Budget carrier Cebu Pacific is planning to continue its expansion into the long haul market with the introduction of flights to Saudi Arabia as early as August of this year. The airline is planning to use its new 436-seat Airbus A330-300 aircraft on flights to Riyadh and Dammam.
According to a report by the Centre for Aviation, Cebu Pacific plans to allocate a second aircraft to the long-haul market in August 2014 when flights are expected to be launched to two new destinations in Saudi Arabia. Cebu Pacific executives have indicated that plans are to be finalised in the next few weeks and that ticket sales will begin shortly after. A previous report published by the Centre for Aviation revealed that Cebu Pacific would serve one destination in Saudi Arabia with four flights weekly, while the second destination would be served with three weekly flights.
Kuwait and Australia also planned for 2014
Saudi Arabia isn’t the only new long-haul destination that Cebu Pacific plans to introduce in 2014. The airline is also aiming to launch service to Australia and Kuwait by the end of the year. Like Saudi Arabia, the carrier already has approval to operate to Kuwait. But the airline is still in the final phase of negotiations with Australia’s Civil Aviation Authority to launch flights to that country. It is expected that Cebu Pacific will receive approval for Australia within the next few weeks.
Cebu Pacific is eyeing two destinations in Australia with Melbourne and Sydney at the top the list. It was reported last year that Avalon Airport, serving the Melbourne market, would become the carrier’s first destination in Australia with Sydney to follow. But Cebu Pacific only has rights to serve the market with five weekly flights and the airline has insisted that it will not launch flights until it has the flexibility of offering daily service.
The news of expansion to Australia comes as other carriers including Qantas and Singapore Airlines are beginning to scale back capacity between Southeast Asia and Australia amidst oversupply in the market. But Cebu Pacific believes that it can bank on increasing Australian tourist arrivals in the Philippines, as well as the 250,000 overseas Filipinos that are residing in Australia.
“Our philosophy has always been the same. We try to expand markets by offering lower fares. This is part of the strategy to expand our long-haul operations,” said Cebu Pacific CEO Lance Gokongwei. “We hope to make an announcement in the next month or so. Then we can start selling tickets two to three months forward. Hopefully, we can fly to Australia before the end of the third quarter.” Cebu Pacific says that flights to Australia will proceed even if seats from Southeast Asia are creating over-capacity in the market.
Cebu Pacific has already accepted delivery of four A330 aircraft. Currently, only one aircraft has been allocated to long-haul operations serving Dubai in the United Arab Emirates. Two other aircraft currently serve domestic routes and regional international routes. The aircraft have been used on flights to Singapore, Seoul, Taipei, Davao, and Cebu. Although the aircraft has also been cleared to operate flights to Tokyo Narita, Cebu Pacific has yet to confirm if there will be a deployment in the near future.
Before the end of the year, Cebu Pacific intends to be using four of the five A330 aircraft that it will have in its fleet on long-haul routes. The fifth aircraft will continue to be allocated to the regional international market serving markets such as Singapore, Seoul, and Tokyo Narita. The carrier’s A330 service to Singapore has been highly successful and is likely to continue. Cebu Pacific executives revealed that the airline’s recent test of the A330 in the domestic market has worked well for the Manila-Davao route, but not as successfully on the shorter Manila-Cebu route.
Honolulu to launch in 2015
Now that the United States Federal Aviation Administration has upgraded the Philippines to the Category 1 safety rating, Honolulu is now back on the radar as part of Cebu Pacific’s long-haul network plan. Cebu Pacific is now working with the US FAA to obtain authorisation to operate aircraft to the United States. The US market will initially be served by A320 aircraft operating between Manila and Guam, which the airline hopes to launch before the end of 2014 pending the necessary FAA approvals. Honolulu is not expected to launch until 2015 when the carrier accepts delivery of their sixth A330 aircraft. Cebu Pacific executives indicated that a 2014 launch for Hawaii is infeasible as the carrier must obtain an extension of its ETOPS authority, which could take several months to secure.
When Cebu Pacific does finally launch its Guam, Honolulu, Saudi Arabia, and Australia routes, it will compete directly with Philippine Airlines. According to the Centre for Aviation, the introduction of a low-cost competitor on these international routes will not be favourable for Philippine Airlines. But Philippine Airlines is able to capitalize on its first mover advantage in the lucrative mainland US market where it holds a strong position. It is also likely that Philippine Airlines will be the only local carrier serving the European market for the foreseeable future, while Cebu Pacific studies the acquisition of future long-haul aircraft.
Meanwhile, Cebu Pacific must also concentrate on establishing its long-haul business model. The outlook will likely improve as it diversifies its offering of long-haul destinations to Australia and the United States. Cebu Pacific will be able to achieve higher cost efficiencies as it expands its long-haul network resulting in a lower break even load factor. The airline was previously relying almost entirely on the Middle East market to develop its long-haul product, but the market has proven to be highly seasonal with the majority of travelers being labour contractors, making it a challenge to stimulate adequate demand with lower fares on a year round basis.
When Cebu Pacific began its first long haul route to Dubai in October 2013, the carrier achieved a dismal load factor of 36 percent in spite of opening the route to ticket sales several months in advance. The weak local sales were partially attributed to the resistance of the carrier to enter global distribution systems in order to preserve the carrier’s low cost model. Although it took time, the airline was finally able to educate the Dubai market of its low cost model resulting in an increase in web bookings. In April and May of 2014, the carrier achieved a minimum load factor of 80 percent, but this is not expected to continue into the lean months of Ramadan.
As Cebu Pacific begins to look at launching new long haul markets, the carrier must ensure that it has the necessary marketing and distribution in place to avoid a repeat of Dubai’s dismal start. The poor performance of the carrier’s single long-haul route has had a detrimental effect on the carrier’s financial performance in the last quarter of 2013 and the first quarter of 2014. It is a harsh lesson learned for the budget carrier that has enjoyed a commanding position in the Philippine market with its highly successful low cost carrier model on domestic and regional international routes. But the prospects look bright as Cebu Pacific looks to become the first Philippine low cost carrier to enter the Australian, Kuwait, US, and Saudi Arabian markets. It is likely that Cebu Pacific will be able to stimulate demand with low fares in all of these markets especially tourism driven markets such as the United States and Australia, while continuing to enjoy its commanding position in the Philippine domestic market. What remains unclear is how Philippine Airlines will respond. It is likely to be the start of major fare wars between the two carriers reducing the cost of air travel to the benefit of both local and foreign travellers.
THE Philippines’ two major carriers, Cebu Pacific Air and Philippine Airlines, said they are still studying how many of the newly-available flight frequencies to Canada they will seek after a recently-concluded air agreement with Ottawa.
Cebu Pacific vice president for corporate affairs Juan Lorenzo T. Tañada said in a text message: “We need to consult with our commercial and long haul teams… In any case, we will certainly want to be competitive in terms of allocations with other carriers, incumbent, or otherwise.”
“We will still studying it… (the air talks) just concluded yesterday, so it’s too early to speak,” Cielo Villaluna, PAL spokesperson, said in a phone interview.
The Philippines won seven extra flights in the air talks with Canada, doubling the available weekly frequencies to 14. Only PAL currently flies to Canada with seven flights weekly. — Chrisee Jalyssa V. De La Paz