Cebu Pacific enjoys improvements on Manila-Sydney route – but Melbourne may have to wait

    Philippine low cost carrier (LCC), Cebu Pacific Air is showing consistent improvements on its Manila-Sydney route however is not yet ready to pursue expansion in the Australia market with additional destinations.

    On a 24-Mar-2017 analyst call, Cebu Pacific CEO advisor Mike Szucs said their Manila-Sydney route “is now performing relatively well” and has improved significantly over the last year. Cebu Pacific’s other four long haul routes, all of which are to destinations in the Middle East, have not been performing as well over the last year due to aggressive capacity increases by competitors.

    “Australia is behaving quite rationally,” Mr Szucs says, pointing out the contrast with competition in its Middle East markets. “It shows in a rational market, long haul low cost works well.”

    Cebu Pacific launched four weekly flights to Sydney in Sep-2014 using 436-seat single-class A330-300s. Cebu Pacific added a fifth weekly frequency to Sydney in Dec-2014 and has since maintained a Manila-Sydney schedule of five weekly services, temporarily reducing to four frequencies during some off-peak periods.

    Cebu Pacific competes on the Manila-Sydney route against Qantas and Philippine Airlines (PAL). Qantas and PAL have maintained flat capacity on the route over the last year although PAL initially responded to Cebu Pacific’s entry in late 2014 by upgrading Sydney to daily, leading to a period of overcapacity.

    According to Australia’s BITRE data, Cebu Pacific had a load factor of only 58% on the Manila-Sydney route in the fiscal year ending Jun-2015, covering the first 10 months of the operation. Cebu Pacific’s load factor improved to 64% in the fiscal year ending Jun-2016 and improved further to 69% in the half year ending Dec-2016. In Dec-2016, the most recent month with available BITRE data, Cebu’s load factor on Manila-Sydney was 76%.

    Cebu Pacific’s performance on the Manila-Sydney route

    Source: CAPA – Centre for Aviation and BITRE

    While the improvement in Cebu Pacific’s performance in Sydney is encouraging, its load factor is still well below its network-wide average. Cebu Pacific therefore may be reluctant to move forward with long held aspirations of adding services to Melbourne until there is further improvement. Yields in the Manila-Sydney market are also low, particularly given the high cost of operating out of Sydney, although they have not been under as much pressure as Cebu’s Middle East routes.

    Melbourne has been on Cebu Pacific’s network plan for quite some time and even  prior to the launch of the Sydney route. The LCC looked at both Australian cities after establishing its long-haul division in 2012, but could initially only serve one due to limited available traffic rights in the Australia-Philippines air services agreement.

    After launching Sydney, Cebu Pacific lobbied for Australia and the Philippines to increase the number of traffic rights available in the Australia-Philippine bilateral, stating it would launch Melbourne if it secured more rights. Melbourne Airport also lobbied Australian authorities, agreeing with Cebu Pacific that the Melbourne-Manila market was underserved.

    In May-2015, Australia and the Philippines forged an expanded new air services agreement, adding 1,500 weekly one-way seats for Philippine carriers to Australia’s main four gateways, with the possibility of another 2,000 one-way seats in the future. Cebu Pacific immediately put Melbourne back into its network plan, with the objective of launching Manila-Melbourne services by early 2016. However, the airline subsequently decided to postpone this launch until further notice.

    Melbourne remains in Cebu’s network plan and will still likely be launched at some point. However, Mr Szucs said there are currently no immediate plans to expand the long-haul network.

    A launch of Manila-Melbourne in 2017, which is currently only served by PAL, therefore seems unlikely.