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Philippine Airlines Cries Wolf On Entry of Foreign Airlines

December 13, 2010

When more and more Filipinos travel to destinations outside of the Philippine for leisure and work they generate repeat business and indirectly helps promote Philippine destinations to foreign markets. In turn, as foreign markets take cognizance of Philippine destinations, foreign passengers will ride on airlines that meet travelers’ exacting requirements. Those who meet the challenge of customer service get the reward of a healthy bottom line.

A cursory of review of the Philippines headlines gives the impression that PAL would rather have a healthy bottom line at passenger’s expense – then wonders why there is a clamor for opening the Philippine air travel industry. PAL is crying wolf again – it’s standard response to customers clamor for more foreign players in the domestic market.

MANILA, Philippines—The entry of major foreign carriers into the Philippine market may cause disruptions in the local air travel industry, the country’s flag carrier Philippine Airlines (PAL) said.

***

Disruption – Clear the deck of equivocation.

The meaning of “disruption” here is the disruption in PAL’s bottom line – and the company’s share of traffic due to the entry of foreign competition.

From a passenger’s point of view – PAL itself is the main source of disruption in the Philippine airline industry. So much so that the alternative meaning of PAL’s acronym is more widely known – PLANE ALWAYS LATE.

PAL had a complete monopoly of the Philippine airline industry for quite some time. Having rode on PAL flights for the greater part of my life, I will unabashedly say that PAL is an institution of disruption. Asia’s oldest airline is characterized by – canceled flights, delayed planes, lost bags – more than any other Philippine carrier I have known. Whether it was my dad, mom, friends, aunts- it does not matter – trust PAL to disrupt your travel plans when it gives the famous PLANE WILL BE LATE advisory.

If you woke up at 4am to get ahead of the traffic, and wait for PAL’s “red eye flights” – only to be told that the flight will be delayed by three hours – and you skipped meals and stuff just to be there on time – and multiply that experience say to 12 times a year – for the millions of passenger that fly PAL – that’s a lot of lost man hours DISRUPTED and WASTED to the tune of million man hours.

In the good old days when vested interests like Lucio Tan had total control – price wars would never happen because the PAL monopoly left Filipinos without any choice. So even if PAL trated customers like dirt and shit – traveler were at the mercy of PAL. I still remember those days when PAL employees lorded over the airport – barking out orders at passengers as if boarding a train to the death camps in Auschwitz.

The disruption to PAL’s bottom line with the entry of new players was ASSURED. PAL has only itself to blame. I so longed for the day when PAL’s haughty arrogance by virtue of its monopoly – would come crashing down to remind PAL and its employees that profit and the bottom line is a reward for excellent on-time customer service.

Thus, I rejoiced with the entry of new players like Cebu Pacific – which has captured 45.6% of the market. Finally, an alternative to PAL’s LOUSY (World-class at being LOUSY!!!) service. After Cebu Pacific – Philippine Airlines/PAL Express Group comes next, Zest Airways is in third place followed by Seaair and Spirit of Manila Airlines (serves Middle East and East Asia only)

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Cutthroat Pricing

PAL’s worries stem from the recent announcements that Singapore’s Tiger Airways and Malaysia’s AirAsia to enter the Philippine market. PAL management is concerned that this might result in cutthroat pricing losses for companies such as PAL and other players in the country.

“The question is, will the market be big enough for more players as big as them,” PAL president and chief operating officer Jaime Bautista said.

He warned of the possibility of overcapacity in the industry where there would be too many airlines for too few passengers.

“If there is a price war, this will mean losses for all airlines in the country, not just PAL,” Bautista said.

Mister Bautista is so used to not having competition and indicates he’d rather have less competition. GROW UP MISTER BAUTISTA. If you can’t handle competition – resign and let someone else do the job.

From a passenger’s point of view – it’s good that companies have a price war – passengers benefit from the lower prices. Price wars are a passenger’s friend. This typically happens as airlines compete for a route and attempt to price each other out of the market.

*****

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Local Industry Adequately Served?

