While 2014 was not a particularly good year for the aviation industry in Southeast Asia, the Philippines was an important exception to the wider trend. In a report released by CAPA, a global aviation think-tank, which looked at 18 airlines, it was found that out of the six airlines that were able to generate a profit in 2014, four of them were based in the Philippines: Philippine Airlines (PAL), Cebu Pacific, Tigerair Philippines, and Philippines AirAsia.
Other airlines on CAPA’s list were not so lucky, seeing their profits decline or their operating profits reduced due to challenging market conditions and overcapacity.
RELATED: The Cost of Business in the Philippines Compared With China
According to CAPA, “The Philippine market benefited from consolidation and capacity reductions while overcapacity plagued all the other major markets in Southeast Asia.” Other key reasons for the success of the Philippine airlines included:
- Improved market conditions in the country
- Aircraft delivery deferrals
- Lower fuel prices
Mergers and acquisition (M&A) activity in the Philippines has resulted in the country’s airlines becoming much competitive in the region. In years past, the Philippines had numerous independent airlines, however, this number has now been reduced down to just four domestic carriers. One of the most recent of these mergers was the acquirement of the local unit of Tiger Airways by Cebu Pacific in 2014.
RELATED: Entry Strategy Advisory from Dezan Shira&Associates
The M&A activity has had the dual benefit of reducing capacity and improving the bottom line of the remaining airlines. According to CAPA’s data, in 2014, Philippine Airlines saw the largest improvement both in the Philippines and in Southeast Asia, finally becoming profitable after suffering four years of losses. Philippines Airlines is also expanding the number of routes that it travels, in December the airline will start offering flights to Auckland, New Zealand, with a short stopover in Cairns, Australia.
In recent years, New Zealand has seen an influx of tourists from the Philippines, seeing a 9.4 percent increase in the annual number of arrivals in each of the past five years. Additionally, it is estimated that around 40,000 Filipinos currently live in the southwestern Pacific Ocean country. It is expected that the new flight route from the Philippines will bring 65,000 tourists a year to New Zealand.
This article was first published on ASEAN Briefing.
Since its establishment in 1992, Dezan Shira & Associates has been guiding foreign clients through Asia’s complex regulatory environment and assisting them with all aspects of legal, accounting, tax, internal control, HR, payroll and audit matters. As a full-service consultancy with operational offices across China, Hong Kong, India and emerging ASEAN, we are your reliable partner for business expansion in this region and beyond.
For inquiries, please email us at firstname.lastname@example.org. Further information about our firm can be found at: www.dezshira.com.