PHL air travel growth fueled by regional liberalization — Nomura

The Philippines handled 65 million passengers in 2015, Nomura said in an April 14 report titled “ASEAN airlines: Supply-demand dynamics not favouring all.” It forecasts an increase to 69 million this year, 74 million in 2017, 78 million in 2018, 82 million in 2019, and 86 million by 2020.

“With a slew of new deliveries entering the market for Cebu Pacific and Philippine Airlines (PAL Group), we see competition intensifying in the domestic market, notably at the Cebu-Mactan airport, which is the Philippines’ second busiest airport, and a sizeable operating base for both Cebu Pacific and PAL Group,” Nomura said.

International yields of foreign airlines entering the market will be affected due to “overcapacity,” but the impact will be much less compared to the effects on the domestic market.

“However, we expect local carriers operating out of the congested Manila airport should be cushioned from the yield downside, as there is no room for added capacity at the said airport,” the Japanese financial services group said.

Philippine AirAsia is also in a “favorable” position as it is isolated from the heated competition at the Cebu-Mactan airport.

CAGR for passenger traffic at stood at 6.8% last year, and Nomura projects another 6.8% this year and 7.4% in 2017. However, CAGR is expected to decline to 5% from 2018 to 2020, translating to a 5.8% average for those five years.

“We expect that ASEAN, as a whole, will continue to see commendable growth in air travel in 2016 onwards,” Nomura said.

It cited “aggressive air fare discounts” due to intensifying competition amid capacity expansion in the Philippines, along with Vietnam, Indonesia, Laos and Thailand.

Nomura also pointed out the liberalized policies for air traffic rights, which removes “monopolistic barriers” such as restrictions on frequencies, route rights, air fare pricing regimes and equity ownership structures. This brought in new players and paved the way for increased competition.

“ASEAN has set a road map for air liberalisation, and the Philippines’ consent to comply with Protocol 5 and 6 implies that unlimited fifth freedom rights on ASEAN capital cities could be foreseeable in the future across all ASEANmembers,” Nomura said.

In an earlier statement, the Department of Transportation and Communications (DoTC) said President Benigno S. C. Aquino III signed on Feb. 3 Protocols 5 and 6 of the ASEAN Multilateral Agreement in Air Services, allowing local airlines to have “unlimited frequencies” to Asean member states. The DoTC and the Civil Aeronautics Board are assisting Philippine air carriers in securing additional flight schedules with each of the Asean’s nine other member states, and the government targets to have new flights operational by August.

Nomura said yesterday that other cross-bilateral agreements between ASEAN and other countries — such as China, India and the European Union — are also being discussed.

“The continued strong economic growth and favourable demographics [outside Singapore] should propel a passenger traffic CAGR of 5.9% over 2015-20F (2020 forecast),” the report read.

“While we expect improved earnings outlooks across the board on the back of low oil prices, we think investors should look beyond the earnings growth trajectory and be selective in their stock picks, as supply and demand dynamics may not be entirely positive across the sector.”

Source: Bworldonline

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