AIRLINE

INDUSTRY IN
THE PHILIPPINES

Michelle Rizza M.Mora

MB- 1800071
 Chapter 1
The Airline Industry in the Philippines
The airline industry in the Philippines continues to be a booming business. This year, it
is projected that the growth of the industry is going to be robust through various joint
agreements with our neighboring countries, as well as the expansions underway. One
expansion project is the re-fleeting plan of the top airlines in the country, Philippine Airlines and
Cebu Pacific. Specifically, Philippine Airlines is thinking of acquiring aircraft’s suitable for long-
haul, which would increase the number of passenger traffic.
But what do we know of this industry aside from the large airplanes we see and travel
with from time to time? Here are facts about the airline industry in the Philippines.

Timeline of the airline industry:

1931 – To handle the airline matters, the government created an office under of the
Department of Commerce and Communications.
1941 – The first domestic airline, Philippine Airlines (PAL), was founded. PAL is now also the
flag-carrier airline of the Philippines.
1952 – The Civil Aeronautics Board and the Civil Aeronautics Administration was reorganized
due to the Republic Act 776.
1973 – As it is the sole domestic airline, Philippine Airlines (PAL) was virtually monopolizing the
country’s aviation industry.
1974 – PAL continues to dominate the industry by having the monopoly on domestic travels.
1978 – The airline was given a new franchise, however, under a provision that the government
regulated the fares.
1995 – The industry was liberalized with the establishment of domestic and international civil
aviation liberalization policy and the government control was removed.
1999 – Competing airlines increased. Due to this, PAL’s market share decreased.
Moreover, here is the current airline industry in numbers:

According to the Civil Aviation Authority of the Philippines, the country has 71 airports.
Eleven of them can handle international flights. 32 of them only accommodate domestic travel,
and 28 of them are primarily used for general navigation. The most prominent of these airports
is the Ninoy Aquino International Airport, which is located in Pasay City. It has four terminals
and can handle hundreds of both international and domestic flights every day, making it by far
the busiest airport in the country. 
In these airports are hundreds of planes coming in and out, handled by different airlines.
There are four major commercial airlines in the country: Cebu Pacific, Air Asia, Philippine
Airlines, and Skyjet. These airlines carry majority of the international and domestic flights in the
country.

Air travel has made it easier for people to travel from place to place, no matter how far
they are. Evidently, travelers can be considered the lifeblood of the airline industry. As of
August 2016, more than 500 thousand tourists visited the Philippines, according to the data
from the Department of Tourism. The majority of the visitors are coming in also from Asia,
visitors coming from America coming second. These visitors primarily come through airports in
Manila, Cebu, Kalibo, Clark, and Davao, respectively.
These facts can prove that this country can be a good training ground and place for
pilots, because of its flourishing airline industry. There are many career and growth
opportunities for aspiring pilots.

JG Summit Holdings, Inc.

JG Summit started in 1957 when Universal Corn Products, Inc. was established to operate
a cornstarch plant in Pasig. Since then, JG Summit has pioneered breakthroughs, broadened its
enterprise, and stayed at the forefront in every phase of the country’s rise to development. It also
helped individuals who strived for the good life—the entrepreneur, who invested in agribusiness
and the manufacture of feeds and prime food commodities; the visionary, who channeled
resources and expanded into financial services, textile and property, all backbones of a growing
economy; the captain of industry, who invested in power, telecommunications, petrochemicals,
cement, and air transportation, all requisites for industrialization; the innovator, who continually
provides value and fun in snacking; and the new regional multinational, who has embraced the
challenge of global competitiveness with zeal.
Currently, JG Summit is one of the largest and most diversified Filipino conglomerates, engaged
primarily in businesses that serve a growing middle class with rising disposable incomes in the
Philippines, Southeast Asia, and Australasia.

