Philippine Airlines becomes aggressive competitor in Sydney-London market

12 April, 2017

Philippine Airlines (PAL) has emerged as one of the most aggressive competitors on the kangaroo route between Sydney and London since rescheduling some of its Sydney flights in late 2015 to connect with London. PAL could potentially further increase its market share in the highly competitive Australia-Europe market in 2018 as it adds more flights to Australia and launches a second European destination.

PAL began serving London in late 2013 with four weekly flights from Manila to London Heathrow. However, it could not initially offer any connections from Australia to London due to an early morning departure on the Manila-London flight.

PAL has emerged as one of the most aggressive competitors on the kangaroo route between Sydney and London since rescheduling some of its Sydney flights in late 2015 to connect with London.

In 2015 PAL was able to secure better slots at London Heathrow enabling it to switch to its current schedule of an early afternoon departure from Manila to London. The return flight lands back in Manila in the peak evening hours.

A few months later, PAL upgraded and changed its Sydney schedule to facilitate connections to the retimed London flight. PAL previously operated five weekly flights Sydney to Manila with all the Sydney departures in the late morning and arriving in Manila in the early evening – a few hours after the departure to London.

In Oct-2015, PAL began operating seven weekly flights to Sydney including four frequencies using the late morning departure slot and three new frequencies departing Sydney early in the morning. The current 6am departure from Sydney connects to the Manila-London flight with a layover of just under two hours. On the return sector from London to Sydney, a layover in Manila of slightly over three hours is required (This is based on the northern summer schedule; there are slight changes in the timings during the northern winter as London moves back an hour and Sydney forward an hour).

PAL upgraded Manila-London to daily in mid-2016 and has since maintained daily flights to both London and Sydney. PAL has relied on sixth freedom traffic from Sydney to London to help sustain the higher capacity levels in both markets.

PAL began heavily promoting Sydney-London connections in 2016 and currently offers one of the lowest fares in the Sydney-London market. For example, PAL’s Sydney-London fares for travel in May-2017 start at slightly more than AUD1200 return including taxes. These fares are available consistently on the three days per week PAL offers Sydney to London connections – and on the four days per week PAL offers London to Sydney connections.

On some dates in May-2017 there are lower Sydney-London fares of less than AUD1200 available on Air China, China Eastern, China Southern and Vietnam Airlines. However, these fares are not as consistently available as the slightly higher PAL fares. Generally, Air China, China Eastern and China Southern return fares on Sydney-London start at AUD1300 or more while Vietnam Airlines fares are even higher. There are also Sydney-London return fares for travel in May-2017 starting at approximately AUD1400 available on several airlines, including Etihad, Emirates, Qantas Airways, Qatar Airways and Thai Airways.

In 2016 PAL carried an average of approximately 30 passengers per flight on its Sydney-London connections. While this represents a very small share of the total Sydney-London market, it is a relatively significant contribution from PAL’s perspective. PAL currently uses 254-seat A340-300s on both its Sydney and London routes.

Yields are clearly very low on Sydney-London but PAL is essentially selling seats it would not otherwise sell. Local Sydney-Manila and Manila-London demand is generally not sufficient to fill Sydney-Manila and Manila-London flights except during peak periods. PAL also has relatively limited options compared to other Southeast Asian flag carriers for pursuing sixth freedom traffic in other markets, making any traffic it can generate from Sydney to London particularly important.

PAL began heavily promoting Sydney-London connections in 2016 and currently offers one of the lowest fares in the Sydney-London market.

PAL is eager to continue growing its Sydney-London traffic as it adds capacity in both markets. As highlighted in a previous Blue Swan report, PAL is increasing capacity to Sydney in 3Q2017 as it transitions Sydney flights from 254-seat A340-300s to 309-seat newly retrofitted A330-300s. PAL is also planning to add capacity to London by 46% in late 2017 as it transitions London flights from 254-seat A340-300s to 370-seat 777-300ERs.

The A330-300 and 777-300ER provides a significantly improved product in both the premium economy cabins compared to the ageing A340-300. The improved product should enable PAL to attract more passengers in the Sydney-London market.

PAL is also aiming to add second daily flight to Sydney in late 2017 or early 2018 using new 160-seat A321neos. With two daily flights on Sydney-Manila, PAL will be able to offer daily connections to London, resulting in market share gains on Sydney-Manila. This in turn will help PAL fill the higher capacity 777-300ER as it up-gauges from the A340 on Manila-London. PAL is outfitting its A321neo with lie flat business class seats, enabling it to provide a consistent product on all sectors.

PAL also plans to upgrade Brisbane in late 2017 or early 2018 to nonstop A321neo flights, replacing the current one-stop A320ceo service via Darwin. The current Brisbane-Darwin-Manila service does not connect with Manila-London. Even if it did a two-stop product from Brisbane to London would not be competitive while Darwin-London is a very small and relatively insignificant market.

PAL will likely time at least some of the new Brisbane nonstop flights to connect with London. Competing in the Brisbane-London market is a key factor in making the Brisbane-Manila nonstop route viable and will also further help PAL improve traffic on Manila-London.

New flights to Melbourne which connect with London is also a possibility but not part of the first phase of PAL’s Australia expansion plan. As is the case with Sydney, PAL needs to offer two different schedules from Melbourne in order to offer Melbourne-London connections in both directions. PAL currently only has three weekly flights to Melbourne. It would likely need to offer at least six weekly frequencies if it is to split its schedule with two different timings.

PAL is also banking heavily on Australia connections for new flights to continental Europe. PAL is aiming to launch Frankfurt or Rome in 2018 as it takes delivery of new A350-900s. Any new European route would likely have a similar flight timing as London and therefore connect well with Sydney – and potentially other new Australia flights such as Brisbane.

Australia-Europe traffic is not typically a high priority for Asian airlines given the low average yield. However, this traffic can be crucial for airlines trying to expand in Australia and Europe. PAL is in the early stages of developing a European network and is also keen to continue expanding in Australia. Attracting Australia-Europe passengers by offering very low fares is a necessary component of its growth strategy for at least the medium-term.

Philippine Airlines one-way seat capacity from Australia to the Philippines: Apr-2014 to Jul-2017

Source: CAPA – Centre for Aviation & OAG