1 I. INTRODUCTION Air cargo is typically defined as the sum of freight, packages, and mail. It is often used interchangeably with air freight. Figure 1 shows how air cargo is segmented, from documents or smaller parcels to heavy/outsized pieces or larger parcels: Air Cargo refers also to the use of an air carrier as a transport vessel for shipment purposes. It is growing in popularity as the medium of choice when it comes to shipping goods that are high value, time-sensitive and perishable from one destination to another. Air Cargo can get shipment to its overseas destination within a day and it has become an integral part of the global logistics network chain. In the past, cargo used to be merely a by-product of passenger airlines and a means for transporting emergencies and critical products or medical products. In today’s world, air cargo plays a more important role, as it supports trade and investment, promotes connectivity, and improves efficiency and competitiveness among several industries and nations. It enables the movement of commercial goods and freight in the international trade market. It offers a fast and relatively safe mode of transport for low volume, low weight but high value products. 1 1 An Entry Strategy for a Pure Freighter Company, Borlongan, 2007 Examples of these products are FIGURE 1: AIR CARGO DEMAND SEGMENTATION Source: Hoppin, D (2005). Air Cargo Industry Supply Issues. Washington DC: Merge Global.
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1
I. INTRODUCTION
Air cargo is typically defined as the sum of freight, packages, and mail. It is often used
interchangeably with air freight. Figure 1 shows how air cargo is segmented, from documents or
smaller parcels to heavy/outsized pieces or larger parcels:
Air Cargo refers also to the use of an air carrier as a transport vessel for shipment purposes. It is
growing in popularity as the medium of choice when it comes to shipping goods that are high value,
time-sensitive and perishable from one destination to another. Air Cargo can get shipment to its
overseas destination within a day and it has become an integral part of the global logistics network
chain.
In the past, cargo used to be merely a by-product of passenger airlines and a means for transporting
emergencies and critical products or medical products. In today’s world, air cargo plays a more
important role, as it supports trade and investment, promotes connectivity, and improves efficiency
and competitiveness among several industries and nations.It enables the movement of commercial
goods and freight in the international trade market. It offers a fast and relatively safe mode of
transport for low volume, low weight but high value products. 1
1 An Entry Strategy for a Pure Freighter Company, Borlongan, 2007
Examples of these products are
FIGURE 1: AIR CARGO DEMAND SEGMENTATION
Source: Hoppin, D (2005). Air Cargo Industry Supply Issues. Washington DC: Merge Global.
2
electronics, computer components, precision equipment, medical supplies. Although trade by air is
quite small in terms of volume, averaging at 2% to 3% of global trade movements, the volume and direction of
air cargo business is driven primarily by economic growth and supported by opportunities created by liberal air
cargo policies.2
Types of products shipped by air include: (1) high value products; (2) fast selling or “hot” products such as
clothing, toys and electronics; (3) high obsolescence products such as laptops, cellular phones and software;
and (4) critical products.
3 Majority of air cargo being exported out of Asia, however, consists of electronics,
while imports consist mainly of electronic parts and finished consumer goods.4
The following are characteristics of air cargo: (1) air cargo does not fly return; (2) air cargo is a heterogeneous
good and comes in numerous shapes, weights and values; (3) three in-flight-products suffice to satisfy the
demands of most airline passengers; (3) cargo customers are concentrated with a limited number of forwarding
agencies accounting for the major share of air cargo demand, whereas individuals and companies purchase
passenger tickets; (4) numerous companies can be involved in realizing the air cargo transport chain to fulfill
the required transport, handling, warehousing and customs tasks; and (5) unlike passenger airlines, air cargo
carriers do not have individual customer relationships.
5
The air cargo industry is considered to be a part of the services sector. In the traditional cargo chain, there are
two (2) types of flows that are taken into consideration:
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(1) the transportation of the cargo, which includes
functional communication with the various participants; and (2) the commercial communication, which
includes communication flows that are emphasized on the three main parties, the shipper or consignee, the
cargo forwarder the airline. Figure 2 shows the types of flows in the traditional cargo chain.
2 Center for Research and Communication, 2007 3 M c Ki nn on , 20 11 4 R a a ga s , 2 00 4 5 Von Vilet, 2010 6 Ibid.
3
FIGURE 2: TYPES OF FLOWS IN THE TRADITIONAL CARGO CHAIN
customs, warehousing agents, airport terminals, airlines, and consignees.
II. STRUCTURE AND PROCESS: AIR CARGO INDUSTRY
7
Source: “The Airfreight Industry”, Peterson, 2007
Airports were defined as
infrastructure providers charging landing fees and stand rentals or parking fees to airlines, who are
their main customers, and rent to service companies for passenger reception terminals, retail and
catering outlets offices, cargo transit sheds, air craft maintenance work shops and other services.
Airlines were defined as the suppliers of air cargo capacity into and out of a country. The general
overview of the entire process can be summarized in the Figure 3.
FIGURE 3: THE AIR CARGO PROCESS
The process begins with the shipper or consignor, the party or entity who needs service in
transporting cargo. Second, the freight forwarder arranges for the transportation of cargo from the
shipper’s warehouse, delivers it to the departing airport, prepares the necessary paperwork, picks it
up at the arriving airport, after delivery by the carrier and delivers it to the consignee. Third, the
carrier provides the air delivery of cargo from the origin airport to the destination airport. Upon 7 Fung, 2005
5
arrival at the destination airport, the ground handler physically handles the freight and endorses
cargo to the freight forwarder, who finally sends the goods to the consignee or the receiving party.
The world’s air cargo delivery system is comprised of two networks. The first (1) is essentially the
same as the passenger network, which can either be legacy or those pertaining to large aircraft, and
the low cost carrier. In this system, passengers are carried above and cargo is carried below in the
belly of the aircraft, utilizing space not needed by baggage—hence the name “belly cargo”. These
flights are routed and scheduled for the convenience of the passengers. While the passenger airlines
are generally willing to sell this otherwise unused space, they have not always wanted to bother
with the ground operations of pick-up and delivery and loading the belly containers. With this,
there are indirect carriers called the “forwarders” who has fulfilled this function. Until the Air
Cargo Deregulation Act of 1977the United States of America, these forwarders could not operate
their own aircraft, although one large forwarder, Emery, organized a fleet of leased aircraft totally
dedicated to its service.
The second (2) network in the air cargo delivery system utilizes aircraft that carry purely cargo
Aside from the said 2 networks, there is also a third kind of carrier, called (3)
.
These dedicated cargo aircraft sometimes referred to as the “freighters” or all-cargo aircraft come in
all sizes from a small, propeller-driven aircraft to a giant Boeing 747s configured to carry only
cargo. This network is less extensive than the passenger network, but has over the years carried a
growing proportion of total air cargo. The belly cargo was said to cover 90% of the total cargo and
10% is contributed by the all-cargo network. These all-cargo aircrafts generally fly at night and are
scheduled for the convenience of shippers.
integrators. These
integrators oversee the entire process and act as the forwarder and the carrier. Throughout the
history of air cargo, the primary integrators remain the big three: FedEx, DHL, and UPS.8
It was
noted that the big three have indicated a movement away from small packages and documents to
larger freight. As industry leaders, new processes or trends initiated by them have profound impacts
which affect other players, as they hold a greater share of large cargo transported.
8 Achard, 2009
6
FIGURE 4: THE AIR CARGO TYPES
Source: Hoppin, D (2005). Air Cargo Industry Supply Issues. Washington DC: Merge Global.
In terms of the Air Cargo types, of the 3 different types of carriers mentioned in this study, the focus
shall be given to combination carriers, since belly lift accounts for approximately 50% of global
inter-con capacity9
Carriers offer both local and international services, depending on the needs of the client.
.
10
9 Air Cargo Process, Hoppin, 2005 10 Ibid.
The
identified seven domestic services, namely: (1) Same Day or Next Flight or over-the-counter
airfreight services, which are allotted for packages with limited weight and which must be brought
to the ticket counter or a special desk at the airline where it moves in the baggage system rather than
the freight system; (2) Overnight services, which involve freight that is delivered the next business
day; (3) Express services, which are usually offered by integrators, which involves freight moving
in their own network or aircraft; (4) Forwarder services, who usually follow 5:00 PM delivery
deadlines; (5) Second Day services, which involve freight that is delivered 5:00 PM on the second
business day following pickup; (6) Deferred services, which take 3 to 5 business days domestically,
depending upon the distance.; and (7) Charter services, which involves forwarders who assist their
clients to charter an entire aircraft. Moving onto international services offered by air cargo
companies, these are: (1) Consolidation services, which involve shipments from different shippers
which are grouped together and tendered to the airline as one shipment, with the forwarder
becoming the shipper in the eyes of the airline; and (2) Direct IATA services, which are employed
when the shipper needs to send an international shipment with a forwarder to a point not serviced
7
by a weekly consolidation. If the forwarders concerned are approved IATA agents, they act as
agents for both shippers and airlines, therefore, fill out all airline paperwork required.
In terms of market share, scheduled air cargo traffic accounts for approximately 90% of all world
air freight (The Boeing World Air Cargo Forecast, 2010-2011), since most shippers use this type of
service in order to meet their transport requirements. The remaining world air freight traffic is
provided either by charters or express carriers, in order to meet urgent or special needs. Generally,
charter freight share rises during times of strong world air cargo growth and, conversely, falls
during times of slow or negative traffic growth. In keeping with this general trend, world charter air
freight fell 18.4% in 2009, but world scheduled air freight declined at a slower rate of 10.7% 11
11 The Boeing World Air Cargo Forecast, 2010-2011
8
Source: Hoppin, D (2005). Air Cargo Industry Supply Issues. Washington DC: Merge Global.
III. GLOBAL TRENDS AND PERFORMANCE : AIR CARGO INDUSTRY
As mentioned in the earlier part of this research paper, cargo used to be merely a by-product of
passenger airlines and a means for transporting emergencies and critical products. Globally, the
industry grew very rapidly during the 1960s, faster than passenger growth over the same period
(UK Air Freight Study Report). To date, cargo demand continues to grow faster than passenger
traffic resulting in a “growth gap,” as manifested in Figure 5. As a result, it is expected that more
freighters will be required to handle the demand brought about by said growth:
FIGURE: 5 INTERCONTINENTAL PASSENGER –CARGO GROWTH GAP Freight Traffic Index based on freight-tonne kilometers (FTKs) Passenger Traffic Index based on revenue passenger-kilometers (RPKs)
9
This became an opportunity for airline companies to recognize the income value of air cargo and
therefore, introduced all-cargo services. The growth of all-cargo airlines continued in the 1970s,
primarily due to increasing freedoms to operate outside bilateral agreements and growing
deregulation of freight operations to and from the USA, UK and other European countries.12
According to the Bureau of Transportation Statistics, US Department of Transportation, freight is
generated by economic activity and the industry tends to respond to fluctuations in this activity,
along with the level of trade among nations. This is the reason why the global economic downturn
in 2008 and 2009, caused by the collapse of major financial markets and decline in U.S.
merchandise trade with partners around the world, highly affected the air cargo industry. At that
time, an 8.8% decline in world industrial production and manufacturer shipping was reported.
However, as fuel price increased and economic recession took place in the mid to late 1970s, airline
companies were hit badly.
The UK Air Freight Study Report recognizes the most significant revolution in the industry to be
the development of the express sector. Federal Express, more popularly known as FedEx, was the
first to introduce express services. The company also integrated new features such as door-to-door
and overnight transport. During the 1980s, the express sector boomed and companies following
Federal Express’ example set up their own airline operations, as well. By the 1990s, integrators had
emerged. US integrators include United Parcel Service or UPS, Emery Worldwide and Airborne
Express, while European integrators were DHL and TNT.
13 By
the second quarter of 2009, financial liquidity problems and fluctuations in energy prices affected
all modes of freight transportation, including all sectors of the industry.14 Economic recovery only
began in the second half of 2009 and it was only in the third quarter of the same year when
industrial and manufacturing activity, particularly in Asia, began to accelerate.15 Prior to the series
of events that took place in 2008 and 2009, the industry’s primary challenge was growth in
merchandise trade and freight flow that strained system capacity.16
In general, The Boeing World Air Cargo Forecast, 2010-2011 Issue reported that developing
economies suffered less from the downturn; hence, they are expected to lead growth for the forecast
period. Africa, Asia, the Middle East, and Latin America are expected to have an average GDP
growth of 4% or greater through 2029, with GDP growth in North America, Europe, and Japan
12 UK Air Freight Study Report 13 The Boeing World Air Cargo Forecast, 2010-2011 14 Bureau of Transportation Statistics, US Department of Transportation, 2010 15 The Boeing World Air Cargo Forecast, 2010-2011 16 Bureau of Transportation Statistics, US Department of Transportation, 2010)
10
slower than the world average. Moreover, forecasts show that world industrial activity shall expand
at approximately 4% per year for the next two decades, which in turn supports the long-term
outlook for continued world air cargo traffic growth. Forecasts are based on historical data, as
shown in Figure 6, which presents historical data for a period of 10 years, from 1999 to 2009
FIGURE 6: RECORD OF WORLD INTERNATIONAL AIR FREIGHT (1999-2009) (in Millions of Metric Tons)
Source: Hoppin, D (2005). Air Cargo Industry Supply Issues. Washington DC: Merge Global. In spite of the fact that developing economies suffered less from the economic downturn, logistics
costs are usually higher in these countries as compared to logistics costs in developed countries due
to factors such as poor quality of infrastructure, weak institutions and greater inefficiencies in the
logistics system. On the average, logistics costs account for 10-15% of the final cost of the finished
product in the developed world. Based on studies conducted in the United States, these costs
include transportation costs which amount to 7-9% of the cost of the final product, warehousing
costs in the range of 1-2% and inventory holding costs which are 3-5% of the final product cost.17
17 Center for Research and Communication, 2007
11
It was also reported that the World Air Cargo traffic will triple over the next 20 years, averaging 5.9
% annual growth, compared to 2009 levels. The number of airplanes in the air freight fleet will
increase more than two thirds over the same period.
FIGURE 7: PERFORMANCE OF WORLD AIR CARGO FREIGHT
Source: World Air Cargo Forecast, 2010-2011
FIGURE 8: WORLD AIR CARGO TRAFFIC
Source: World Air Cargo Forecast, 2010-2011
This is a very good indication that there are a lot of opportunities in Air Cargo. With the reported
5.9% growth per year, there is so much future in the said industry.