 Its largest subsidiary, Universal Robina Corporation, is one of the fastest growing snack-
food and beverage companies in the ASEAN region, serving well-loved quality products
with great value for money.
 Cebu Pacific Air is the Philippines’ first budget airline and its largest domestic airline
carrier with a growing international network reaching Asia, Australia, and the Middle
East; serving more than 18 million Filipino workers, tourists, and business travelers
affordable and reliable air transportation.
 Robinsons Land Corporation is a leading mixed-use property developer that offers a
network of modern commercial centers, office buildings, hotels, residential
condominiums, and housing project subdivisions.
 JG Summit Petrochemicals is the the country’s first and only integrated petrochemical
manufacturing operation, from naphtha cracking to polymer operations, that’s poised to
serve the requirements of the local manufacturing sector.
 Robinsons Bank is a growing commercial bank positioned for growth as it serves the
growing number of suppliers, tenants, distributors, business partners, and employees of
the entire JG Summit and Robinsons Retail Group.
 In addition to these businesses that are majority-owned and managed, JG Summit also
has significant minority positions in the Philippines’ largest telecoms company—
Philippine Long Distance Telephone Co. (PLDT), the Philippines’ largest electricity
distributor – Manila Electric Company (Meralco), one of the Philippines’ leading power
producers – Global Business Power Corporation (GBP), and one of Singapore’s leading
property developers – United Industrial Corporation/Singapore Land.
JG Summit’s place in Philippine business has for its cornerstone a business portfolio of market
leaders, a solid financial position, a formidable management team, and a vision of leading the
country to global competitiveness and making life better for every Filipino.
 Chapter 2
Industry Structure
A. Industry Profile
a. Total Companies in the Industry
The top 10 Largest Airline Companies in the Philippines according to the total seating
capacity of all aircraft ( 2015):
1. Philippine Airlines – 14,126
2. Cebu Pacific – 9,320
3. PAL Express – 3,358
4. Spirit of Manila – 2,501
5. Air Asia Zest – 2,340
6. Air Asia Philippines – 1,800
7. Tigerair Philippines – 1,212
8. SEAIR International – 520
9. Sky Jet – 377
10. South Phoenix Airways – 298
b. Top Three Players
The Cebu Pacific Group is a Filipino airline group headquartered in Manila that
operates subsidiary low cost-carriers; Cebu Pacific and Cebgo (formally Tigerair
Philippines). The group aims to create the largest budget airline network between
Asia and the Philippines. 
Cebu Pacific and Cebgo are both based at Manila Ninoy Aquino International
Airport and jointly market and sell their services using codeshare and interline
arrangements. Both airlines also jointly operate common routes. The group's fleet
comprise of Airbus family and ATR aircraft. 
 PAL Holdings, Inc. is a holding company. The Company is engaged in purchasing,
subscribing, acquiring, holding, using, managing, developing, selling, assigning,
exchanging or disposing of real and personal property, including shares of stocks,
debentures, notes and other securities of any domestic or foreign corporation. It is
engaged in airline business. The Company, through Philippine Airlines, Inc. (PAL),
which is the Philippine national flag carrier, is engaged in air transport of passengers
and cargo within the Philippines and between the Philippines and various
international destinations. PAL flies to domestic jet routes and international and
regional points. PAL's route network covers approximately 30 points in the
Philippines and over 40 international destinations. PAL's international route network
covers approximately 40 cities in over 20 countries. PAL's domestic network,
including those operated by partner PAL Express, covers over 30 cities and towns in
the Philippines.
Established in Mar-2012, Philippines AirAsia is the Philippines subsidiary of
AirAsia Group. AirAsia Berhad owns a 40% stake in the airline, whilst the remaining
60% ownership stake is shared between Filipino investors. On 10-May-2013, AirAsia
Group announced plans to integrate AirAsia Philippines with Zest Air in order to
maximise fleet utilisation between both carriers and slot allocations from Manila.
The two carriers continued to operate under separate Air Operator's Certificates
during the interim period. However, in Dec-2015, Philippines AirAsia and AirAsia Zest
successfully merged into a single entity and now operate under a single AOC.
c. Characteristics of Firms in the Industry
i. Size in terms of Sales/Revenues

