CEBU PACIFIC STRATEGIC MANAGEMENT PAPER

A Final Paper
Presented to the
De La Salle University Manila
In Partial Fulfillment of the
Course Requirements in
STRATMA
Presented to:
Sir Jem Pampolina
Presented by:
Patricia Wijangco
Submitted on:
Term 1, AY: 2015-2016
November 21, 2015

Executive Summary

Cebu Pacific Air is currently the countrys leading domestic carrier, serving the most
domestic destinations with the largest number flights and routes, and equipped with
the youngest fleet. Cebu Air, Inc., operating as Cebu Pacific Air, is based on the
grounds of Ninoy Aquino International Airport (Manila Terminal 3), Pasay City, Metro
Manila, the Philippines. It offers scheduled flights to both domestic and international
destinations. Its main base is Ninoy Aquino International Airport, Manila, with other
hubs at Mactan-Cebu International Airport, Francisco Bangoy International Airportand
Diosdado Macapagal International Airport.

Cebu Pacific has 2 major competitors, which are Philippine Airlines and Air Asia. This
paper seeks to cite the different strategies of Cebu Pacific and how it was successfully
been making them grow annually. Since, it is a low cost carrier airline, it is mentioned
what strategy the company uses to be able to generate profit despite the low fare
prices.

COMPANY BACKGROUND

Cebu Pacific is a low cost airline based in the Philippines. It offers a discount, no frills,
and budget type of airline for both domestic and international flights. It is one of the
major holdings of JG Summit Holdings under John Gokongwei. It is currently the
biggest carrier in the Philippines and is mainly based in Ninoy Aquino International

Airport. Cebu Pacific is known for their low-cost approach. It offers no-frills, discounted
and low budget fares. This also means fewer comfort. To make up for revenue lost in
decreased ticket prices, the airline charges for extras like food, priority boarding, seat
allocating, and baggage. Cebu Pacific offers 34 domestic flights and 26 international
flights. They are more known for flying around the Philippines but are currently
expanding their international destinations.

Founded on 1996 as Cebu Air, Cebu Pacific offers scheduled flights to 33 domestic
destinations, and to 16 international destinations in 10 countries. It is currently the
country's leading domestic carrier, serving the most domestic destinations with the
largest number flights and routes, and equipped with the youngest fleet. Its main base
is Ninoy Aquino International Airport, Manila, with other hubs at Mactan-Cebu
International Airport, Francisco Bangoy International Airport and Diosdado Macapagal
International Airport. The airline is a subsidiary of JG Summit Holdings, controlled by
the Gokongwei family - one of the richest Filipino-Chinese families based in the
Philippines. Cebu Pacific is currently headed by President and CEO Lance
Gokongwei, presumptive heir of John Gokongwei, the chairman emeritus of JG
Summit.
With a company slogan, Its time every Juan flies Cebu Pacific entered the market
with a promise to give "low fare, great value" to every Filipino who wanted to fly. It
operates a fleet of 25 Airbus (10 A319 and 15 A320) and 8 ATR 72-500 aircraft, the
youngest fleet in the Philippines. Cebu Pacific remains to be the pioneer in creative
pricing strategies as it manages to offer the lowest fare in every route it operates.

Industry Analysis

Air travel continues to be a growing industry because it facilitates economic

growth, International investment, world trade and tourism and therefore is one of
the main proponents of globalization. Airline companies have three main goals,
providing good service to the customers, returning the investment with an
increase to their shareholders, and lastly providing sustenance to nations
economy (Alfelor, 2013). The airline industry must not only take in priority the
goal they have set up for their company but also the dynamics that affect the
improvement and success of their industry. Such as their airport capacity, route
structures, technology, cost to leave or buy the aircraft. There are also some
unpredictable dynamics that when unprepared can affect the whole industry like
the weather that is irregular especially in Philippines where there are typhoons all
year round. Fuel cost is also a main factor in the dynamics that could change the
entire industry. Fuel is also the second largest expense and a significant portion
of an airline total cost. One of the largest expenses, an airline can incur is labor
that the airline must pay to its human stakeholders such pilots, flight attendants,
dispatchers, bagger handlers, and others.

The Airline industry must always put in mind the key factors that affect their
success. They should always strive to continue providing customer satisfaction,
competitive rates, adequate technology, and a wide variety of destinations.

