Airline Industry

2. SCOPE OF PRESENTATION
 Timeline of Airline Industry in the Philippines
 Philippine Aviation Figures
Market Shares
Key Airlines in the Philippines as of 2012
 Porter’s Five Forces
 PESTLE Analysis

4. TIMELINE OF AIRLINE INDUSTRY IN THE PHILIPPINES
• 1931: Creation of Office under the Department of Commerce and
Communications to handle aviation matters.
• 1941: Philippine Airlines was founded.
• 1952: Reorganization of the Civil Aeronautics Board and the Civil
Aeronautics Administration (Republic Act No 776)
• 1973: Philippine Airlines (PAL) was granted had a virtual monopoly
of the country’s civil aviation industry
• 1974: PAL becomes a monopoly in domestic travel.

5. TIMELINE OF AIRLINE INDUSTRY IN THE PHILIPPINES
• 1978: PAL was given a new franchise but with a provision
 Government regulated fares to prevent PAL from engaging in monopoly
pricing
 ROI of PAL was capped to 12%
 PAL recovered losses through government subsidies and charging higher
fares in high density markets
• 1995: Liberalization of the Airline Industry
 Domestic and international civil aviation liberalization policy was
established
 Restrictions and on routes and flight frequencies as well as
government control on fares were removed
 Encouraged at least two operators in any route
 Markets with at least two operators are deregulated with regard to
fare
• 1999: PAL’s market share decreased significantly
Competition intensified

7. AIRPORTS IN THE PHILIPPINES
As of 03 July 2014
11 International Airports
26 Domestic Airports

8. AIRLINES IN THE PHILIPPINES
COMMERCIAL AIRLINES
Airline Callsign
Commenced
Operations
AirAsia Zest ZEST AIRWAYS 1995
Cebu Pacific CEBU AIR 1996
ITI Air - —
PAL Express PHILIPPINE 1996
Philipines AirAsia X PHILXTRA 2014
Philippine Airlines PHILIPPINE 1941
Philippines AirAsia COOL RED 2010
Sky Pasada — 2010
SkyJet - 2012
Tigerair Philippines SEAIR 1995

9. AIRLINES IN THE PHILIPPINES
CHARTERED AIRLINES
Airline Callsign
Commenced
Operations
Aero Majestic Airways
Air Link International Airways
Air Republiq Airlines 2011
Aviatour Air
Cyclone Airways 1960
Paradise Air
INAEC / Iloilo-Negros Air
1933
Express
Interisland Airlines TRI-BIRD
Island Aviation SORIANO

10. AIRLINES IN THE PHILIPPINES
CHARTERED AIRLINES
Airline Callsign
Commenced
Operations
Lionair
Mosphil Aero MOSPHIL 2006
Northsky Air
Pacificair
Pacific Pearl Airways PACIFIC PEARL 2006
SkyJet 2012
South Phoenix Airlines 2010
Subic Seaplane
Air Pacific

11. AIRLINES IN THE PHILIPPINES
CARGO AIRLINES
Airline Callsign
Commenced
Operations
Pacific Ocean Air (Air) ABAIR
Asia Overnight Express ASIA OVERNIGHT
Pacific East Asia Cargo
Airlines
PAC-EAST CARGO
TransGlobal Airways TRANSGLOBAL 2005

12. PROFILE OF THE FILIPINO MARKET
Population
95.8M
Area
298,170 sq
km
GDP per
Capita
USD 2,614
Tourists
Arrivals
4.3M
Domestic
Air
Passengers
Int’l Air 20.6M
Passengers
16.7M
LCC
Penetration
Rate
(Domestic)
78.40%
LCC
Penetration
Rate (Int’l)
28.30%

13. PHILIPPINE AVIATION IN FIGURES
 Private Airports accounted for 58.1% of the total registered airports in the
country in 2010.
 Out of the 85 national airports operating in the country in 2010, 38 or 44.7%
are in Luzon, 22 or 25.9% are in the Visayas, and the remaining 25 or 29.4%
are in Mindanao.
 Total passenger movement in the country’s airports increased from 19.9
Million in 2001 to 52.1 Million in 2011, increasing at an average rate of 10.1%
per annum.
 More than half (53.9%) of total passengers in the NCR airports in 2010 were
domestic passengers.
 Aircraft movement increased from 343,039 in 2001 at an average rate of 3.9%
per annum. The NCR accounted for the biggest share of 41.4% of the total
movement.