12
The Asian region has become a big player in the world air cargo market, with the highest growth
rates for airfreight as compared to any other region, ever since the 1980s. There are more than 40
countries of various economic levels located in the Asia-Pacific region, with the Asian region being
segmented into two main parts namely: (1) Intra-Asia region or Northeast & Southeast Asian
regions and Southwest Asia, which comprises the Eastern Pacific Rim - Japan, China, Taiwan,
Korea, Singapore, the Philippines, Indonesia, Malaysia and Thailand; and (2) the southwest region,
which includes India, Pakistan, Bangladesh, Sri Lanka, Maldives, Nepal, Bhutan and Afghanistan.
IV. TRENDS AND PERFORMANCE IN ASIA: AIR CARGO
18
Asia has the opportunity to lead the world, since the demand for air cargo in the Asian region is
massive, as a result of its high population density, strong economic growth and development,
raising per capita income, improving political stability and wide spread adoption of open skies
policies.
19
As can be seen in Figure 7, Asia dominates the fastest growing air freight markets, based
on a 6-year period:
FIGURE 9: INTERCON MARKWTS (2004-2009) Traffic in Thousands of Metric Tons Per Year
Air cargo markets linked to Asia, especially the Pacific Rim countries, will lead all other
international markets in average annual growth between 2009and 2029.
18 Senguttuvan, 2006 19 Senguttuvan, 2006
Source: Hoppin, D (2005). Air Cargo Industry Supply Issues. Washington DC: Merge Global.
13
FIGURE 10: PERFROMANCE OF ASIA MARKETS
Source: World Air Cargo Forecast, 2010-2011
Because of growth forecasts in air cargo, several countries in the Asian region are exerting efforts to
augment their existing airport systems, so that they can hold on to the growing demand of air cargo
traffic and compete with regional hubs. What radically transformed Asian regions are the
comprehensive forces of liberalization and globalization, particularly ASEAN countries, who have
adopted a policy of moving toward open skies in recognition of the important role played by the
aviation sector in linking export-oriented economies with the global economy.20
The most recent report published by the Association of Asia Pacific Airlines or AAPA last January
30, 2012 recorded that Asian air freight demand fell 4.8% year-on-year in 2011, reflecting weak
worldwide economic conditions.
21 AAPA Director General Andrew Herdman added, “Air cargo
demand weakened significantly compared to the restocking surge experienced in 2010, reflecting
cautious management of supply-chain inventories in the expectation of weaker growth prospects for
the major developed economies.” On the contrary, he pointed out that “Asian airlines continue to
remain optimistic about longer-term growth prospects, as evidenced by ambitious fleet plans,
ongoing service enhancements and the launch of innovative new business ventures”.22
20 Tham, 2008
It was also reported that China's cargo market will lead the global industry. Chinese carriers will add +/‐300
freighters by 2028, almost quadrupling its total freighter fleet size (Boeing)
Cebu Pacific Cargo transported more domestic cargo than other airlines in the 1st quarter of 2012 according to
the Civil Aeronautics Board. CEB carried 22.1 million kilograms of cargo for the 1st quarter. It was said to be
even higher than the combined cargo load of Philippine Airlines and Air Phil Express. It was quoted from
CEB’s Vice President for Marketing and Distribution, Candice Iyog, that they have captured 48% of the
domestic cargo market in the 1st quarter of 2012. This highlights Cebu Pacific’s extensive domestic network.
She also mentioned that they have multiple daily flights to most key cities in the Philippines. Cargo forwarders
and shippers trust CEB to bring their valuable cargo in the soonest possible time. It was reported also that CEB
also led the domestic cargo market in 2011 with close to 89.5 million kg carried for the full year. From this we
can see that CEB is really very aggressive in its growth and development. The airline was said to have
increased domestic capacity in Q1 of 2012, with the arrival of one more brand new Airbus 320 aircraft this
January. At present, CEB operates 52 routes to 32 domestic destinations. This is believed to be the most
extensive network in the Philippines.
29 As part of their network expansion plans, there are three more Airbus
320 aircraft to arrive in the second half of this year. It was reported as well that they will be launching four
times in a week flights from Davao to Kalibo and Davao to Puerto Princesa. Ms Candice Iyog further shares in
the report that CEB at present services more than 2000 accounts, tailor-fitting cargo products to their clients’
domestic and international cargo needs. This includes express cargo service, seamless transshipment and 16
interline partnerships for worldwide reach. CEB currently operates 10 Airbus A319. 20 Airbus A320, and 8-
ATR 72500 aircraft. Its fleet of 38 aircrafts with an average age of 3.6 years is the largest aircraft fleet in the
Philippines. It was reported that between 2012 and 2021, Cebu Pacific will take delivery of 22 more Airbus
A320 and 30 Airbus A321 neo aircraft.30
28 Civil Aeronautics Board (CAB) 29 Manila Times.net (validated as well by the author with the interview with CEB cargo sales representatives) 30 Ibid.
19
CEB Fleet: FIGURE 13
CEB Routes: FIGURE 14
20
2. Philippine Airlines (PAL)
Philippine Airlines is Asia’s first Airline and the Philippine’s foremost flag carrier. They are the only
Philippine carrier that offers the following: Non-stop flights between Manila and USA, Extensive Philippine
domestic destinations, Strong presence in Asia and four destinations in Western Canada and USA, utilizing a
wide-body aircraft in its international and Philippine domestic flights.
Services Offered:31
a. Special Cargo – Commodities that require special or advance arrangement, packing, handling and in
certain cases, documentation. Acceptance of these type of cargo are subject to specific regulations.
Special Cargo includes, Baggage and special effects that are treated with special care and stored at
special location and Perishables, which are shipments which are so labeled and are stored under
specific temperature.
(1) Express Service – Rapid Handling of Urgent Shipment. Their airport to airport express service is handled
with the highest priority, guaranteed uplift once booking is confirmed with money back guarantee and
shipment is released within 3 hours upon arrival at destination. All cargoes within the minimum weight
requirement and brought in 2 hours before the scheduled departure time and tender the goods in 2 hours before
the flight.
Cargo Classification:
b. Valuable Cargo – these are shipments with very high commercial value.
c. Restricted Articles or Dangerous Goods – These are inflammables, explosives, radioactive materials
and corrosive substances like acids that may endanger the safe operations of the flight.
d. Livestock, Live Animals and Plants – these are shipments that need special attention and care.
e. General Cargo – these include all articles or materials that are not included in the list of Special Cargo.
31 Philippine Airlines Cargo Website
21
PAL Performance and Market Share:32
Type
Philippine Airlines accounted for 12.51 million kilograms or 27.3% of the market in year 2011. PAL came in
only as second compared to Cebu Pacific. PAL has been only on the second spot starting 2008 until the
present.
PAL Fleet:
Table 2: PAL Fleet
Power Speed Capacity Number
Boeing 777-300ER 2GE90-115Bl 482 knots / 555mph 370 Passengers and
28 tons of Cargo
3
Boeing 747-400 4 CF6-80C2B1F 488 knots / 562
mph
391/425/427
Passengers and 24
tons of Cargo
5
Airbus A340-300 4 CFM56-5C4 480 knots / 533
mph
264 Passengers and
23 tons of Cargo
4
Airbus A330-300 2 CF6-80E1A2 480 knots / 553
mph
302 Passengers and
22 tons of Cargo
8
Airbus A320-200 2 CFM-56-58 458 knots / 528
mph
150/156 Passengers
and 7 tons of Cargo
15
Airbus 319-100 CFM-56-5B6/P 503 knots / 579
mph
134 Passengers and
6.7 tons of Cargo
4
32 Civil Aeronautics Board (CAB)
22
PAL Routes: FIGURE 15
3. Air Phil Express
Air Phil Express is known to be the sister company of Philippine Airlines. Air Phil was created to answer to
the growing need of a low cost carrier. Due to the popularity of Cebu Pacific, PAL came out with its own Air
Phil Express. The mission of Air Phil Express is to provide customers with safe and reliable air transportation
with the best service at the least cost. It also provides employees with career development and job satisfaction,
and lastly it provides stockholders with fair return on investment.
Services Offered:
(1) Valuable Cargo – these are cargo with very high commercial value (2) General Cargo / General
Commodity – these are all materials and articles that are not included in the list of Special Cargo and (3)
Commodity Cargo
Air Phil Express Performance and Market Share:33
33 Civil Aeronautics Board (CAB)
PAL’s sister company budget airline handled 13.3% 0r 6.09 million kilograms (kgs) in the first quarter of 2012.
23
Air Phil Express Fleet:
Table 3: Air Phil Express Fleet
Airbus A320 Airbus A320 has been redefined to provide
exceptional levels of comfort with optimized seating,
legroom and elbowroom and substantial stowage
space. Considered as the safest narrow-body aircraft
equipped with advanced avionics systems. Air Phil
Express operates the youngest fleet of brand new
Airbus A320s in the Philippines.
Bombardier Q300 It can take-off and land on short runways that is
perfect for most airports in the archipelago. This is
nicknamed as the “quiet one” as it provides a jet like,
soft and quiet ride because of its state of the art Noise
and Vibration Suppressing System.
Bombardier Q400 Known as the world’s fastest turbo-prop in the 70-
seater category, is a pilot favorite because of its speed
and comfort like a jet. It is faster, more efficient and
friendly to the environment.
Air Phil Express Route: FIGURE 16
24
4. Zest Air
Zest Airways Inc. formerly Asian Spirit is an airline based in the Asian Aeronautics hangar in the General
Aviation Area in Pasay City. It operates scheduled domestic and international tourist services, mainly feeder
services linking Manila and Cebu with 24 domestic destinations in support of the other trunk route operations
of other airlines.
Services Offered:
(1) Valuable Cargo – these are cargo with very high commercial value., (2) General Cargo / General
Commodity – these are all materials and articles that are not included in the list of Special Cargo, and (3)
Commodity Cargo.
Zest Air Performance and Market Share:34
Zest Air has reported a big improvement in the efficiency of its cargo operations due largely to the automation
of its system. Automation enabled the company to offer better and faster cargo services.
35
Zest Air Fleet:
According to its
President and CEO, “ Processing of airway bills is now faster and transaction time has been greatly reduced
since we automated our cargo system.” Zest Air was able to ship about 15.2 million kilograms of Cargo in
2011 because of its more efficient cargo operations.
In the first quarter of 2012, it was reported that Zest Air carried 4.97 million kilograms as it comes in at 4th slot
in the country’s major airlines. 36
A320 / A319
Table 4: Zest Air Fleet
This airbus is the world’s pioneering fly-by-wire
jetliner. It has a commodious cargo hold equipped
with large doors to assist in expedient loading and
unloading of goods. It provides customers with added
space and comfort, reduced noise levels and allows
Zest Air to operate a more cost efficient and reliable
34 Philippine Daily Inquirer, January 10, 2012, Civil Aeronautics Board (CAB) 35 Zest Air CEO and President Alfredo M. Yao (article in PDI, January 10, 2012) 36 Zest Air Website
25
fleet.
Number: 9-A320 aircraft / 1-A319 Aircraft
Capacity: 162-168 Passengers and +37.4 cu.m. cargo
space – A320
144 Passengers + 37.4 cu.m. cargo space – A319
MA60 It is an advanced 50-60 seat class regional turboprop
aircraft developed by Xi’an Aircraft Company of
China aviation Industry Corporation. It can meet the
demanding needs of modern transport and offer
operators with the greatest operating benefits.
Number: 3 aircrafts
Capacity: 56 Passengers +9.5 cu.m. cargo space
5. Seair
South East Asian Airlines was set up in 1994 to provide a safe, reliable and economical air transportation for
travelers in the Philippines. Known as Seair Inc., it is the second locator in Clark and registered in SEC and
Clark Economic Zone Development. It is a private corporation that is majority owned by a Filipino, German
and American Managers. It was awarded as the “Best Airline of the Year” for two consecutive years, 2002 and
2003 by the Philippines’ largest Consumers Excellence Award.
Services Offered:
(1) Valuable Cargo – these are cargo with very high commercial value, (2) General Cargo / General
Commodity – these are all materials and articles that are not included in the list of Special Cargo and (3)
Commodity Cargo.
Seair Performance and Market Share:37
Seair comes in at the 5th slot with 67,631 kilograms (kgs) of cargo.
Seair Fleet:
Seair operates the youngest fleet of aircraft in their segment of the industry. Its fleet is made up of 3 Dornier
328 and 9 LET 410 UVP-E aircraft for use in chartered and scheduled flights.
37 Civil Aeronautics Board (CAB)
26
B2. International Air Cargo38
38 Port Calls Asia, Feb 22, 2012 (data from Civil Aeronautics Board)
The Philippine International Air Cargo Volume increased by 20% in 2011 due to the import sector’s
strong performance. Throughput reached 282,497 million kilograms (kgs) compared to the previous
year’s 234, 635 million kilograms (kgs). Inbound Cargoes and mail reached 144.309 million
kilograms (kgs) and comprised the bulk of the total outbound air cargoes hit 138.188 million
kilograms (kgs)
Philippine Airlines was the country’s top cargo carrier in 2011 handling 24.57% of the aggregate at
69.412 million kilograms (kgs). Of this, 65.723 million kilograms (kgs) were booked at PAL’s
Manila Terminal and 3.689 million kilograms (kgs) were booked in Cebu.
Cargoes shipped were electronics (70%), Tuna (20%), Garments, Spare Parts and Live Animals
(10%).
Hong Kong based airline, Cathay Pacific was the country’s second biggest cargo in 2011. It
handled 36.678 million kilograms (kgs) with 29.548 million booked in Manila and 7.13 million
kilograms booked in Cebu.
Third was Singapore Airlines with 20.822 million kilograms (kgs), followed by Korean Air with
18.631 million kilograms (kgs) and at the 5th slot is Gulf Air at 11.932 million kilograms (kgs)
Below are the top 10 International Air Cargo Players.
(1) Philippine Airlines (PAL),
(2) Cathay Pacific,
(3) Singapore Airlines,
(4) Korean Air,
(5) Gulf Air,
(6) United Parcel Services (UPS),
(7) Eva Air,
(8) Thai Airways,
(9) The Emirate.