PAL’S COO Jaime Bautista believes that “the local industry was adequately served by local carriers and other foreign airlines that fly to the Philippines.”

I wouldn’t be surprised that this is Bautista’s belief – after all he wants to ensure PAL’s viability by limiting the number of players. PAL’s position on this issue is obviously self-serving and PATHETIC.

The recent arguments have been that foreign airlines already have available seats but are not using it. Thus it is not an issue of access but one of utilization. Which still begs the question – why is it underutilized? And the blame is passed on to infrastructure – and impliedly to government.

Even then, the argument does not hold water – because when the infrastructure issue is resolved then PAL will still have to deal with competition.

This is symptomatic of companies that have benefited from monopoly practices. After having been protected for so long PAL no longer knows how to compete and would rather have government regulation that will shut competition out – at customer’s expense in the name of Filipino bullshit nationalism.

Mister Bautista needs to do more than spew this moronic apologisms for PAL’s incoherent business strategy, outdated business models, and INEFFICIENT processes.

Investments slowdown?

PAL’S COO also said that “while the increased competition and lower prices would be good for passengers, the lower profits for airline companies might lead to a decline in new investments and the slowdown in the industry’s expansion.”

From a passenger’s point of view – the increased competition will lead to a culling of the herd. Without government intervention and constitutional protectionism AND if PAL does not shape up – I will have no love lost if PAL disappears from the market – and is replaced by bigger players who can provide more value at a better rate to passengers – better investments and better jobs.

PAL forgets that the airline industry exists to serve customers. Providers who are no longer fit to serve customers – and who serve nothing but exorbitant plane fares, chronic disruption of passenger travel plans – should be sent packing to hell.

Travel passengers do not exist to keep PAL alive. If PAL wants to stay alive and profitable – it should add MORE VALUE to its offerings. I understand that PAL is looking to keep its metrics in good health – Aircraft utilization, load factor, available seat miles, revenue passenger miles, yield, and fuel costs. To a passenger – these metrics don’t mean anything if a passenger does not get to his destination, on the date and time he desires, at the price he is willing to pay.

Until PAL gets that PRIMEVAL customer-centric component into its Lucio Tan personality cult – PAL will be hemorrhaging as more players come into the market.

Note also, Bautista’s use of the word “might” – and here’s why. Investments “might” decrease if PAL tanks – because an insolvent PAL can no longer invest. Under a liberal economic environment – an insolvent PAL is a non-issue because new carriers will simmply buy PAL out – and introduce efficiencies and strategies that PAL failed to adopt or even refuses to adopt.

PAL’S “backup plan” – Philippine Constitutional Limitations on Foreign Ownership

Despite all of PAL’s obvious woes – PAL has been able to survive – due to the protectionist clauses in the constitution. Tough luck to Filipino consumers – y’all ratified a constitution that ensured Filipino citizens become captive markets of the local oligarchs – Lucio Tan, Aboitiz, Pangilinan, Gokongwei.

Even that newspaper which serves as Noynoy Aquino’s doorman, door mat, dildo, and butt-plug in one just can’t gloss over the fact that

Constitutional restrictions limit foreign ownership in transportation companies, which have congressional franchises, to 40 percent. As a result, partnering with local entities is the only way for foreign groups to gain a foothold in the local industry.

Earlier this month, Singapore’s Tiger Airways announced that it would let local carrier Southeast Asian Airlines (SEAir) to lease two of its Airbus A320 jets as part of a marketing deal between the two firms.

Under the arrangement, the Singaporean budget carrier will also be allowed to sell SEAir flights on the Tiger website.

Tiger Airways is partly owned by government-backed Singapore Airways and is one of the region’s largest low-cost airlines

PAL, is not yet about to go away – BUT it will face competition from local competitors. Instead of crying wolf about adverse consequences to the Philippine airline industry – PAL and Jaime Bautista can do better by welcoming competition.

In doing so, PAL serves notices it will not take the customer for granted – and will work hard to earn the customer dollars or pesos. Customers reward excellent service – and thus far, Cebu Pacific has been on the receiving end of this bonanza.