14. PHILIPPINE AVIATION IN FIGURES
70
Registered Airports, 2001-2010
87
78
111
118 118 118 118 118 118
140
120
100
80
60
40
20
0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
National Private

15. PHILIPPINE AVIATION IN FIGURES
60
50
40
30
20
10
0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
in millions
Number of Passenger Movement 2001-2011

16. PHILIPPINE AVIATION IN FIGURES
0.70
0.65
0.60
0.55
0.50
0.45
0.40
0.35
0.30
0.25
0.20
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
in millions
Number of Aircraft Movement, 2001-2011

17. PHILIPPINE AVIATION IN FIGURES
Korea USA Japan China Taiwan Australia
Singapore Canada Hong Kong Malaysia Others
24%
15%
10%
6%
5%
4%
3%
3%
3%
3%
24%
Inbound of
Tourists by
Country of
Origin, 2012

18. PHILIPPINE AVIATION IN FIGURES
2009 Annual Survey of Philippine Business and Industry (ASPBI) – Transport,
Storage and Communications for all Establishments ; Final Results
PARTICULARS
TOTAL
(in millions)
SCHEDULED AIR
TRANSPORT
(in millions)
Employment 0.18 0.0023
Value Added (PHP) 24,700 256,700
Compensation (PHP) 62,100 9,200
Revenue (PHP) 578,300 97,100
Cost for Operating (PHP) 382,900 84,800
Labor Productivity (PHP) 2.20*
*surpassed the national average of P1.4M

20. DOMESTIC MARKET SHARE (% of Seats)
49.90%
14.20%
18.60%
12.80%
4.60%
Cebu Pacific Philippine Airlines PAL Express
Air Asia/Zest Tiger SEAir

21. INTERNATIONAL MARKET SHARE (% of Seats)
16.40%
23.20%
7.30%
3.50% 3.90%
2.70%
36.20%
3.30% 3.40%
Cebu Pacific
Philippine Airlines
Cathay Pacific
Korean Air
Singapore Airlines
Asiana Airlines
Emirates
Zest Air
Other

23. PHILIPPINE AIRLINES (PAL)

Destinations: 29 domestic, 31 international
Fleet : 40
Owners: LucioTan and San Miguel groups
• Aims to re-enter the European market and
expand in North Market
• PAL accounts for 18% of total local
capacity.
• PAL's fleet modernization program has
lifted the country's imports portfolio in
July, and has led the two global giant
aircraft manufacturers -- Airbus and
Boeing -- scrambling for PAL's orders. In
August, PAL placed a US$7 billion order,
the biggest airline deal in Philippine
aviation history.

24. CEBU PACIFIC
Destinations : 32 domestic, 19 international
Fleet : 41
Owners: Gokongwei group
• Opened 10 new domestic routes
• A new entrant in the long-haul market
• Pioneered the low-cost model in Asia but
only started implementing it in 2004

25. AIRPHIL EXPRESS
Destinations: 30 domestic, 3 international
Fleet : 21
Owners: LucioTan and San Miguel groups
• The budget brand f the PAL group
• Its operator, Air Philippines Corp., was
part of the deal when San Miguel acquired
a stake in PAL in April.

26. SEAIR
Destinations: 10 domestic, 5 international
Fleet : 5
Owners: Tiger Airways, Filipino partners
• SEAIR was the first airline locator at
Clarkfield, Pampanga, now a major
aviation hub.
• Awarded Best Airline of the Year for 2002,
2003 and 2009 by the Philippines’
Consumer Excellence Award. In 2010,
SEAIR was awarded Gold Brand by the
Gold Brands Council Philippines for brand
image appeal and trust and market
acceptance.

