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12/6/2016

Philippine Airlines may cut Middle East capacity and network, and end Etihad partnership | CAPA ­ Centre for Aviation

and end Etihad partnership | CAPA ­ Centre for Aviation Philippine Airlines may cut Middle East

Philippine Airlines may cut Middle East capacity and network, and end Etihad partnership

29­Nov­2016

PREMIUM

©CAPA

and end Etihad partnership 29­Nov­2016 PREMIUM ©CAPA PhilippineAirlines (PAL)isconsideringreducing capacity

PhilippineAirlines(PAL)isconsideringreducingcapacitytotheMiddleEastin2017

whileexpandinginseveralotherinternationalmarkets,includingAustralia,China

andtheUS.Yieldsinallsevenofthegroup’sMiddleEastmarkets–allofwhich

havebeenlaunchedoverthelastthreeyears–havebeenimpactedbyintensifying

competitionandweakeroutbounddemand.

PALcouldsuspendservicestoAbuDhabiandterminateitspartnershipwithEtihad.

TheairlinegrouphasnotbenefittedsignificantlyfromitsEtihadcodeshare,andmay

bebetteroffpartneringwithanotherairline.

However,PALiskeentocontinuegrowingitsinternationaloperation.PALisabouttoaddcapacitytotheUSusingtwo

additional777­300ERs,andplanstoaddcapacitytoAustraliainlate2017followingdeliveryofitsfirstbatchof

A321neoLRs.NewdestinationsinEuropeandtheUSareunderconsiderationfor2018,usingitsnewA350­900fleet.

PAL has added 15 medium and long haul destinations in three and a half years

PALcurrentlyserves23destinationsoutsideEastAsia–upbyaremarkable15destinationscomparedtothreeandhalf

yearsago.Backinthefirstpartof2013,PALonlyservedeightdestinationsoutsideEastAsia:Guam,Honolulu,Los

Angeles,Melbourne,SanFrancisco,Sydney,TorontoandVancouver.

TorontowaslaunchedattheendofNov­2012andwasthefirstdestinationaddedinPAL’scurrentexpansionphase.

However,LasVegaswassuspendedasTorontowaslaunched.

WhenTorontoandPerth(whichwassubsequentlysuspended)areincludedPALhashad17newmedium/longhaul

destinationslaunchedinjustfouryears.DuringthisperiodPALhasalsolaunchedthreeregionalinternationaldestinations

withinEastAsia,foratotalof20launches.

PhilippineAirlinesnewinternationaldestinationsaddedoverthepastfouryears

 

Destination

Launchdate

Currentfrequency

1.

Toronto

Nov­2012

3xweeklyviaVancouver

2.

Jun­2013

4xweeklynonstop

3.

Jun­2013

4xweeklyviaDarwin

4.

Perth*

Jun­2013

Suspended

5.

Jul­2013

5xweeklynonstop

6.

AbuDhabi

Sep­2013

4xweeklynonstop

7.

Nov­2013

Dailynonstop

8.

Nov­2013

Dailynonstop

9.

Nov­2013

5xweeklynonstop

10.

Dec­2013

5xweeklynonstop

11.

Mar­2014

12xweeklynonstop

12.

Mar­2015

4xweeklyviaVancouver

13.

Quanzhou

Apr­2015

4xweeklynonstop

14.

Dec­2015

4xweeklynonstop

12/6/2016

Philippine Airlines may cut Middle East capacity and network, and end Etihad partnership | CAPA ­ Centre for Aviation

15. Auckland

Dec­2015

4xweeklyviaCairns

Dec­2015

3xweeklynonstop

17. Jeddah

Jan­2016

3xweeklyviaDubai

18. Kuwait

Jan­2016

4xweeklyviaDubai

19. Doha

Mar­2016

4xweeklyviaAbuDhabi

20. Saipan

Jun­2016

2xweeklynonstop

Notes:somedestinationshavebeen,orarenow,operatedbyPALExpress.

*PerthwassuspendedinSep­2013.

