolulu (from 3 weekly to daily) as well as replacing its Honolulu route with a more fuel-efficient Airbus A330.
As I reported previously, PAL’s ambitious plot to expand its footprint in the US will not come without reshuffling its fleet deployment plan:
PAL currently deploys its 77Ws on three routes: its 5-weekly operation from Manila to London Heathrow, a 3-weekly service to Tokyo Haneda, and a 3-weekly service to Toronto, which operates via Vancouver in each direction.
While there are certainly spare 777s for PAL to use on longer-range routes, it faces the challenging choice of either replacing current fleet variants used for certain markets with the more cost-efficient 77Ws, or keeping those aircraft types in place and instead opening up new long-haul routes.
In accordance with this situation, the Philippine Flight Network suggests that PAL may pull the 77W of its existing route to Vancouver/Toronto in favor of new US flights, and instead deploy the Airbus A330 fleet as a replacement. Also on the table is the possibility of adding a new flight to Miami from either Vancouver or Toronto.
Cebu: US first, then Europe”
In a surprising twist of events, ultra low-cost carrier Cebu Pacific Air has announced that it will also capitalize on Category 1 status, as well as removal from the European blacklist, to expand its long-haul network. The challenge for Cebu will be mostly limited to fleet as well: the carrier has placed orders for Airbus A330-300s, but these lack the range to fly nonstop from the US West Coast to Manila. As such, Cebu is targeting Guam and Honolulu as its initial first round of possible US markets.
Opportunities also lie in connecting markets such as San Francisco and Los Angeles from Hawaii on Cebu metal. However, the US mainland – Hawaii market is exceptionally crowded and low-yielding. As an ultra-low cost carrier airline, Cebu may have a niche in this realm, but providing a 1-stop product over such a long journey time may be unfavorable in the long run. Cebu’s A330-300 configuration is also exceptionally cramped with 436 seats in an all-economy class configuration, just below the acceptable safety limitations set by Airbus. Without a more premium product offering on an already crowded market, Cebu may struggle to attract enough volume to fill these flights.
Cebu has also announced it is evaluating other long-haul aircraft, such as the 787 Dreamliner or Airbus A350 as possible options to support its long-haul network growth.
Even without restrictions, Filipino carriers will be up for a tough battle
While the news is certainly favorable for Filipino carriers, and their willingness to capitalize on the opportunity from the get-go is admirable, it’s questionable as to whether these plans will deliver on returns from a comercially-viable standpoint.
For starters, the US-Philippines market is exceptionally low-yielding. A vast majority of the market comprises of visiting family and relatives travelers who will opt to pay for the lowest fare, even if it involves connections. Paying $200 less for a 1-stop routing via Tokyo or Seoul for a larger family of six travelers can lead to over $1,200 in additional savings.
Secondly, premium traffic to Manila already have a myriad of options on alliance-oriented carriers such as Cathay Pacific, Korean Air and Asiana. However, PAL is seeking to aggressively market its business class product on the 777s as a means of luring higher-yielding traffic to its product. PAL’s Business Class on the 777s feature lie-flat beds.
Thirdly, the Filipino outbound market to other countries have shown that ill-fated effects occur when carriers essentially double available seating capacity overnight. CAPA recently conducted a case study of the UAE-Philippines market between January 2013 January 2014, and showed how the influx of Filipino carriers caused an over-supply of seats, which resulted in diluted yields and poor load factors for all airlines involved. Both PAL, Cebu and PAL’s low-cost subsidiary, PAL Express, added tons of weekly seats from Manila to Dubai and Abu Dhabi, competing against an already large weekly ASM supply from Emirates and Etihad.
The results were negligible for all carriers. Load factors have missed target projections and Emirates was forced to withdraw one of its 4 daily services to the Metro Manila area (its 1 daily frequency to Clark airport).
Point being, It is questionable that the Philippines, even as a high-volume market, is also high-growth, and high-yielding enough, to support a massive influx in seats when not only a dinosaur network carrier, but also a bottom-feeder ULCC, enter at roughly the same time and compete for ultra price-sensitive travelers.