MANILA/SINGAPORE, Jan 8, — Singapore’s Tigerair is selling its Philippine business to Cebu Pacific, the archipelago’s biggest airline, leaving just three main players in a market flush with planes but thin on passengers.

Tigerair, which has lost millions of dollars since buying into the budget carrier about 18 months ago, is turning its attention to partnerships to build scale. Cebu Pacific is betting on longer-term growth to propel traveller numbers beyond seats.

Tiger Airways Holdings Ltd, 40 per cent-owned by Singapore Airlines Ltd, said today it will sell its 40 per cent stake in Tigerair Philippines to Cebu Air Inc , operator of Cebu Pacific.

That will leave Cebu Air, a unit of conglomerate JG Summit Holdings Inc, with one less competitor. It separately said it will buy the stake plus the remaining 60 per cent of the budget carrier from Tigerair’s local partners for US$15 million. Tigerair estimates proceeds of US$7 million.

This would be the second instance of consolidation in less than a year after the Philippine unit of Malaysia’s AirAsia Bhd bought 49 per cent of Zest Airways in March. AirAsia increased its spending on Zest in September to relieve financial stress at the small airline.

The number of available seats on Philippine planes will soon outnumber passengers, prompting airlines to cut prices to gain market share.

“I think it (pressure on fares) is a reflection of the fierce competition within the Philippines,” Lance Gokongwei, chief executive and president of Cebu Pacific, told reporters in a conference call.

“Our feeling is that the Philippine economy continues to grow at a pretty strong clip and if we have overcapacity at the moment, over time the growth of the market will more than compensate for this.”

Tigerair Philippines has been losing money since Tigerair completed the purchase of its 40 per cent stake in 2012. As of September 30, Tigerair had written off its cumulative share of losses and impairments of S$84 million (RM216 million) in its Philippines operations since August 2012.

Shares of Tigerair fell nearly a per cent today in a firm market. Cebu Pacific rose 3.5 per cent in a broader market which rose 0.7 per cent.

More partnerships

Tigerair, after selling the stake, will collaborate both commercially and operationally with Cebu Pacific on international and domestic routes, thereby creating the biggest network of flights out of the country.

“Indeed, scale of operations is important and that includes both real and virtual scale as well. We believe that getting into partnerships and alliances will give us virtual scale that will yield similar benefits as well,” said Koay Peng Yen, chief executive of Tigerair.

“This new partnership with Cebu Pacific is an expansion of that strategic thinking that we have.”

Cebu Pacific said the alliance will enable it to fly to high-growth markets such as Australia and India, and jointly operate routes between Singapore and the Philippines.

“At this point, they (Tigerair) do not have flexibility or the firepower to increase the number of planes, so they are not looking at increasing connecting cities through increased frequencies on Tigerair,” said Sagar Ashok, a Kuala Lumpur-based aerospace consultant at Frost & Sullivan.

“So, they would be looking at these kinds of arrangements where they fly in with other carriers.”

Last month, Tigerair turned its attention to budget air travel in North Asia, saying it will hold 10 per cent of Tigerair Taiwan, a new joint venture with China Airlines Ltd.

Tigerair also formed an alliance with Indian budget airline SpiceJet Ltd and partnered with Scoot, a medium and long-haul low-cost carrier owned by Singapore Airlines.

“The aviation market in the Philippines is overcrowded and largely unprofitable, except for market-leader Cebu. The deal will allow Cebu to solidify its market position,” said SB Equities analyst Raymond Yap in a note.

Cebu Pacific controlled about 51 per cent of the domestic market in July-September, followed by PAL Holdings Inc’s Philippines Airlines group with just over 35 per cent, the Centre for Aviation said in a report, citing government data. AirAsia-Zest Air held 9 per cent while Tigerair Philippines held nearly 5 per cent.

Tigerair Philippines averages 118 flights weekly with five aircraft to 11 domestic and international cities. This compares with Cebu Pacific’s 2,200 flights, 48 aircraft and 24 overseas and 33 local destinations. — Reuters