Controlled by the Gokongwei family's JG Summit Holdings, Cebu Pacific

Group owns 100% of Cebgo. The investment was finalised with Cebu
Pacific's purchase of an outstanding 40% share in the airline from Tiger
Airways Holdings in Mar-2014.
 PAL Holdings’ overall revenue for 2017 hit P129.5 billion, up 13.2
percent.However, expenses jumped 26.7 percent to P136 billion, or more
than what PAL Holdings earned from its sales.
We project PHP29 billion revenue by the end of the year, or 39
percent growth from revenue in 2018," AirAsia Philippines vice chair
Sheila Romero said during the launch of the carrier's new office.

ii. Employment

PAL continues its financial turnaround with a total comprehensive

income of $85 million for the first quarter (January to March) of 2015. It
reverses a $20.7 million loss incurred in the same period of 2014. The
profit is attributed to the increase in passenger traffic following the
opening of several domestic and international destinations, as well as
aggressive sales campaigns that resulted in improved yields.

The work force of the airline group AirAsia reached an all time
high in 2018 with about 18 thousand employees. The Malaysian airline
is operating in 25 countries, mainly with international flights, but also
with local offshoots such as AirAsia Indonesia, Thai AirAsia, AirAsia India
or Philippines AirAsia.
B. Industry Structure
a. Export Markets
Table 1.0 Export and Import Market in the Philippines

Exports Imports
 
May 2019 p May 2018 r May 2019 p May 2018 r
TOTAL        
     FOB Value (in Million US
6,154.90 6, 091.89 9, 429.52 9, 972.39
Dollars)
        Year-on-Year Growth
1.0 1.7 -5.4 17.4
(Percent)
Electronic Products        
     FOB Value (in Million US
3, 449.80 3, 248.33 2, 462.51 2, 415.07
Dollars)
        Year-on-Year Growth
6.2 6.0 2.0 18.9
(Percent)

Table 2.0 Top 10 Philippine Exports to all countries

Top 10 Philippine Exports to All Countries: May 2019 p

(Year-on-Year Growth in Percent)

Gainers Losers

Exports

Machinery and Transport

Copper Concentrates 192.1    -59.2
Equipment
Ignition Wiring Set and Other
Wiring Sets Used in Vehicles, 31.7
Other Manufactured Goods    -5.4
Aircrafts and Ship

Banana (Fresh) 28.6

Chemicals
20.1

 Metal Components
14.0  

Gold 8.3
Other Mineral Products 7.0
Electronic Products 6.2
 r - revised p – preliminary
The country’s total external trade in goods in May 2019 amounted to $15.58 billion, reflecting a
decrement of 3.0 percent from the $16.06 billion external trade in the same month of the
previous year. Of the total external trade, $6.16 billion or 39.5 percent were exported goods
and $9.43 billion or 60.5 percent were imported goods.

The country’s balance of trade in goods (BoT-G) decreased to $3.28 billion deficit in May 2019,
from $3.88 billion deficit in May 2018.  (Tables 1, 2 and 3)
1. Exports increase by 1.0 percent while imports decrease by 5.4 percent

The country’s total export sales in May 2019 was $6.16 billion, indicating an increase of 1.0
percent, from the $6.09 billion total export sales in May 2018. This was due to the increases in
export sales of the eight of the top 10 major export commodities, namely, copper
concentrates (192.1%); ignition wiring set and other wiring sets used in vehicles, aircrafts and
ships (31.7%); fresh bananas (28.6%); chemicals (20.1%); metal
components (14.0%); gold (8.3%); other mineral products (7.0%); and electronic
products (6.2%). 

By commodity group, export of electronic products continued to be the country’s top export

with total earnings of $3.45 billion. This amount, which accounted for 56.1 percent of the total
exports’ revenue in May 2019, rose by 6.2 percent from the $3.25 billion export receipt in May
2018.  Components/devices (semiconductors) accounted for the biggest share of 40.5 percent
among the electronic products.  It posted an increment of 4.5 percent, from $2.39 billion in
May 2018 to $2.50 billion in May 2019.

