We have been reading all about how Qantas and Jetstar works together. The latter created a low-cost subsidiary Jetstar as a response to the growing low-cost carrier market. Qantas still operated as a full-service airline whereas Jetstar was the airline's low cost side. Instead of having one brand operating two kinds of services, they adapted a 2-brand strategy to face Virgin Australia and Tigerair Australia.
In the Philippines, the low cost market has been a growing one with Cebu Pacific taking more than 50% of the domestic market share. The airline created a very powerful "low cost branding" where when we would hear "affordable airline tickets", Cebu Pacific is the first airline that comes in mind. Now, Philippines Air Asia is catching up! They are poised to expand its fleet from 23 to 50, with the potential addition of widebody aircraft like the Airbus A330NEO in the future. This leaves us one question in mind. What will happen to PAL Express?
Right now, Philippine Airlines and PAL Express operates on a one-brand strategy where they both operate under one brand but adapting two types of services. Philippine Airlines is a full service airline whereas PAL Express is a low-cost subsidiary operating as a full-service airline. PAL Express also entered into a codeshare agreement with PAL where the flight code 2P is no longer used for PAL Express flights. Moreso, the brand "PAL Express" is no longer used, just Philippine Airlines.
Way back 2011 though, Philippine Airlines and Air Philippines under the brand AirPhil Express operated on a two-brand, two-service strategy. Branding of both were totally different. AirPhil Express operated domestic destinations and a few international, PAL operated both international and domestic. The strategy that time was similar to the Qantas - Jetstar model. AirPhil Express operated as a low-cost carrier made to rival Cebu Pacific's dominance in the domestic market. Though they were not able to pass Cebu Pacific in terms of market share, AirPhil Express became a huge threat. They were the fastest growing airline in the Philippines amidst the entry of Zest Air, another low cost airline which was formerly Asian Spirit.
The combined domestic market share of both PAL and AirPhil Express reached 53%, brought by a 20% market share growth from AirPhil Express in less than a year!
Will a two-brand strategy work for Philippine Airlines and PAL Express today?
Based on what we know, one of those reasons why Philippine Airlines and AirPhil Express were merged under one brand is to harmonize operations of both. PAL and AirPhil Express both flew domestic destinations and some international, hence, they were seen as competing with each other. The strategy was to make PAL take international destinations and PAL Express for the domestic side. For an airline to be considered flag carrier, it must have both domestic and international operations.
What were the effects of this merge? Well, some of AirPhil Express's loyal low cost customers moved to other low cost airlines, with an impression that the tickets of PAL Express will be higher as a full service airline. Many also thought that there is no more AirPhil Express or PAL Express. At the same time, both airlines worked under one single brand with two types of service.
If PAL and PAL Express were to follow the Qantas - Jetstar model today, we would say yes it will work, and we would say that PAL Express may even gain a bigger chunk in the domestic market share, for as long as they operate as an independent brand with a full low-cost strategy while PAL still operates as a full service legacy 4-star airline.
The Philippines domestic market is indeed dominated by the low-cost carrier. When we now think of low-fares, only two airlines come primarily in mind, Cebu Pacific and Air Asia. When we want to travel in style and in full comfort, it is Philippine Airlines. If we look at it, the Philippine domestic market is price sensitive. They are not after the food or anything, all they want is to get from point A to point B in one piece when travelling around the country.
Both companies have the fleet actually. There are 24 Airbus A321CEOs that looks more of a low-cost product in the PAL fleet. With the arrival of 14 more A321NEOs, all these 24 CEOs may be transfered to PAL Express. As for branding, Cebu Pacific and Air Asia have been doing a great job in marketing themselves to Filipinos as low cost carriers. Fun flights, "fun" marketing tactics, low fares, and all. PAL Express on the other hand is constrained to market itself as a "low cost subsidiary" of PAL due to the single branding model. We are just talking about marketing and branding here.
So what is our take? Yes we do see a 2-brand strategy similar to that of Qantas-Jetstar work for PAL-PAL Express. Two distinct branding and services. Low cost carrier with business class seats? Why not! There are low-cost airlines in the US which have IFEs on board! There is no such thing as a hybrid, a cross between a full service airline and low cost carrier. You are either a low cost carrier and a full service carrier. PAL Express with a whole different branding and marketing strategy will give Cebu Pacific and Air Asia a run for their money in the low-cost domestic segment, just the same way how AirPhil Express became a fast growing airline during its days.
There are still ways to make both harmoniously work together like proper network planning and common mileage program. A "PAL's low cost carrier" will work better rather than "PAL's low cost service". PAL Express with a whole different branding will come out like a "low-cost carrier with a touch of Philippine Airlines service" or "a low cost airline with a 4-star service" which the former could use as a sale pitch and unique selling proposition. Then again, the branding and marketing have to be distinct, they have to look "low-cost".
We hope that both airlines are also looking into a 2-brand strategy as a solution to gain market share in the domestic sector and improve finances. A 2-brand strategy like Philippine Airlines, a full-service 4-star airline serving the international long haul, regional, and a few domestic routes for the premium passenger market, and a distinctly branded PAL Express as a low-cost airline serving domestic and a few regional routes for the market that simply wants a no-frills and affordable airline but with a 4-star service touch.
It is almost impossible to serve two markets using one brand, it is simply like trying to sell a watered-down Toyota Camry to a market that wants a Toyota Vios. Nor will a fine-dining restaurant version of Jollibee with the same logo and happy bee on it sell to the A-market. If Jollibee wants to tap into the A-crowd, they will have to create a whole new fine dining restaurant brand with totally different products or purchase an existing fine dining restaurant company.
Just a trivia though. Before becoming AirPhil Express, the brand PAL Express was already born and had a distinct branding.
It did say PAL Express on its fuselage of those Q turboprops with Dolphins and fishes on it. The only time they rebranded as AirPhil Express was when the airline took in the Airbus A320s and from there, it was growth for the airline as a full low-cost subsidiary of Philippine Airlines.
Trust us, the domestic market would love to have a full low-cost airline with a touch of a 4-star service as one of their option when choosing among our airlines with low fares.
This is just our take, PAL number crunchers would know better and we are pretty sure there are other reasons why they decided not to operate on a 2-brand strategy. We are just basing our thoughts on the Philippine Airlines - AirPhil Express 2-brand strategy way back which did work.