Macro environmental analysis

POLITICAL

ECONOMIC

- Airline industry is highly regulated

- Increasing prices of different aircraft

- Government seeks to increase

models

tourism

- Dependence on craft, equipment and

fuel
-Maintaining and operating costs are
high
-Purchasing power of Filipinos are

SOCIAL

getting higher
TECHNOLOGICAL

-Philippines is highly populated

- Online booking is usually being

- More people want to travel

utilized

- Increasing market for low-cost

- Web check-ins and seat reservations

carriers

are also done online

- Social media is highly used now

LEGAL

ENVIRONMENTAL

- Strict rules and regulations regarding

- Climate change affects flight

safety of flyers

schedules
- Noise and Air Pollution
- Waste Management

Major players/ Competitor Analysis

Philippine Airlines

Philippine Airlines, Inc. commonly known as PAL, is the flag carrier and national
airline of the Philippines. Headquartered in the Philippine National Bank Financial
Center in Pasay City, the airline was founded in 1941 and is the oldest
commercial airline in Asia operating under its original name. Out of its hubs at
Ninoy Aquino International Airport of Manila and Mactan-Cebu International
Airport of Cebu City, Philippine Airlines serves nineteen destinations in the
Philippines and 24 destinations in Southeast Asia, Middle East, East Asia,
Oceania and North America.

Philippine Airlines Inc. owns and operates national and international flights. The
companys fleet includes Boeing 747-400, Airbus A340-300, Airbus A320-200,
and Boeing 737-400. Its international destinations include Jakarta; Vancouver;
Los Angeles; Honolulu; and Shanghai and national destinations include Along,
Nag, Leaps, Butane, and Dalai. Philippine Airlines was founded in 1941 and is
headquartered in Makati, Philippines. Philippine Airlines Inc. operates as a
subsidiary of PAL Holdings, Inc.

Philippine Airlines is the only airline in the Philippines to be accredited with the
IATA Operational Safety Audit (IOSA) by the International Air Transport
Association (IATA) and has been awarded a 3-star rating by the independent
research consultancy firm Skytrax.

Air Asia
AirAsia Inc., operating as AirAsia Philippines is a low-cost airline based at Ninoy
Aquino International Airport in Metro Manila in the Philippines. The airline is the
Philippine affiliate of AirAsia, a low-cost airline based in Malaysia. It's
headquarters is in Clark, Pampanga. Orginally, the Filipino inventors were
Antonio O. Cojuangco, Jr, former owner of Associated Broadcasting
Company/owner of Dream Satellite TV; Michael L. Romero, a real estate
developer and port operator; and Marianne Hontiveros, a former music industry
executive and TV host. In 2013, a share-swap agreement with Zest Airways
added Alfredo Yao of Zest-O Corporation as an additional owner of the company.
Zest Airways was rebranded as AirAsia Zest and will operate as a separate brand
from AirAsia.

Mission

"Why everyone flies."

Cebu Pacific brings people together through safe, affordable, reliable, and funfilled air travel. We are committed to innovation and excellence in everything we
do. We are an employer of choice providing opportunities for professional and
personal growth. We have a deep sense of family values throughout our airline.
We enhance the quality of life of the communities we serve and are an active
partner in our nation's progress. We offer our shareholders a fair return on their
investments.

Vision,
It is to become the most successful low-cost carrier in the Asia-Pacific region; to
be the best domestic airline and the Filipino travelers' first choice, recognized
with unparalleled genuine, warm and caring service; to become the pioneer in
innovation and commitment to excellence.

Strategic and Financial Objectives

Cebu Pacific works under a budget airline business model. This strategy offers
unbundled fares, meaning the fares that they offer come with no frills and are
easy on the budget. For example, they cut down in-flight food service. This lowcost carrier strategy appeals to a lot of Filipino consumers because it is a price
sensitive market. This low-cost carrier strategy enables them to have regular
customers who want to travel but also keep in mind their budget. For the
incoming years, Cebu Pacific aims to offer more international flight locations for
the airline. As of now, they currently have 26 international destinations.
Financially, it aims to increase their market share by 3.5% the incoming year. At
the same time, they want to increase their net operating income by 18%.

Reported Financial Performance

Industry Analysis Using the Five Forces Mode

Over the years, Cebu Pacific increased the seats sold and number of passengers
riding the planes because of how they utilized their airbus fleet by having 6.5
flights per day. Cebu Pacific also acquired Tiger Air, which increased their market
share. As of date, they have most number of passengers carried and highest
seat load factor. Cebu Pacific has generated revenues higher than the revenues
earned during the year of 2013. Their revenues from passengers increased
mainly because of their increase in passenger volume compared to 2013. As
they added new aircraft to their fleet which can carry more passengers.