On the other hand, total imported goods in May 2019 slid by 5.4 percent, from $9.97 billion in
May 2018 to $9.43 billion in May 2019.  The decrease was due to the declines in six of the top
10 major import commodities. These were iron and steel (-25.5%);  transport equipment (-
19.3%); mineral fuels, lubricants and related materials (17.2%); plastic in primary and non-
primary forms (-13.7%);  industrial machinery and equipment (-4.8%); and other food and live
animals (-3.7%). 

Among the imported commodity group, import bills of electronic products, valued at $2.46
billion, accounted for the highest share of 26.1 percent to the total imports.  Import of this
commodity group went up by 2.0 percent, from $2.42 billion in May 2018. Among the
electronic products, components/devices (semiconductors) accounted for the biggest share of
17.4 percent.  This commodity group reflected a minimal increase of 0.4 percent, from $1.64
billion in May 2018 to $1.65 billion in May 2019.  (Table 3)

2. Exports of manufactured goods decline by 0.4 percent while imports of raw materials and
intermediate goods decrease by 10.7 percent

By major type of goods, exports of manufactured goods, representing 82.6 percent of the total
exports, were valued at $5.08 billion in May 2019. It decelerated by 0.4 percent from the $5.10
billion export value in May 2018. This was followed by exports of mineral products and total
agro-based products amounting to $458.16 million and $453.93 million, respectively. (Table 4)

On the other hand, imports of  raw materials and intermediate goods posted the largest
contribution of 37.8 percent to the total import value. It went down by 10.7 percent, from
$4.00 billion in May 2018 to $3.57 billion in May 2019.  Semi-processed raw
materials contributed $3.23 billion or 34.3 percent to the total imports.  

Imports of capital goods ranked second, sharing 31.6 percent or an import value of $2.98
billion. Consumer goods placed third with a share of 17.1 percent and import value worth $1.61
billion. (Table 5)

                               

3. Exports to USA account for 17.6 percent while imports from People's Republic of China
share 22.8 percent

By major trading partners, exports to the United States of America (USA) posted the highest
value of $1,081.10 million or a share of 17.6 percent to the total exports in May 2019.   Exports
to this country increased by 9.8 percent, from $878.26 million in May 2018.  Other major export
trading partners were People’s Republic of China, $896.95 million;
Japan, $862.15 million; Hong Kong,  $764.83 million; and Singapore, $329.17 million. (Table 6)

People’s Republic of China was the country’s biggest supplier of imported goods with 22.8
percent share to total imports in May 2019. Import payments from this country reached    
$2,145.43 billion, from $2,015.75 million in May 2018.  Other major import trading partners
were Japan, $822.32 million;  Republic of Korea, $750.06 million;  United States of America,
$710.60 million; and Singapore, $665.53 million. (Table 7)

 
4. Exports to countries in East Asia comprise 47.9 percent while imports reach 47.0 percent

By economic bloc, majority of the country’s merchandise exports in May 2019, which
comprised of 47.9 percent of the total exports or $2.95 billion, went to countries in  East Asia. 
This amount contracted by 0.6 percent, from $2.97 billion in May 2018.  Similarly, East Asia was
the biggest supplier of the country’s imports in May 2019, amounting to $4.43 billion or 47.0
percent of the total imports.  This amount decreased by 6.8 percent, from $4.75 billion in May
2018.
Total exports to the ASEAN member countries was valued at $936.03 million, contributing a
share of 15.2 percent to total export value.  It went down by 1.2 percent from the export value
of $947.04 million in May 2018. Commodities imported from ASEAN member
countries reached $2.83 billion. It contributed 30.1 percent to total import and grew by 16.1
percent from the recorded import value of $2.44 billion in May 2018.

