I.

Background and Historical Account of the Industry

Pre-liberalization
In 1931, To handle the airline matters, the government created an office under of
the Department of Commerce and Communications.
From 1932 to 1936, there were no standard procedures as to the licensing of
airmen, registration of aircraft and recording of various aeronautical activities connected
with commercial aviation. There were attempts made to register planes and their
owners without ascertaining their airworthiness and to record names of pilots, airplane
mechanics and other details.
In 1941.The first domestic airline, Philippine Airlines (PAL), was founded. PAL is
now also the flag-carrier airline of the Philippines. To spearhead policymaking for the
passenger airline industry, the Philippine Government passed the Civil Aeronautics Act
(Republic Act 776) in 1952.
In 1973, one airline was granted a virtual monopoly in the aviation industry in the
country. Philippine Airlines, founded by a group of businessmen led by Andres Soriano,
was granted the monopoly causing other airlines to be closed down (Filipinas Orient
Airlines and Air Manila Inc.).
Liberalization
In 1995, the government liberalized the airline industry under Executive Order (EO)
219. First, domestic and international civil aviation liberalization policy was further
established. This was followed by restrictions and on routes/flight frequencies as well as
government control on fares were removed.
This further encouraged two other airline firms to operate in any routes. It
encouraged competition. In 1999, PAL (Philippine Airlines) market share
decreased significantly Competition intensified.
II . Performance of the Industry

Number of players in the Industry

Philippine Airlines
Cebu Pacific
AirAsia
Magnum Air (Skyjet), Inc.
Air Juan Aviation, Inc.
AirSwift Transport, Inc.
Alphaland Aviation, Inc.
Astro Air International, Inc.
CebGo
Island Aviation Corp.
PAL Express
Philippines AirAsia Inc.
SEAIR-I, Inc.

Philippine Airlines
Based in Manilla, Philippine Airlines (PAL) is the national carrier of the
Philippines. With hubs at Ninoy Aquino International Airport and Mactan–Cebu
International Airport, PAL uses a fleet of narrow and wide-body Airbus, Boeing and
Bombardier aircraft to operate a network of services within the Philippines as well
throughout the Asia Pacific, the Middle East, North America and Europe.

Cebu Pacific
Based in Manila, Cebu Air Inc (operating as Cebu Pacific) is one of the largest
low-cost carriers in Asia. Backed by the Gokongwei family-controlled JG Summit
Holdings and partially listed in Feb-2011, Cebu Pacific provides an extensive
network of domestic and international services within Asia and to the Middle East.
The carrier operates from its hub at Manila Ninoy Aquino International Airport with
secondary bases at Mactan-Cebu International Airport, Francisco Bangoy
 International Airport and Diosdado Macapagal International Airport. Cebu Pacific
also operates closely with sister LCC Cebgo (formerly Tigerair Philippines), following
the Cebu Pacific Group's purchase of the outstanding 40% stake in the airline from
Tiger Airways Holdings in Mar-2014.

AirAsia
AirAsia was established in 1993 and began operations on 18 November
1996. It was founded by a government-owned conglomerate, DRB-HICOM. On 2
December 2001, the heavily indebted airline was bought by former Time Warner
executive Tony Fernandes' company Tune Air Sdn Bhd for the token sum of one
ringgit (about US$0.26 at the time) with US$11 million (MYR 40 million) worth of
debts. Fernandes turned the company around, producing a profit in 2002 and
launching new routes from its hub in Kuala Lumpur, undercutting former monopoly
operator Malaysia Airlines with promotional fares as low as MYR 1 (US$0.27). In
2003, AirAsia opened a second hub at Senai International Airport in Johor Bahru
near Singapore and launched its first international flight to Bangkok.

Magnum Air (Skyjet), Inc.

SkyJet is a full-service carrier based in the Philippines. The carrier operates
domestic services from Manila utilising 94-seat BAe 146-200 equipment. The
carrier's operation is in cooperation with the Basco-based Batanes Travel and Tours.

Air Juan Aviation, Inc.

Air Juan (IATA Code: AO) is a registered scheduled and non-scheduled domestic
airline operating in the Philippines with hubs in Manila, Puerto Princesa and Cebu. It is
the first commercial seaplane operator in the Philippines.
Air Juan is also the only airline company that offers flights to and from Manila
outside the heavily congested Ninoy Aquino International Airport as all its seaplane
flights arrive and depart from the Air Juan Seaplane Terminal located within the Cultural
Center of the Philippines Complex in Pasay, Metro Manila. Aside from its seaplane
operations, the company also has in its fleet helicopters, business jets, and propeller
planes for commuter air services in Palawan, Caticlan, and Iloilo.

AirSwift Transport, Inc.

AirSWIFT (formerly Island Transvoyager) is a Filipino-owned regional boutique
airline company with a permit to operate domestic scheduled and non-scheduled air
transportation services.

Alphaland Aviation, Inc.

Astro Air International, Inc.

