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Cebu Pacific to buy Tigerair Philippines

Posted on January 09, 2014

BUDGET CARRIER Cebu Pacific is acquiring rival Tigerair Philippines in a $15-million deal that will allow the Gokongwei-led airline to cement its local dominance and expand its network.

Cebu Air, Inc., which operates Cebu Pacific, will be purchasing Singapore-based Tiger Airways Holdings Pte., Ltd.’s 40% stake in Southeast Asian Airlines, Inc. for $7 million, with the balance to be paid to Filipino shareholders who collectively own the rest of the Tigerair Philippines operator.

“Tiger Philippines is 60% owned by Filipinos and 40% owned by Tiger Singapore. Once [the deal is] completed, Tiger Philippines will be 100% owned by... a Filipino company,” Cebu Pacific President and CEO Lance Y. Gokongwei told reporters in a teleconference from Singapore.

The purchase, which Mr. Gokongwei said would be funded “out of our current cash balance”, is expected to be finalized by February or March. It still has to be cleared by regulators.

Singapore’s Tigerair and Cebu Pacific will enter into a strategic alliance under the deal, which will allow the Philippine carrier to further expand its reach.

“For the first year, we intend to keep the Tigerair Philippines brand,” Mr. Gokongwei said, adding: “We anticipate over time and in agreement with Tiger to slowly convert the Tiger [Philippines] fleet.”

Koay Peng Yen, CEO of Tigerair, said: “We believe that getting into partnerships and alliances will give us virtual scale that will yield similar benefits as well.”

“This new partnership with Cebu Pacific is an expansion of that strategic thinking that we have,” he added.

Cebu Pacific said the alliance would enable it to fly to high-growth markets such as Australia and India, and jointly operate routes between Singapore and the Philippines.

“At this point, they (Tigerair) do not have flexibility or the firepower to increase the number of planes,” said Sagar Ashok, a consultant at Frost & Sullivan. “So, they would be looking at these kinds of arrangements where they fly in with other carriers.”

Last month, Tigerair -- 40% owned by Singapore Airlines Ltd. -- turned its attention to budget air travel in North Asia, saying it would hold 10% of Tigerair Taiwan, a new joint venture with China Airlines Ltd. Tigerair also formed an alliance with Indian budget airline SpiceJet Ltd. and partnered with Scoot, a medium and long-haul low-cost carrier also owned by Singapore Airlines.

“The aviation market in the Philippines is overcrowded and largely unprofitable, except for market-leader Cebu. The deal will allow Cebu to solidify its market position,” SB Equities analyst Raymond Yap said in a note.

Cebu Pacific controlled about 51% of the domestic market in July-September, followed by PAL Holdings, Inc.’s Philippines Airlines group with just over 35%, the Centre for Aviation said in a report, citing government data. AirAsia-Zest Air held 9% while Tigerair Philippines held nearly 5%.

Tigerair Philippines averages 118 flights weekly with five aircraft to 11 domestic and international cities. This compares with Cebu Pacific’s 2,200 flights, 48 aircraft and 24 overseas and 33 local destinations.

Civil Aviation Board Executive Director Carmelo L. Arcilla said the deal would be “evaluated with the view of anti-competitive effects.”

“But, without necessarily preempting the evaluation, Tigerair is a very small airline; its market share is very small. We do not see that the competition would adversely be affected,” he added.

Completion of the deal would leave just three main players in a market flush with planes but thin on passengers.

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,” Mr. Gokongwei said.

“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,” he added.

Shares of Tigerair fell nearly a percent yesterday in a firm market. Cebu Air rose 3.5% in a broader market which rose 0.7%. -- reports from L. C. S. Marasigan and Reuters