Tiger Air sells its affiliate to Cebu Pacific

MANILA/SINGAPORE – The low cost world is moving in the Philippines. Last March, a share-swap agreement between AirAsia Philippines Ltd and another Filipino domestic carrier Zest Air was signed. ZThe share swap made AirAsia Philippines Ltd a sister airline of Zest, which has been rebranded in September as AirAsia Zest following AirAsia stake’s increase.

Now this is the turn of Singapore's Tigerair to enter into a consolidation process. The low cost airline decided to sell its Philippine business to Cebu Pacific, already the country’s largest airline. The process will consolidate Filipino aviation around three large players: Cebu Pacific, Philippine Airlines (PAL) and AirAsia.

Tigerair, which has lost millions of dollars since buying into the budget carrier about 18 months ago, is turning instead its attention to partnerships to build scale. Following the sale of its 40% share to Cebu Pacific, the Singapore-based carrier is betting on longer-term growth through partners. Tigerair will collaborate both commercially and operationally with Cebu Pacific on international and domestic routes, thereby creating the biggest network of flights out of the country.

"Indeed, scale of operations is important and that includes both real and virtual scale as well. We believe that getting into partnerships and alliances will give us virtual scale that will yield similar benefits as well," said Koay Peng Yen, chief executive of Tigerair. "This new partnership with Cebu Pacific is an expansion of that strategic thinking that we have."

The number of available seats on Philippine planes will soon outnumber passengers, prompting airlines to cut prices to gain market share. "I think it (pressure on fares) is a reflection of the fierce competition within the Philippines," Lance Gokongwei, chief executive and president of Cebu Pacific, told reporters in a conference call, reported news agency Reuters.

"Our feeling is that the Philippine economy continues to grow at a pretty strong clip and if we have overcapacity at the moment, over time the growth of the market will more than compensate for this,” added Cebu Pacific CEO.

Cebu Pacific will also benefit from its partnership with Tigerair. According to the airline, the alliance will enable it to fly to high-growth markets such as Australia and India and implement joint operations for routes between the Philippines and Singapore. Tigerair Philippines has been losing up to US$ 66 million since Tigerair completed the purchase of its 40 percent stake in 2012.

Sourced: TravelDailyNews