(10) Qatar Air
27
TABLE 5: INTERNATIONAL SCHEDULED AIR CARGO STATISTICS
In this table, we can see that Philippine Airlines leads the international air cargo volume with 69,
412,675 kgs. The data for Foreign Carriers, at 213,085,262, has no breakdown.
In terms of the relationship of Air Cargo to Economic Development
C. Performance of the Industry 39, it is not just a trade
facilitator; it is a trade creator that contributes to the competitive advantage of nations. Air cargo
enables nations, regardless of location, to efficiently connect to distant markets and global supply
chains in a speedy, reliable manner. Thus, in the new fast-cycle logistics era, nations with good air
cargo connectivity have competitive trade and production advantage over those without this
capability. Such advantage, as Michael Porter40
When compared dynamically with changes in trade and GDP, air cargo emerges as the catalyst and
leader for growth. Even with such strong long-term growth, the aviation market in recent years has
experienced difficulties; challenges triggered by turbulence and uncertainty in world events such as
the tech bust, terrorism, SARS, and rising jet fuel costs. Historically, however, air cargo traffic,
and others have documented, is fundamental to
economic development, the latter typically measured by gross domestic product (GDP), in the
aggregate or on a per capita basis. A strong statistical relationship therefore exists between levels of
air cargo volume and both GDP and GDP per capita.
39 http://www.aerotropolis.com/files/2005_07_AASL.pdf “ Air Cargo, Liberalization and Economic Development” bu J. Kasarda amd D. Sullivan, 2005 40 M. Porter, “The Competitive Advantage of Nations” (New York: Free Press 1990).
Guangzhou is ranked at 21st among the top airports in the world in terms of cargo volume. It was
also said that Guangzhou is one of the busiest airports when it comes to cargo operations. This is
also known to be the hub of FedEx.
Guangzhou Baiyun International Airport is the main airport of
D1. Guangzhou Baiyun International Airport
Guangzhou, the capital of Guangdong province, China. Both airport codes were inherited from the old airport, and the IATA code reflects Guangzhou's former romanization Canton. The airport is the main hub of China Southern Airlines and a focus city for Shenzhen Airlines and Hainan Airlines.
In 2011, Guangzhou Baiyun International Airport was China's 2nd busiest and world's 19th busiest airport in terms of passenger traffic, with 45,040,340 people handled. As for cargo traffic, the airport was the 3rd busiest in China and the 21st busiest worldwide. Guangzhou airport is also the 2nd busiest airport in terms of traffic movements in China.
The opening of the New Guangzhou Baiyun International Airport had relieved most of the controversies of the older and deteriorated airport because of the limited space, overcrowding and lack of expansions. Its opening allowed it to overcome curfews and restrictions and begin a 24 hour operation. This meant that China Southern Airlines could highly utilize their intercontinental routes by flying overnight. Other airlines have this benefit too.
The airport is served by the Airport South Station on Line 3 of the Guangzhou Metro.
In August 2008, the airport's new expansion plan was approved by the National Development and Reform Commission of China. The airport will build a third runway located 400 metres east of the existing east runway. The new runway will be 3800 metres long and 60 metres wide. Other elements of the expansion plan include a 531,000-square-metre Terminal 2, a new indoor car park and an outdoor car park, a transportation centre, and a metro station which will serve Terminal 2. The total cost of the project will be ¥14.036 billion. Construction of the third runway is estimated to start in 2011 and finish in the first half of 2013. When the whole project is finished by the end of 2015, the airport will be able to handle 75 million passengers and more than 2.17 million tonnes of cargo a year.
§ Runways: 2—3,800 metres (12,500 ft) and 3,600 metres (11,800 ft) § Aircraft parking bays: 173 (passenger apron and cargo apron) § Current passenger capacity: 45 million passengers per year § Planned passenger capacity in 2020: 75 million passengers per year
§ Current cargo capacity: 1 million tonnes § Planned cargo capacity in 2010: 2 million tonnes § Planned cargo capacity in 2020: over 2.17 million tonnes
busiest and world's 24th busiest airport in terms of cargo traffic, registering 809,363 tonnes of
freight. In terms of traffic movements, Shenzhen airport was the 5th busiest airport in China in
2009.
Government Support and Regulations:
Pearl River Delta
The airport is undergoing major expansion with a new
terminal under construction as part of government initiatives. A second runway was also recently
completed. Since the beginning of 2008, the 1.6 km long terminal 3 is being built. This new
terminal will be between the current runway and another runway currently being built. A second
runway running parallel to the west of the current runway will also be built. The new runway will
be built on reclamation land extending out towards the , with a length of 3600
meters and 60 meters wide. The second runway was completed in June, 2011 and started operations
in July, 2011. However, there are low protective trade policies.
D. Guangzhou
Location: Guangzhou Guangzhou Baiyun International Airport is the main airport of , the capital of Guangdong province, China. The airport is the main hub of China Southern Airlines and a focus city for Shenzhen Airlines and Hainan Airlines. It is also within a Free trade Zone.
Facility: It has 2 Runways with 3,800 metres (12,500 ft) and 3,600 metres (11,800 ft) It has 173 (passenger apron and cargo apron) aircraft parking bays. It has a 531,000 square meter- Terminal 2 with new indoor carpark, outdoor carpark, transportation center and metro stateion.
Cost: Per capita labor cost in Guangzhou is low as well as the land price. As for airport user
charges, these fees are utilized by the central government of China.
Demand: China's 2nd busiest In 2011, Guangzhou Baiyun International Airport was and world's 19th busiest airport in terms of passenger traffic, with 45,040,340 people handled. As for cargo traffic, the airport was the 3rd busiest in China and the 21st busiest worldwide. Guangzhou airport is also the 2nd busiest airport in terms of traffic movements in China capturing a big market size and making it a hub with a growth potential. It has a current passenger capacity of 45 million passengers per year and a planned passenger capacity in 2020 of 75 million passengers per year. In terms of current cargo capacity, it can accommodate 1 million tonnes. Its planned cargo capacity in 2010 is 2 million tonnes and planned cargo capacity in 2020 is over 2.17 million tones. It is also the hub for Fed Ex.
In August 2008, the airport's new expansion plan was approved by the
The government supported the opening of the New Guangzhou Baiyun International Airport. Its opening had relieved most of the controversies of the older and deteriorated airport because of the limited space, overcrowding and lack of expansions. Its opening also allowed it to overcome curfews and restrictions and began a 24 hour operation. This meant that China Southern Airlines could highly utilize their intercontinental routes by flying overnight. Other airlines have this benefit too.
National Development and Reform Commission of China. The airport will build a third runway located 400 metres east of the existing east runway. The new runway will be 3800 metres long and 60 metres wide. Other elements of the expansion plan include a 531,000-square-metre Terminal 2, a new indoor car park and an outdoor car park, a transportation centre, and a metro station which will serve Terminal 2. The total cost of the project will be ¥14.036 billion. Construction of the third runway is estimated to start in 2011 and finish in the first half of 2013. When the whole project is finished by the end of 2015, the airport will be able to handle 75 million passengers and more than 2.17 million tonnes of cargo a year.
E. Dubai Location: Dubai has been a strategic trading post for more than 15 centuries, throughout which it
was chiefly a unique location on the Persian Gulf that was recommended to shippers and
manufacturers. It is often known as the “gateway between East and West.” Dubai’s location along
the east-west Asia to Europe trade routes was identified as one of its advantages in relation to its
success in the industry. As a result, both the Dubai International Airport and the Dubai World
Center have emerged as intermediary hubs for the Asia-Europe trade. Because of the United Arab
Emirates or UAE’s central position on the world map, excellent infrastructure and pro-business
environment, Dubai is considered as an ideal gateway to the dynamic Middle Eastern, African and
Southeast Asian markets. It serves Dubai and the United Arab Emirates. Unprecedented
development of the region in the last 50 years, as well as its modern facilities, sunny weather, wide
sandy beaches, luxurious hotels, top-ranked sporting events and liberal business climate, have
underscored the importance of its location, not just to the UAE or the Middle East, but to Africa and
the Orient as well. Similarly, Kasarda (2006) pointed geographical accident as a major factor in
Dubai’s success. The DIA Cargo Gateway is strategically located adjacent to DIA in the UAE. Its
Free Port Zone is known as the Dubai Airports Free Zone or DAFZ.
Facilty: The DIA is capable of handling over 6,000 weekly flights. It has 2 runways, 3 terminals
and plans to increase its runways to a total of 5. Dubai’s investments in facilities was identified by
Kasarda as one of its advantages contributing to its success in the industry. The DIA has state-of-
Building for Customs Office and related government agencies; and (5) Free Trade Zone
Administrator Building.
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For all the Hubs that were mentioned in the study, the typical airport charges are as follows:
Those that are paid by the airlines are (1) Landing Fee which is approximately $2,000-$6,000; (2)
Lighting Fee, most of which have none except for Guangzhou, Shenzhen and Shanghai which is
$600; (3) Parking Fee, which costs around $1,200, although in Malaysia, Parking and Landing
Fees are free on the 1st six months); (4) Terminal Navigation Fee, which is approximately $1,800-
$4,000, although Shanghai, Guangzhou and Shenzhen has a $4,000 terminal navigation fee while
Thailand has around $3,800; (5) Noise Fee, none of the hubs has this but it costs around$250; (6)
Passenger Fee, Hong Kong has this fee of $2,500; (7) Security Fee; (8) Aerobridge Fee, which is
$700-$1000; (9) Baggage Handling Fee, which is $400-$1,600 but none of the hubs mentioned
have this; and (10) Terminal Building Services Fee, none of the hubs has this too but for some
countries like Taiwan this is around $400.
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X. Summary / Matrix of the Different Hubs
Based on the substantiations above, the following matrix is a summary of the status of the different air cargo hubs in Hongkong, Shanghai,Shenzhen,
Guangzhou, Dubai, Singapore, Malaysia and Thailand, pertaining to location factors, facility factors, cost factors, demand factors and government
regulations and its sub sectors.
TABLE 9: MATRIX OF THE DIFFERENT HUBS
FACTOR HONGKONG SHANGHAI SHENZHEN GUANGZHOU DUBAI SINGAPORE MALAYSIA THAILAND
PHILIPPINES (NAIA)
It is within the 4-hour radius; center point of trade in Asia; Serves Southern China; It is a Cargo Hub for DHL
LOCATION AREAS SERVED
Handles Cargo from Eastern and Central China; has a strategic location
Hub for Shenzhen Airlines, Shenzhen Donghai Airlines, SF Airlines , and Jade Cargo International ; It serves as an Asia Pacific Cargo Hub of UPS
Main Hub for China Southern Airlines and a focus city for Shenzhen Airlines and Hainan Airlines; It also has a strategic location for trade; It is a Cargo Hub for Fed Ex.
Major hub in the Middle East that serves Dubai and UAE; It is a regional center and has a unique location in the Persian Gulf; Gateway between East and West
Major Hub in Southeast Asia
One of the major airports in South East Asia serving KL and West Malaysia
Serves Bangkok
It has a strategic
location and it is within the 4-hour
radius, although
Hong Kong is said to be at
the centerpoint as compared to
the Philippines. It
is located along the
border between
Pasay and Paranaque
Free Port Zone LOCATION FREE PORT ZONE
Free Trade Zone in the Pudong Area
Free Trade Zone
Guangzhou Free Port Zone
Dubai Airport Free Zone (DAFZ)
Free Trade Zone
Port Klang Free Zone
Suvarnabhumi Airport Free Zone
Not within a Free Port
Zone
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FACTOR HONGKONG SHANGHAI SHENZHEN GUANGZHOU DUBAI SINGAPORE MALAYSIA THAILAND
PHILIPPINES (NAIA)
FACILITY
63 Flights per hour
(RUNWAY CAPABILITY; NUMBER OF FLIGHTS)
Average aircraft movements of 400 times per day and has 3 runways
Handles 26,713,610 passengers, 809,363 tonnes of cargo
2 Terminals and Expansion for a 3rd Terminal, 2 Runways; It has a 1st tier Cargo Handling Terminal and a 2nd tier Marine Cargo Terminal
TERMINAL AREA (NUMBER OF TERMINALS & EXPANDABILITY OF TERMINALS
2 Terminals and 3 Runways; Expansion to add 2 more Runways
3 Main Terminals; Major Expanison with a New Terminal, It has 2 Runways and a Ferry Route to Hong Kong
It has 2 Runways and 173 parking bays; Expansion includes a 3rd Runway, a 531,000 square meter Terminal 2 with indoor and outdoor Carparks, a Transporatation Center and a Metro Station
It has 3 Terminals; Expansion includes an additional runways to make it 5.
It has 9 air freight Terminals; Continuous Improvement of Airport facilties
It has 3 Terminals and Expansion of a new runway and a new satellite building. It also plans to have KLIA 2 or the new terminal which is a "showpiece" of the next generation hub
It has 1 Terminal and an Expansion of a new Terminal. Construction of a 4th Runway on 2025-2029 and a 5th runway on 2029-2033
It has 4 terminals; Nayong Pilipino Foundation recently turned over 22.3 hectares to support the growth and needs of terminals 2 and 3 however there is no finalization yet about this plan. Currently, NAIA area itself has no more space for expansion
FACILITY RFID Technology, Gentrack Software, E-Freight Project
OPERATING SYSTEM / TECHNOLOGY
SITA's Common Use Baggage System, Bulk Cargo Operating System, ULD Operating System IBM's Netfinity Servers, 366 Intelligent Workstations and an OS/2 Operating System
Info Talk - This is the world's tri-lingual Enquiry System
Most technologically advanced airport with its state-of-the-art Operational Database and Integration System; It has the Central Integrated Information Management Systems (CIIMS)
Fully Automated Cargo terminal. It uses "Sky Chain which is a state-of the-art cargo and terminal handling system. It uses SAAB or the Sensis and the Multi-lateration Sytem and the AC2000 Security Management System.
