Don't kill budget air model

SINGAPORE – Landed at the Lion City late last week. My wife and I are visiting my son who works here. We missed him when he went to Manila for the ADB conference because we were with the CCF Holy Land Tour. This is the first time I have disembarked at the Budget Terminal.

My wife got a free one way ticket on Cebu Pacific when she signed up for a credit card tied up with the airline. So I bought a Cebu Pacific ticket online for about $100 plus P250 for seating preference (I have long legs and need more leg room) and P350 for 15 kg of checked-in luggage. We had a quick lunch before boarding the plane which was enough to get us through the flight without having to endure airline food.

On board the plane were a number of OFWs, Pinoy tourists and backpacking Western tourists. The flight was smooth and landed in Changi Airport about 20 minutes ahead of schedule. It is indeed the way to travel these days. Airline service all over the world is fast evolving to this low cost airline model. It is time that our officials at DOTC and the CAB start updating their ideas of what airline service should be.

One thing I am certain of is the stupidity of trying to kill the local budget airlines by a knee jerk populist reaction to consumer complaints. I agree that our budget carriers need to have a heart and adjust the tough Ryan Air model to take Filipino culture into account. I myself have a beef with Cebu Pacific on how they treated my son’s case when he was unable to board a flight.

A couple of years ago, my son bought a Cebu Pacific ticket from Singapore to Manila about a month before his intended travel for S$300. I don’t remember now if it was because of work demands or he got sick that he failed to make the flight. He lost the entire value of his ticket. My friends at Cebu Pacific said there is nothing they can do because that’s the rule.

If the ticket was a promo rate of P1 or even P100, that’s no big deal. But the amount was no longer insignificant so that I thought there should be the possibility of at least rebooking it. I am told that Cebu Pacific now allows more time to rebook or cancel flights, up to four hours before the flight. Beyond that, the airline says it will have to raise average fares by at least 10 percent to recover losses.  

I can understand the airline’s point that an airline ticket is like a concert ticket. It totally loses its value after the stipulated date and time. The passenger should be responsible enough to inform the airline if he is unable to use it.

It is just as well that the CAB positively responded to the plea of the local budget airlines to modify the tough new rules on refunds, rebooking and overbooking. The new rules were imposed without adequately hearing the side of the budget carriers and would have seriously impaired their business model or even kill the concept here. But the “fine tuned” rules released by CAB are still not enough to make the business model work.

On overbooking, for instance, the budget airlines said the practice of overbooking is misunderstood. It is an international practice premised on the experience that a certain percentage of passengers fail to show up and this is based on historical data. Trains, ships and hotels and every other airline worldwide also overbook.

Overbooking by a reasonable percentage is a way by which airlines are able to spread their cost across more seats which, in the low cost carrier model would mean an ability to offer lower fares for the passengers. The CAB is correct to change their rule from an outright ban of overbooking to regulating it. There is however a need to determine the right amount of overbooking. Merely saying it is five and not 10 percent without going into the financials of it is wrong… totally unworthy of a Wharton business alumnus. 

On the matter of forfeiture of ticket value, rebooking and refunds, it should really depend on how much the passenger paid for the ticket and when the airline was informed of intention not to use it. Now CAB decided that if rebooking happens too close to the flight, like within 24 hours, there will be additional fees for the passenger. 

Promotional fares are like telco unlimited promo rates. These are highly restricted because of less transaction costs associated with these. The airlines are right to point out that “when these restrictions are removed on certain fare types then these would certainly increase the related transaction cost, which means that the public should brace for higher air fares.”

The local budget airlines also have a good point when they say that their rebooking and refund restrictions are globally accepted airline practices. The fact that the CAB resolutions only apply to domestic flights is precisely because international airlines would never accept such restrictions.

It is strange why DOTC and CAB failed to assess the impact of their so called passenger bill of rights on passenger affordability. Higher airline fares will as Cebu Pacific puts it, “deprive passengers the choice to fly; for the average Juan, it is back to buses, boats or trains.” Our house helper who started flying Cebu Pacific to Leyte for her annual vacation for the past two years because it costs less than a bus ticket will be disappointed.

Changi’s budget terminal

Last year, one in four passengers at Changi Airport travelled on a low-cost carrier (LCC). This compares to about one in five in 2010. Channel News

Asia report that low-cost carriers accounted for 28.6 percent of all flights at Changi Airport.

The outlook is for a strong growth of the budget carrier market. This is why the Budget Terminal will be closed later this year to make way for a new and improved terminal. Opened in 2006, the Budget Terminal can handle up to seven million passengers annually.

The Singaporean authorities are going to tear down the existing terminal and build a new one to cater to future increased demand. Getting the new budget terminal up and running, according to Channel News Asia, should not take more than two years.

See that Sec Mar Roxas… that’s the way to do it. We should build infrastructure to anticipate future demand… not asking airlines to cut flights because our infrastructure failed to catch up. By our standards, Singapore’s budget terminal is still alright but next to the other terminals in Changi, it does look third world in comparison.

Mr. Shukor Yusof, Aviation Analyst at Standard & Poor’s told Channel News Asia: “I think there is no chronic shortage of facilities or any acute problems that we are having at the LCCT (low-cost carrier terminal). The numbers are increasing so fast that in the next few years, issues concerning the comfort of passengers, the issue of more aircraft, if you look at the budget airlines in the region, everyone is buying new aircraft, every single one of them are expanding. So within the next three to four to five years, you will have more aircraft, more passengers.”

Oh well… I am flying back to Manila via AirPhil Express. I bought my ticket on line and costs just about the same as Cebu Pacific. But even if AirPhil is a budget carrier, it uses Terminal 2. That’s why I chose it for my flight back home. At Terminal 2, I get a better selection of restaurants to have dinner before my flight. And there are more and better shops to browse around while waiting for your flight.

I realize Sec Mar travels first or business class on legacy carriers so he has no appreciation of the growing popularity and importance of these no frills airlines. That is also probably why he is taking his time building a budget terminal at Clark even as AirAsia Philippines is predicting explosive growth in passenger traffic in the next few years.

Mr. Palengke should try traveling on a low cost carrier some time if only to make him realize how vitally important these airlines are to the common folks who are supposedly his bosses. Don’t kill the budget carriers. This is the way of the future.

The other half fare

An airline introduced a special half fare for wives who accompanied their husbands on business trips. Expecting valuable testimonials, the PR department sent out letters to all the wives of businessmen who had used the special rates, asking how they enjoyed their trip.

Letters are still pouring in asking, “What trip?”

Boo Chanco’s e-mail address is [email protected]. Follow him on Twitter @boochanco