MANILA Philippines — Asian Spirit a 10-year-old carrier in the Philippines is set to break into the highly-competitive international budget airline market with the impending launch of its flights to Palau in mid-March.

Jack Po executive vice president of Asian Spirit told the Journal that the carrier will be targeting “not only the Filipino community in Palau but also tourists from Hong Kong Japan and Taiwan.”

The flights from Davao City to Koror the capital of Palau “initially three times a week — every Tuesday Thursday and Sunday” — will be made “in cooperation with Palau Air ” which is owned by a group of businessmen headed by Palau Sen. Alan Seid.

Palau Air was launched in July 2004 but ceased operating in December of that same year. Surangel Whipps Jr. chief executive officer and president of Surangel & Sons Co. said Palau Air is undergoing restructuring and has returned its one leased aircraft to Bolito in Sweden. “The aircraft was underutilized. The fixed costs were just so high that the best thing to do was to just stop because if we continued things would just get worse.” He added that the company is working on alternatives. “We’re looking at other ways to provide service and take a more practical approach.” Initially Palau Air will function like a general service agent for Asian Spirit but “eventually we will have a code-share arrangement [with them] ” Po said.

Whipps said Palau Air would do the same for possible routes to other destinations. “Long term we want to code-share with other carriers to fill seats and then eventually we will have our own aircraft. Which is something we should have done in the beginning.” He said a lot of people from Palau fly to the Philippines for medical treatment and that this arrangement would supplement Continental flights to the Philippines. “So if Continental flies two times a week then we would fly the other three days. We’re flying to Davao and not Manila.” Whipps said that Palau Air will not attempt to fight Continental on the market. “We would rather work with Continental and look at different ways that we can help each other. We are not going to fly where Continental flies. If we do something we do something different.” He said the previous management team made a mistake by deliberately going head to head with Continental. “If we want to fly to the rest of Micronesia we would fly to Yap then to Chuuk and then to Pohnepei bypassing Guam altogether. Continental is a strong company; there’s no need to compete with Continental.”

Whipps said because there are a lot of Philippines migrant workers in Palau that Davao would be another area to offer jobs to interested prospects “It’s not Manila. It’s cheaper and easier for people to go home.”

Po said “We have been getting a lot of requests for a true flight to Palau from tour operators especially from Hong Kong.” Right now he said tourists from Hong Kong have resorted to chartering flights to Palau using Taiwan’s Far Eastern Air Transport. Workers and travelers coming from Manila on the other hand fly to Koror via Continental Airlines Micronesia which has direct flights every Wednesday and Saturday while the rest of the week they fly via Guam. Only Cebu Pacific Airways a second Philippine flag carrier had served the Manila-Koror market as a charter service in 2004. It stopped the service due to the lack of aircraft and sales offices and consequently low passenger demand. (See “Air traffic one-way on Micronesia routes to Manila” in the Journal’s Oct. 3 2005 issue.)

Asian Spirit will be using a four-engine jet a British Aerospace [BAe] 146-200 which has a maximum passenger capacity of 100 and a range of 1 450 miles. Flights will depart Davao at 9 p.m. and arrive at 10:30 p.m. in Koror. Departures from Koror will be at 1 a.m. and arrive in Davao at 2:30 a.m. Round-trip airfare between the two points will cost about $150.

Asian Spirit was expected to get the nod for its Davao-Koror flights in a meeting on Feb. 8 between officials of the carrier led by Po and Palau’s Division of Transportation and Communication. “I believe the Davao-Koror route will be as lucrative as our Boracay route ” He said referring to the famous resort island of Boracay in Western Visayas south of Manila. The airline flies to Boracay as many as 14 times a day.

With the Koror flight originating from the southern Philippine city of Davao the most modern city in Mindanao Asian Spirit is believed to be largely trying to avoid a possible price war with Continental which has monopoly over the Manila-Koror route.

