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PCC tags competition issues in airline sector

The airline industry in the Philippines has benefited from liberalization and deregulation, a study conducted by the country’s antitrust body found, but competition concerns remain and growth is being hampered by infrastructure and other constraints.

The Philippine Competition Commission (PCC), in a study released on Monday, noted that travel options had expanded markedly since the airline sector was liberalized in the mid-‘90s.

Domestic passenger traffic, in particular, is no longer being monopolized by Philippine Airlines (PAL), which as of last year only had a 5.1 percent share (not counting that of budget unit PAL Express) from 95.7 percent in 1995. The sector leader is now Cebu Pacific with a 48.16 percent share, from just 6.4 percent in 1996.

Local carriers have also cornered more of the International passenger market, with Cebu Pacific’s 2017 share at 19.25 percent from 0.14 percent in 2001. The entry of low cost carriers and new foreign airlines among others, was said to have driven competition.

Liberalization, the study noted led to the “availability of more routes, more flight frequencies, lower airfare and generally much better air transport services than during the monopoly regime.”

Given the costs of competing, however, it noted that industry developments had also raised the prospects of mergers and consolidations that would have to be “well managed to ensure that public welfare is not sacrificed.”

Constraints that need to address include limited airport capacities, poor/inadequate infrastructure in provincial airports, access to airport slots, and ownership and control.

The issue of airport slots, in particular, was highlighted as being used to bar new entrants, with incumbent carriers using their “grandfather” rights to hang on to assigned slots.

“Having operated for a longer time than new entrants, the incumbents have the advantage of having landing and take-off slots allocated to them based on some history of operation,” the study said.

It noted this has always been the case at the country’s main hub, the Ninoy Aquino International Airport (NAIA).

In conclusion, the study called for the development of merger and consolidation rules; action on infrastructure inadequacies; air traffic management improvements; a review of slot allocation guidelines, air fares for monopoly routes, bilateral air service agreements and air alliances; improvements to land and shipping transport services as alternatives; and amendments to the Public Service Act to remove the provision of air transport services from the definition of public services.


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