The national carrier is on an expansion trail. Philippine Airlines (PAL) ordered 64 aircraft last year, including 20 A330-300s. This year it stands to take delivery of two 777-300s, bringing its tally of that type to six.
PAL’s expansion plans are not limited to its fleet. Management has pursued a 50 percent stake in Cayman Airways und unveiled plans last summer to build its own airport to replace its hub at Manila. Details are supposed to be revealed some time during the first half of this year.
The airline’s fortunes have been buoyed by the strength of the economy of the Philippines, which outpaced most of the country’s neighbors in 2013. GDP is estimated to have advanced between 6 and 7 percent in the past year.
Although the rise in GDP has been largely fuelled by the service sector rather than by manufacturing, exports by air have eclipsed GDP growth, going up by about 8-10 percent in 2012. The bulk of this consists of perishables. Most of this is headed for markets in the Asia-Pacific region, such as mangoes to Hong Kong, but some is for long-haul markets, like tuna moving to the U.S.
On the other hand, electronics, which used to be a key sector of the economy, have been rather flat, reported Stephen Ly, managing director of DHL Global Forwarding (DGF) in the Philippines. This sector was actually in decline a few years ago, but Japanese electronics firms have revived their activity in the Philippines in the aftermath of the natural disasters that struck Thailand and Japan in recent years.
Ly says one up and coming segment of industry is the aerospace sector. Aerospace component manufacture is expected to grow substantially, he remarked. Much of this has sprung up around Clark, the former U.S. Air Force base and subsequent regional hub for UPS before the integrator moved the operation to China. The airport continues to serve as the hub for the Philippines for both UPS and FedEx.
Recently, Clark has grown faster than Aquino airport in Manila, which has prompted suggestions that it could take over from the latter, which is more expensive and struggling with congestion and inefficiencies. For all its drawbacks, Ly does not foresee the demise of Aquino airport.
“Manila will always be important, but Clark can take some of the traffic that goes there today,” he said. For one thing, it can serve as the chief gateway to northern Luzon, which would reduce the trucking time to and from Baguio.
DGF is looking to invest in a bigger facility at Clark to cater to the growing business in the area, which boasts a logistics park and manufacturing parks, Ly said.
He stressed the need for upgrades in the country’s roads as well as the infrastructure at ports and airports. “A lot of processes have been there since the dawn of time,” he said, adding that the regulatory framework also needs improvement. “It is moving forward, but this needs to happen at a faster pace,” he commented.
Likewise, customs has shown improvement, but more could be done, Ly feels. “We would like to have a single window into customs,” he said.
This is becoming more pressing as the market shows signs of continuing growth. Besides the momentum in sectors like perishables and aerospace, the project sector is also likely to fuel more demand for logistics services. In part, this is driven by infrastructure projects, but the mining sector is also showing promise, particularly with the prospect of lasting peace in the south after decades of fighting between Muslim rebels and government forces.
DGF is bullish on the project sector. It recently launched special services in this arena, on which it intends to focus in the coming years, Ly said.
Another factor that augurs well for airfreight growth is the rise of the consumer market, which is driving imports. “Traditionally the business was only outbound, now it is becoming more balanced,” remarked Ly.
This should make for better operating economics for air carriers. In the main, the Philippines have been served by belly-hold capacity of passenger services. During the downturn, several international operators stopped freighter flights to the country. Despite the recent growth in the market, there is a dearth of direct connections to long-haul destinations. For the most part, markets in Europe and North America are served over Asian hubs, which put shippers in the Philippines and their forwarders at the mercy of capacity development on the second leg.
“If there is a squeeze at gateways like Hong Kong, for example if Apple launches a new product, traffic from the Philippines usually suffers,” Ly said.