Until it launched its Go fares, Cebu Pacific had been marketing itself as the Philippines’ first budget carrier by quoting slightly lower prices than any of its domestic airline competitors. The new Go fare rates, however, show there is still scope for bigger discounts in air travel if only local airline companies would be more aggressive in expanding the air travel market.
The Go fares offer savings of as low as P1,060 to as high as P1,940 for its 17 domestic routes, one-way. A ticket can cost as low as P699 (from P2,569, for instance on a Manila-Roxas flight), which if you think about it, is even cheaper than the fares charged by inter-island shipping companies.
Cebu Pacific’s discounted fares seem like a perfect recipe for a new price war in the industry, reminiscent of what Cebu Pacific and Philippine Airlines did a couple of years ago when they dropped fares to Hong Kong to as low as $90 both ways.
So far, however, the competition has not been goaded. PAL’s only reaction a week after the Go fares were launched was to cut its fuel surcharge on domestic trips by P50 one way and give an equivalent surcharge discount on cargo for overseas trips. And that’s about it so far.
More importantly, Cebu Pacific’s Go fares carry heavy restrictions. For one, there are just a few seats available per flight. The only way you can grab these seemingly bargain rates is if you book way, way ahead, and only through travel agents.
The danger about Go fares is that after getting the public excited over the very low fares of Cebu Pacific, the airline firm may not be able to offer enough seats to satisfy the market.
Cebu Pacific says that it is reserving for Go fares about one-fourth of the estimated four million tickets it will be selling next year. Of the one million tickets that will be made available for the budget fares, only 30 percent will be available at maximum discount.
(The remaining three million seats that Cebu Pacific projects to sell next year will still be sold under a regular pricing scheme. This will carry with it usual flexibilities of booking, including moving flight dates, and in some cases for trips to other countries and higher maximum weight for check-in luggage.)
The announced price tag of Go fares, like the regular rates, excludes fuel and insurance surcharges and the 10-percent value added tax which you have to add to arrive at the total actual cost of the plane ticket. So don’t get too excited with the amount that is prominently advertised. It’s eye-catching but only a part of the total cost.
The advertised low-cost airline pricing is also on a first-come, first served basis. If there are no more seats being sold for P699, then you move to the next price tier, which is P899. If those seats are taken, you might end up reserving and buying a ticket that’s just slightly lower than regular rates.
Go fares carry other restrictions. They can only be rebooked 48 hours before the flight unlike regular passes, which you can change 45 minutes before the flight. Rebooking carries penalties, of course.
Group travel is also not a strong point of Cebu Pacific’s low-cost air rates. If you are a group of 10 wanting to travel to Cebu for a vacation, and for example only two in the group may be able to avail of the P999 one-way ticket, and the rest will have to pay regular rates.
And then there is the issue of travel agents. One can only avail of the discounted prices by buying tickets through travel agents. There is real possibility that smart travel agents may corner the low-fare tickets and sell at a higher price especially to desperate travelers.
With all the restrictions and limitations attached to the Go fares, consider yourself lucky if you are able to avail of them. This element is what could prevent consumers from really biting the Cebu Pacific promo. And if it doesn’t fly with consumers, other airlines won’t be riding the wave.
So much for creating demand. The downside with the Cebu Pacific publicity is that consumers tend to expect a lot. And if expectations are not met, then it could work against the company.
Cebu Pacific, therefore, could learn a thing or two, such as offering more discount seats to the public, making available bookings through the Internet, and not leaving the anxious travelers’ fate in the hands of travel agents.
24/7 became a price driver because it was available to everybody. Sun Cellular’s service standards had its faults, yet people continued to buy. In the end, what was important was that the price of wireless telecom services truly went down.
I just wish that the Gokongwei group is able to sustain its Go fares and improve on the restrictions and limitations attached to the fare offers. It will surely expand the local travel market, and before we know it, other airlines would follow suit.
Next, the monopolistic price of local shipping companies (the likes of Aboitiz?) will also have to adjust rates and be competitive. The pressure of aggressive pricing is oftentimes difficult to parry. Ask Smart and Globe.
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Should you wish to share any insights, write me at Link Edge, 4th Floor, 156 Valero Street, Salcedo Village, 1227 Makati City. Or e-mail me at reydgamboa@yahoo.com or at reygamboa@linkedge.biz. If you wish to view the previous columns, you may visit my website at http://bizlinks.linkedge.biz.