27. ZESTAIR
Destinations: 14 domestic, 4 international
Fleet : 14
Owners: Alfred Yao group

28. AIRASIA
Destinations: 3 domestic, 3 international
Fleet : 2
Owners: AirAsia Berhad and Filipino partners

30. PORTER’S FIVE FORCES
Threat to
New
Entrants
Bargaining
Power of
Suppliers
Bargaining
Power of
Buyers
Threat of
Substitutes
Rivalry

31. PORTER’S FIVE FORCES
Threat
to New
Entrants
 Extremely low
switching costs between
brands
 No propriety products
or services involved
 Existing firms have a
large cost advantage
 High initial capital
requirements without a
strong customer base
 Customer tends to
choose well-known
brands for safety and
security reasons
 Strong existing player
 Strict regulations
implemented

32. PORTER’S FIVE FORCES
 Low switching costs
between airlines
because choices will be
based on destinations,
cost and time
 Each airline has a niche
i.e. some focus on cost
while other on
amenities
 Tight regulations on
the side of the
buyers/fliers
Bargaining
Power of
Buyers

33. PORTER’S FIVE FORCES
 Likeliness of
substitutes in terms of
trains and bus is very
minimal.
 Threat of substitute for
regional airlines is
higher than
international carriers
Threat of
Substitutes

34. PORTER’S FIVE FORCES
 Main components needed for
an airline companies are
fuel, aircraft and labor
 Airline companies cannot
easily switch suppliers for
there are only few existing
suppliers.
 Most airline companies have
long term contracts with
their suppliers
 Change of prices by suppliers
could mean a significant
financial change to the
airlines
 Likelihood of a Supplier to
integrate vertically is low
Bargaining Power
of Suppliers

35. PORTER’S FIVE FORCES
 The number of
competitors stays the
same for a long run.
 Brand identities differ
on different airlines.
 Fixed costs are
extremely high in this
industry
 Intense price
competition
Rivalry

37. PESTLE ANALYSIS
P
S
E
T
POLITICAL
L E
LEGAL
ECONOMIC
SOCIAL
TECHNOLOGICAL
ENVIROMENTAL

38. POLITICAL
 Airline industry is highly regulated
 Regulations and policies usually favor the demand side o the
industry.
 Philippine Government’s goal is to increase tourist arrivals to 10
million by 2016

39. ECONOMIC
 Easily affected by economic downturn of a given country.
 Competition from low cost carriers are intense.
 Maintaining and operating costs are high.
 Increasing prices of aircraft.
 Increasing the demand for low cost travels
 Heavy dependence on imported crafts, equipment and fuel.

40. SOCIAL
 Increasing number of Philippine population.
 Increasing number of flyers.
 Large and continuously increasing market for airline firms.
 Customers are now price-sensitive
 With the introduction of electronic messaging and social media,
air travel for business meetings are reduced.
 Flyers are well-informed of the services of the airline firms.

41. TECHNOLOGICAL
 Websites are used for checking in and reservation of seats.

42. LEGAL
 Stricter regulations and policy to assure the safety and security
of the flyers.

43. ENVIRONMENTAL
 Noise and Air Pollution
 Waste Management
 Climate change
 Environmental factors that can affect the flying hours of aircrafts
(e.g. weather, humidity)

44. REFERENCES
 http://www.rappler.com/business/18371-low-cost-carriers-drive-aviation-growth
 http://en.wikipedia.org/wiki/List_of_airlines_of_the_Philippines
 http://www.caap.gov.ph/index.php/downloads/viewcategory/13-statistics
 http://www.bles.dole.gov.ph/PUBLICATIONS/Current%20Labor%20Statistics/HTML/t
able%20of%20contents.html
 http://web0.psa.gov.ph/content/2009-annual-survey-philippine-business-and-industry-
aspbi-transport-storage-and-0
 http://www.mapsofworld.com/international-airports/asia/phillippines.html
 http://managementstudyguide.com/porters-five-forces-analysis-of-airlines-industry-in-
united-states.htm