Cebu Pacific Takes Control of Tigerair Philippines

Tigerair and Cebu Pacific, the largest budget carriers based in Singapore and the Philippines respectively, have announced plans to enter into a strategic alliance as the low-cost market in Asia continues to see changes as airlines look to partnerships to support their development goals. Under the terms of the agreement Tigerair will pull out of the Filipino market and sell its local, unprofitable Tigerair Philippines business, formed from former independent carrier Southeast Asian Airlines (SEAir), to Cebu Pacific Airways.

Tigerair, which is 40 per cent-owned by Singapore Airlines, has been attempting to compete with the likes of AirAsia and Jetstar Airways across the Asia Pacific by forming joint venture franchise partnerships in international markets. However, it has struggled to run these profitably and the deal with Cebu Pacific will enable it to strengthen its activities in the market. It follows just weeks after the carrier agreed deals with Scoot (also a Singapore Airlines subsidiary) and Indian carrier SpiceJet.

The alliance will enable both parties to leverage their respective strengths and harness synergies to enhance their network coverage, flight frequencies and customer service, and jointly market their routes using interline arrangement. Subject to regulatory approval, the interline partners will jointly operate common routes between Singapore and the Philippines.

According to financial reports, Tigerair Philippines had accumulated losses of 84 million Singapore dollars (US$66.1 million) as of September 2013. Tigerair holds a 40 per cent equity in the business but Cebu Pacific has also agreed to buy out the carrier’s other shareholders and take full control of the company in a deal worth US$15 million. Cebu Pacific said it will retain the Tigerair branding on an interim basis, and it plans to return the unit's entire fleet of five leased Airbus jets to Tigerair and replace them with its own Airbus jets.

“Tigerair and Cebu Pacific share a vision for both airlines to join forces and create the largest budget airline network between Asia and the Philippines. This partnership with Cebu Pacific is consistent with our asset-light strategy, and builds upon our other alliances,” said Koay Peng Yen, chief executive officer, Tigerair Group.

Both carriers will brand themselves as partners in communication material, and both Tigerair and Cebu Pacific websites will be used as sales and distribution platforms to market all routes operated by both carriers. They also expect to collaborate on other common destinations in Asia.

Cebu Pacific president and chief executive officer, Lance Gokongwei, saidthe strategic alliance “will allow both Cebu Pacific and Tigerair to leverage on our extensive networks spanning from North Asia, ASEAN, Australia, India, all the way to the Middle East.”

The two alliance partners said in a statement that, by combining their resources, Cebu Pacific would be able to provide services to high growth markets including Australia and India, while Tigerair would have access to Cebu Pacific’s extensive network in the Philippines and North Asia. They said the arrangement “allows both airlines to deploy capital more efficiently.”

Tigerair Philippines currently operates to eleven domestic and international destinations with five aircraft from bases in Manila and Clark, including the international markets of Bangkok, Hong Kong, Phuket and Singapore.

In the tables below we look in greater detail at the Filipino domestic and international markets. In the local skies Tigerair Philippines had just a 4.4 per cent share of the seat capacity in 2013, ranking it as the fifth largest operator. However, this share had risen from just 1.7 per cent the previous year after its domestic capacity was boosted 154.2 per cent in 2013. Its penetration of the international market was much smaller with just a 1.7 per cent share, ranking it as the 15 largest operator from the country, albeit international capacity was up 88.4 per cent versus 2012.