Infrastructure

One of the counterarguments to providing access is that “we are not ready” because our infrastructure does not meet the world standards. As of 9th September 2010, the airline (along with all airlines certified by the authorities in the Republic of the Philippines) is prohibited from operating within the European Union. But in November 2010, EU has raised the possibility of lifting the ban after a revisit from an EU audit team.

For the most part the Philippine approach to airport infrastructure upgrading has been borne by the taxpayers – through ODA loans that most likely include pay-offs to Philippine officials who will have to sign off on the projects.

Korean bank to finance Philippines airport project

The governments of the Philippines and Korea have signed an agreement for a multibillion-peso loan to finance the Puerto Princesa Airport Development Project, the Manila Times quoted the National Economic and Development Authority (NEDA) as saying.

In a statement, the agency said the Philippine government and the Korean Export-Import (EXIM) Bank signed the minutes of discussion on the bank’s appraisal of the project, paving the way for loan processing.

The project, as appraised, will cost some $92.1 million or 4.4 billion peso, based on an exchange rate of 47.4 peso to the dollar.

Of the total, around $71.61 million or 78 percent would be sourced from Korea EXIM while $20.5 million will represent the Philippine government’s counterpart.

Read more

The Philippine government can reduce its loan exposure by getting more foreign airlines involved in the construction, in this specific case, of the Puerto airport.

Our current business model is one of a landlord airport – the airport is built; an authority is assigned; the airport authority rents out the terminals to foreign carriers.

An alternative business model – one which is quite common in airports in the US – whether Ohare, Dallas, or Orlando – is getting foreign carriers to finance the construction of the terminals which will be assigned to them – in exchange for long-term guaranteed market access. The foreign carriers can transfer, sell and convey their shares in the airport if they no longer want to participate in the program. This approach:

  1. Reduces the tax burden due to lower amounts need to repay the ODA loans.
  2. Encourages foreign carriers to be more involved in the long-term.
  3. Increases competition in the local market.

The main stumbling block is the 40% ownership restrictions imposed by the Philippine constitution which is a disincentive to foreign carriers who would be willing to invest in development and upgrading of Philippine airports. If the Philippine airline industry is to soar high – we need more competition, more innovation, more choices. Thus, the primacy of charter reform to open up  the Philippine economy and do away with the 60/40 restrictions become more imperative.

The marching order for PAL just like any other business concern is simple – be at the right place, at the right time, at prices customers are willing to pay for.

14 Comments
  1. Jay permalink

    Ah another open airways topic. I still remember one of the responses from the old one, being that this was not viable considering airways expansion in south east asia in general is low, especially since the middle east if finally springing up their oil to fuel long distance traveling.

    But regardless of that, I still believe in adapting. And because the Philippine owners don’t want to adapt, they know they will die when they are used to being glutton and feasting solely as the prime air carrier on a national level. And if they have to be knocked down two pegs in order to innovate once again, they should! The rest of the world for the most part understands that and they can continue moving.

  2. Jack permalink

    I agree…the stumbling block of PH growth is 60/40 restrictions…I think the Oligarch in PH will fight tooth and nail before going down and allowing foreign investor a free hand in growth…may be when all other south east asian countries rise up…they will eventually do away with it…now it seems the status quo is intact.

  3. Weizz permalink

     Complacency breeds stagnation, and monopolies make people suffer.  

    Competition breeds innovation.  Conflicts and the pressure to survive in the business world forces management to find better ways to stay alive.  I thought thats the rule for business.  

    I’m young and not a frequent air traveler, but I did experienced a few late flights.  The worst coming from Zest Air.  The flight was scheduled at 4:00 at the plane arrived at 8.  My uncle’s Zest Air flight was more than 5 hours late and they had to reschedule the next morning.  Added to the frustration is that, for example, the passengers haven’t eaten just to catch the flight.  Only, to experience the terrible delays.  And airport food and stalls are near double than the usual price.

  4. “An alternative business model – one which is quite common in airports in the US – whether Ohare, Dallas, or Orlando – is getting foreign carriers to finance the construction of the terminals which will be assigned to them – in exchange for long-term guaranteed market access. The foreign carriers can transfer, sell and convey their shares in the airport if they no longer want to participate in the program.”