Currentfrequencybasedonweekcommencing28­Nov­2016.

Source:CAPA–CentreforAviation.

PAL regains market share

PALcarriedarecord5.5millionscheduledinternationalpassengerstoandfromthePhilippinesin2015,basedonPhilippine

CABdata.Thisrepresenteda39%increasecomparedto2012,andhasresultedinPALregainingmarketsharethathad

beenlostduringapreviouseraofcontraction.PALcaptureda27.7%shareofthetotalPhilippineinternationalmarketin

2015,comparedtoonly23.6%in2012.

In1H2016PALinternationalpassengertrafficwasupanother4%,to2.988million.Itsmarketshare,however,hasslipped

slightlyto26.5%asthetotalmarkethasgrownfaster.

PhilippineAirlinesinternationalpassengertrafficandshareoftotalinternationalpassengers:2006to

1H2016

Year

Passengertraffic(millions)

Passengershare

 

2006 3.055

30.0%

 

2007 3.401

30.0%

 

2008 3.632

29.9%

 

2009 3.396

26.7%

 

2010 3.923

27.5%

 

2011 3.906

24.9%

 

2012 3.952

23.6%

 

2013 4.152

24.0%

 

2014 4.982

27.8%

 

2015 5.507

27.7%

1H2016

2.988

26.5%

Source:CAPA­CentreforAviation&PhilippineCAB.

TheabovefiguresexcludepassengerscarriedbyPALonfifthfreedomsectors.PALcurrentlyhassixfifthfreedomroutes

(allofwhichoriginateinManila)–AbuDhabi­Doha,Cairns­Auckland,Dubai­Jeddah,Dubai­Kuwait,Taipei­Osakaand

Vancouver­NewYork.ItalsooperatesdomesticsectorsinAustraliaandCanada:fromDarwintoBrisbaneandfrom

VancouvertoToronto.

TheabovefiguresalsoexcludesisterairlinePALExpress,whichtransported61,000internationalpassengersin1H2016

comparedto39,000in12015.ThePhilippineAirlinesGroupthereforeaccountedfor27%ofthePhilippineinternational

marketin1H2016,comparedto28%in1H2015.

PAL’s growth in regional international market has been modest

AlmostallthegrowthinrecentyearshasbeenachievedinmediumandlonghaulmarketsasPAL’sregionalinternational capacityhasbeenrelativelyflat.PALhasaddedonlythreeinternationaldestinationsinEastAsiaoverthepastfouryears–

Guangzhou,QuanzhouandTokyoHaneda–whileexpandingitsnetworkoutsidetheregionby15destinations.

PALoperatesapproximately26,000weeklyinternationalseatstoandfromSoutheastAsia,matchingthecapacityithadat

theendofNov­2013,accordingtoCAPAandOAGdata.ItscapacitytoandfromNortheastAsiahasexpandedoverthe

pastthreeyears–butbyarelativelymodest15%to20%–toapproximately90,000weeklyseats.Thesefiguresare

basedonschedulesfortheendofNovember;PALincreasescapacityonaseasonalbasisinvirtuallyallitsmarketsfrom

earlyormid­DecemberthroughJanuary.

12/6/2016

Philippine Airlines may cut Middle East capacity and network, and end Etihad partnership | CAPA ­ Centre for Aviation

PAL’sseatcapacitytotheSouthwestPacifichasdoubledoverthepastthreeyearswhileitscapacitytoNorthAmericaisup

approximately40%.GrowthinEuropeandtheMiddleEasthasbeenevenfaster,asPALonlyresumedservicestoboth

EuropeandtheMiddleEastinlate2013.

TheMiddleEastnowaccountsforapproximately13%ofPAL’sinternationalseats(includesthefifthfreedomsectors),

whileEuropeaccountsfor2%ofitsseats.OnanASKbasistheMiddleEastaccountsforan18%shareandEuropea5%

share,meaning–23%oftheASKsPALiscurrentlyflyingitdidnothaveatalljustoverthreeyearsago.NorthAmerica,

whichhasalwaysbeenabigmarketforPAL,currentlyaccountsfor33%ofPAL’sinternationalASKsand13%ofitsseats.

