Cebu Pacific’s potential acquisition of Tigerair Philippines would cement its leading position in the Philippine domestic market, and result in another round of consolidation in a market, which has at times suffered from irrational competition, according to the Center for Aviation, Center for Asia-Pacific Aviation (CAPA).
In a report, the aviation think tank said that, “The domestic trunk routes would be left with competition from only three airline groups—Cebu Pacific, Philippine Airlines (PAL) and AirAsia—compared to five one year ago.”
“Philippine authorities will need to determine if three players are sufficient to maintain competition. With no available slots at Manila, it will be nearly impossible for a new carrier to enter the market,” CAPA said.
A Cebu Pacific takeover of Tigerair Philippines could be seen as a defensive move to prevent another airline group from making a move. But with Tigerair Philippines unlikely to have many suitors, the acquisition should be viewed more as a smart strategic move to increase Cebu Pacific’s slot portfolio at Manila.
Divesting of its loss-making Philippine affiliate would also be a smart strategic move for Tigerair, as it would allow the low-cost carrier or LCC group to focus on launching an affiliate in Taiwan and growing in Australia and Indonesia, which are bigger markets of more strategic importance.
The CAPA report also said that, “Acquiring the Tiger- air Philippines slots is significant as it would grow Cebu Pacific’s share of scheduled commercial aircraft slots at Manila to about 38 percent, putting it ahead of PAL Group’s 35-percent share [including PAL mainline and regional carrier PAL Express].”
Cebu Pacific could use the additional slots to expand its already leading share of the domestic market or support further international expansion, where it is still smaller than PAL.
Cebu Pacific has been pursuing rapid international expansion using its A320 fleet and newly acquired A330s, which it has used to launch services to Dubai and add capacity on its largest regional routes.
Cebu Pacific’s international capacity was up 19 percent through the first 11 months of 2013 while its domestic capacity was up 8 percent. But PAL also has been pursuing rapid international expansion, with the resumption of flights in recent months to destinations in the Middle East and London.
PAL and Cebu Pacific are also both pursuing rapid expansion to Japan using newly available traffic rights which Tigerair and AirAsia have also applied to use.
Proposal under evaluation
Cebu Pacific’s purchase of Tigerair Philippines seems to be in the works.
The Philippine Civil Aeronautics Board (CAB) told the Philippine media on January 2, 2013, that it is evaluating a proposal for Cebu Pacific to buy out Tigerair Philippines, formerly known as SEAir.
The CAB expects to complete the review within the next couple of weeks.
Philippine authorities, however, should think carefully and leave the door open for potential new entrants. As more slots at Manila become available, future rules can be put in place to give priority to new entrants.
In a January 3, 2014, a statement from Tiger Airways Holdings Ltd. confirmed that it is “negotiating a proposed transaction involving Tigerair Philippines.” But it declined to provide any details and said no definitive agreement has been signed.
A definitive agreement could hinge on the carriers getting the green light from Philip- pine authorities.
Tigerair Philippines is a small carrier, operating only five A320 family aircraft and transporting less than 5-percent Philippine domestic passengers and less than 2 percent of international passengers in the first nine months of 2013. But a sale to Cebu Pacific could be closely scrutinized as Cebu Pacific is already the domestic market leader with a 51-percent share of the market in the first nine months of 2013 and in third quarter of 2013, based on CAB data.
Earlier reports said that Singapore-based, Tiger Airways Holdings has confirmed that it is currently in negotiations regarding a proposed transaction involving its Philippine unit.
“The company would like to confirm that it is in the midst of negotiating a proposed transaction involving Tigerair Philippines. However, no definitive agreement has been signed at this time,” Tiger Airways Holding stated in a disclosure to the Singapore Stocks Exchange.
It added that, “The company will make appropriate announcements in the event there are any material developments in relation to this proposed transaction.”
Earlier reports said that Cebu Air Inc., the operator of Cebu Pacific, is in talks to buy Tigerair, the Philippine unit of Singapore-based Tiger Airways.
“We always look into opportunities for strategic alliances or acquisitions that will add to the continuing growth and profitability to Cebu Pacific,” B.J. Sebastian, JG Summit Holdings senior vice president and chief strategist, told The Manila Times in a text message.
He added that, “But, we have nothing definite at this time with any party, and we will make the proper disclosure when there is something definite already.”
Meanwhile, Joey Laurente, Tigerair vice president for commercials, said in a text message to The Times that they have no information on the Cebu Pacific-Tigerair possible buyout at the moment.