E-Freight Project
Air Traffic Control Tower, CAT II Precision Landing ILS, RFID Baggage Handling System, KLIA Community System, and Dagang NET System by Maskargo and Airport Management Information System
It has the world's talles Control Tower, one of the worl's most automated Air Traffic Control Systems, Airport Management Information System, Airpprt cargo Community System and Electronic Data Interchnage
FIDs (Flight Information Displays), Fiber Optic IT Cabling, LCD Monitors, X-Ray Machines
Hub for DHL; Hub for Air Hong Kong, Cathay pacific, Dragon Air, Evergreen International Airlines, Hong Kong Airlines, Hong Kong Express Airways, UPS Airlines
NUMBER OF LOGISTICS SERVICE PROVIDERS
Hub for Air China, China Eastern Airlines, Juneyao Airlines , Shanghai Airlines, Spring Airlines and UPS Airlines
Hub for UPS; Hub for Shenzhen Airlines; Shenzhen Donghai Airlines, SF Airlines a,d Jade Cargo International
Hub for Fed Ex; Main hub of China Souther Airlines
Hub for A1 Rais Cargo, Cargo Plus Aviation, Dubai Royal Air Wing Emirates, Falcon Express Cargo Airlines
Hub for Jet Star Asia Airways, Jett8 Airlines, Qantas, Scoot, Silkair, Air Asia, Singapore Airlines Cargo, Tiger Airways and Value Air
Hub for Malaysia Airlines, MASKargo,Air Asia and Air Asia X
Hub for Bangkok Airways, Orient Thai Airlines, Thair Air Asia and Thai Airways International
hub for Airphil Express, Cebu Pacific, Philippine Airlines, Southeast Asian Airlines, Zest Airways
Aquino administration signed an Executive Order authorizing the Civil Aeronautics Board (CAB) and the Philippine Air Agreement negotiating panels to pursue Open Skies policy
GOVERNMENT REGULATIONS Presence of
Tax Incentives
TAX INCENTIVES
Presence of Tax Incentives
Presence of Tax Incentives
Presence of Tax Incentives
Excellent Tax and Incvestment Incentives
Avoidance of Double Taxation Agreements
Low Cost Carrier Terminal (LCCT)allows for lower airport taxes
Round-the-Clock Customs Clearance but with Minimal Customs Formalities
Governed by Customs Regulations
Suvarnabhumi Airport Cargo Clearance Customs Bureau
The industry is governed by the Tariff and Customs Code of the Philippines; Airline companies want misplaced customs personnel at airports re-assigned to revenue-related positions for efficiency
Continuous investment in infrastructure projects and highly efficient multimodal transport services
EXPANSION PLANS
12th Five Year Plan (2011-2015)
Continuous Investment in Infrastructure
Continuous Investment in Infrastructure
Modernized and Expanded the Air Cargo Terminal; It is the world’s fastest expanding airport. It invests heavily on Infrastructure, Aircraft fleet and staff
Air Hub Development Fund
Presence of programs and polciies intended to maintain and elevate KLIA’s status in the industry, invest in infrastructure and control airline competition
Focus on infrastructure and services development; Airport Improvement Plan until 2033
Ongoing renovation of NAIA 1 to include maintenance of toilets, availability of sanitation facilities, installation of misting machines and walkalators, setting up of additional immigration booths, improvement of metal, eletrical, plumbing and fire systems. NAIA Expressway Project is the third project lined up for bidding under the Public-Private Partnership (PPP) Program
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TABLE 10: CRITERIA CHECKLIST FOR THE DIFFERENT HUBS FACTORS HONG
KONG SHANGHAI SHENZHEN GUANGZHOU DUBAI SINGAPORE MALAYSIA THAILAND PHILIPPINES
(NAIA)
ü LOCATION
Strategic Location ü ü ü ü ü ü ü ü
2 FACILITY
Runway
Capability
3 2 3 2 2 2 2 2
2 FACILITY
Number of
Terminals
2 3 2 3 9 3 1 4
RFID FACILITY
Operating Systems SITAs Info Talk CIIMS SAAB RFID CAT II /
RFID AMIS FIDS
ü FACILITY
E-Freight X X X X ü X X X
ü FACILITY
Cargo Terminal ü ü ü ü ü ü ü X
ü COST
Airport Charges ü ü ü ü ü ü ü ü
High DEMAND
Demand – Cargo High High High High High High High Not Enough
to be a Hub in Asia
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ü DEMAND
Considered as a
Hub
ü ü ü ü ü ü ü X
ü GOVERNMENT
SUPPORT
Open Skies Policy
ü ü ü ü ü ü ü ü
ü GOVERNMENT
SUPPORT /
LOCATION
Free Port Zone
ü ü ü ü ü ü ü X
ü GOVERNMENT
SUPPORT
Tax Incentives
ü ü ü ü ü ü ü X
ü GOVERNMENT
SUPPORT
Efficient Customs
Operations
ü ü ü ü ü ü ü X
ü GOVERNMENT
SUPPORT
Continuous
Expansion
ü ü ü ü ü ü ü ü
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XI. Possible Air Cargo Hub in The Philippines;
The Ninoy Aquino International Airport (NAIA) is congested and that there is not much room for growth and
expansion anymore, the question now is, “What is the next potential location for an air Cargo Logistics Hub in
the Philippines?” From the interviews that were conducted there were suggestions that a possible international
airport / logistics hub could be in Davao, Mactan in Cebu or Clark in Pampanga. These areas were suggested
mainly because of the massive land area it has that can accommodate 747 aircrafts. However having a
strategic location should also be considered. The distance of the hub should not be very far from that of NAIA
where the primary airport is.
Below would be features of each of the International Airports in the Philippines. From which, an Air Cargo
Logistics Hub can be developed to increase connectivity and trade with the rest of the world.
XIA. Ninoy Aquino International Airport (NAIA) - Manila
With the current operations at NAIA, we can say that until now the Philippines lacks a modern
international gateway airport. In the interviews that were conducted with Key Players of the Air
Cargo Sector, in the duration of this study it was mentioned by one of the stakeholders that we
should just follow the exact airport model in Thailand or Malaysia. That of Hong Kong and
Singapore are already too advanced for us to replicate.
According to the 2010 Airport Roadmap (Rodolfo, 2010) the first impressions of foreign visitors
arriving at the leading international gateways in Manila, Cebu and Clark are that terminal facilities
are modest (NAIA T-2 and T-3 and Mactan), small, or dilapidated (Clark and NAIA T-1 and
domestic).
It was also mentioned at the roadmap 2010 report that at NAIA, the airport master plan of the early
90s for three new terminals has not been followed. The cargo terminal has yet to be built, while
new domestic (T-2) and international (T-3) terminals were built but have not been used for their
original purposes. The new GOJ-financed domestic terminal that opened in 1999 has been used
exclusively for domestic and international flights of Philippine Airlines despite not being designed
for requirements of international aviation (customs, immigration and lounges).
Full operation of T-3 will require the present taxiway to be closed so that only one runway will be
available to all domestic, international and general aviation flights. A fuel depot and lines must also
be in place. Expansion of NAIA beyond its current area of 600-hectares would require extensive
demolition of business and residential areas.
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Currently, the Ninoy Aquino International Airport (NAIA) is experiencing a slotting problem in terms of
flights. All airlines would want to be in the day time slot due to lack of night capacity in the airport, this is
known as the “sunset limitation”. NAIA should invest in equipment that would ensure safety of the flights.
This was also mentioned by Captain Ben Solis. He said that NAIA is already beyond its capacity, In the study
that he conducted recently it was seen that NAIA can only handle 36 fights, 40 flight movements per day at a
maximum or 44 movements maximum with sophisticated system to be able to eliminate flight delays.
Currently it is doing 47-50 flight movements. Given this, there is no choice but to lower flight movements per
day in NAIA for security and safety operations.
According to Cebu Pacific, this was not anticipated by the government. This is because of the growth in the
number of aircrafts, there would be a number of flights that would add up to the current aircrafts fighting for a
slot during the day time.
NAIA airport also lacks a modern navigation system. It was reported that Air Asia of Malaysia was said to
been having difficulty in slotting their flights due to the renovation of the runway. As a result there would be a
lot of delay in flights. A PAL representative even suggested that small planes or general aviation be transferred
to Sangli Point Aiport in Cavite to reduce air traffic in NAIA.
NAIA at present is renovating one of its runways. Airlines are revising some of their flight schedules to adjust
to the seven-month partial closure of the airport. With the said partial closure of NAIA from January until
August of this year, one (1) domestic and twelve (12) international flights of PAL departing or arriving at
NAIA will be adjusted.
In the US, there is a Communication Navigation and Surveillance System which the Philippines can adopt.
The Philippines can likewise make use of an Air Traffic Management System which can monitor worldwide
air traffic.
Moreover, the idea of a Twin Airport can also help the current state of the aviation industry. There was a
suggestion from one of the key players that the Philippines should consider operating a Twin Airport like the
other successful countries. All airports should be outside the city since Manila is so congested already. The
trend now is having an Aerotropolis, twin airports, with the 2nd airport becoming the predominant one. NAIA
can be a regional airport while Clark can be an International Gateway. In this way we can segregate Domestic
Cargo operations from International Cargo operations. One strategy according to CEB is that NAIA can handle
all domestic cargoes and Clark will handle all International Cargoes.
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Another improvement could be the engagement of NAIA of e-frieght or paperless operations. This can
minimize a lot of steps and operations will be faster.
All interviewed stakeholders such as the government agencies and key players are all stating that NAIA is
beyond its capacity. The current airport is so congested and that there is no room for growth and improvement
anymore. Manila International Airport Authority mentioned that they are currently renovating the runway in
NAIA and that there is a plan to put up a cargo terminal within Terminal 3. However the key players still find
the area of terminal 3 too small and that there is no available warehouse in the area. It would then takes 30-45
minutes for a cargo to reach a warehouse since the warehouses are scattered in the area and all warehouses are
managed by different owners resulting to having different policies.
It then becomes a problem in NAIA in terms of cargo, that it does not have a Cargo Terminal or what we call a
Cargo Village. Upon arrival of the cargo, it is brought to warehouses which are located not within the airport
but in areas near the airport that most of the time would take another 30-45 minutes just for its transfer. NAIA
does not have a cargo facility wherein all cargo related activities are housed in one terminal.
In summary, according to the stakeholders NAIA is too congested and has no single cargo terminal.
Aside from this it only has a single operational runway for international traffic, is land locked and is
unable to expand. NAIA according to them is not large enough to accommodate larger aircrafts
such as Airbus 380. It is believed to have been already operating at its full capacity, leaving no
space or room for growth and expansion.
FIGURE 22: NAIA INTERNATIONAL AIRPORT
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FIGURE 23: VIEW OF THE NAIA AREA SHOWING IY IS LAND LOCKED AND
UNABLE TO EXPAND
Following the criteria that was used for the other hubs, below are the analysis for NAIA:
Location: In terms of location, the Philippines is said to be in a strategic point. NAIA is
specifically located along the border of Pasay and Paranaque. It is the main international gateway
for travelers to the Philppines. It is a hub for Air Phil Express, Cebu Pacific, Philippine Airlines,
Seaair and Zest Air. It is the airport serving the general area of Manila and its surrounding
metropolitan area.
Facility: Terminal 1 has consistently ranked at the bottom due to limited and outdated facilities,
poor passenger comfort and crowding. With this transport authorities plan to give Terminal 1 a
makeover. It will include expansion of the arrival area, addition of parking spaces and
improvement of other terminal facilities. As soon as Terminal 3 becomes fully operational,
Terminal 1 would be rehabilitated into an Airport City with the intention of Cebu Pacific Airways
to convert Terminal 1 into an exclusive terminal for their aircraft. The 2nd terminal NAIA2 in the
old MIA road is a 75,000 square meter terminal. It was designed to be a domestic terminal but it
later accommodated international flights. It has a capacity of 2.5 million passengers per year. It
was exclusively used by Philippine Airlines for both its domestic and international flights.
Terminal 3 or NAIA 3 is the newest and biggest terminal in the NAIA complex. The ultra-modern
$640million, 189,000 square meter facility has a 13 million passengers per year capacity. It has a
four –level shopping mall which connects the terminal to the parking buildings. Terminal 4 is the
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Manila Domestic Passenger Terminal. It hosts all domestic flights within the Philippines operated
by Zest Air and Seaair.
There are also MRO Facilities in NAIA such as that of Lufthansa Technik Philippines. It offers a
wide range of aircraft maintenance, repair and overhaul services to customers worldwide.
Demand: In 2010, NAIA terminal carried 27.1 million passengers making it to the top 50 of the
world’s busiest airports. In 2011, all terminals in NAIA handled 29,552,264 passengers, 217,743
movements and 355,149 tonnes of cargo.
Cost: NAIA has a landing fee, parking fee and CIQ or the overtime charges of $100 per aircraft
that foreign airlines are burdened with.
Government Support and Regulations: In 1995 by executive order, The Philippines’ domestic
and international aviation sectors were liberalized. This set the stage for a series of bilateral
agreements that resulted in a dramatic expansion of air connectivity and cargo volumes between the
Philippines and major markets around the world.
In terms of expansion, NAIA is said to be at its full capacity. Airport operations and the structure
can be improved but expanding the current airport is not an option anymore. That is why the
Philippine government is looking at other potential areas to be alternative international gateways.
XIB. Clark International Airport (CIA) / Diosdado Macapagal International Airport (DMIA)
– Clark, Pampanga
Location: Clark International Airport formerly known as the Diosdado Macapagal International Airport. is
located at the Free Port Zone in Angeles Pampanga. It serves Angeles City and Manila. It is a hub for Air Asia
Philippines, Air Phil Express, Cebu Pacific and Seaair. It is the main airport serving the immediate vicinity of
the Clark Free Port Zone and the general area of Angeles City. It also serves the northern and central regions of
Luzon, being 85kms from the Ninoy Aquino International Airport that serves Manila.
Facility: The two parallel runways of DMIA are capable of NASA Space Shuttle landings. It has a Terminal
Radar Approach Control System (TRACON) worth $9.3 million that translates to investment in the future of
air travel in Clark. The TRACON can track aircraft in a radius pattern up to 220 nautical miles from Clark.
With this system in place, it places the airport alongside other major airports around the region. This system
adds significant safety advantages, speeds up arrivals and departures and ensures a greater level of airline pilots
confidence. This system answers the needs and opens the doors to major air carriers to establish service at
Clark and it also makes the airport compliant to ICAO.
