Growth in the Philippine aviation industry is hamstrung by a decrepit airport rated as the world’s worst. It also did not help that the chaos at the airport during the Christmas holiday rush was a major blow to one of the country’s top carriers and another black mark for the government.
All things considered, everyone should be happy that jet fuel prices are down and that the lifting of the fuel surcharge makes flying cheaper, passenger and cargo volumes have also substantially risen , and airlines can look forward to better profitability and improved share prices.
The problem is that congestion and poor facilities make the Philippines miss out on opportunities for growth.
Airlines and the flying public need also to come up with stop-gap measures to ease airport congestion, especially at the country’s oldest passenger terminal. A solution to the airport congestion problem is, at the very least, two years away, according to Carmelo Arcilla, executive director of the Civil Aeronautics Board.
He said “the infrastructure problem would not be resolved overnight.”
DMCI Holdings Inc. is doing the P1.3 billion rehabilitation of the Ninoy Aquino International Airport Terminal 1 (NAIA-1).
There is a plan to interconnect terminals 1 and 2, but that would entail the removal of a fuel depot that would take some time to do.
Sangley Point in Cavite is also being considered as an alternate international airport. The Japan International Cooperation Agency [JICA] is batting for the use of Sangley instead of reclaimed land from Manila or Laguna de Bay.
Earlier, Tony Tyler, director general and chief executive officer of International Airport Transport, said that the Philippines is missing out on great economic opportunities that could be facilitated by air transport. He added that the country also has a bad reputation for safety, inadequate airport capacity and high taxation.
Cebu Pacific’s woes
The core problem of the industry was highlighted during the peak travel period during the recent Christmas holidays.
Cebu Pacific failed to prepare for the exodus to the provinces that led to long queues, 20 cancelled flights, and 288 delayed flights that frayed passenger nerves from December 24 to 26 last year.
The airline was slapped a fine of P52 million, and its president Lance Gokongwei had
to apologize publicly for the inability of the crew to handle the chaos.
Cebu Pacific, Gokongwei said, is determined to win back the confidence of its passengers.
He said ground crew manning the check-in counters at Terminal 3 will be increased.
He added that he will check on the performance of the contractor handling the service and may appoint a second one to beef up personnel.
He earlier admitted crew tardiness and health issues reduced the number of crew attending to the passengers.
He added that the airline will also ask for additional facilities with Terminal 3 management during peak travel periods.
He said the company will devote one of its brand new Airbus A320 planes, arriving in the first quarter of this year, as an additional “hot spare” to supplement the airlines’ existing two spares.
Hot spares are planes that serve as standby aircraft, ready to fly anytime and anywhere, to assist disrupted passengers in case of technical or other delays.
“These are only initial steps. We will continue to look for better ways to serve better,” Gokongwei said.
Meanwhile, Moody’s Investors Service said the global industry will be more profitable this year due to the sharp drop in fuel costs.
Moody’s forecasts adjusted operating profit margins for the industry of 12 percent to 14 percent in 2015 and 11.5 percent to 13.5 percent in 2016, significantly above its estimate of 8.5 percent to 9.5 percent for 2014.
Longer-haul flights will see fares decline, particularly in Asia, where fuel charges are more prevalent and regulated by some governments.
Capacity growth will continue to be balanced to passenger demand in the US, Australia and Europe as airlines seek to earn acceptable financial returns.
In Asia, capacity growth will outstrip demand growth; however, operators are not likely to add extra capacity in 2015, even with the lower fuel prices.
In the Philippines, local carriers—Philippine Airlines (PAL), Cebu Pacific and AirAsia—said they have complied with the directive of the Civil Aeronautics Board (CAB) that called on air carriers operating in the country to stop collecting fuel surcharges from passengers, given the sharp drop in global oil prices.
Fuel surcharges are a worldwide industry practice approved by government authorities. They are a temporary relief granted to airlines to help them recover losses incurred from higher jet fuel prices.
Fuel accounts for 40 percent to 50 percent of an airline’s operating cost per passenger, and is the second-highest expense next to labor.
Recent data released by the International Air Transport Association (IATA) said that growth in airline share prices had weakened in the third quarter of 2014 due to a combination of economic slowdown in key regions like the euro zone and concerns over the spread of the Ebola virus.
The sharp increase in airline share prices during the last quarter of 2014 reflects continued decline in crude oil and jet fuel prices. Global airline shares rose 40 percent in 2014, driven mostly by US airlines, whose share prices almost doubled.
The IATA report said that crude oil prices have come down to $50 per barrel in January 2015, the lowest price seen for the past six years. After prices fell by half during 2014, they have declined a further 17 percent in January compared to the end of last year. Jet fuel prices have followed suit, now sitting at just over $65 per barrel.
Prices have been falling on the back of continuing growth in global supply, which has been outpacing growth in demand. OPEC has decided not to decrease production, contributing to the supply glut, placing pressure on other key producers like the US to reduce output.|
By contrast, the weak trend in global fares in US dollar is largely continuing. The trend in global fares reflects weakness in Asia as well as exchange rate distortions.
The fare data excludes fuel surcharges and ancillary revenues, which provide some offset to the decline in core fare yields.
Passenger volumes up
Air freight volumes increased at a solid pace in November compared to October.
Improvements in air freight demand are showing no slowdown, despite come concerns about the health of the global economy. Air freight demand has been driven by Asia Pacific and carriers, with the region seeing solid growth in trade activity for the past several months.
Air passenger volumes also expanded in November compared to October. The recent easing in business confidence over recent months has adversely impacted international air travel, but domestic markets are seeing strong growth.
Passenger traffic increased during fourth quarter of 2014 compared to the year-ago period. The rate of growth in the January survey remained stable compared to the October period. The lack of further improvement in the traffic growth rate is likely reflecting concerns about global economic performance.
Latest data also show that air transport continues to expand at a rate of 5 to 6 percent.
Meanwhile, movements of crude oil prices in the world market are also felt in the Philippines. The country’s two major local carriers —Cebu Pacific and PAL—said that the continuous drop of crude oil in the world market would help them grow in terms of passenger volume.
“Of course the lower the fuel cost is, the lower our operating cost, but as the government required us, we remove the fuel surcharge also, so I think it would be good for the riding public,” PAL President Jaime Bautista said.
According to Bautista, passengers want to travel more when fares are low. “They really want to fly. It would be good also for the market,” Bautista said.
Meanwhile, Candice Iyog, vice president for marketing and distribution at Cebu Pacific, said, “The recent decline of jet fuel prices, and the removal of fuel surcharges ultimately benefit our passengers.”
Data from the Civil Aeronautics Board (CAB) showed that Cebu Pacific dominated the domestic air travel market.
Last year, data from CAB showed that Philippine air passenger traffic in the January
to June period hit 12.42 million.
For full-year 2013, data showed that domestic passenger traffic reached 20.33 million.
Meanwhile, the country’s international passenger traffic in the first six months of 2014 reached 9.11 million. In 2013, international passenger traffic hit 17.32 million.