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By Darwin G. Amojelar Reporter
AMID tighter competition brought
on by rising jet fuel prices and a slowing economy, Cebu Pacific on
Wednesday announced a hefty cut in domestic passenger fares, as the
budget carrier said it would subsidize fuel and insurance
surcharges.
In a briefing, Candice Iyog, the
airline’s vice president for marketing and product, said the
company cut domestic fares by 32 percent through the absorption of
fuel and insurance charges normally passed on to passengers.
“Right now what we are avoiding
is the travel market to contract because of fuel,” Iyog said.
She said Cebu Pacific is studying
a similar pricing strategy for its international destinations.
The company’s move raises by
another notch an ongoing price war with leading rival Philippine
Airlines (PAL).
A fuel surcharge is a temporary
relief granted to airlines to help them recover losses they incur
from higher jet fuel prices. Fuel accounts for a third of an
airline’s operating cost per passenger, and is the second-highest
expense next to labor.
Iyog said the airline’s
business strategy is to entice more passenger traffic to offset the
rising expenses. “We want to grow the market amidst high oil
prices. It’s not about market share, but growing the entire market
... We cannot afford flying empty. Flying with an empty seat is not
good for the airline,” she said.
The company expects domestic and
international passenger volume to reach seven million this year from
5.4 million last year.
In the first quarter of the year,
the Gokongwei-owned airline carried 1.21 million passengers from
1.01 million in the same period last year.
Iyog said Cebu Pacific is not
engaging in cutthroat competition with its new pricing strategy.
“This is our business model ... It is not to undercut anyone.
We’re not pricing against other airlines,” she said.
Rival PAL was unavailable for
comment as this went to press.
Iyog said the company’s
strategy will not affect its profitability. “We factored in all
the other business elements ... We have to properly manage the
[seat] allocation,” she said.
For its introductory offering,
Cebu Pacific has allocated more than half a million seats that will
start on June 12 to June 17 and valid for travel on July 1 to
October 15, 2008.
The company’s lower
all-inclusive fares includes the fuel and insurance surchage,
aviation security fee and 12 percent value added tax.
Iyog said Cebu Pacific is
shifting to an “all-in” pricing format so passengers will
immediately know the total amount they need to pay and can easily
compare its fares with other modes of transportation including
ferries and buses.
The carrier has a fleet of 10
A319s, eight A320s and two ATR 72-500 aircraft. The airline flies to
16 international destinations with the addition of Kota Kinabalu
next month. It will also add Tugegarao and Naga, in its domestic
network this month and San Jose in July.
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