Asia’s largest budget airline, Filipino partners take on local industry


By Lala Rimando – Asia’s largest low-cost airline, AirAsia Berhad, is out to rock the Philippine airline industry.

AirAsia chief executive officer Tony Fernandes was in Manila on Thursday to formally announce that his Malaysia-based airline has formed a joint venture with Filipino businessmen to form AirAsia Philippines, a local airline that will go head-to-head with local airlines, including Lucio Tan-led Philippine Airlines, Gokongwei-led Cebu Pacific Air, and other players.

AirAsia Philippines is a joint venture among AirAsia Berhad (40% stake), and Filipino business personalities, including Antonio Cojuangco, Marianne Hontiveros, and Michael Romero. The Filipino partners will each have a 20% stake.

The new venture, Fernandes said, aims to improve access to the Philippines, an archipelago that is reached by a fraction of tourists who visit Asia.

“The Philippines is starved of connectivity,” remarked Fernandes who said he had to use a spare AirAsia plane to Manila for the Thursday press conference. “It is painful to come to the Philippines. There is a massive amount of connectivity that is required here.”

More players in the airline business, he said, will bring down costs, and ultimately, lower air fares. “Your OFWs will benefit, too.”

The AirAsia Philippines officials said they hope to start operations in August or September 2011.

Initial plans include expanding their regional routes and increasing the number of short-haul flights, or destinations that are less than 4 hours away. Domestic flights are also in the drawing board.

Regulatory environment

AirAsia Philippines will take over the current operations of AirAsia, which is considered a foreign airline subject to strict bilateral air rights made available by the Philippine government and other destination countries.

The Malaysian airline has been operating at the Diosdado Macapagal International Airport in Clark, Pampanga since April 2005 but has failed to expand operations due to regulatory restrictions.

Fernandes, who has envisioned that AirAsia will dominate the Asean skies, said it has taken them years to roll out their plans mainly due to regulatory restrictions.

AirAsia Philippines is the third cross-border joint venture of the budget carrier, next to Indonesia AirAsia and AirAsia Thailand.

Local partners

Aside from regulatory restrictions, Fernandes said finding the right local partners has been tough.

Talks with Cojuangco started way back in 2006. Their common denominator was Hontiveros, who previously worked in Warner Music with Fernandes and used to oversee the cultural projects of Cojuangco.

Romero, on the other hand, was a recent addition to the group. He and Cojuangco co-own the RP Patriots, a team in the ASEAN Basketball League.

Sports and music have long played a key marketing role in the making of the AirAsia brand, Fernandes noted.

Cojuangco is President Benigno Aquino’s cousin. He was the former chair of Philippine Airlines (PAL), Asia’s oldest airline, when it was privatized decades ago.

He used to be the chair of telecommunications giant Philippine Long Distance Telephone Co. (PLDT). His last major venture was ABC Broadcasting Corp., also known as TV5. His group and a Malaysian partner sold their stakes in the broadcasting firm to the media arm of PLDT in 2009.

“I have been in businesses where the quality of our products is very good but we are not able to sell [them]… or few people know [them]… Tony (Fernandes) has brought AirAsia from the ground up pretty rapidly. They have lots of marketing gimiks. We’d like to learn them,” Cojuangco said.

Romero, on the other hand, owns Harbour Centre Port Terminal Inc., which operates a 15-hectare portion of Manila’s port area. A previous partnership with Manuel Pangilinan, chairman of PLDT and Metro Pacific Investments Corp., to upgrade the Manila North Harbor turned sour over control and labor issues.

Romero said he realized the impact of low-cost flights in the country when the number of ferry passengers at Harbour Centre went down from 2 million a year to 1.5 million. “If we can’t beat them, why not join them,” he said in jest.

Hontiveros has been involved in media, music, culture and arts, among others.

“We’re (AirAsia) addressing a young market. I think my experience with Warner has prepared me for this,” she shared.

In AirAsia Philippines, Cojuangco will be the chairman, Romero the vice chairman, and Hontiveros the chief executive officer.

The joint venture will have $25 million as starting capital, which will be funded using internal cash, Fernandes said.

Good timing

Fernandes had glowing words about President Aquino: “You elected a great leader.”

The Aquino government has made tourism a key development area, and has added airports and other infrastructure projects aimed at enhancing tourism potentials. It expects to double tourism arrivals, currently at about 3 million a year, over its 6-year term.

What more, the Aquino government has made a policy decision to adopt pocket open skies to relax aviation regulatory restrictions and attract airlines to operate more flights to and from different points in the country.

One of those eyed for the implementation of pocket open skies is Clark where AirAsia currently operates.

Clark, about 80 kilometers north of Manila, is a former US air base with a sprawling aviation facility and a low-cost terminal. It is currently being eyed by the Aquino government to become the country’s main gateway if and when a long-delayed railway project that connects Clark to Manila, the capital, is finally completed.

The new AirAsia Philippines officials, however, are choosing to locate their Philippine hub in either Clark or Subic, a nearby former American naval facility with an airport that has been vacated by FedEx years ago.

“Cost is a consideration,” Cojuangco explained. “A budget airline needs to operate with low cost.”

Local airline industry

When asked to comment about the local carriers, Fernandes candidly said, “I think Cebu Pacific has done a fantastic job, [and] I think Philippine Airlines could have done a better job.”

Homegrown Cebu Pacific popularized low-cost travel in the Philippines, eventually overtaking Philippine Airlines (PAL), the country’s first airline, in the domestic market.

Cebu Pacific has plans to expand its fleet and regional route network, a business plan that goes head-to-head with AirAsia Philippines’.

Meantime, PAL, a legacy carrier that bears the Philippine flag, remains the biggest local airline in terms of assets, but it has been plagued by labor issues, pilot exodus, and the inclusion of the Philippine aviation body in blacklists of America and Europe.

Other local budget carriers include Zest Air, which is owned by a group of local businessmen, and Southeast Asian Air (Seair), which has recently inked a marketing deal with Singapore’s Tiger Airways. PAL has a budget airline unit, AirPhil Express.

Fernandes said AirAsia Philippines will be bringing in “the ability to have a strong marketing presence, [develop] new routes that have never been done before, and develop airports that have never even have traffic before.”

He cited the experience of Malaysia, Thailand and Indonesia, countries that have far better share of tourists than the Philippines. “The growth has come out of low-cost [airlines]. [Legacy airlines] have focused on profitable routes instead of developing the new ones.”

Then he stressed, “It’s a massive playground for all of us. Accessibility is not about cannibalization.”

The entry of the low-cost model in Asia, he said, allowed a “better segmentation of the market.” – via abs-cbnNEWS.com

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