CAPA sees positive prospects in Philippine domestic travel

MANILA, Philippines - The Philippine domestic market has a relatively bright long-term outlook but overcapacity in some of the country’s secondary hubs may be experienced next year, according to the latest industry report of the Center for Asia Pacific Aviation (CAPA).

Secondary point-to-point routes will likely continue to see significant increases in capacity over the next couple of years as Philippine carriers plan to increase their domestic fleet, the report said.

“Demand for such routes is growing as the economy expands and a larger portion of the population is able to opt for short flights instead of ferries - particularly as low fares stimulate demand. Such routes also enable Philippine carriers to fly fewer domestic passengers via Manila, where slots are at a premium and should be used where possible to cater to the local Manila market,” CAPA said.

One of the hubs seen to experience overcapacity in 2016 is the Caticlan Airport which currently can only handle turboprops, but yields are now among the highest in the Philippine domestic market.

CAPA noted that Manila-Caticlan route is served with 10 daily Dash 8 frequencies from flag carrier Philippine Airlines (PAL) Express and eight daily ATR72 frequencies from budget airline Cebu Pacific subsidiary, Cebgo.

“The PAL Group and Cebu Pacific are planning to transition most of these flights in phases to Airbus A320s while Philippines AirAsia is planning to enter the market. Manila-Caticlan will see a large increase in capacity from all three Philippine domestic players after an extended runway opens in March 2016,” it added.

Furthermore, competition is expected to further intensify on secondary routes from Cebu as PAL Express plans to move some of its Manila-based turboprops to Cebu while Cebgo also eyes to move one of its two remaining Manila-based ATR 72s - most likely to Cebu, which is already its largest base.

“The planned regional expansion at Cebu will likely lead to further yield declines in the Cebu market, impacting profitability of the overall domestic sector. Cebu Pacific has already noticed larger yield declines on point-to-point routes from Cebu as PAL re-entered these markets compared to trunk routes from Manila,” the report said.

PAL resumed its domestic expansion this year with the relaunch of six point-to-point routes from Cebu last March and additional capacity on some trunk routes from Manila. Cebu Pacific and AirAsia have also continued to expand domestically.