CAB halts implementation of Seair-Tiger Airways marketing pact

MANILA, Philippines- The Civil Aeronautics Board (CAB) has issued a cease and desist order preventing Southeast Asian Airlines (Seair) and Singapore carrier Tiger Airways from implementing their marketing arrangement for the sale, booking and reservation of Seair’s flights on Tiger’s website, portal or reservation systems, as well as in media, for the routes Manila-Cebu and Manila-Davao, using aircraft leased from Tiger.

The board said there is a compelling reason to believe that Seair is allowing Tiger to exercise cabotage rights, an exclusive right of domestic carriers, in the guise of this marketing agreement.

The CAB has also directed both to submit to the board within 30 days from receipt of the resolution an authenticated copy of their marketing agreement. The two actions are pending final action by the board on the complaints brought before it by the country’s four international airlines.

The CDO was in response to a complaint filed by Philippine Airlines (PAL) Cebu Air, Air Philippines, and Zest Air, which claimed that the marketing agreement between Seair and Tiger violates existing laws and rules on cabotage, which requires that domestic aviation shall be exclusively undertaken by Philippine carriers.

The board said that it has been clearly demonstrated that Tiger has effective control, for the most part, of Seair’s operations where the aircraft leased by Tiger to Seair are utilized, as shown by the consistent use of phrases in the reservations and booking systems of Tiger such as “franchise agreement”, “partner airline program”, “cost advantages of basing aircraft in Clark”, “Seair will operate Tiger Airways flights”, “You can now fly Tiger to the lovely paradise islands of Cebu and Davao”, “Tiger raw fares from Manila to Davao”, and “Tiger to open two destinations from Manila-Cebu and Manila-Davao.”

It added that the fact that Tiger ceased operating its regular flights between Clark and Singapore when Seair commenced flying the Clark-Singapore route using aircraft leased from Tiger in Dec. 2010; that insurance for passenger and third party liability for the leased aircraft are for Tiger’s account; that Tiger sells Seair flights on its website and exercises revenue management for Seair flights operated using the leased aircraft; and that Seair merely accepts from Tiger remittances from fares minus all cost, fees, and commissions, further proves control by Tiger of Seair’s operations.

“The confluence of all these factors, coupled with the fact that Tiger is the lessor of the aircraft used in Seair’s questioned operations constitute very compelling indicia that the collaboration between the two is beyond that of an aircraft lessor-lessee and beyond the norms of a credible marketing agreement between two independent airlines,” CAB said in a resolution.

It added that “the very apparent abnegation by Seair of the core elements of it standing as an airline, and Tiger’s wresting of these elements may be tantamount to allowing Tiger to exercise cabotage…which is against public interest and constitutes unfair business practice…”.

Seair has its main base of operations at the Diosdado Macapagal International Airport (DMIA) in Clark, Pampanga. On the other hand, Tiger is authorized to operate specifically between Clark and Singapore, pursuant to the Philippines’ liberalized aviation policy. In 2009, Tiger was allowed to include Manila among its points of destination in the Philippines.

The complainants alleged that in 2006, Seair entered into a lease agreement with Tiger, covering two of Tiger’s Airbus 320 jets. Seair and Tiger also publicly announced a joint venture agreement which was later called a marketing agreement between them.

Based on this agreement, they said in their complaint that Tiger made various pronouncements and sales pitches in media and its website to the effect that Tiger would now be able to access the Philippine market and even fly domestic routes through its franchise agreement with Seair, adding that Seair would use the Tiger brand and maintain the Tiger logo on the aircraft operated under the agreement.

PAL, Cebu Air, AirPhil, and Zest Air, the four scheduled international airlines of the Philippines, complained that Seair does not have the financial capacity to undertake such lease, and that the lease and marketing agreements are merely simulated to allow Tiger to circumvent traffic rights restrictions.

“In other words, the oppositors allege that Tiger is using Seair merely as a front, and that the agreements are mere devices to give Tiger undue access to Philippine traffic rights,” CAB said.

Last July 2008, the CAB approved the Seair-Tiger lease agreement with the condition that Seair would not allow Tiger access to traffic rights not otherwise available to the lessor airline or otherwise be used as a means to circumvent existing laws against cabotage access by lessor (foreign) airline.

CAB said the lease agreement was not implemented by the parties because of the downturn in the aviation industry in 2008, but that in the last quarter of 2010, Seair commenced operating two aircraft leased from Tiger for its Singapore and Hongkong services, utilizing the marketing network and reservation systems of Tiger.

The complainants alleged that Seair’s operation is not really an operation of a Philippine carrier, as shown by the fact that Tiger handles the core phases of the operation, from insurance to reservations systems, marketing and sales, revenue management, and is even the lessor of the aircraft used for the services.