PhilippineAirlinesinternationalASKshare(%)byregion:28­Nov­2016to4­Dec­2016

Note:figuresareapproximate.

Note:figuresareapproximate.

Source:CAPA–CentreforAviation&OAG.

Middle East expansion has accounted for half the overall growth

WhilePALhasexpandedinseveralmarkets,theMiddleEasthasexperiencedbyfarthebiggestexpansionfortheairline.

Ofthe15destinationsPALhaslaunchedsinceSep­2013,sevenhavebeenintheMiddleEast.

InDec­2016PALisoperatingdailyservicestoDubaiandRiyadhandfiveweeklyflightstobothAbuDhabiandDammam.

ThreeoftheweeklyDubaiflightscontinuetoJeddah,andfourcontinuetoKuwait,whileallfiveAbuDhabiflightscontinue

toDoha.

PAL’sMiddleEastexpansionhasproventobeoverambitious,giventhatithas

takenplaceatatimewhenCebuPacificandGulfairlineshavealsoadded

significantcapacitybetweentheMiddleEastandthePhilippines.

PAL’s Middle East expansion has proven to be overambitious

Competition with Cebu Pacific and Gulf airlines has intensified

CebuPacificlaunchedservicestotheMiddleEastin2013andnowcompetesagainstPALonfourMiddleEastroutes–

Dubai,Doha,RiyadhandKuwait.CebuPacificservesallfourroutesnonstop,givingitacompetitiveadvantageonDoha

andKuwait.Dubaiisserveddaily,Kuwaitwithfourweeklyflights,andDohaandRiyadhwiththreeweeklyflightseach.

ConcurrentlyEmirates,Etihad,KuwaitAirwaysandQatarAirwayshavealladdedcapacitytothePhilippinesoverthepast

yearto15months.

12/6/2016

Philippine Airlines may cut Middle East capacity and network, and end Etihad partnership | CAPA ­ Centre for Aviation

AsCAPAhaspreviouslynoted,EmiratescapacitytothePhilippinesincreasedby79%inMar­2016asitaddedfourweekly

frequenciestoManila(foratotalof18)andlaunchedservicestoCebuandClarkonadailycircularrouting.Etihadadded

threeweeklyflightstoManilainMay­2016,foratotalof17weeklyfrequencies.TheEmiratesandEtihadexpansionwere

bothmadepossiblebyadditionaltrafficwhichbecameavailableaspartofanextendedairservicesagreementbetween

thePhilippinesandtheUAE.

QatarexpandedinthePhilippinesinOct­2015asitaddedaseconddailyflighttoManila,takingadvantageofanextended

airservicesagreementbetweentheQatarandthePhilippines.Qatarisalsonowconsideringthelaunchofservicesto

Cebu;italreadyservesClark.

Mostrecently,KuwaitAirwaysaddedcapacitytoManilainlateAug­2016asitupgradeditsdailyservicefromone­stopvia

Bangkoktononstop.

Local Philippines­Middle East demand has waned

TheadditionalcapacityinthePhilippines­MiddleEastmarkethascomeatatimewhenlocaldemandhasweakeneddueto

reductioninthenumberofFilipinosheadingtotheMiddleEastforwork.

CebuPacificandPALhaveparticularlybeenimpacted.Emirates,EtihadandQatarrelymainlyontransittrafficbeyondtheir

hubs–especiallyinthePhilippines­Europemarket–butdocompetesomewhatforlocaltraffic,particularlygiventheirnew

highercapacitylevels.GulfAir,OmanAirandSaudiaalsoserveManila;alongwithKuwaitAirwaystheyrelymoreonthe

Philippines­MiddleEastmarketthandoEmirates,EtihadorQatar.

