'Consolidation of PH budget airlines is inevitable'


Posted at Jan 04 2013 06:44 PM | Updated as of Jan 05 2013 02:44 AM

MANILA, Philippines - Consolidation in the Philippine low cost carrier (LCC) industry is "inevitable," according to an airline industry analyst.

Brendan Sobie, chief analyst of CAPA - Centre for Aviation, said it may be hard to say when consolidation of Philippine budget airlines will happen, but it is inevitable.

"It's hard to say when the consolidation will come. Most people think the consolidation in the Philippines is inevitable given the size of the market and the number of LCCs in the market. But it doesn't necessarily have to be airlines failing or going bankrupt, it could be airlines merging or buying each other out. That's always a possibility and we have seen that in other markets, including Indonesia," Sobie told ANC's News Now.

On Thursday, CAPA released a report "Southeast Asia poised for another year of growth in 2013", where it noted further LCC gains in the Philippines are "unlikely" since the country already has the world’s highest domestic LCC penetration rate.

The CAPA report noted there are five airlines operating in the domestic market, which is already seen as too many. These airlines are Cebu Pacific, Philippine Airlines, AirAsia Philippines, Seair and Zest Air.

Of the five airlines, Sobie said only publicly listed Cebu Pacific is profitable. The other budget airlines' losses were blamed on over-capacity and irrational competition.

"If you look at the airfares and irrational competition that we've seen in the Philippine market, especially in the domestic market over the last year or so, you look at the yields and you can conclude that the other airlines are not profitable. Cebu Pacific is publicly traded  and it has seen its profits decline quite significantly but it remains in the black," Sobie said.

Sobie said there will still be intense competition among Philippine-based LCCs in 2013.

In the event of consolidation, CAPA said Cebu Pacific and the PAL Group will benefit and "almost certainly weather the storm."