Goods exported to European Union (EU) member countries registered a value of $746.30

million or a share of 12.1 percent.  It went down by 17.5 percent from its value of $905.03
million in May 2018. Moreover, imports from the European Union (EU) recorded a value of
$698.29 million or a share of 7.4 percent. It rose by 10.5 percent from the May 2018 value of
$631.67 million. (Table 10)

 
 

 
b. Five Forces Model
i. Characteristics of Rivalry
 The number of competitors stays the same for a long
run
 Brand identities differ on different airlines
 Fixed costs are extremely high in this industry
 Intense price competition
ii. Buyer Power
 Low switching costs between airlines because choices
will be based on destinations, cost and time
 Each airline has a niche i.e some focus on cost while
other on amenities
 Tight regulations on the side of the buyers/ fliers
iii. Supplier Power
 Main components needed for an airline companies are
fuel, aircraft and labor
 Airline companies cannot easily switch suppliers for
there are only few existing suppliers
 Most airline companies have long term contracts with
their suppliers
 Change of prices by suppliers could be mean a
significant financial change to the airlines
 Likelihood of a Supplier to integrate vertically is low
iv. Substitutes
 likeliness of substitutes in terms of ferries and bus is
very minimal
 Threat of substitute for regional airlines is higher than
international carriers
 v. New Entrants
 Extremely low switching costs between brand
 No propriety products or services involved
 Existing firms have a large cost advantage
 High initial capital requirements without a strong
customer base
 Customer tends to choose well-known brands for
safety and security reasons
 Strong existing player
 Strict regulations implemented

c. Industry Association
i. Organization

Policy and Regulatory Regimes of the Philippine Air Transport Industry

Policy making for the Philippine civil aviation industry started with:
(1) Republic Act No.776, known as the Civil Aeronautics Act of the
Philippines, passed in 1952. The Act established the policies and laws
governing the economic and technical regulation of civil aeronautics in
the country. It laid down the guidelines for the operation of two
regulatory organizations, the Civil Aeronautics Board (CAB) for economic
regulation and the Civil Aeronautics Administration (CAA) for technical
regulation. The powers and functions of the two bodies were premised
on the policies set out for the industry in the Act, two of which dealt in
the area of competition as follows:
a.) Promotion of adequate, economical and efficient service by air
carriers at reasonable charges, without unjust discriminations, undue
preferences or advantages, or unfair or destructive competitive
practices (Section 4d); and;
 b.) Competition between air carriers to the extent necessary to assure
the sound development of an air transportation system properly
adapted to the need of the foreign and domestic commerce of the
Philippines, of the Postal Service, and of the National Defense(Section
4e).
(2) One-airline policy, 1973-1987. A major shift in policy came with the
passing of Letter of Instructions No. 151 and 151A in December
1973establishing a one airline policy in both the international and domestic
operations. The two LOIs in effect repealed Section 4 (e) of RA 776. Two
airlines (Filipinas Orient Airlines and Air Manila Inc.) were subsequently
closed, and PAL, being the flag carrier, had a virtual monopoly of the
country’s air transport industry.
(3) Accreditation system, 1988-1994. The first attempt at reform came during
the Aquino administration who adhered to the policy of allowing a healthy
and regulated competition among the airlines in the country. Executive Order
No. 333 was issued in August 1988 revoking the one-airline policy. With the
change in policy, a number of companies/individuals applied for permits for
scheduled domestic combination of passenger and cargo services. Hence in
1989, CAB introduced an accreditation system defining the guidelines for the
grant of permits.
(4) Liberalization and deregulation, 1995-present. For 22 long years, PAL
was flying solo. But at the same time, the pressure for the deregulation of
the industry was also building up. Stakeholders contributed to the pressure
but the inefficiencies of PAL’s service and its financial losses intensified the
pressure and brought the issue to a head. Hence, the supremacy of PAL was
finally challenged with the passing of Executive Order 219 in 1995 under the
Ramos administration.
 Chapter 3

Strengths and Weaknesses

Krinks (2002) points out that the air transport was only accessible to citizens with a high
social standing, the elites, the famous, tourists, and businesspeople whose travel expenses are
being shouldered by their companies. Majority of Filipinos can only dream of flying and visiting
foreign places, since to ride an airplane before is synonymous to having a lavish lifestyle. 

