Philippine Airlines responds to growing demand with new nonstop service to Auckland

Philippine Airlines (PAL) is adding capacity to Auckland and beating Air New Zealand in offering the first nonstop link in the growing New Zealand-Philippines market.

PAL has served Auckland since Dec-2015 with a four times weekly service via Cairns using 156-seat A320 narrowbody aircraft. PAL plans to introduce a thrice weekly nonstop flight from Manila to Auckland on 6-Dec-2017 using two class 254-seat aircraft.

PAL was pleased with the performance of the Manila-Cairns-Auckland route but noticed a small portion of passengers were disembarking in Cairns. PAL therefore decided to stop serving Cairns and expects providing a new nonstop option will stimulate further demand in the Manila-Auckland market.

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Demand for Manila-Cairns was relatively limited although PAL was able to backfill with local Cairns-Auckland passengers. PAL is now the only airline operating nonstop flights from Cairns to Auckland year-round as the only other competitor, Air New Zealand, serves the route seasonally (winter only). PAL carried 11,660 Manila-Cairns passengers in 2016 compared to 31,665 for Air New Zealand, according to BITRE data.

The New Zealand-Philippines market has experienced rapid growth and should be able to support a nonstop service. The Filipino community in New Zealand has more than tripled in size this decade. There are now more than 40,000 Filipinos living in New Zealand, making it the third largest Asian ethnic group.

Most of PAL’s Auckland passengers have so far consisted of ethnic or visiting friends and relatives (VFR) traffic. However, the nonstop flight should be able to attract more outbound New Zealand leisure traffic compared to the current less convenient one-stop option.

The Philippines reported a 14% increase in visitor numbers from New Zealand in 2016 to 23,000. New Zealand is not among the top 20 source markets for the Philippines tourism industry. However, resort islands in the Philippines such as Boracay and Palawan are starting to emerge as alternative holiday destinations for Kiwis to Bali, Phuket, Hawaii and Fiji.

Filipino visitor numbers to New Zealand have doubled over the last four years – although also on a small base. New Zealand reported a 31% increase in visitors from the Philippines for the year ending Jun-2017 to 22,000. The Philippines is now the 21st largest source market for New Zealand’s fast-growing tourism industry.

The nonstop flight will also open up new one-stop connections from Auckland beyond Manila, including to London.

Nonstop flights to the Philippines is an obvious white spot in the Auckland route network as Auckland already has nonstop flights to the other five main Southeast Asian countries – Indonesia, Malaysia, Thailand, Singapore and Vietnam.

Air New Zealand also recognised the potential of the New Zealand-Philippines market in announcing plans in Apr-2016 to operate four weekly year-round nonstop flights to Manila from Dec-2016. However, Air NZ shelved the Auckland-Manila route prior to the start of ticket sales, citing regulatory delays. PAL’s move to upgrade its Auckland service to nonstop could be a defensive move to dissuade Air New Zealand from launching Manila. The New Zealand-Philippines market is not likely big enough to support two airlines.

Operating nonstop from Auckland to Manila could be an experiment of sorts for PAL before the flag carrier decides whether to maintain the service with newer generation widebodies. The A340-300 PAL is initially using on the nonstop Auckland service has poor fuel consumption and an outdated product, including 36 recliner style seats in the business cabin. However, it is a fully amortised asset, resulting in a reduced level of risk for new medium/long haul routes.

PAL plans to phase out the A340 fleet by the end of 2019 and will mainly use the type the last year or two as a spare for its fleet of A330-300s. All 15 of PAL’s A330s are less than five years old while all six of its A340s are all at least 15 years old. PAL also operates 777-300ERs and will take delivery of A350s from 2018 but the smaller A330s are likely a better long term fit for the Auckland market.