Driving Forces
NEW ENTRANT

Currently, there are no new entrants of airlines in the market, altough, Cebu
Pacific acquired Tiger Air and renamed it to CEBGO as of early 2015.

CONSUMERS
There are many possible consumers for Cebu Pacific. First are the tourists, those
who are from the Philippines and those who are foreign. These are for the people

who want to tour the Philippines, visit the Philippines, or visit other countries for
travel and leisure. Another consumer would be a businessman for business trips
and meetings. OFW's are also consumers when they need to travel to their
provinces from arrival in Manila. Students are also consumers for when they go
on educational trips, tours or study abroad.

COMPETITORS

Philippine Airlines is considered as the legacy and national carrier of the

Philippines and has been around for a long time. They are a known airline in the
Philippines that serve international and domestic flights. They have more
destinations internationally compared to Cebu Pacific. PAL express is under
Philippine Airlines but offers local flights at cheaper prices compared to Philippine
Airlines. Another is AirAsia which used to be Zest Air. They are not as big as
Cebu Pacific but cater to some Asian international destinations and local
destinations.

SUBSTITUTES
Substitutes for Cebu Pacific would be travelling through sea. It's not really the
same as using an airplane as transportation due to time and comfort. It will take a
lot longer to certain destinations, and it might not be practical to use it for
international destinations. Another substitute would be rental of personal planes
or jets but it is too costly.

SUPPLIERS
Currently, Cebu Pacific accepts payment through credit cards such as Visa and
Mastercard. They also accept through bayad centers such as Western Union.
CEB orders their aircrafts from Airbus S.A.S and ATR. In addition, Petron is their
supplier for airplane fuel.

Strategic Group Map

TOWS Analysis
STRENGTHS

WEAKNESSES

1. Currently the most

1. Limited destinations

known low cost carrier in

2. Add-ons such as

the Philippines

baggage, meals, and

2. User-friendly website

entertainment in flight are

3. Customer Loyalty

not included
3. Poor customer service

OPPORTUNITIES

S/O STRATEGIES

W/O STRATEGIES

- More people are able to

- They should expand

2. Increasing number of

travel because of the

their destinations since

OFW's

affordable prices that

more people are willing

3. Higher purchasing

Cebu Pac offers

to travel

power of consumers

- Since there are more

- They should improve on

destinations, OFWs can

customer service so that

travel directly to their

consumers will still avail

loved ones using Cebu

of their service

1. More destinations

Pacific
- Customers who have
been loyal will come back
because of the
destinations offered

THREATS
1. Oil Price is not

S/T STRATEGIES

W/T STRATEGIES

constant

-Even if oil price is not

2. Economic instability

constant, Cebu Pacific

- They should continue to

can still compete with the

promote and agressively

other brand because of

advertise their promo

their lower prices

fares because this is

- Despite the economic

what makes a lot of

instability, Cebu Pacific

consumers impulsively

can continue to offer

travel despite different

3. Increasing Inflation
Rates

promo fares for their loyal economic instability

customers

Benchmarking

Value Chain

Generic Strategies

Cebu Pacific practices Cost Leadership Strategy. This is when profits are
increased due to the decrease of cost, lowering of prices but still having
reasonable profit because of reduced costs. In Cebu Pacific's case, they try to
cut costs by increasing seats in all the planes. If an airbus originally has a certain
number of seats, Cebu Pacific tries to add more so they can take in more
passengers. Also, they try to increase their profits through their add-ons such as
meals and baggage.

CEBU
PACIFIC

Implementation

Proposed Strategy (overall)