Overcapacity has particularly become a concern in the Philippines­UAE market

OvercapacityhasparticularlybecomeaconcerninthePhilippines­UAE market.TotalcapacitybetweenthePhilippinesandtheUAEincreasedby

30%earlierthisyearduetotheEmiratesandEtihadexpansionwhile

outbounddemandsoftened,withfewerFilipinosdepartingthePhilippinesfor

workassignmentsintheUAE.

PAL experiences yield pressure on Middle East routes

PALJaimieBautistatoldCAPATVina15­Nov­2016interviewthatthePhilippines­MiddleEastis“quitetough”atthe

moment,particularlyAbuDhabiandDubai.“Duetoovercapacityinthemarketthereisreallyareductionintheyield”,he

said.“Wearelookingatthepossibilityofreducingsomeofourflights,especiallytoAbuDhabi.”

PALwashopingtoboostitsperformanceintheintenselycompetitiveUAEmarketbyintroducingtagflights.Thethreetag

routeswereintroducedinearly2016toenablePALtorelylessonthelocalPhilippines­UAEmarket,sincesomeofits

Philippines­UAEpassengersarenowabletoflybeyondtheUAEtoDoha,KuwaitandJeddah.PALdidnotincreasecapacity

toAbuDhabiorDubaiasitaddedtheAbuDhabi­Doha,Dubai­KuwaitandDubai­Jeddahsectors.

However,thefifthfreedomsectorshavestruggledandbeenunprofitable.PAL

hasnotsucceededatpickingupsignificantlocaltrafficbetweentheUAEand

Kuwait,QatarorSaudiArabia.PAL’sone­stopproductintheDoha,Jeddah

andKuwaitmarketsisalsonotcompetitive,giventhatCebuPacificnow

servesDohaandKuwaitnonstop.QataralsoservesManila­Dohanonstop,

SaudiaservesManila­JeddahnonstopandKuwaitAirwayshaslaunched

Manila­Kuwaitnonstopflights.

fifth freedom sectors have struggled and been unprofitable

MrBautistaacknowledgesthetagroutesarebeingre­evaluated,andthatPALmaydropDubai­KuwaitandAbuDhabi­

Doha.OneoptionunderconsiderationistolaunchnonstopflightstoKuwaitandDoha,whichwouldimprovePAL’s

competitivepositionagainstCebuPacificbutcouldresultinovercapacity.PALfaceslesscompetitivepressuretoserve

JeddahnonstopasthisisnotamarketservedbyitslocalrivalCebuPacific.

PAL has the wrong product for the Middle East market

WhilePALisafullserviceairline,offeringallitspassengersmealsandcheckedbags,ithasasimilarseattoCebuPacific's

intheMiddleEastmarket.PAL’sMiddleEastroutesareoperatedwithA330­300sinhighdensity414­seatconfiguration

12/6/2016

Philippine Airlines may cut Middle East capacity and network, and end Etihad partnership | CAPA ­ Centre for Aviation

(375regulareconomyand39extralegroomeconomyseats),whileCebuPacificuses436­seatall­economyA330­300s.

HoweverCebuPacifichasmuchlowerunitcostsonitsA330s,givingitahugeadvantageinattractingprice­sensitive

Filipinoexpatriatetraffic.CebuPacific’sMiddleEastoperationhasalsobeenunprofitablein2016,butitisinamuchbetter

positiontostomachtherecentreductioninyields.

PALishopingtoimproveitspositionintheMiddleEastoverthemediumtermbytransitioningallitsMiddleEastroutesto

368­seatA330­300s,includingapremiumcabinwith18lie­flatbusinessclassseats.ThiswillgivePALabusinessclass

producttoallitsMiddleEastdestinations,enablingittocompetebetterwithotherfullserviceairlines.Itwillalsoenable

PALtoavoidhavingtocompeteasdirectlywithCebuPacific–abattleitcannotwin.

