The impact of worsening congestion at Manila’s Ninoy Aquino International Airport (NAIA) is having a “severe impact” on Philippine Airlines as it escalates costs, damages the brand and hinders the carrier’s ability to grow, says the airline’s president and COO, Jaime J. Bautista.
“It is really a problem, it’s really severe” says Bautista of the dire congestion at the country’s main air gateway. The situation has festered largely because infrastructure development, which Bautista says is at least five years behind, was ignored over the years. This has resulted in the existing facilities being vastly overstretched and an ageing two runway system is hampered by the fact the runways are not parallel, crossing each other at one end.
This results in a maximum of only 40 aircraft movements per hour and “that really impacts the operations of airlines,” Bautista said recently at the Association of Asia Pacific Airlines (AAPA) 61st Assembly of Presidents hosted by China Airlines in Taipei, Taiwan.
The congestion occurs on a daily basis, typically building throughout the day. As a result, Bautista says PAL tries to tap slots in the evenings, or early mornings in an attempt to avoid the worst of this congestion. This also makes any expansion of service near impossible, because new slots are virtually non-existent.
“Thirteen out the 16 AAPA members are operating out of Manila and I think all of them are experiencing this congestion problem,” he said during the AAPA event. Certainly there has been a clamour from the Middle East carriers, among others, who have limited access into Manila and have resorted to putting flights into secondary airports like Cebu and Clark. Take for instance Emirates which operates a B777 passenger aircraft into Cebu – the largest aircraft operating at CEB – before going on to Clark and then back to Dubai.
The explosive economic growth of the region and its associated growth in commercial air services has brought more international air traffic to the airport including substantial narrow body aircraft from the rapidly growing low cost carriers in the region. Domestically the situation has also been substantially impacted by the growth of low cost carriers Cebu Pacific, Air Asia as well as Philippine Airline and its own low cost domestic carrier PhilAir Express.
Terminal capacity has reached near crisis levels with NAIA’s four terminals – two international, one mixed international/domestic and one pure domestic – handling far above their design capacity. “Right now the four terminals in Manila have a rated capacity of 30 million passengers per year, but we had 30 million passengers in 2012 and now they are serving 42 million passengers,” he says.
Aircraft utilisation suffers
The problem is perhaps most onerous on Philippine Airlines’ operations, forcing it to operate from three of the four terminals. “We are the only carrier in the Philippines to operate from three terminals and operating this way means added cost and it reduces our ability to maximise the utilsation of our aircraft. The effect of this is really severe for our operations,” he says.
Indeed, the situation grew so grim that last year PAL shifted its Manila-Los Angeles flights to Cebu, not only requiring many passengers to make the connection between Manila and Cebu (one hour’s flight to the south), but also entailed costly repositioning of the A340-300 aircraft used on the route. This service has since been suspended and shifted back to Manila from May 2017.
The added cost is significant. For every minute of delay Bautista estimates it costs the airline USD60-65 – and with average flight delays of at least 50 minutes, it adds up quickly, amounting to nearly $40-45 million every year. “So it really adds to our cost of operations and also effects the productivity (utilsation) of the aircraft,” he says.
PAL’s narrow body aircraft – of which it has 64 including PAL Express, its primarily domestic low cost carrier – turn in the worst utilisation numbers because of the congestion, with its wide bodies – 29 aircraft – faring better.
“We are lucky our long haul aircraft are above industry standards for utilisation, but for the medium and short haul we’re not really maximising the utilsation of these aircraft,” Bautista says.
Cargo hurting too
The congestion-induced delays and multi-terminal necessity is also not doing PAL’s cargo business any favours either, even as cargo volumes grow. In the first nine months of this year (Jan-Sept) PAL carried a total of 82,300 tonnes of international cargo while domestically, along with its PAL Express low cost carrier, it uplifted 91,000 tonnes, the bulk of which (nearly 63,400 tonnes) was carried by PAL Express, according to the Philippines Civil Aeronautics Board.
This compares with last year, where in 2016 for the full year, the group uplifted 82,294 tonnes of international cargo and 120,000 tonnes of domestic freight. The figures, while none-the-less up from the year before speak to the importance of cargo movements on this island nation and the potential slowdown in cargo movements that congestion in Manila will undoubtedly cause to the supply chain.
“The impact of this congestion is really severe, not only in cost, but it affects the reputation of the airline. Most delays in the Philippines are due to air traffic congestion and terminal congestion. Our on-time performance in the 70 per cent range, but if you exclude external factors we are in mid 90 per cent. So it really impacts the reputation of the airline,” Bautista says.
“Manila is our main hub and because of this congestion our ability to grow has been affected.” In 2016 PAL carried 13.3 million passengers (including PAL Express), which is 12 per cent higher than in 2015. This year, Bautista said the carrier is forecasting 15 million passengers and “we are expecting by 2020 to carry 20 million passengers.”
“But with this airport infrastructure limitation we are not really sure we will be able to meet our target,” he warns. Bautista said the airline is working closely with the government and in September put forward a proposal to construct an annex to its main terminal, Terminal 2, in order to have all its Manila operations co-located. “We are hoping the government will listen to us and we hope we will be able to improve the customer experience.”
Addressing the problem
Aside from PAL’s plan to consolidate its own operations, there are measures being implemented by the country’s aviation authorities to help alleviate the problem. These include strict slot management and the ongoing construction of rapid exits being built on runways to make them more efficient.
Bautista says PAL works alongside the other Philippine-domiciled carriers under the umbrella of the Air Carriers Association of the Philippines to communicate and lobby the government on these and other issues. “The new government under President Duterte has been very attentive and in fact implemented some of the Association’s recommendation on domestic airports,” Bautista says.