    Yeah, that works. I’ve done business case studies on a few of them (LHR, DFW, IAD, DXB, ORD, couple smaller ones looking to step up), and Bautista — who I’ve pointed out before has exactly ZERO industry experience apart from his current position — is talking out his ass. Open skies enables the funding of the infrastructure, simple as that. No open skies, no infrastructure.

    PAL is hemorrhaging money faster than they can think of ways to rip off passengers and small cargo shippers to salvage it — you have to wonder if it’s going to take a complete collapse for them to realize the existing paradigm doesn’t work, and that they’re not special just because the planes say “Philippine” on the sides.

  5. One primary reason why foreign tourists will not go to pinas is that plane tickets are very expensive. Here in Japan for example, going home to pinas would cost you at least 1000 USD just for a four-hour flight. Going to Singapore, an eight-hour flight, would cost 40% less sometimes even half of that. One reason is there are few players, so these players bleed you dry whenever you want to go visit pinas.

    We really have very few choices for direct flights available. You either go with delta, jal, pal, or cebu pacific, which unfortunately only flies to Kansai Int’l. Although I read from the news today that ANA will soon fly to pinas as well. That certainly sounds good, not only for pricing, but service. ANA although not the cheapest, has the best service IMO. And let’s see how other airlines react once other budget carriers like Malaysia air enter the Philippine market.

    I don’t care about pal, they deserve to go under with the way they manage their operations and the way they treat their passengers. I only pity the workers that will be affected.

  6. mimingyaw10 permalink

    Well, i hope that the PAL’s downfall comes soon.. Yeah the fare is relatively expensive compared to other airline companies.. I wonder how the hell can the management claim that they are not doing well enough to compensate their employees? and why the hell were they allowed to solely operate on centennial terminal? I only know nursery term in economics and not an expert but, were our politicians stupid enough to allow protecting these oligarchs? And the other thing that bothers me is that, why , on heavens holy name, did a typical Filipino, not know about the basic concept of competition? As they always brag about gov’t corruption on politicians level and cannot see that the devils behind these politicians were really the oligarchs?

  7. Homer permalink

    “…they’re not special just because the planes say “Philippine” on the sides.”

    Haha, that is so true. Unfortunately, many passengers still feel the same way. As long as the airline goes by the name Philippine Airlines, it will be seen as the nation’s flag carrier even though it no longer seems that way…..unless one takes into account the weight limits on luggage set by Cebu Pacific. That’s a big deal to many passengers. Yet, most of them would switch airlines in a heartbeat with an open skies policy.

  8. Francis permalink

    Downfall of PAL…. GOOD RIDANCE!!!!!!!!!!!!

  9. dumb-oh permalink

    waiting for the Lopezes to suffer the same fate.

  10. Hyden Toro permalink

    Business is competition. If there is no competition; there is no growth and innovation. A company running to its government to promote business protection and virtual monopoly; at the expense of its lousy services is ludicrous…get out of the business, if you cannot compete…

  11. killem permalink

    In the good old days when vested interests like Lucio Tan had total control – price wars would never happen because the PAL monopoly left Filipinos without any choice. So even if PAL trated customers like dirt and shit – traveler were at the mercy of PAL. I still remember those days when PAL employees lorded over the airport – barking out orders at passengers as if boarding a train to the death camps in Auschwitz. 

    lucio tan group enter PAL when the airline industry was already de-monopolized. during its monopoly its the govt who has control..

    Our airline industry had already been put on a disadvantage around the world due to subsidy given by foreign govt to their flag carrier. it just right and proper that the phil protect our own airline in his home front…

    lets just first level the playing field, before we allow he market to set force to set in.

  12. these workers are better employed by companies other than PAL. start sending those resumes.

  13. level the playing field for passengers – SCREW PAL

  14. seriously, do you guys wanna keep on paying high fees to “protect” PAL because it has the name “Philippines”?????????????????? WTF.

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