Astro Air International, Inc. also known as Pan Pacific Airlines is a full-service
airline based in Kalibo of the Philippines.It was established in 1973 under the name
Astro Air International.

CebGO
Cebgo, Inc., operating as Cebgo, is a low-cost airline serving the Philippines. It is
the successor company to SEAIR, Inc., which previously operated as South East Asian
Airlines and Tigerair Philippines. It is now owned by JG Summit, the parent company of
Cebu Pacific which operates the airline. Its main base has been transferred from Clark
International Airport (formerly Diosdado Macapagal International Airport), Angeles to
Ninoy Aquino International Airport, Metro Manila.

Island Aviation Corp.

Island Aviation, Inc. (formerly A. Soriano Aviation, Inc.) is an Air Charter company
operating in the Philippines with Air Operator Certificate No. AOC # 2009009 issued by
the Civil Aviation Authority of the Philippines. IAI is the general aviation arm of A.
Soriano Group of Companies, a holding company with diverse investments in cable and
wire manufacturing, modular steel construction, healthcare staffing, resort development,
wireless broadband data services, aviation, real estate and manpower deployment.
 PAL Express
PAL Express, legally Air Philippines Corporation and formerly branded as Air
Philippines and Airphil Express, is an airline under the ownership of Philippine Airlines.
It acts as PAL's domestic division, with services from Manila, Cebu, Davao and
Zamboanga.

Philippines AirAsia Inc.

Established in Mar-2012, Philippines AirAsia is the Philippines subsidiary of
AirAsia Group. AirAsia Berhad owns a 40% stake in the airline, whilst the remaining
60% ownership stake is shared between Filipino investors. On 10-May-2013, AirAsia
Group announced plans to integrate AirAsia Philippines with Zest Air in order to
maximise fleet utilisation between both carriers and slot allocations from Manila.

SEAIR-I, Inc.
South East Asian Airlines International, also known as SEAIR International or
SEAIR-I, is a low-cost airline headquartered in Clark, Philippines. Its main base is the
Clark International Airport in Pampanga, Philippines.

Type of Product/Service produced

All of the services of the airline industry are homogenous because they all provide air
transportation. The products are differentiated because of the variety of aircrafts.
Types of Planes:
Philippine Airlines:
Public:
 Boeing 777-300ER
 Airbus A350-900
 Airbus A340-300
 Airbus A330-300
 Airbus A321neo
 Airbus A320-200
Cebu Pacific:
Public:
 A321neo
 A320
 A330
 ATR 72-500
AirAsia:
Public:
 A320-200
 A320neo
 Airbus A330-300
 A320s
SkyJet:
Public:
 BAE-146
Air Juan Aviation, Inc.:
Private:
 Cessna Grand Caravan Seaplane
 Cessna Grand Caravan EX
 Bell 429
 Bell 407GX
AirSwift Transport, Inc.:
Public:
 Dornier 228-212
 ATR 42-500
Alphaland Aviation, Inc.:
Public:
 ATR 72-500
 JS32
Private:
  CESSNA 208B
 EC-130
Astro Air International, Inc.:
Public:
 Airbus A300
 McDonnell Douglas MD-80
CebGo:
Public:
 ATR 72-600
 ATR 72-500
Island Aviation Corp.:
Public:
 Dornier 228
Magnum Air (Skyjet), Inc.:
Public:
 British Aerospace BAe 146/Avro RJ
PAL Express:
Public:
 Airbus A321ceo
 Airbus A320
 Airbus A320-200 V1
 Airbus A320-200 V2
 Bombardier Q400 NextGen
 Bombardier Q400
 Bombardier Q300
Philippines AirAsia Inc.:
Public:
 Airbus A320-200
SEAIR-I, Inc.:
Public:
  Dornier 328
 LET 410UVP-E

Type of Competition Existing

Oligopoly means a very small number of sellers or producers. In an oligopolistic
market, each producer supplies a large portion of all the products sold in the
marketplace. In addition, because the cost of starting a business in an oligopolistic
competition is usually high, the number of competitors entering industries with this
competition is low.

In the Philippine airline industry, an Oligopoly competition exist, with only a small
number of competitors that sell majority of the services in the marketplace.
III. Major Problem/s Encountered or Currently Encountering by the Industry and
its Policy Implications

Identify the problem/s that significantly affect/s the operations of the industry
A major problem that significantly affected the airline industry is the rise of
airplane fuel plus fuel taxes. Soaring fuel prices took its toll on the profitability of local
airlines in the nine months ending September 2018 due to the passing of the Tax
Reform for Acceleration and Inclusion Act (TRAIN Law) that became effective last
January 1, 2018.
Airport Congestion is another issue that the airline industry has a hard time facing.
In 2016, the number of NAIA passengers reached almost 40 million, which resulted in
multiple delayed flights because of having a single runway. It became of the worst airports
in the world.

