The US FAA upgrade of the Philippines to a Category 1 safety rating opens up short-term expansion opportunities for Cebu Pacific Air and Philippine Airlines (PAL), brightening the outlook for both carriers. The upgrade removes the previous freeze on new entrants or adding capacity.
The Category 1 rating enables PAL to immediately replace ageing A340s and 747-400s with more efficient 777-300ERs on existing services to Los Angeles and San Francisco. PAL also plans to add within the next year new destinations in the continental US, giving it a potential alternative to the more risky planned expansion of its European network.
Cebu Pacific is likely to launch services by the end of 2014 to Guam and Hawaii with A320s and A330s, matching PAL on each route. Hawaii and potentially Europe, which is also now an option for Cebu Pacific as the carrier has joined PAL in being removed from the EU blacklist, gives the LCC an opportunity to slow down Middle East expansion and diversify its new long-haul operation.
Cebu Pacific poised to enter Guam and Hawaii markets
Cebu Pacific also is keen to serve the US market but currently does not have the aircraft with the range to reach the mainland US. The LCC is expected to initially focus on Guam and Honolulu with both routes likely to be launched by the end of 2014.
Cebu Pacific has long been interested in serving Guam with its A320 fleet but has been precluded by Category 2 restrictions. The carrier even previously looked at wet-leasing aircraft from a US carrier to serve Guam but ruled out that option as it was cost prohibitive.
Manila-Guam is currently served by United with 10 weekly 737-800 flights along with the five weekly A320 flights from PAL. With LCC stimulation the Manila-Guam should be able to support a significant increase in capacity.
Guam has been keen for some time to attract LCC service from the Philippines. The Guam airport has seen the Korea-Guam market grow following the entrance of Jeju Air, which is the only LCC currently serving Guam.
The Honolulu-Manila market has only been served by PAL since Hawaiian Airlines dropped Manila in mid-2013 after five years on the route. Cebu Pacific should be able to be more successful than Hawaiian at stimulating demand as the Honolulu-Manila market is price sensitive – as are most Filipino expatriate markets.
Hawaii has the second largest Filipino community after California among US states, with about 300,000 residents.
The opening up of the US market comes at an ideal time for Cebu Pacific as the carrier has not yet decided on routes for the three A330-300s it is adding in 2014. The carrier’s new long-haul unit took delivery of its first two A330s in 2013, one of which was used to launch service to Dubai in Oct-2013 with the other aircraft used for regional services to Seoul and Singapore. Cebu Pacific has been using its third A330 in the domestic market since taking the aircraft in Feb-2014.
Hawaii gives Cebu Pacific the option of slowing down Middle East expansion
With another A330 delivery expected in May-2014 followed by one more in 3Q2014, Cebu Pacific needs to quickly move forward with selecting additional long-haul routes. Australia is under consideration and Sydney will likely be launched by the end of 2014. As CAPA previously reported, Cebu Pacific also has been considering two destinations in Saudi Arabia as well as Kuwait, Qatar and Oman.
Hawaii represents a potentially more appealing option. The Middle East market has become extremely competitive as PAL also has launched services to Saudi Arabia, Qatar and the UAE. In addition several Middle Eastern carriers have large operations at Manila.
As Cebu Pacific’s initial performance in Dubai has been somewhat disappointing, the carrier’s long-haul unit could be better off focusing on a more balanced network featuring a mix of Australia, Hawaii and two or three Middle Eastern destinations. Previously the long-haul plan was for five to six destinations in the Middle East and one in Australia by the end of 2014. Cebu Pacific will still likely launch one or two additional Middle Eastern routes in 2014 but now has the option of deferring some of its Middle Eastern expansion until at least 2015 in order to free up capacity for Honolulu.
Cebu Pacific also now has the option of serving the EU as it was removed from the EU black list on 10-Apr-2014, ironically the same day it received good news with the US FAA announcement. But Hawaii is a more likely option for 2014 with services to Europe and potentially the continental US to be added later as new generation widebody aircraft are considered. Most European destinations are not within range of Cebu’s A330s without payload limitations although Moscow is an option and has been considered.