In addition to this, there are also various state- of- the- art electronic communication, radar navigation, approach
lighting and fire/safety systems which include Instrument Landing System Doppler, Very High Frequency
Omnidirectional Range, VHF/UHF Transmitters, modern meteorological equipment, Precision Approach Path
Indicator, Airfield Ground Lighting Systems and an advanced Category 9 Crash, Fire and Rescue Equipment.
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There are also new MRO facilities in Clark. SIA Engineering Company (SIAEC) has a $45 billion investment
to set up a world-class aircraft maintenance, repair and overhaul facility at Clark.
Cost: Clark International Airport charges landing and parking fees. Below are the landing and parking charges
at the NAIA.
Source: CIAC
Demand: Clark has an increasing passenger volume. In 2010 it had 654,229 passengers and last year it had
725,023 passengers. An increase in passenger volume was said to increase cargo volume as well.
Government Support and Regulations:
Total investment for the 1st phase involves: (1) Construction of an Airport Plaza, (2) Construction of a
Transport Plaza, (3) Construction of a Covered Parking Area and (4) Construction of new taxiways and aprons,
The P130 million current expanded Terminal 1, is designed to
accommodate at least one million to 2 million passengers annually to serve the growing passenger volume due
to the entry of foreign and local budget carriers at the airport. CIAC has embarked in a $12 million expansion
plan to attract more carriers and became the second international gateway into the Philippines. Completed last
2010, the expansion adds a second floor, arrival and departure lounges, and 2 aerobridges to the terminal
building.
Once terminal 2 is completed, Terminal 1 will take over all domestic routes. The terminal 2 of Clark comes in
2 phases, once completed, it will be dedicated to international traffic.
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(5) Expansion of existing apron facilities, (6) Widening, Improvement and Construction of access roads with
interchanges, (7)Demolition of Existing buildings, (8) Development of new identity and signature and site and
utilities development.
The second phase involves: (1) Expansion of the eastern runway to 4000 meters, (2) Construction of a new
runway, (3) Construction of a shopping center, (4) Construction of new taxiways and aprons, (5) Construction
of a new Cargo Terminal Complex and (6) a Construction of a new Control Tower.
For Terminal 3, ALMAL Investment Company of Kuwait has offered to develop it, making DMIA handle 80
million passengers a year.
When Clark International Airport is completed it will have the following: (1) 3 parallel runways, (2) a High
Speed Train, (3) Accommodation of 80 million passengers annually, (4) Facility can accommodate A380, and
(5) It will be one of the largest airports in the world.
Other proposed projects are: (1) Airport Runways will be further improved to accommodate bigger aircrafts,
hotels and commercial buildings and other aviation facilities, (2) Construction of two new railway lines, one for
the Airport Railway and another for the North Rail commuter and high speed rail line serving Metro Manila
and several northern Luzon provinces, (3) Construction of 2 interchanges on the Subic-Clark-Tarlac
Expressway to Clark Airport, which will then connect to North Luzon Expressway.
Another initiative of the government is to support the Global Gateway Logistics City Project which
complements the airport operations. This will cover aviation-related and dependent businesses including but
not limited to warehousing, distribution, multi-nodal logistics, light manufacturing alongside complementary
business operations, and facilities to support aviation related activities within the Civil Aviation Complex of
Clark.
Below is a comparison between NAIA Airport and Clark International Airport. 49
FIGURE 24: NAIA VS CIA Source: GGLC
49 Global Gateway Logistics City (GGLC)
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XIC. Mactan International Airport - Cebu
Location: Mactan International Airport in Cebu is located in Lapu-Lapu City. It is a hub for Airphil Express
Cebu Pacific and Philippine Airlines. This is a major international airport in the Visayas region and it is the
country’s second primary gateway. The area covers 797 hectares and has a single 3,300 meter runway that is
complemented by a full-length taxiway. It is a major trade center in the south for domestic and international
traffic.
Facility: The terminal building has a capacity of handling 4.5 million passengers annually on two wings: the
domestic and the international wing
Demand: In 2010, it accommodated 5,791,387 passengers, 46,206 aircraft movements and 45,403 metric
tonnes of cargo. This airport is currently served by thirteen passenger airlines and five cargo airlines. It is one
of the major cargo airports in the Philippines. Air Cargo Volume increases at an average growth rate of 47%
annually while domestic cargo grew 4% annually.
There are five cargo airlines currently operating in the Mactan Airport : (1) 2GO, (2) Fed Ex, (3) Pacific East
Asia Cargo Airlines, (4) Tri-MG Intra Asia Airplines and (5) Transglobal Airways.
Cost: The Mactan International Airport also requires landing fee and parking fees from the foreign airlines.
Government Support and Regulations: There are plans for the expansion of the existing terminal building
and the construction of two more boarding bridges or jetways to complement the existing four. A new cargo
terminal is also being planned. There is also a proposal to have a Bus Rapid Transit (BRT) Line to transport
airport passengers to and from the airport from different parts of Cebu.
XID. Davao International Airport / Francisco Bangoy International Airport - Davao
Location: Davao International Airport is located in Baranggay Sasa, Buhangin, Davao City. It is a hub for
Air Phil Express and Cebu Pacific. This is the main airport serving Davao City. It has a single 3,000-meter
precision runway.
Facility: The modern facility is designed to handle 2 million passengers annually and 84,600 metric tons of
cargo annually. The added capacity baggage handling equipment. The modernization and upgrading of the
airport facilities aims to cement Davao as the hub for tourism and foreign investment in the region.
Demand: In 2010, it handled 2,664,210 passengers, 19,198 aircraft movements and 34,257 metric tones of
cargo.
It is the busiest airport in the island of Mindanao.
Government Support and Regulations: The Philippine Tourism Development Plan includes the Upgrading
of the Davao International Airport. The plan includes improvement of city-side access road, parking and air
operations and ground transportation support services, immediate decongestion of the passenger-handling
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capacity in the existing departure area, expansion of the CIQS facilities, expansion of parking aprons for
terminal expansion and conversion to Airport Authority that includes marketing of the airport to carriers.
Below is a table showing the matrix of the different possible hubs in the Philippines. TABLE: 10: COMPARISON AMONG THE DIFFERENT POSSIBLE HUBS IN THE PHILIPPINES
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Name of Facilty
Ninoy Aquino International
Airport Clark International
Airport
Mactan International
Airport Davao International
Airport Date Established 1981 1995 1960 1940 Rank In the World 48th NA NA NA
Geographical Location Metro Manila Clark Pampanga Cebu City (Visayas) Davao City (Mindanao)
Areas Served Metro Manila Pampanga and Manila Cebu and Manila Davao and Manila
Free Port Zone No Yes No No
Runway Capability 2 intersecting runways
2 parallel runways with plans of adding one more
single 3000- meter runway
single 3000-meter runway
Number of Terminals 4 1 1 1 Cargo Terminal None None None 1 Advanced Operating Systems No Yes No Yes
Market Size
In 2011, all terminals in NAIA handled 29,552,264 passengers, 217,743 movements and 355,149 tonnes of cargo.
In 2010 it has 654,229 passengers and last year it had 725,023 passengers. An increase in passenger volume was said to increase cargo volume as well.
Air cargo volume in 2007 is 53,472,924 kg. International cargo volume increased at an average growth rate of 47% annually while the domestic cargo grew 4% annually.
In 2010, it has 2,664,210 passengers, 19,198 aircraft movements and 34,257 metric tones of cargo.
Hub
It is a hub for Air Phil Express, Cebu Pacific, Philippine Airlines, Seaair and Zest Air.
It is a hub for Air Asia Philippines, Air Phil Express, Cebu Pacific and Seaair. It is the main airport serving the immediate vicinity of the Clark Free Port Zone and the general area of Angeles City.
It is a hub for Airphil Express Cebu Pacific and Philippine Airlines. This is a major international airport in the Visayas region and it is the country’s second primary gateway.
It is a hub for Air Phil Express and Cebu Pacific. This is the main airport serving Davao City.
Open Skies Policy Yes Yes Yes Yes Within a Free Trade Zone No Yes No No Incentives No Yes No No
Expansion
In terms of expansion, NAIA is said to be at its full capacity. Airport operations and the structure will be improved in terms of aesthetics but expanding the current airport is not an option anymore.
The P130 million current expanded Terminal 1; Airport City Development (GGLC) ; Improvement of Runways; Creation of Railways
Terminal Expansion; 2 more boarding bridges and a new Cargo terminal, Busr rapid Transit
The Philippine Tourism Development Plan includes the Upgrading of the Davao International Airport.
LOCATION
FACILITIES
DEMAND
GOVERNMENT SUPPORT
COMPARISON AMONG THE DIFFERENT POSSIBLE HUBS IN THE PHILIPPINES
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XII. PHILIPPINE POTENTIAL AS A LOGISTICS – GAPS THAT NEED TO BE BRIDGED
Given the features of the different hubs in the different countries mentioned, we can say that the Philippines
has quite a number of improvements to do. Among the five (5) factors that were identified to be an ideal and
competitive hub, it has been found in the study that there are gaps that the Philippines need to fill in.
The Philippines as a Logistics hub is a plan that we can definitely achieve. It may not be in the short term but
eventually the Philippines has a big potential of becoming one because of its strategic location. Our
neighboring countries such as Hong Kong and Singapore are very successful in maintaining a logistics hub.
Even Malaysia and Thailand are doing their best to improve their logistics and trade system. Based on
comparisons with the other countries identified in this study, there are gaps or “need to’s” that the Philippines
may want to focus on in order for the country to be truly a competitive air cargo logistics hub. Below are the
gaps that resulted in the study:
(1) In terms of Location, the Philippines is already strategic, although it is not the centerpoint like China and
Hong Kong, its location is still very attractive for air cargo operations. It can be said that the country is still
within the 4-hour radius which can be very advantageous for air trade. The Philippines should bank on this
strength to be an efficient air cargo hub in Asia. The Philippines also have to have airports within a Free Port
Zone.
(2) Second, in terms of Facilities, the Philippines has to improve its airport and it operations and invest in
proper infrastructure that could complement the air cargo sector. Airports should follow at least the minimum
requirements of ICAO. Improvements such as having a night capacity and precision approach for safety are
among those that should be implemented. It should also work seriously on regaining category 1 status given
by FAA. Roads, railways and networks should be prepared as well in supporting the said industry sector.
Another important improvement can be in terms of automation. The operations and processes should improve
in terms of technology for faster and easier processing of documents. In terms of expandability, NAIA has no
more room for growth and expansion. There is no space for additional Runways and no area for a Cargo
Village.
(3) In terms of Demand
(4) In terms of the
, we should create cargo traffic and increase the volume in terms of cargo. The
government should provide incentives to both local and foreign investors to attract them to do business in the
Philippines. If incentives are provided, then a lot of local and foreign companies would operate their
businesses in the country, then definitely cargo traffic volume would increase. There is a need for critical
volume and one example is to have a strong electronic sector (high value, low volume) to be able to increase
cargo volume. The Philippines through its Subic and Clark Airports used to be the hub for Fed ex and UPS,
however due to a low traffic volume these two companies transferred their operations to China.
Cost factor, the Philippines can minimize the cost to the airlines by eliminating the practice
of red tape and overcharging. We are the only country that has an overtime charge shouldered by the airlines,
which makes our country unattractive to foreign airlines. The Philippines charges a Common Carriers Tax and
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the Gross Billings of 3% and 2.5 % respectively to Foreign Airlines which makes it difficult to encourage them
to operate in the country.
(5) Lastly in terms of Government Regulations and Support
The Philippines is considered as an ideal cargo hub because it is equidistant from all major Southeast Asian
countries such as Thailand, Korea, Japan, Guam, Vietnam, Hong Kong, Singapore, Brunei, Malaysia,
Shanghai and Xiamen in China and Taiwan.
, the Philippine government should start with
he improvement of infrastructure and craft policies that supports the industry. There should be a strong
political will to improve the air cargo system in the country, thus making us a potential air cargo hub in Asia.
The government should start prioritizing and reviewing its policies and continuously make the country
attractive to investors. It would be better if there is the presence of an airport city or an aerotropolis which
supports cargo and passenger services as well as businesses.
According to the interviews with the cargo key players, the Philippines still lack infrastructure, policies and
systems. Before we can actually become a hub there is a need to regain our category 1 status to be able to
reach a wider market and attract foreign investors and to make the Philippines the centerpoint of trade.
Being an Air Cargo Terminal will bring economic benefits to the country by providing a vehicle for
manufacturers, producers and suppliers to expand their markets. Cargo Hub operations also bring in
opportunities for direct employment. It can range from manual jobs such as cargo handling and sorting to
highly technical jobs such as managers. Cargo hubs also act as industrial magnets drawing big industry players
thereby creating a cluster of industries near the hub.
As mentioned in the previous section of this paper, it was said that having a strategic location is a plus in terms
of cargo hub operations. A strategic location would allow operational efficiency. According to a study made
by Raagas in 2004, which was validated by an interview with Captain Ben Solis, “ Air Cargo is ideally picked
up at the end of the production day and delivered at the start of the following day to allow efficient operations
and practice of the JIT system.” It was also said that there is only a six to eight hour window for cargo to get
from Point A to its final destination. It takes two hours on the ground to prepare and sort the cargo at the point
of origin prior to flight and another two hours to prepare and sort the cargo for final destination. This leaves
only four hours of flight time. With this we can say that the farthest “spoke” cannot be more than 4 hours
flying time from the hub location. This was also validated through the observation of UPS operations in Clark
done by the researcher .
50
Aside from location, another factor to put into consideration is capacity. There must be enough runways and
enough area for several cargo airlines to operate. For intra-Asia hub operations in the Philippines, the best time
It was mentioned by FedEx Managing Director, that Hong Kong is a natural choice for a hub operations given
the top intra-Asia cargo routes, but given the 4-hour flying time constraint, the Japan-Singapore route maybe
more efficiently served by the Philippines.
50 Raagas, 2004
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to dispatch is from 12 midnight to 4am as what the researcher observed during the operations of UPS in Clark.
This would ensure that the cargo will get to its destination before the first working hour. Another factor to
consider is aircraft parking capacities to allow aircraft to load and unload and park simultaneously. Given all
these, the Philippines has a strong chance to be a cargo hub of choice especially for Non-China based cargo
airlines because of its strategic location, relatively affordable airport fees, and open skies policy for cargo.