Strengths Weakness

1 Increased propensity to fly Aircraft is expensive and requires huge

capital outlays

2 The safety record, and the associated Large workforces spread over large
public acceptance of air travel as both a geographic areas require
fast and safe way to travel

3 Airline staff is highly trained and Airlines have difficulty making quick schedule
experienced, from pilots and flight and aircraft changes due to staffing
attendants to mechanics and ground commitments
staff

4 Airlines have the ability to segment the

market to establish different levels of
service and pricing decisions

Chapter 4
 Opportunities and Threats

Opportunities Threats
1. Offers continual expansion A global economic downturn negatively
opportunities for both leisure and affects leisure, optional travel, as well as
business destinations business travel
2. Technology advances can result in cost The price of fuel is now the greatest cost for
savings, from more fuel efficient many airlines. An upward spike can
aircraft to more automated processes destabilize the business model
on the ground
3. Technology can also result in increased A plague or terrorist attack anywhere in the
revenue due to customer-friendly world can negatively affect air travel
service enhancements like in-flight
Internet access and other value-added
products for which a customer will pay
extra
4 Government intervention can result in new
costly rules or unexpected new international
competition

Chapter 5
Technological Developments affecting Airline Industry
 White sand beaches, tall majestic buildings, and the constant need to meet with foreign
managers have made flying a usual activity for a lot of Filipinos.
According to the latest Nielsen Global Survey of Consumer Confidence and Spending
Intentions, Filipinos’ first priority in saving is intended for holidays and vacations.
In order to compliment this behavior, the airline industry has adapted trends for better flight
services. These trends include the following: 

1. Developing in-flight entertainment

One of the features airlines compete and customers look out for is the in-flight
entertainment. Most airlines have offered movies, TV shows, and magazines to keep
passengers busy in long flights.

PAL has recently developed a new in-flight entertainment feature app. The app had to be
downloaded and passengers had to connect to their internal Wi-Fi server in order to watch
movies and TV shows, read magazines, and get real time updates of the status of the flight.
2. Increasing low cost carriers
Pricing is one concern when it comes to ticketing. With travel becoming more frequent
among Filipinos, competitive pricing became a trend.

Flights are now offered at affordable prices and if a customer is lucky enough and knows
where to look, they can even manage to get fares as low as P1. This is all made possible
because airlines have been getting low cost carriers.

3. Going digital with majority of the transactions

From booking a flight, paying, to checking-in, everything can be done digitally. This isn’t just for
the convenience of the passengers; it is also to regulate the traffic of people inside the airport.
Even the tickets are electronic.

4. Hosting travel expos

Travel expos held in the country in 2016 all contributed to the improvement in sales in the
airline industry.
 For instance, the world travel 2016 expo was hosted by Ad Asia Conventions and Exhibitions
International Corp. It aimed to be a means for global and national travel communities to be
connected, according to Business Mirror. It was just one of the many travel expose held this
year.

Chapter 6
Industry Prospects
A. Problems and Issues 
I. Current Issues include
 Ownership cap and effective control

The privilege to fly international routes requires an official designation,

indicated in the air services agreement, from the home country. Non-
designated airlines are, thus, denied access rights in bilaterally negotiated
routes. In the Philippines, with a 60% minimum domestic equity
requirement, designated carriers are essentially owned and controlled by the
government or Filipino corporations

 Taxes and airfares

While airlines have the liberty to set airfares, they cannot be offered to
the flying public if disapproved by aviation authorities of the bilateral
partners (Austria, 2000). Similarly, other airline charges are subject to CAB
approval. With the implementation of TRAIN in 2018 (The Tax Reform
Acceleration and Inclusion Act, 2017), higher fuel costs have prompted
Philippine Airlines and Cebu Pacific, the Philippines’ designated carriers, to
file their requests with CAB in May 2018 to collect fuel surcharges. If CAB
permission is granted, the surcharge will raise the cost of flying. In addition,
the second package of the TRAIN law will impose taxes on the importation of
air transport equipment and spare parts which will drive the price of air
transport up. Furthermore, the Philippines imposes a PhP1,620 travel tax for
Filipino citizens traveling abroad, creating a natural barrier for Filipinos to
expose themselves to global trends. These policies will yield adverse effects
for the Philippine air transportation industry.