Specific Actions Done or Doing by the industry to address/remedy the problem/s

Some airline businesses increased their airplane fare to fund their operating costs
like airplane fuel following the imposition of new excise taxes on fuel and coupled with the
proposed removal of incentives for carriers. Ticket prices for Philippine Airlines (PAL) and
Cebu Pacific Air went up as they started implementing the fuel surcharge on domestic
and international operations after getting the go-ahead from the Civil Aeronautics Board
(CAB).
The current surcharge tier approved by the CAB meant airlines could add P74 to
P291 to the price of a one-way domestic trip ticket, depending on the distance flown. For
international flights, the range was an extra P381 to P3,632. Officials said at the sidelines
of a business forum organized by the Philippine Competition Commission that the current
tier assumed a fuel price of P27 to P30 per liter. The CAB said the surcharge would be
removed if the price of jet fuel would drop to below P21 a liter.
To lessen the congestion at NAIA, airline companies announced flights in the Clark
International Airport, an underutilized airport located in Pampanga, to help the situation
in NAIA.
Specific government policy/ies to address the problem/s (Laws, Republic Acts,
etc.)
Republic Act 10963
The Tax Reform for Acceleration and Inclusion (TRAIN) Act, officially cited as
Republic Act No. 10963, is the initial package of the Comprehensive Tax Reform Program
(CTRP) signed into law by President Rodrigo Duterte on December 19, 2017. TRAIN
consists of revisions to the National Internal Revenue Code of 1997, or the Tax Code.This
reform includes packages that make changes in taxation concerning the personal income
tax (PIT), estate tax, donor's tax, value added tax (VAT), documentary stamp tax (DST)
and the excise tax of petroleum products, automobiles, sweetened beverages, cosmetic
procedures, coal, mining and tobacco
The second package of the TRAIN ("TRAIN 2") has also been submitted to
Congress. TRAIN 2 seeks the reduction of the corporate income tax. Relative to the
ASEAN region, the Philippines has the highest corporate income tax at 30 percent.
TRAIN 2 also proposes to modify and limit the fiscal incentives granted to certain
businesses. Currently, the tax incentives are enjoyed perpetually and are applied in lieu
of all other taxes. Under TRAIN 2, the government wants to make the fiscal incentives
transparent, targeted, performance-based, and time-bound. TRAIN 2 also seeks to
repeal the special laws on investment tax incentives and provide for a single omnibus
incentives law.
Airline Deregulation and Disclosure Act
Filed on November 12, 2007 by Defensor Santiago, Miriam stating that this act is
to promote competition and greater efficiency of airlines by ensuring that the rights of
airline passengers are fully protected.
Air carriers, from the nature of their business and for reasons of public policy, are
bound to observe extraordinary diligence in the safety of their passengers. They are also
expected to provide them ease and comfort, making sure that air travel is worth their
while.
The act includes of the following:
(A) Delay, Cancellation or Diversion
(B) Economic Cancellations
 (C) Code Sharing
(D) Multiple Flights
(E) Air Carrier Pricing Policies
(F) Equitable Fares; Frequent Flyer Program Awards
(G) Access to All Fares
The deregulation resulted to the establishment of niche markets, with the big
players (PAL, Cebu Pacific and Air Philippines) concentrating on the major routes where
traffic demand is heavier while the smaller airlines (Asian Spirit and Mindanao Express)
are flying the secondary and tertiary routes where traffic demand is lighter.

Open Sky Policy

Open skies is an international policy concept that calls for the liberalization of the
rules and regulations of the international aviation industry—especially commercial
aviation—in order to create a free-market environment for the airline industry. It’s primary
objectives are:
1. To liberalize the rules for international aviation markets and minimize government
intervention as it applies to passenger, all-cargo, and combination air transportation
as well as scheduled and charter services; and
2. to adjust the regime under which military and other state-based flights may be
permitted.
Philippines has agreed to the to key air transport liberalization agreements with its
Association of Southeast Nations (Asean) neighbors, paving the way for increased travel
and trade within the region, and possibly cheaper flights.

Discuss on the strengths and limitations of the above actions by the industry and
the government
The airline industry’s strength is that the companies can earn back what they spent
on the fuel of their airplanes by increasing ticket fares. The limitation is that it can lessen
the number of customers planning to fly using their airlines. Hence, profit can possibly
decrease.
 With the government adding taxes on the jet fuel additional funds can be utilized
to build or improve public infrastructures, e.g airports. The limitation is they cannot overtax
because companies might suffer, and can possibly burden the consumer.
The strength of airline companies is it will lessen the possible number of delayed
flights that could occur. It will save up time and can give more profit to the airline. The
limitation is that people might hesitate booking flights because Clark is far from the city of
Manila. It can add additional expenses to passengers who would want to go around
different tourist spots inside the capital.
The strength of this solution for the government is that it can increase the number
of tourists around Pampanga or provinces around it. Road traffic is also decongested
because tourists who are planning to go to northern provinces do not have to go through
Manila anymore. A limitation is it is not that accessible for people in Visayas and
Mindanao.