Dog Fights in the Air

The current turbulence in the airline industry worldwide is like a whirlwind spinning around and hitting everything on its path. Lucky for those airlines not on its way, and bad for those that stood its path.

Some airlines are closing shops, other entrants are trying out a fight, but still few others survive in the dog fight.

While western airlines are going into bankruptcy, amazingly some Asian airlines are in expansion mood especially Middle Eastern and Southeast Asian airlines. In Middle East, Gulf Air, Ethihad Airways, Qatar Airlines and many others have gone shopping spree for new aircrafts to add on to its fleet. In South East Asia, our own Cebu Pacific and Philippine Airlines are also on expansion mood with new orders. This is indicative that the future of travel industry and even economic upswing, is in Asia. In the next decades, economic development will be centered in Asia - from Middle East countries to South Asia, onto Southeast Asia and East Asia. The future may belong to us in Asia.

Economies of these countries are getting stronger that even developing nations have bright prospects in the future. Since people is a factor in the travel and airline industry, the combined population of these regions is equivalent to about 80% of the world's population.

Think of China (East Asia), India (South Asia), Indonesia (Southeast Asia) and Iran (Middle East). These are countries with high population and they are future customers for travel and airline companies. Europe's and U.S.'s market population could not even match China's market population. Their low birth rate is something that airline companies have to look into the future of their business. They may seem to be of high income but recession like this have immediate impact on their travel appetite. No wonder, recession has affected greatly airlines worldwide.

But looking at a country's own market population, some airlines such as Singapore Airlines is now downsizing in capacity due to lack of passengers coming from let's say, U.S., Canada, Australia and U.K. which has been traditionally its bases of foreign market (travellers) to Asia. Since Singapore have no market population to support its own and to offset the losses in traffic from abroad, Singapore Airlines is now experiencing a turbulence and is cutting capacity. Singapore's open-skies policy with its many air agreements in many countries did not help the state airline.

The airline depended only on foreign tourists to the city-state and other transit passengers coming and going to Asia from America, Australia and New Zealand and Europe. Badly enough, with the new ASEAN Single Aviation Market, it is heading for another competition. This time, fighting a dog fight in the ASEAN airlanes with low-cost giant carriers such as Cebu Pacific, Air Asia and Singapore's very Tiger Airways.

With the advent of low-cost airlines and the people's taste to fly cheap, some premium airlines are doomed to fold in the future if they will not recreate themselves.

Cutting Capacity Strategy
Some airlines are now leasing and selling their planes to cut capacity. This measure is a painful one not only to the airlines but to its workers as well - as massive lay-offs will be the result. Halting already established routes can be considered a wastage of the resources employed during its development.

Codeshare
One of the options to cutting capacity should be code-sharing with the losing airline giving in more to the profitable partner or partners through sharing of the operation of planes and of profits. Never mind the image at stake if you are aiming to survive in the competition.

Wet Lease
Another option is wet-leasing the aircraft to a would-be partner airline in countries where domestic market is raw or developed especially those with high-density population. The Philippines domestic air travel is increasing but our domestic airlines have fewer aircrafts to serve the high volume of travel especially during peak season. Losing airlines should partner with Cebu Pacific by offering their aircrafts for wet-lease and sharing the profits too, while Cebu Pacific waits for its orders to come. Maybe Cebu Pacific should try this option too to meet domestic demand. This will be a win-win solution for losing airlines. They should not allow their aircrafts to stay idle amid increasing traffic in countries where demand for travel is high.

The Demand
Last December for example, I was booking a flight from Manila to Tacloban on the 23rd of December. The nearest open date on that day was 28th which means that all flights of Cebu Pacific were fully-booked and there were so many passengers anxious to get a seat. Cebu Pacific should have arranged an extra plane from other airlines to meet customers' demand. I'm pretty sure that this summer will be another queing event in all ticket counters of all airlines with so many passengers turning back sorry. The Philippines domestic travelers are estimated at 50 million annually with island travel to be between 30-40 million.

Archipelagic countries such as Indonesia and Philippines are good destinations to operate airlines because people have to hop island to island to get to their city destinations. This is the reason why Cebu Pacific has been successful on its operation of low-cost business model. The hybrid carriers that operated in Indonesia was not as successful though. Adam Air folded because of its hybrid strategy (low-cost/economy/De Luxe) seats. The other is Lions Air and still operating but losing. AirAsia Indonesia has tried its luck and it's profitable with low-cost fare offering. Malaysia-based Air Asia is operating the Air Asia brand in Malaysia, Thailand and Indonesia with destinations all over Southeast Asia. This is the model that Cebu Pacific is probably emulating except for brand distribution.