Among the developments domestically, specific airports are having their lighting upgraded so that they can operate at night and other improvements and new terminals are being built around the country – no small feat given that the developing island nation has some 70 airports.
In 2018 a new terminal will open in Cebu – the country’s second largest city – which will establish the Mactan-Cebu International Airport as having the best facilities in the country. Other developments Bautista points to are Caticlan which recently opened for jet operations and an expansion of Kalibo airport – both of which cater to the resort island of Borocay. A new airport is also being established on Bohol island, just south of Cebu which is set to become the ‘next Borocay’.
But even with all of these developments, the fundamental fact remains: Manila’s heaving NAIA gateway problem has to be fixed and soon. “We are urging the government to fast track a new airport. Our plan to construct a Terminal 2 annex is just a medium term solution to the problem, a long term solution is to have a new airport closer to Manila,” he says.
And only very recently some good news appeared on that front. Philippine media reported today that seven of the country’s biggest conglomerates confirmed they are looking at rehabilitating and redeveloping the Ninoy Aquino International Airport.
The companies include:
- Andrew Tan’s Alliance Globe Group Inc.
- Ayala Corp.
- Aboitiz Equity Ventures Inc.
- Manuel V. Pangilinan-led Metro Pacific Investments Corp.
- Gotianun-led Filinvest Development Corp.
- Gokongwei-led JG Summit Holdings Inc.
- Lucio Tan’s LT Group.
Two of those groups, JG Summit and LT Group, own the country’s two largest commercial air carriers, Cebu Pacific Air and Philippine Airlines, respectively.
The so-called ‘super consortium’ is said to still be in discussions with no formal agreement signed, but the move is surely a welcome sign that the private sector is growing weary of the worsening situation at the country’s busiest air gateway and the damage to the economy that will ultimately result.
The cooperation among the country’s economic elite is not the first, but certainly it’s the first on such as scale, not witnessed since 1993 when Henry Sy Sr., Lucio Tan, George Ty, John Gokongwei, Andrew Gotianun and Alfonso Yuchengo joined forces in an unsuccessful bid for the NAIA Terminal 3 project.
It’s unclear how the government will respond to any such proposal however, given the fact the Duterte administration has committed to expand Clark International Airport, an hour’s drive north of Manila, as a NAIA alternative. And further throwing things into question, just last year the country’s Department of Transportation put on hold a PHP75 billion (USD1.48 billion) public-private partnership (PPP) project to develop and privatise operations of NAIA.
There are also proposals already put forth to replace NAIA by two separate groups – San Miguel Corp.’s proposal to build a new international airport in Bulacan province mid-way between Manila and Clark, or the Belle-Solar Group’s project in Sangley Point, Cavite.
For now, it will be a watch and wait game but at least a couple things are for sure: In the often murky and overly-bureaucratic world of Philippine governance, nothing happens quickly and when it does happen, it may well defy logic.
IATA weighs in
Speaking recently at the Philippines Aviation Day event in Manila, Alexandre de Juniac, International Air Transport Association (IATA) director general and CEO didn’t mince words as he urged the Philippines to develop an airport master plan to ensure that growing demand for connectivity can be accommodated.
The need for a concrete plan of action is he said, “apparent to anybody who arrives at Manila’s Ninoy Aquino International Airport (NAIA). The facilities are no match to the region’s other major hubs – Seoul, Hong Kong, Bangkok, Kuala Lumpur or Singapore.
“There has been much more talk than progress on building a solid airport infrastructure foundation for Manila,” he pointedly said in reference to years of political back-pedalling on the issue.
De Juniac said that from IATA’s perspective, three things are clear:
- NAIA needs urgent enhancements – to the terminal infrastructure and taxiways that will provide much-needed capacity. There are short-term proposals to provide capacity relief which we ask the government to take urgent action on. Ideally, we would like to see NAIA developed into a full-scale multi-runway hub. Realistically, however, the airport’s physical constraints will not allow this to happen.
- Clark can be developed as a secondary airport for Manila, but it’s unsuitable as a candidate to become Manila’s main airport – the 100km is too far and too costly to bridge.
- So, the long-term and urgently needed solution is to find a site in reasonable proximity of the metro Manila area where an airport of two runways could be built and eventually expanded.
But realistically he said, achieving this will be a major challenge – in the short, medium and long-term. “The closer government, airlines and the airport work together, the better the results will be. That cooperation should begin with the development of the next five-year master development plan for NAIA.
“There is no time to lose. Siting, designing, building and financing a new airport and the connecting infrastructure is easily a ten-year project. And it is hard to see how even the most aggressive possible incremental capacity expansion plan of NAIA will be able to adequately cope with the growing demand,” he said.
“Keep in mind that every landing that cannot be accommodated is lost money and opportunity for the Philippine economy – tourist and investor dollars that will go elsewhere. So we must act quickly,” he urged.
De Juniac also warned that it’s equally important to act wisely and avoid mistakes made in other parts of the world. “Many governments turn to the private sector when infrastructure needs to be expanded urgently. It’s a short-term fix that brings long-term pain if the regulatory structure is not clearly focused on the airport’s important role as an economic catalyst.”
From an airline’s perspective three things are essential, he said: Airlines need sufficient capacity to grow their businesses to meet demand; They need quality and technical excellence aligned with their service offering, and; They need costs that are affordable.
“However the urgent capacity expansion is handled, it is important that there is an effective regulatory framework in place that protects the public interest by focusing on these three goals,” he cautioned.
For more articles on the Association of Asia Pacific Airlines 61st Assembly of Presidents, please see: ‘Asia Pacific airlines confront challenges as they celebrate growth‘ and ‘Asia Pacific cargo, pax growth under threat: AAPA‘.