 Cabotage
 Executive Order 29 (2011, § 5), the latest mandate on aviation
deregulation, specifically states that “In no case shall the CAB grant to any
foreign air carrier Cabotage traffic rights of any kind, i.e., the right to
transport passengers and goods between two or more points within the
Philippines”;
 Freedom of rights
The first four freedoms are granted. Fifth freedom is granted subject to
conditions set by CAB under Executive Order 29 (2011). Granting the sixth
and seventh freedoms have not been addressed in any of the previous nor
the recent liberalization efforts.
Liberalization of the air transportation sector is vital to achieve welfare gains not only
for consumers but also for airlines, thereby spilling over to the economy. Shreds of evidence of
the benefits derived from liberalizing the aviation sector have been visible in the European
Union (EU) and Latin America. EU member countries are regulated as a region and negotiated
external agreements that resulted in an average of 20% decrease in fares with other countries
which signed agreements with them (Abate & Christidis, 2017). The Latin American Civil
Aviation Commission (LACAC) coordinates the air transport policies of its 22 member countries
through active discussion, which led to bilateral and multilateral negotiations among its
members. The LACAC member countries have varying degrees of openness, which highlights
the benefits of adopting more open policies (Abate & Christidis, 2017). The Philippines is slowly
opening up to the idea of relaxing its 40% foreign ownership cap on firms. President Rodrigo
Duterte issued a directive to the National Economic and Development Authority Board and its
member agencies “to exert utmost efforts to lift or ease restrictions on certain investment
areas with limited foreign participation” (Memorandum Order No. 16, 2017). Senate Bill No.
1754 proposes to lift foreign ownership restrictions on public services that are not considered
as public utilities (Senate Committee Report No. 301, 2018). These restrictions are in place
based on the principles of regulatory control and national security. Regulatory control is
traditionally dependent on the nationality of the owners and officers of an airline, but recent
developments replace such with a carrier adopting the nationality of its principal place of
business and be subject to regulatory oversight. Further concerns on the risk of nationals from
an unfriendly country gaining ownership and control of an airline of another country remains
one of the arguments for such restrictions. This can be avoided through proper vetting and
imposing restrictions on selected countries (Lumbroso, 2019). Investments in the air
transportation sector accounted for 7.16% of gross capital formation in 2017. By adjusting the
cap on foreign ownership from 40% to a higher percentage, this can boost economic activities,
generate income and taxes, and create employment opportunities.
The Ninoy Aquino International Airport (NAIA) serves as the main gateway to the
Philippines from the rest of the world. It can accommodate a total of 35 million passengers on
an annual basis. However, in 2016, according to the Civil Aviation Authority of the Philippines
(2018), it accommodated 39.6 million passengers. This number continues to grow annually.
Under the Philippine Development Plan 2017–2022, one of the main agenda is to expand and
develop regional airports to accommodate more flights (National Economic and Development
Authority, 2017). The development plan calls for systematically linking airside, landside and
access to roads facilities to ease congestion.
 Development of a low-cost carrier terminal. While there are new plans
for the airport in Manila (such as the consortium of seven of the largest
conglomerates in the country for expanding NAIA and an unsolicited bid
from San Miguel Corporation to construct a new airport north of Metro
Manila), planning for low-cost terminals should also be considered. De
Neufville (2008) emphasized the differences in needs and costs of
operating a low-cost terminal, wherein constructing a low-cost terminal is
only 10% to 20% of the cost of a full-service terminal. In addition,
operation and maintenance expenses of low-cost terminals are
significantly lower, leading to lower terminal fees. The emergence of low-
cost airlines has affected the market share of legacy airlines in the
domestic market such that 80% of domestic passengers are cornered by
the low-cost carriers. Aside from an increase in market share, an increase
in the volume of passengers is expected with the reduction in prices that
 will result from lower terminal fees. These strategies will contribute in
achieving the Department of Tourism’s goal of reaching 10 million tourist
arrivals to the Philippines, which it has missed for several years.
 Introduce reforms to airport slot allocation policies. NAIA currently
adapts International Air Transport Association (IATA) guidelines on slot
allocation which is based on historical operations and airport capacity.
This grants “grandfather rights” to existing airlines as long as they
operate at least 80% of the time during the previous season. This system
creates a barrier to new entrants such that airport slots are scarce
resources and incumbents have an advantage over acquiring slots.
Market-driven mechanisms such as secondary slot trading, higher slot
prices, and slot auction may be introduced to increase efficiency in
airport slot allocation (NERA Economic Consulting, 2004). Congestion
pricing can also promote efficient use of slots through price
differentiation between peak and off-peak hours (Butcher, 2017).
Applications to heavily congested airports in the EU proved
improvements in both consumer welfare and airline profits as well as
carbon emission levels (Mott MacDonald, 2006).
 Promote the development of the ASEAN single aviation market. The
ASEAN accounted for 9.2% of total world tourist arrivals in 2015 (Yong,
Song, Artispong, Khor, & Singapore Research Team, 2016). As one of the
fastest growing regions in terms of tourist arrivals, the ASEAN stands to
reap benefits from negotiating as a whole. Furthermore, this can also
reduce the cost of entry for carriers within the ASEAN by applying
uniform standards through a common certification body rather than
individual certification from each member country. By granting fifth
freedom rights, countries such as the Philippines, Vietnam, Lao PDR, and
Myanmar stand to enjoy increases in GDP by 9% to 51% (Laplace & Latge-
Roucolle, 2016).
 Protectionism in the air transportation sector deters the flow of tourists into the
economy (Zhang & Findlay, 2014). Pursuing liberalization of the air transportation sector will
yield an increase in competition among airlines, improvement in services, and reduce fare
prices which will guarantee societal welfare gains. Hence, the government should consider
eliminating the cap on foreign investments and introduction of policy reforms in the air
transportation industry to achieve economic growth.
 Chapter 7
Conclusion and Recommendation