PALalreadyoperatesseven368­seatA330­300sonsomeitsAustraliaandNorthAsiaroutes.AsCAPAhaspreviously

outlined,PALisplanningtoretrofittheeighthigh­density414­seatA330sthatitnowusestotheMiddleEastintoanew

309­seatthree­classconfiguration(includingpremiumeconomy)andusetheretrofittedaircraftonroutesnowoperated

withthe368­seatA330s.Thisinturnwillfreeupthe368­seatA330­300sfortheMiddleEast.

Theswitchtothelessdenseconfigurationwillresultina13%increaseincapacityonMiddleEastroutes,andabetter

product.However,mostofthetransitionwillnotbeachieveduntil2018astheretrofitswillonlybeginin2017.

PAL may cut Abu Dhabi as Etihad partnership is reviewed

PALneedstoreduceitscapacitytotheMiddleEastsooner,andmoresharply.

PAL has struggled in the Abu Dhabi market

CuttingAbuDhabientirelywouldbesensiblegiventheweakperformanceof theroute–withandwithoutthetags–andtheweakperformanceofits Etihadpartnership.PALhasstruggledintheAbuDhabimarketsinceitwas

launchedin2013,andthetagtoDohahasnotimprovedthesituation.

EtihadandPALforgeda“strategicpartnership”inJul­2014,coveringbothairlines'flightsbetweenManilaandDubai,as

wellasPAL­operateddomesticflightsbeyondManila.

PALwashopingtheEtihadpartnershipwouldimprovetheperformanceofitsAbuDhabiflightandsupportmorecapacityto

AbuDhabi.Instead,theairlinehashadtocutcapacitytoAbuDhabi,revertingbacktofiveweeklyflightsinApr­2015after

tryingadailyserviceinlate2014andearly2015.PALfurthercutbackitsAbuDhabioperationtoaseasonalfourweekly

flightsfromSep­2016throughNov­2016.

ManilatoAbuDhabicapacitybyairline(one­wayseatsperweek):Sep­2011toMay­2017

12/6/2016

Philippine Airlines may cut Middle East capacity and network, and end Etihad partnership | CAPA ­ Centre for Aviation

and end Etihad partnership | CAPA ­ Centre for Aviation Source:CAPA–CentreforAviation&OAG.

Source:CAPA–CentreforAviation&OAG.

TheEtihadcodesharehasfailedtogeneratesignificantvolumesforPALonthePAL­operatedAbuDhabi­Manilaflight.The

arrangementapparentlyhasbeenmorebeneficialforEtihad,whichhasbeenusingPALfordomesticconnections

throughoutthePhilippines–helpingtoboostitsownincreasedAbuDhabi­Manilaoperation.PALdoesnothaveasimilar

benefitbeyondAbuDhabiasthereisnocodeshareonEtihad­operatedflightsbeyondAbuDhabi.

PAL could seek an alternative partner in the Middle East

PALisnowlookingatwhethertorenewtheEtihadpartnershiporscrapthecodeshare–alongwithpotentiallysuspending

itsAbuDhabiflights.PALmaybebestoffmovingonandexaminingitsoptions.

TheEtihadcodesharehasbeenexclusive,preventingPALfrommaintaining

relationshipswithEmiratesandQatar.PALcouldpotentiallyresume–and

expand–itsEmiratesand/orQatarcodeshares.PALcouldalsoconsider

expandingitslimitedcodesharewithGulfAir,whichonlycoverstheManila­

Bahrainroute(onlyoperatedbyGulfAir),orpursueotherpartnershipsinthe

region.

PAL could potentially resume – and expand – its Emirates and/or Qatar codeshares

However,securinganewpartnerintheUSmarketisahighershort­term

priorityforPAL.ThePALGrouphasapressingneedforaUSpartnertosupportadditionalcapacityintheUS.PALisalso

nowplanningtoexpandinAustraliaandChinaandhasmedium­termaspirationstoaddatleastonedestinationin

continentalEurope.

In the next instalment in this series of reports on the Philippine market, CAPA will look at PAL’s plans for expanding in other international markets.

12/6/2016

Philippine Airlines may cut Middle East capacity and network, and end Etihad partnership | CAPA ­ Centre for Aviation

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