Asian Spirit launched January its Manila-Davao route which is priced at $200 roundtrip. Despite the additional $150 roundtrip airfare from Davao to Koror the carrier’s total roundtrip airfare if originating from Manila will only cost $350 much lower than Continental’s $560 fare. Continental though uses a larger aircraft for its Manila-Koror flights a Boeing 737-800.

Asian Spirit’s flights to Davao leave Manila at 5 p.m. daily and arrive in Davao at 6:40 p.m. offering a short layover before the 9 p.m. flight on the designated days to Koror. Po said the carrier is aiming for a “60% to 70% load factor” for each Davao-Koror flight.

Davao City was the site of the Asean Tourism Summit held in January. It is one of the Philippines’ most popular tourist destinations as it is home to an eclectic mix of modern and Muslim tribal culture cuisine and has a diverse eco-tourism appeal. As such Asian Spirit will be encouraging foreign travelers to also check out the sights in Davao before proceeding to Palau. “We are currently negotiating marketing arrangements with hotels in Davao [for this purpose] ” Po said.

Palau attracts a large number of eco-tourists specifically scuba divers because of its diverse marine life. Data from the Palau government web site showed that the country was visited by some 83 000 tourists in 2004 largely from Taiwan and Japan. About 15.3% of its population are Filipinos which include workers in professional jobs such as accounting information technology medicine and allied industries etc. Latest statistics from the Philippine Overseas Employment Agency showed over 1 000 Filipinos worked in Palau from January to August 2005 surpassing the 947 in the same period in 2004. The total number of documented Filipino workers in 2004 was 1 337 making them the largest bloc of foreign workers in Palau.

Asian Spirit’s Davao-Koror flight signals its entry into the international budget air travel market currently dominated by the Singapore-based Jetstar Asia (a partnership between Qantas Airways Singapore businessman Tony Chew FF Chong and Temasek Holdings Pte Ltd) its sister-firm Valuair and Tiger Air (partnership between Singapore Airlines Limited Indigo Partners LLC Irelandia Investments Ltd. and Temasek Holdings). Another Philippine carrier Cebu Pacific Airways owned by retail king John Gokongwei is the only other low-cost Filipino airline flying internationally — to Hong Kong and Seoul South Korea.

Po said Asian Spirit is planning flights into mainland China. Initially it is eyeing “a charter service between Guangzhou and Shanghai.” Eventually it is expected to fly between Manila to either of those cities.

Asian Spirit is one of the Philippines’ most recent success stories in the business arena. Largely composed of former staff and executives of leading carrier Philippine Airlines now owned by Guam ambassador-at-large Lucio Tan Asian Spirit was set up in 1996 as a cooperative. It began serving the Manila-Caticlan route the latter being the gateway to white sands of Boracay Island dubbed by international travelers magazines as “one of the best beaches in the world.” The carrier expanded its network by flying other so-called “missionary routes” low-traffic destinations which had been dropped by PAL.

By using smaller aircraft and with less overhead to worry about Asian Spirit was able to transform these missionary routes into very profitable tourist destinations making the 10-year-old airline a virtual anomaly in the highly-competitive local aviation industry.

In January 2002 the carrier received its Philippine congressional franchise making it the country’s fourth flag carrier and allowing it to expand internationally. It now flies to 22 local destinations from Manila and Cebu with a fleet of 14 CN235s De Havilland Dash 7s LET 410s BAe ATPs YS-11s and the latest BAe 146-100 and BAe 146-200.

Last year the carrier posted a 20% increase in gross revenues largely owing to its Manila-Caticlan route as more Filipino tourists hurting from a depressed peso against the US dollar cut down their usual foreign travels and discovered Boracay’s treasures. The route has also become popular with foreign tourists.

This year Asian Spirit is projecting another 20% increase in gross revenues and is taking delivery of two more BAe 146-200s in the second and fourth quarter of this year.

As part of the terms of its congressional franchise the carrier is slated to have an initial public offering of its shares in 2008. MBJ