High hopes held for PAL unit

By Paolo Montecillo
Philippine Daily Inquirer
First Posted 23:08:00 08/24/2010

THE LUCIO Tan group is banking on the growth of its low-cost sister company Air Philippines, which runs budget brand Airphil Express, for the group to remain competitive in the domestic air travel sector.

According to Philippine Airlines (PAL) president Jaime J. Bautista, the company’s Legacy carrier business model, where passengers are given complete amenities, no longer works as well in attracting customers when put up against the bare-bones model of budget carriers.

“Growth is in the low-cost model,” Bautista said in a recent interview. “That’s why our rival Cebu Pacific is growing very fast.”

He said PAL had no plans to cater to the low-cost market. Instead, its sister firm Air Philippines, is being groomed to compete in the low-cost scene.

As part of its plans to beef up Air Philippines’ operations, Bautista said PAL transferred two of its 150-seater Airbus A320 aircraft to its smaller sister firm.

PAL was left with 16 Airbus 320 planes, which makes up bulk of its fleet of 39 jets.

Over the next three years, Air Philippines said it would acquire another 18 Airbus 320 aircraft to bolster its domestic and international operations.

The success of budget carriers is not a phenomenon unique to the Philippines, Bautista said.

In countries like Australia, budget carriers are close to toppling their decades-old Legacy airlines as the market leaders.

In the Philippines, Cebu Pacific already flies more passengers than PAL, based on the latest government data.

However, Bautista assured that PAL’s operations would not be cannibalized, saying that there would always be a market for passengers that want more luxury when they fly than what is offered by budget airlines.

PAL also plans to expand its international operations to cover more points across the region, the Middle East and North America, he added.

For its part, PAL expects to have four more brand-new Boeing 777 aircraft delivered in the next four years.

The new planes will replace PAL’s workhorse Boeing 747 jumbo jets as the airline’s flagship aircraft.