Cebu Pacifics main goal is to provide an opportunity for everyone to travel
anywhere and everywhere they wanted with a fun-filled experience that is
conveyed with passion for excellent service, using a strategy that imbibes certain
characteristics of the other type of competitive strategies, but more dominantly
combines strategic emphasis on low cost and differentiation.
Cebu Pacific will use Best-Cost Provider strategy because goes well with the
companys objective which is to become global, offer premium service that will
attract customers, becoming their preferred airline that will meet customers'
needs. Using Best-Cost Provider strategy can attain a competitive edge over
rivals in hitting a broader market which is composed majority of consumers
seeking for a low cost opportunity to travel.
Aside from focusing in using a low-cost strategy Cebu Pacific also push into
achieving it through maintaining tight control over production and overhead costs
but still provide with an upscale product at much lower cost than the competitor in
the airline industry. Because of this advantages are competitors are likely to
avoid a price war, since the low cost firm will continue to earn profits after

competitors compete away their profits especially in airline industry. also powerful
customers that force firms to produce goods/service at lower profits may exit the
market rather than earn below average profits leaving the low cost organization
in a monopoly positions. Buyers then loose much of their buying power. It is also
hard for new entrants to move in the industry because low cost leaders create
barriers to market entry through its continuous focus on efficiency and reducing
costs.
Aside from that using this strategy also improve Cebu Pacifics ability to adapt to
environmental changes, learn new skills and technologies, and more effectively
leverage core competencies across business units and products lines which
should enable the firm to produce produces with differentiated features at lower
costs.
Cebu pacific will also use under market penetration such as effective
advertisements will be made for the Cebu pacific in the TV and radio ads, print
newspapers and magazines. There will also have an establishment of Research
and Development (R&D) Unit which has a special economic significance apart
from its conventional association with scientific and technological development.
R&D investment generally reflects a governments or organizations willingness to
forgo current operations or profit to improve future performance or returns, and
its abilities to conduct research and development. Some Secondary Strategies
Cebu Pacific could use is Under Horizontal Integration which will have to do with
Merging with other Airlines. In microeconomics and strategic management, the
term horizontal integration describes a type of ownership and control. It is a

strategy used by a business or corporation that seeks to sell a type of product in

numerous markets. Horizontal integration in marketing is much more common
than vertical integration in production. Horizontal integration occurs when a firm
in the same industry and in the same stage of production is being taken-over or
merged with/by another firm which is in the same industry and in the same stage
of production as of with the merged firm. Cebu Pacific has a good financial
position therefore; it has the capacity to merge with another hotel company in the
industry. If Cebu Pacific merge with another airline, it would be possible for both
companies to compete not only in the Philippine industry but also with the other
foreign countries as well.
Renovation of Cebu Pacific facilities to a more modern and futuristic style can
also affect some good impact to consumers. New facilities design and
development is more than often a crucial factor in the survival of a company. In
an industry that is fast changing, firms must continually revise their design and
range of facilities. This is necessary due to continuous technology change and
development as well as other competitors and the changing preference of
customers. A system driven by marketing is one that puts the customer needs
first, and only produces services that are known to customers. Market research is
carried out, which establishes what is needed. If the development is technology
driven then it is a matter of changing what it is possible to make. The facilities are
developed so that hotel processes are as efficient as possible and the services
are technically superior, hence possessing a natural advantage in the market
place.

Implementation
Sales and Marketing
The marketing department can seek to increase market share for present
products or services in present markets through greater marketing efforts. This
strategy is widely used alone and in combination with other strategies. Market
strategies include increasing the number of salespersons, increasing advertising
expenditures, offering extensive sales promotion items, or increasing publicity
efforts.
Operations:
This department can assure the quality of the operations in Cebu Pacific. They
should follow the practice of on-time performance while is in accordance with the
industry standards. This means that the aircraft must not leave more than 15
minutes from the assigned scheduled department time. This is something that
consumers really look for when it comes to their flights.
Finance:
Its role is to make sure In order to meet the obligation of the business andto have
enough cash and liquidity. It is the responsibility of a financial manager to decide
the ratio between debt and equity. The finance department should also be able to
allocate the funds and do profit planning.
IT/MIS:
IT is in charge of all the web-based technology and must coordinate with Sales
and Marketing for them to implement their strategies on their website. They are in
charge of the e-commerce side of the brand.

Financial Projections

References
http://www.4-traders.com/CEBU-AIR-INC-7641135/financials/
http://www.slideshare.net/SoleilGan/how-cebu-pacific-air-changed-the-game http:
//www.slideshare.net/louiemarkquizon/10-step-marketing-plan-cebu-pacific http://
www.slideshare.net/catansay/airline-industry-10446667 http://www.cebupacificair.
com/pages/aboutus.aspx http://www.cebupacificair.com/Quarterly
%20Reports/CEB_17Q_Sep2012.pdf http://en.wikipedia.org/wiki/Performance_a
ppraisal
Alfelor, Jangaile (2013). Strategic Marketing Plan for Cebu Pacific Air Inc.