Cebu Pacific Paper

Topics: Airline, Philippine Airlines, Low-cost carrier Pages: 9 (3063 words) Published: January 28, 2012
Case Context
Cebu Pacific Air owned by the Gokongwei family and established in 1988, is the provider of most domestic flights in the Philippines. In 2000, Cebu Pacific Air was able to go international and expanded operations to Asia-Pacific countries. It owns 45% of the market share, and is among the top 5 in growth in terms of passengers carried and served. The airline company is known for its promo fares, where one can save around 40% to 50%, if flights are booked early. For the longest time, Philippine Airlines, Cebu Pacific Air's competitor, dominated the local airline industry. Through the liberalization program, the latter was able to enter the market and gain its share of customers and passengers. In response, PAL adjusted its prices to compete with the others, and focused its strategies on cheaper last-minute bookings.

Cebu Pacific Air gives importance to customer value, and addresses it by providing hassle-free online reservations, on-time flights, comfortable flying experience, etc. Named as the "World's Number One Airline" by an e-newsletter, the airline has been growing and has continued to make its mark in the Philippine airline industry. Its emphasis on the importance of the customers has helped Cebu Pacific Air to be successful in proving that it is indeed one of the top airlines in the country.

Macro Environment
Prior to the Philippine aviation industry liberalization in 1995 under Executive Order 219, state-owned Philippine Airlines enjoyed virtual monopoly with the country's adopted policy of 'one country, one airline' imposed during President Marcos’ administration. The industry remained uncontested between 1973 and 1994 compelling the government to regulate fares to prevent PAL from engaging in monopoly pricing. In the years following liberalization, the domestic airline industry has attracted as many as five entrants but this has dwindled to three. Currently, the Philippine aviation market is mainly served by Cebu Pacific Air (CEB), Philippine Airlines (PAL), Airphil Express (APX) and ZestAir. As of August 2011, CEB is the market leader and holds 45 % domestic market share, followed by PAL with 22%,  APX with 19% and ZestAir with 12%. Seair also takes a small part of this market such as by serving flights to Batanes.

The impact of liberalization on the domestic industry is mixed. Departure frequency increased in the most profitable markets, while smaller communities either lost service altogether or experienced sizeable declines in departure frequency and capacity. Furthermore, some markets served by a single airline have relatively higher fares.

In the recent economic crisis, many foreign countries and the rest of the world were affected. The Philippines, however, was not greatly hit by this recession. Even though we fared better than the others, it cannot be denied that we were still affected.

Many multinational companies shut down their operations in the country, such as Intel and Goodyear. Also, many overseas Filipino workers from the United States, United Kingdom and the Middle East were forced to leave these countries with no promise of return. It also affected the Philippine Stock Exchange since it closely followed other stock exchanges from around the world, particularly NYSE.

All of these resulted in great fears among the citizens. Filipinos are now more frugal and conservative in their spending habits. The economy experienced dwindling demands of different products, which resulted to more production cuts, succeeding layoffs, and more layoffs. Filipinos started looking for products and services that would provide more value to their hard-earned money. As people are now starting to go back to the basics, leaving the extravagant lifestyle behind, companies now face the problem of losing their customers, even their loyal ones. Thus, many of them started offering products that would exemplify true value for money. More so, discounts and promos have boomed.

Cebu Pacific was...

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