XIII. WHY CLARK IS THE BEST OPTION AMONG THE FOUR AIRPORTS IN THE
PHILIPPINES TO BE THE NEXT AIR CARGO LOGISTICS HUB
Looking into the gaps that need to be solved in order for us to be a potential air cargo hub in Asia, there is a
need to look into another airport aside from NAIA. NAIA as it is can be improved in terms of Facilities and
Costs as stated above, However to be a fully operational competitive air cargo hub there is a need to look into
another international airport.
From the interviews that the researcher conducted, it appears that among the three other options presented in
this study, Clark in Pampanga is the best choice to be the next main international gateway. A Philippine
Airlines representative suggested that NAIA can handle the domestic cargo and Clark can handle all
international cargo or at least run two international airports that could serve the growing needs of the aviation
and tourism industries in the Philippines. This is the concept of having a twin airport model. For this to
materialize, proper infrastructure (creating and maintaining roads, railways and networks) should be built.
LOCATION:
Another positive aspect about the Philippines is the weather. Since there is no winter season in the
Why is Clark the best option? Clark’s strategic location makes it a natural gateway
to the Asia Pacific Region. The Freeport Zone, which is only 80 kilometers north of Manila is an
ideal place for investment as it already has the infrastructure and it offers a lot of incentives. Clark
is also said to be positioned a few hours away from the tourist sites in Central Luzon.
The Philippines specifically Clark is said to be an ideal logistics hub for cargo because it is
equidistant from all major South East Asian countries such as Hong Kong, Thailand, Korea, Japan,
Guam, Vietnam, Singapore, Brunei, Malaysia and China. In the researcher’s interview with FedEx
Managing Director, Hong Kong was said to be the centerpoint of all the cities, making it the perfect
hub. Hong Kong would always be the natural choice for hub operations given the cargo routes, but
given the 4-hour flying time constraint we can say that Clark can be the best option because some
of the routes if Hong Kong is used as a hub will take more than 4 hours.
Another reason why Clark can be the best option as a hub is that the US Airforce clearly recognized
the Philippines’ strategic location when they put up in Clark a military installation outside the US.
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Philippines, there is no need for a de-icing procedure which would take up a lot of time
DEMAND:
There is also the increase in the number of Budget Airlines coming into Clark such Air Phil Express, Seair,
Dragon Air, Cebu Pac, Tiger, Jet Star and Malaysian Air. These budget airlines are believed to bring in 10-
Known as a former US airport facility, Clark International Airport is said to be the
fastest growing airport in the country with an average growth of 28% in passenger traffic for the
past five years, according to the data from Global Gate Logistics Center (GGLC). It positions itself
as the country’s major low cost airport and is being prepared to be the next international gateway.
In terms of its airport operations, CIA has expanded its services. From an average of one flight per
day in 2003, the airport now accommodates 21 flights daily on an average. Last year there were
7,581 flights carrying 767,109 passengers.
The Carriers servicing international routes are the following: Air Asia, Air Phil Express, Asiana
Airlines, Cebu Pacific, Jin Air, Seair,Dragon Air, and Tiger. UPS also operates out of Clark. FedEx
stopped its operations in Subic after 15 years, and transferred to China but there are news that it is
thinking of bringing back some of its cargo operations back to the Philippines, specifically in Clark.
The Subic-Clark Corridor is responsible for 8% of the Philippines’ total export by air. In 2010, the
corridor exported $2.3 billion worth of high value products, up by 91% from the previous year. The
destination of the corridor’s air cargo products includes much of east Asia, which collectively
accounts for 56% of Subic-Clarks total exports by air. Other parts of Luzon also form part of
Clark’s catchment for cargo. Economic Zones located in the south of Luzon which is 117
kilometers away from Clark, contribute 12% to the Philippines’ total air cargo exports.
The Catchment Basin for Clark is said to be 25 million. It has a broader geographical catchment compared to
other possible airport hubs in the country. Its geographical catchment includes Central Luzon, Northern
Philippines and the Northernpart of Metro Manila (Quezon City). There is indeed a big opportunity for Clark
to be the next air cargo logistics hub with potential clients coming from Region 3, which has a highly educated
populace and with high per capita density; not to mention its legacy of the military and its major businesses in
the area. With SCTEX then, it would be closer for passengers from Northern Manila, and Regions 1,2,3 to go
to Clark than to NAIA.
Recent news also revealed the presence of MROs for commercial aircrafts which can also increase
employment in Clark. Hong Kong’s Metro Jet, which handles corporate jets, has invested in Clark. There are
news that there will be more to come.
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12million passengers thus making Clark very attractive to tourists and thus can also increase cargo traffic. Now
is the right time to increase passenger volume with the entrance of these budget airlines.
FACILITY
FIGURE 25: DMIA AREA
DMIA fees is another consideration. It was found to be much less than that of NAIA.
: Another factor in hub operation is the airport capacity. Clark is said to have to
existing parallel runways and there is a plan to add one more. This is enough area for several cargo
airlines to operate.
With 2 runways in DMIA, 48 aircrafts, 24 on each runway can be dispatched within the 4-hour
window. UPS used to have seven flights per night at the DMIA and Fed Ex used to have 12 flights
per night at Subic. This just shows that DMIA has the capacity to operate as a cargo hub. However,
UPS at present only has 1 flight per night in Clark while Fed Ex transferred its hub to China after
15 years of operation in Subic. The reason for this is that China and Hong Kong are believed to be
in the centerpoint in Asia. In cargo operations, there is no room for delay in aircraft dispatch
because cargo flights connect to other further destinations.
Aircraft parking capacities is also important to allow for the simultaneous loading, unloading and
parking of aircrafts. This is the problem that NAIA is experiencing now. There is a need for proper
time slotting of flights to avoid delays.
A major problem with Clark is its distance from Manila. However, if roads and highways are fixed such that
say, NLEX and SLEX are connected, then it would be easier to choose Clark as the next hub. Further
developments of inter-modal transportation access to Clark that will ferry passengers from Manila to
Pampanga, such as the use of a big speed and conventional rail link to connect Manila with Clark and CIA will
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be developed. It was reported that San Miguel Corporation and MPC are the two Philippine conglomerates
showed interest in developing the high speed rail link between Manila and Clark and other cities in the North..
COST: In terms of cost, Clark will have the following Aeronautical Fees and Charges. CCT of
3% and GBT of 2.5% and the CIQ charges are already being solved by the government.
GOVERNMENT SUPPORT:
With all the developments happening in Clark now especially the Global
Gateway Logistics Development, which according to GGLC Developer, would happen in 2-3 years, Clark
would be in the best position to become the air cargo logistics hub in the region. However, we cannot transfer
outright from NAIA to Clark as
there is a need for a paradigm shift, where it becomes imperative for the government to be a catalyst.
The GGLC Project will be bringing in a lot of developments in Clark. It will bring in businesses and
employment. All its investors and locators are said to be aligned with the airport operations. There is a great
chance of creating a Cargo Village in the said area since most of the businesses to be attracted as locators
complement the airport operation. This will definitely attract investors and tourists which will bring in more
passenger and cargo volume that will make Clark as the next potential air cargo logistics hub in Asia.
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FIGURE 26: GLOBAL GATEWAY LOGISTICS CITY
Source: GGLC
FIGURE 27: INVESTMENTS IN CLARK
Source: GGLC
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In 1995, the Philippines’ domestic and international aviation sectors were liberalized. This order led to a series
of bilateral agreements that resulted in an expansion of air connectivity and increase in cargo volumes between
the Philippines and major markets around the world. One of the most significant events, was the 1995
Philippine-U.S. air transport agreement that led to FedEx’s Asia hub at Subic Bay followed by UPS’s hub at
the former Clark Air Force Base. This agreement not only substantially increased the number of all-cargo
routes that could be operated by U.S. carriers to and from the Philippines, but it also gave unrestricted rights to
these carriers to: (1) serve other countries from the Philippines; (2) determine capacity on these routes; and, (3)
change gauge, allowing the carriers to utilize wide body aircraft on long-haul, high-volume routes and shift to
smaller aircraft on shorter, lower-volume ones
XIV. CHALLENGES AND CONCERNS (ISSUES)
Part of the challenge for the Philippines now is to increase air cargo traffic, given that there is liberalization and
that taxes are being lifted from the international air carriers. To give us a better perspective, let us re-visit what
has happened in the air cargo industry in the past.
51
However, in late 1999, due to heavy pressure from Philippines Airlines (PAL), The Philippine government
retreated from its highly liberalized aviation environment.
With the signing of the agreement, FedEx established its Asian hub at Subic Bay. Within months, heavy
foreign investment in time- sensitive industries began flowing into industrial parks at and around the air express
hub. These included, among numerous others, South Korea’s Anam Group, one of the world’s largest
producers of computer memory chips. Anam was reported to have invested US $400 million in its Subic Bay
plant that turns out 50 million chips per month, equivalent to nearly half the production in South Korea. There
were a lot of companies from other countries that also came into the country and were attracted to have their
business operations in the Philippines. It was also reported that between 1995 and 2000, 150 firms located
around the airport, constituting US $2.5 billion in commercial real estate investments. During the same period,
exports increased from US $24 million annually to over US $1 billion annually.
52
An example is the experience of Acer, which used a combination of FedEx services at Subic Bay and those of
PAL’s and Eva Air’s (Taiwan) wide-body belly cargo from Manila to Taipei. It is because of the pressure of
PAL on foreign airline access, Acer was forced to cut back its Subic Bay production by half and reduce
Due to this reason, foreign airline access (aside
from FedEx’s at Subic which had been locked in) was cut back significantly, and for some foreign airlines
(such as that of Taiwan’s) , terminated entirely.
51 Clark Air Base has been renamed Diosdado Macapagal International Airport 52 Bowen, T. Leinbach & D. Mabazza, “Air Cargo Services, the State and Industrialization Strategies in The Philippines: The Redevelopment of Subic Bay” (2002) 36 Regional Studies 5, 451.
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employment of its facility there by 1,000 employees. Taiwan, which at that time was the largest country
investor in the Philippines, essentially stopped all new investments and began to shift investments out of the
Philippines.53 By 2001, the liberalization retreat to protect the national carrier was costing the country’s net
inward investment, and as such the policy was eventually reversed. With a liberal aviation policy restored,
both foreign direct investments and job growth again surged around Subic Bay and Clark Air Base.
Given the past state of the sector, this study points out that given the proper support and guidance the air cargo
sector can again regain back its glory. But prior to attaining success, below are several critical issues that
should be dealt with in order for the Philippines to truly become an air cargo logistics hub in Asia. These are
results of the interviews conducted with the stakeholders. These issues only validated the gaps that were found
out earlier in the study.
1. COGESTION IN NAIA (In relation to the Location Factor Gap)
Many players in the industry complain about the congestion of operations in NAIA during peak
hours. As much as the industry would like to cater to increase frequency of routes and add more
destinations, the current capacities of NAIA can no longer service additional flights. There is also
the problem on slotting. There have been flight delays due to the fact that NAIA can no longer
operate beyond its capacity. According to Captain Ben Solis , there is already a directive to lessen
flight movements. It was said that NAIA can only have 36 movements, 40 at the most and 44 if
there are sophisticated systems. However currently NAIA has 47-50 movements per day which
should be drastically lessened in order for it to operate efficiently and safely.
2. CARGO OPERATIONS IN NAIA (In relation to the Facilitiy Factor Gap)
Another issue is the scattered warehouses in NAIA. It is because of this problem, there are issues of
pilferage and loss of cargo, which leaves importers disappointed.
53 Bowen, T. Leinbach & D. Mabazza, “Air Cargo Services, the State and Industrialization Strategies in The Philippines: The Redevelopment of Subic Bay” (2002) 36 Regional Studies 5, 451.
3. AIRPORT CATEGORY DOWNGRADE (In relation to the Facility Factor Gap and Demand
Factor Gap)
Five years ago the Philippines had a status of Category 1 which means that the Civil Aviation Authority of the
Philippines (CAAP) was in compliance with the requirements and standards set by the International Civil
Aviation Organization (ICAO) regarding aviation safety and security standards.
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In 2008, the US Federal Aviation Administration (FAA) downgraded the Philippines from Category 1 status to
Category 2. This means that CAAP was found not providing the safety oversight of its air-carrier operators, in
accordance with the minimum safety oversight standards provided by ICAO. The FAA found 23 issues that
need to be solved. It included the following:
(1) Lack of laws and regulations necessary to support the certification and oversight of air carriers in
accordance with minimum international standards; (2) CAAP’s lack of technical expertise, resources and
organization to oversee and license air carrier operations; (3) CAAP does not have adequate and trained and
qualified technical personnel; (4) CAAP does not provide adequate inspector guidance to ensure enforcement
of and compliance with minimum international standards; (5) CAAP has insufficient documentation and
records of certification; (6) Inadequate continuing oversight and surveillance of air carrier operations.
It was also reported that a team from CAAP led by Director General Ramon Gutierrez, has just returned from
a visit to the US where it presented what the country has done to resolve the problems that led to the category
downgrade. The prospects was said to be still uncertain. The only assurance that was given by FAA is that
they will review the report submitted by CAAP.
In a report by ABS-CBN news, some sources said that what could help convince the FAA to give a positive
grade for the Philippines is if the country’s flag carrier, Philippine Airlines, pushes through with its plan of
buying Boeing planes and the Department of Transportation and Communications would announce its plan to
source the $13 billion radar equipment needed by NAIA in the US. At present, CAAP is taking the lead in
bringing back the Philippines’s former status. It is trying to convince FAA that the country is addressing the
problems that were seen in the inspection report that was submitted five years ago. According to CAAP, the
issues that were identified were just minor. It just includes fine tuning the civil air regulations, changing the
safety and oversight structure, updating its database storing system and standardizing certification of safety
inspectors and revalidating airline carriers. CAAP also mentioned that there are only 2 which were left
unresolved and according to them it was more of a political issue that is why it is taking a while to solve it.
However, they are trying to meet the issues raised by FAA and that they are doing their best to make flying as
safe as possible.