This paper has just explained in detail the Airline Industry in the Philippines. The
discussion started from 1952 when the Philippine Government first held its overall control until
the airline industry liberalized in 1995.The policies that shaped and now regulate the activities
in the airline industry.

Furthermore, one has gained the understanding of the industry’s evolution. One has
acquired the background to further understand how the airline industry plays in the economy
and establishes a development.. An oligopolistic conclusion was derived from the rating. There
was also a description of how oligopoly works in application on the industry. Moreover, this
study tackled general business strategies in the airline’s dilemma and the concrete strategies to
boost profit. This was further illustrated in the case of Cebu Pacific. Lastly, the study discussed
another issue of the airline industry, i.e. the issue on fuel surcharge. One has seen the
monitoring and executive role of the Civil Aeronautics Board as it stipulated the removal of fuel
surcharge when fuel prices were low in 2015. However, there were discrepancies committed by
various airline firms, e.g. Philippine Airlines. This issue was then closed as the researchers
recommended for CAB to supervise and regulate the various airline firms more efficiently

The Cebu Pacific legacy as the country’s low-fare pioneer when it comes to air transport
continues to this very day. Two years ago Cebu Pacific contributed 45% of the air traffic in the
Philippines by carrying 2.57 million passengers in six months time (Manila Bulletin Corp. 2010).
This legacy should be protected, so that it would continue to transcend for future generations
to come.

Given that Cebu Pacific’s management style is people-friendly, there are those
employees who are taking advantage of the lenient management of their team leaders, section
managers, and division managers. It is time to put a stop to that. Personal relationships should
between higher ups and employees should be avoided in order to ensure that the manager’s
decisions for the team’s welfare would not be compromised because of personal reasons. It is
also important that the managers learn how to be firm and demanding, to push their team
members to produce more output rather than letting them go at the pace that they want. A
team without a clear direction is eating at the funds set by the company for development. It is
important that managers be able to adapt and learn how to be rigorous in leading their people.
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