Another one of the issues is the limitation in the heights of structure within NAIA so that aircraft flying on
instruments are assured they would not hit the tall buildings that are on the path of the landing pattern. This
was also the concern of former AFPI chairman, who mentioned that there are also houses that were built very
near to NAIA’s runway which can hamper the safety of those living within the area. Some of the buildings
were reduced in size but some owners had to pay since they were sued by the government and had to settle
with the aviation authorities a huge penalty amount rather than having their buildings reduced. CAAP had
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ruled that these buildings within a five mile radius from the end of Runway 13 could only build structures not
higher than 150 feet.
This downgrade has really affected the growth of the Philippine Aviation Industry. It resulted to
making the Philippines part of the European Aviation Blacklist which will result to a limited reach
in market. With this downgrade, the current aviation status prevents the country from effectively
promoting the tourism industry as one of the growth sectors. The aviation authority noted that the
category downgrade does not mean that the Philippine Carriers are banned from flying to the US,
but it definitely prevents new services to be added to the US route until all issues are solved.
According to President Noynoy Aquino, once these are solved there would be an influx of tourists
in the country. He is hoping that the current number of tourists will increase to 10 million by 2016.
In an interview with PAL representatives, PAL is doing their part. They already bought new
aircrafts, however, since the country is still in category 2, PAL cannot use these aircrafts and
increase their flights to a wider market, such as having new routes to the US and Europe. If this is
the case, we will have a difficult time increasing cargo capacity
a. 3% Common Carriers Tax (CCT)
4. TAXES (In relation to the Cost Factor Gap)
Burden of Taxes and charges imposed by various government agencies – the industry is already
suffering from the volatility of jet fuel prices and it was even made worse by the additional burden
of taxes imposed like the Common Carriers Tax (CCT) and Gross Philippine Billings (GPB).
According to the IATA study, removing those taxes would provide a potential gain of US$38-78
million for the Philippine economy resulting from increased tourism. This would also lower cargo
transport cost thereby boosting export earnings to almost US$ 1billion.
Foreign airlines are burdened with discriminatory taxes such as the following:
Revenue Regulations No 11-2011 entitled, “ Revenue Regulations Defining Gross Receipts for Common
Carrier’s Tax for International Carriers pursuant to Section 118 of the Tax Code amending Section 10 of
Revenue Regulations No 15-2011” finally came up with a formal definition of Gross Receipts for International
Carriers under Section 118 of the Tax Code as follows:
“ Gross receipts” shall include, but not limited to, the total amount of money or its equivalent representing the
contract or ticket prize, excess baggage fees, freight / cargo fees, mail fees, rental, penalties, deposit applied as
payments, advance payments and other service charges and fees actually or constructively received during the
taxable quarter from the passage of persons, excess baggage, cargo and / or mail, originating from the
Philippines in a continuous and uninterrupted flight, irrespective of the place of sale or issue and the place of
payment of the passage documents.
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Provided further, that for a flight, which originates from the Philippines, but where transshipment of passenger
takes place at any port outside the Philippines on another airline, only the aliquot portion of the cost of the ticket
corresponding to the leg flown from the Philippines to the point of transshipment shall form part of the Gross
Receipts.
Said definition amended Section 10 of Revenue Regulations No 15-2002. Notable Section 118 of the Tax
Code simply provides as follows:
Section 118 Percentage Tax on International Carriers
International air carriers doing business in the Philippines shall pay a tax of 3% of their quarterly gross
receipts.
Thus the above definition under Revenue Regulations No 11-2011 amending Section 10 of Revenue
Regulations 15-2002 would serve as a guide for international carriers in determining their Gross Receipts for
percentage tax purposes. This is a direct tax where the airline company is the one directly liable. It s not like
Value Added Tax (VAT) that could be passed on to the buyer.54
b. 2.5% Gross Philippine Billings Tax (GPB)
An international carrier doing business in the Philippines shall pay a tax of 2.5% on its Gross Philippine
Billings. It refers to the amount of gross revenue derived from carriage of persons, excess baggage, cargo and
mail originating from the Philippines in a continuous and uninterrupted flight, irrespective of the place of sale
or issue and the place of payment of the ticket or passage document. In Singapore and Malaysia, they are
liberalized already that’s why they are attracting a number of investors. In the Philippines, these investors are
pulling away due to these taxes.
The Board of Airline Representatives (BAR) as well as the International Air Transport Association (IATA)
have repeatedly communicated their strong disagreement to the CCT and the GPB imposed on foreign airlines
operating in the Philippines. Malaysia, Thailand and Vietnam are said to be enjoying its tourism growth and
connectivity due to the fact that they do not impose these taxes. If international carriers are exempted from
these taxes, the Philippines will be more attractive to foreign investors and tourists and it will also attract
foreign airlines to make the country a destination of choice. This view was shared as well by the Key Players
that were interviewed by the researcher. These two taxes are considered as a burden to the carriers which
pushes them away to operate in the country.
According to the American Chamber of Commerce, “In the highly competitive international aviation industry,
foreign airlines connecting the Philippines to foreign airports operate at a very low margins. The termination of
flights of European airlines, including that of Air France-KLM’s direct service to Manila marks the end of any 54 Philtaxation.blogspot.com
115
direct flights from Europe to the Philippines. The recent decision also of Qatar Airways to end flights between
Doha and Cebu is another example of connectivity reduction. It was reported that the Philippines should look
at what its neighboring countries are doing. Malaysia, Thailand and even Vietnam is experiencing gains from
increased connectivity and tourism. These countries are more business-freindly to the foreign airlines. We
should then strive to bring back these lost opportunities and make it a point to start attracting the foreign airlines
again to do business here.
Early this year the House of Representatives approved a bill that would rationalize the taxes, particularly the
Common Carrier’s Tax (CCT) and Gross Philippine Billings (GPB) tax imposed on international air carriers.
It was reported that House Bill 6022, a substitute measure to House Bills 3298 and 4444 and House Resolution
1949 seeks to amend Sections 28, 108 and 118 of the National Internal Revenue Code of 1997. If enacted into
law, international air carriers will be exempted from CCT which is said to be 3% of the airline’s gross turnover
and GPB which is 2.5% of the gross turnover.
In the article of Iloilo representative Jerry Trenas, author of HB 4444, he said that the country’s tax regime is
driving away tourists from the country. The said measure seeks to advance the country’s tourism, trade,
employment and economic integration with the rest of the world, eliminating the negative impact of CCT and
GPB on the country’s connectivity and competitiveness as an international investment destination. The
move’s objectives are:
(1) to recognize, honor and respect the principle reciprocity with regard to other countries in relation to tax
treaties and international agreements embodied in diplomatic notes involving international carriers;
(2) to enhance the country’s competitiveness through tax incentives. This will facilitate movement of goods
and services and people since it will improve tourism in the country, attract foreign investors and encourage
international airlines that stopped its operations and direct flights to the Philippines to restore its operations in
the country. It was said that carriers with extensive global networks left the country and transferred to other
neighboring countries which do not burden them with such taxes.55
55 The Daily Tribune, March 23, 2012
Another Act that is being supported by Representative Ralph Recto is the Customs Modernization Tariff Act
(CMTA). This Act decreases the fees and charges that the companies pay for certain products. Companies are
said to pay more taxes and other charges that the actual value of the product, making the companies lose
revenues. This is another step that the government should really push since this can greatly have an impact on
the decision of the companies to invest in the country.
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5. CUSTOMS, IMMIGRATION, QUARANTINE (CIQ) / OVERTIME CHARGES (In relation to the
Cost Factor Gap)
One of the most pressing issues that the industry is facing now is the imposition of Customs, Immigration and
Quarantine (CIQ) Fees which include the $100 overtime fee per aircraft and the meal and transportation
allowance of the airport personnel. In the interviews that were made, not only the representatives of the foreign
airlines, but even other stakeholders believe that overtime charges of the airport’s personnel should be covered
by the government. There should be shifting in terms of its operations so that foreign airlines will not have
extra costs, which makes them uncompetitive and therefore discourages them to have flights in the country.
The government should be persuaded to shoulder overtime charges of its personnel and to implement a system
of shifting of personnel to cover its 24/7 operations.
The Board of Airline Representatives (BAR), an organization of executives of international airlines operating
in the Philippines, said that their members mentioned that they have been paying the CIQ fees for the overtime
services rendered by customs personnel since 1990. For these international airline companies this is a very
abusive act of Customs. In a report, they pointed out that “If four flights come in, Customs charge us four times
for the same hour they were rendering their overtime charges.” Foreign airlines were forced to pay these CIQ /
overtime charges including meal and transportation allowances because Customs in the Philippines are said to
be so powerful at the airport. BAR representatives even mentioned that the customs have the power to delay
flights making it very inconvenient to the passengers as well. They also mentioned that customs officials
wanted to adopt the $1 = P50 exchange rate which started in 2005. BAR said that NAIA is the only airport in
the world that charges CIQ fees for foreign airlines. KLM Royal Dutch Airlines was reported to have stopped
its flights to Manila due to the fact that the Philippine government is imposing a lot of taxes. It was also
reported that Lufthansa stopped its Manila to Europe route in 2008.
According to Business Mirror dated August 20, 2012, Malacanang backed up the decision of Secretary
Manuel Roxas III to cease payment of overtime pay for customs, immigration and quarantine officials at the
country’s international airports. Roxas in coordination with the Department of Finance directed government
agencies performing services in international airports to field sufficient number of personnel in shifts to address
the operational requirements and avoid rendering overtime.
6. FUEL AND SECURITY SURCHARGE (In relation to the Cost Factor Gap)
This is not just an issue here in the Philippines but worldwide. With the increasing cost of fuel
¨prices, the industry’s competitiveness against other means of transport is lessened because
consumers tend to be price sensitive. Another issue related to fuel prices is the challenge among
industry operators to keep operation costs low, of which 40% of total cost goes to fuel expenses.
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In an interview with domestic cargo key player, Cebu Pacific, an increase in fuel prices has a huge effect on the
travelers because there will be an increase in surcharge fees exacted to them, which in turn will discourage
traveling and will impact on the number of flights.
In a report in The Daily Tribune last June 26, 2012, Cebu Pacific has lowered fuel surcharges to much as 20%
on all domestic flights to further bring down prices for passengers. This will take effect on flights from Manila
to Visayas, Mindanao and selected Luzon routes (less P100), from Manila to selected Luzon routes (less P50),
from Visayas to Luzon and Mindanao and within Visayas (less P50) and from Mindanao to Visayas and
within Mindanao (less P50). Cathay Pacific, the number two key player in international cargo, on the other hand, and its subsidiary Hong
Kong Dragon Airlines petitioned the Civil Aeronautics Board (CAB) for the adoption of fuel surcharge
increase to recover costs related to increasing fuel prices. It is seeking a 6.6 % increase in fuel surcharge from
$129.20 to $137.80 for flights between Hong Kong and South West Pacific, North America, Europe, Middle
east, Africa and the Sub Asia continent.
Fuel surcharges are said to be added to air fares. This is to help airlines worldwide to offset the rising cost of
fuel, which as what was said by CEB representative is 40% of their cost. However, if this continues to rise, it
will have an effect on the financial performance of the airlines. It would be difficult for them to balance the
cost with the quality of their service.
Open Skies is a policy concept that calls for the liberalization of the rules and regulations of the international
aviation industry—especially commercial aviation--- in order to create a free market environment for the
airline industry. The objectives of the policy is (1) to liberalize the rules for international aviation markets and
minimize government intervention as it applies to passenger, all cargo, and combination air transportation as
well as scheduled and charter services; and (2) to adjust the regime under which military and other state-based
flights may be permitted. For open skies to be effective, a bilateral Air Transport Agreement must be
concluded between two or more nations.
7. OPEN SKIES POLICY (In relation to the Government Support Factor Gap and the Facility Factor
Gap)
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Last year the Philippine Civil Aeronautics Board (CAB) approved rules allowing foreign carriers to fly in the
Philippines under the Aquino administration’s “pocket open skies” policy. President Benigno Aquino III
signed Executive Order 29 (Liberalizing the Philippine aviation by easing restrictions on foreign airlines in
selected international airports outside Metro Manila) to foreign airlines specifically to airports other than the
NAIA. This was said to increase tourist arrivals and air traffic. The policy is also designed to facilitate access
to secondary airports. This is construed to favor the grant of additional frequencies capacities and rights.
According to the policy, any foreign carrier intending to engage in international air transportation to any
56 Wikipedia
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secondary gateway or to increase its frequencies or capacities or route rights should file a petition for grant of
an increase of traffic rights over and above the limitations. It also states that CAB, in case of failure to reach
mutual agreement to grant reciprocal rights to Philippine carriers within 12 months from the grant, may revoke
the said grant. CAB may continue to allow operations of traffic rights granted under EO 29 if the Board deems
it to promote mutual interest or mutual benefit.
Open Skies Policy can open the country to other markets, however the Philippines has to be prepared as well.
It should improve its airports and its operations and invest more on infrastructure. Philippine Airlines, the
country’s flag carrier strongly disapproves on this. Other carriers are said to get more than our own domestic
airlines. For these key players, there is no reciprocity. The government is giving too much to other foreign
airlines.
1. For automation of operations such as the initiatives in E2M and the Automated Export Documentation
System (AEDS), these should be customized to Clark situation as a Freeport.
8. BUREAU OF CUSTOMS (In relation to the Government Support Factor Gap)
The Bureau of Customs in NAIA is the number one complaint of the stakeholders. From the results of the
interviews, the Customs Bureau is reported to have different policies. For instance, in the cargo delivery, the
length of how long the release of cargo differ, For some, it takes very long for them to release a particular
Given this there is a big effect on the cargo delivery because of time and speed. Every hour that the cargo is
late, there is a huge implication on the cost. In an example given by PAL, during a transshipment from HK
going to Cebu passing through Manila, the processing of all documents in Manila are being done by the
forwarders, they are the ones engaging in red tape. In a flight Tokyo-Cebu-Manila, from Cebu to Manila,
goods are being guarded, this means that would entail more costs. Customs should engage in paperless
systems, so that documentation and other activities are all automated. In this case, cargo and its activities will
be monitored and red tape can be diminished.
In terms of the Customs Bureau in Clark, in can be said that the performance of Clark is better than that of
NAIA in terms of customs operations. Most of the interviewees mentioned that NAIA Customs is a pain and
they still continue engaging in red tape. However, when BOC in Clark was interviewed it was learned that
their operations are clear and synergized. They are currently looking into the practice of E2M or the Electronic
to Mobile System. It is a system that has a tie up with the bank for easier payment and processing. For
enhancement of BOC operations, there was a request to upgrade X-ray machines for non-intrusive
examination. BOC Clark also recommends the following:
For Trade Facilitation, make Clark a tourist hub (Clark-SG; Clark to Korea and Vice Versa) – and train BOC
Personnel in the Korean language
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2. As for the Single Window initiative, BOC is already linked. Operations are already paperless and
queueless. BOC is however the one blamed for the delays and not the other agencies since BOC is the
last to issue a permit.
9. SYNERGY IN THE GOVERNMENT (In relation to the Government Support Factor Gap)
The aviation / air cargo logistics industry has a lot of room for growth, improvement and opportunities to catch
up with its successful neighboring countries. However to be able to make this happen, the government will
play a big role in leading this quest for success.
The government must make all the necessary policies and regulations to implement a smooth operation of the
industry. For instance the government should set a good example to all its employees. Each agency should
implement and follow their rules and make sure that everyone else will follow. The problem with the policies
is that those on top are giving instructions for those policies but those at the bottom are continuously doing their
old system which consist of doing red tape or the “lagayan system”. It was said in the FGDs and Interviews
that the actions of the rank and file in the government agencies specifically that of Customs cannot be
controlled. The government also was said t have no standards. Each agency is doing and implementing its own
policies. There is no presence of a regulatory board. Plans and programs should have proper coordination
among agencies in the government and simulation and this will definitely take time. What the government lack
is a sense of urgency in implementing its policies and projects. There is a Lack of Long term Urban Planning
as well. There is still hope for the government to do its part.
Aside from these, the government should provide incentives to enable business and trade in the country. The
government should provide the environment, provide better airports. This is more of a political will.
Government should help business, protect investors and continue maintain a good partnership with those who
has already investments in the country.
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TABLE 12: Summary of Imperatives for the Air Cargo Logistics Sector (in support of the vision to
make Clark the Primary International Gateway / Logistics Hub
ISSUES DESIRED RESULT CONCERNED
GOVERNMENT
AGENCIES
UPDATES
CCT of 3% and GPB
of 2.5% to Foreign
Airlines
1. Removal of these
taxes
2. Amendment of
NIR Code Sec 28.
1. Congress
2. Senate
3. DOTC (CAB /
CAAP)
4. DOF (BOC /
BIR)
5. DOT
1. House Bill 4444
and Senate Bill
3065. The bills
seek to amend
and eliminate the
taxes being
imposed to
foreign airlines
2. There was an
HB 4444
committee
hearing held on
March 13, 2012
3. HB 6022
removes the 3%
CCT and the
2,5% GPB
imposed on all
cargo and
passenger
revenues.
4. DTI-BOI is
support drafted
comments for
both House and
Senate Bills
Open Skies Policy 1. More liberalized
aviation policy.
2. Increased
DOTC / CAB 1. EO 29 (March
14, 2011) was
issued directing
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International carrier
Services through
reduction of cost.
the CAB and
negotiating
panels t persue
more
aggressively the
international
civil aviation
liberalization
policy.
2. Malaysia’s Air
Asia establishing
a hub in Clark
DMIA.
CIQ, overtime, meal
and transportation
charges
1. 24/7 operations at
all international
airports and
government should
shoulder overtime
payments for
personnel
1. DOF / BOC
2. DOJ / BI
3. DOT
4. DOH
5. DA
6. SBMA
7. CDC/CIAC
1. Supported by
senior
government
officials. BOC
has ordered staff
services by shifts
without overtime
pay- but
employees are
not in favor of
this and they
took legal action.
2. DOF Secretary
ordered CIQ
officials to
discontinue the
one shift practice
and have 3 shifts
for 24/7
operations
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effective May
2012.
FAA 2007 Audit:
Category Downgrade
from 1 to 2
1. Upgrade to
category 1
2. Implementation of
the DOTC Air
Traffic
Management
Project fueled by
Japan
1. DOTC (CAB /
CAAP)
2. NCC
1. CAAP still
awaiting recent
audit of the
technical review
conducted by the
team of ramon
Gutierrez in the
US>
Fuel and Security
Surcharges – its
implementation made
cargo cost expensive
Removal or reduction in
fuel and security surcharges 1. DOF
2. NCC
Customs BOC satellite office /
personnel to be stationed
outside the perimeter of the
free port zones
1. DOF / BOC
2. Eco Zones
Operators
BOC in Clark said they
are inside the airport just
for monitoring and
checking.
Increase Air Cargo
Traffic 1. New market
Opportunities
2. High Value Added
Products from
Mindanao (crops)
3. Operationalized
Distribution Center
/ warehouse
Facility in Clark
4. Completion of
DMIA Expansion
1. CDC / CIAC 1. Continuous
promotion of
Clark
2. SCADC vision
for Clark /
DMIA to be an
international
gateway airport
in the
Philippines
3. Global gateway
Logistics
Development
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XV. VISION, GOALS AND TARGETS
I. SHORT TERM GOALS: (2016)
a. Increase in the Number of Free Trade Zones in the Country. (LOCATION FACTOR)
Acording to Captain Ben Solis, the government should decide how many free trade zones it still
wants to have. This will definitely attract foreign investors to have their business operations in
the Philippines.
b. Improvement of the NAIA Airport. (FACILITY FACTOR)Expansion is no longer
possible but at least improve the operations in NAIA especially the operational aspect.
Paperless or the E-Freight System should be implemented and practiced. In line with this CAAP
should work on regaining Category 1 classification of the Philippines. New equipment and
systems should be installed for more efficient operations.
c. Increase in the Number of Foreign Investors. (DEMAND FACTOR) The number of
Investors in Central Luzon and in Northern Luzon should be increased. This will definitely
create the need for air cargo thereby increasing cargo volume in the country.
d. Elimination of Taxes such as CCT and Gross Philippine Billings. (COST FACTOR)
This can definitely attract foreign airlines to operate efficiently and competitively.
e. Elimination of CIQ Charges / Overtime Charges. (COST FACTOR) Foreign Airlines
should not be burdened by these charges. The Philippine Government must implement the 3-
shift operations of customs
f. Provide more incentives to investors. (GOVERNMENT SUPPORT FACTOR) This are
taxes such as Preferential Tax on Free Port Zones (Businesses which are registered are entitled
to a preferential tax of Gross Income Earned in lieu of the customary national and local taxes),
Foreign Investment Incentives such as Board of Investment Incentives (Any enterprise
registered with BOI is entitled to incentives), Fiscal Incentives (Income Tax Holiday for pioneer
firms and non pioneer firms, Tax credit on raw materials, additional deduction from taxable
income for labor expense cannot be enjoyed with ITH, Duty Free importation of capital
equipment, spare parts and supplies for both export and domestic-oriented enterprises) and Non-
Fiscal Incentives (Employment of foreign nationals, Guaranteed 100% repatriation of foreign
investments and earnings and Importation of consigned equipment for an unlimited period
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g. Position Clark as the Low Cost Carrier Airport and a Primary International Gateway.
(GOVERNMENT SUPPORT FACTOR, DEMAND FACTOR and FACILITY FACTOR)
a. Clark as the Primary International Gateway and an Air Cargo Logistics Hub
In Asia. Support marketing strategies that would promote Clark as a hub in Asia.
Since NAIA is already congested, by 2016 Clark should already be positioned to be the next
international gateway and an air cargo logistics hub in Asia. Start investments in Clark and
pursue completion of GGLC. Improve airport operations and facilities and have the best
automated systems and processes available for airport operations. Invite more Low Cost
Carriers. Have a robust marketing campaign promoting Clark as the next Air Cargo Hub.
.
II. MEDIUM TERM GOALS: (2022)
b. The Philippine Aviation back to Category 1.
(LOCATION FACTOR)
c. Development of Provincial Airports.
(FACILITY FACTOR)
d. Aerotropolis Vision for Clark.
(FACILITY FACTOR)
e. Having Railways and Improvement of Roads that would connect NAIA to
DMIA both for passengers and cargo.
(FACILITY FACTOR)
f. Fully-Automated Cargo Terminal or Cargo Village in Clark.
(FACILITY FACTOR)
g. Full Implementation of the E-Freight System.
(FACILITY
FACTOR)
h. More incentives for Investors and more policies supporting Air Cargo Sector.
(FACILITY FACTOR)
III. LONG TERM GOALS: (2030)
(GOVERNMENT SUPPORT FACTOR)
a. Cargo Terminal comparable to Hong Kong and Singapore with state-of- the- art
and fully automated facilities.
b. Air Cargo as an enabler for more trade as it promotes more connectivity with
other markets.
(FACILITY FACTOR)
(DEMAND FACTOR)
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c. Philippines to be the center of trade and a hub to a lot of cargo carriers.
d. Continuous Improvement of Airports, Roads and Networks.
(DEMAND FACTOR)
e. To be one of the Top 10 Cargo Hubs in the World.
(FACILITY
FACTOR)
XIV. STRATEGIES AND ACTION
A. TAXES AND INCENTIVES:
1. EO 619 was signed by President Gloria Macapagal Arroyo last April 16, 2007. It states that Tax
and Duty incentives are provided to duly registered businesses that locate to special economic
zones in the Philippines.
2. RA 7916 supports that companies that opt to relocate with in a Free Port Zone are granted
generous tax breaks by the government. Corporate Income Tax is equivalent to only 5% of their
gross income and the Capital Equipment and Raw Materials can be imported Duty Free.
3. Modified and Liberalized Foreign Investment Law states that foreign Investors of any
Nationality are permitted to maintain 100% foreign equity in all areas of investment set up in the
Philippines. Foreigners are permitted to lease privately owned land from Filipino owners for 50
years with an extension of 25 years, thereby having a total of 75 years.
1. Provide more tax and duty incentives to both local and foreign investors that would allow
and attract them to expand and extend their business operations in the Philippines.
STRATEGIES: (DEMAND FACTOR & GOVERNMENT SUPPORT FACTOR)
2. Government should be deciding on how many free ports they would want to establish in the
country. Government to identify and increase the number of free port zones.
3. The government should develop more PEZA zones
B. FOREIGN INVESTMENTS:
1. Texas Instrument (TI) built its $1billion manufacturing plant in Clark. According to its Vice
President Kevin Ritchie they chose the Philippines instead of its other neighboring countries such
as Vietnam, Thailand and China mainly because of two reasons: (1) The Philippines has highly
skilled and quality labor force, and (2) The willingness of the Philippine Government to offer
favorable and attractive tax and tariff incentives.
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STRATEGIES: (GOVERNMENT SUPPORT FACTOR)
1. The Philippine Government should create educational programs that would train and hone
the skills of Filipino Workers. This could be a continuous education program where the
objective also is to enhance the technical skills and knowledge of Filipinos. This is one of
the factors that attracts foreign companies to invest in the Philippines, our skills and talents
are among the best in the world, thus providing quality labor to these businesses.
2. Promote to the Foreign Investors the advantages of operating in the Philippines. This
should be part of the government initiative to attract these businesses to have their
operations in the country. This in effect will increase our export growth.
3. The Philippines to be the enabler for trade and connectivity. By attracting investors to
locate their businesses in the country, there would be more movement in terms of cargo
volume. If these investors would have their manufacturing plants in the country, there are
more opportunities for trade and cargo movement. The Philippines can reach a wider market
through exporting these raw materials to other countries. But the country has to first be an
attractive location and environment to these locators. The effort has to come first from the
government to attract these investors through tax incentives and an efficient system in terms
of airport operations and efficient transport of goods.
4. Develop companies such as BerthaPhil Business Park in Clark. It definitely will attract
investors who are not sure where to relocate their business. BerthaPhil is an integrated IT,
Housing and Commercial Camus which provides office, warehouse space and customized
IT facilties to different local and foreign companies.
5. Government agencies supports and extends help to investors. In Clark, CDC devoted 30
hectares in the Freeport zone to accommodate presence of support industries and suppliers
of companies such as Texas Instruments.
C. IMPROVEMENT OF ROADS AND HIGHWAYS
1. The completion of the key transportation link, Subic-Cark-Tarlac Expressway (SCTex). This
superhighway directly interconnects Subic Bay and Clark and it further extends to the Central
Techno Park in Tarlac to the north of Clark.
2. Aside from the SCTex there was the opening of a 3.5 kms North Interchange via Panday Pira
connecting Road and the opening of the Clark South Internchange which is located near the
Yokohama Tire Facility and the Clark Airport. These initiatives were made possible because most
of the locators in Clark has been requesting for an exit and entrance point to and from the Clark
Freeport.
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3. Part of the government plan as well is to connect the North Luzon Expressway and the South
Luzon Expressway via metrorail. This however is part of the Long Term Plan which can connect
Clark to Manila.
The improvement of roads and highways will help Clark and Subic and the nearby provinces to
become important participants in the government’s Global Gateways Development Program.
STRATEGIES: (GOVERNMENT SUPPORT FACTOR AND FACILITY FACTOR)
1. More highways such as the SCTex should be develop. The plan of putting a metrorail to
connect NLEX and SLEX can be an advantage for the passengers, however in terms of
cargo it would be better to create sky ways for easier transport of cargo.
2. Government should create transport means in the free port zones. These transport means
should be available in the region.
D. IMPROVEMENT OF AIRPORTS / TERMINALS
1. The Ninoy Aquino International Airport is said to be beyond its capacity to operate. The plan of
improving the airport and faciltiies are still ongoing. However, there are a lot of issues and
problems that need to be resolved for NAIA to operate efficiently. Even if problems within the
NAIA are solved it is still operating beyond its capacity. It will only solve its current operations but
expanding the airport is not an option anymore.
2. NAIA has no cargo terminal or a single building cargo terminal where all processes and
operations related to cargo are done.
STRATEGIES: (FACILITY FACTOR AND LOCATION FACTOR)
1. To solve the capacity to expand of NAIA, taxiways should be developed for a free flow of
the aircrafts. The taxiway can be created as an alternative route to solve issues on flight
delays. This is very similar to the “U-Turn” concept of MMDA to solve traffic in Metro
Manila.
2. Look for the next international gateway for Commercial Aviation Sevices in the Philippines.
3. Look into the different areas in the Philippines, which could serve as a potential
international airport which can also be positioned as a cargo logistics hub in Asia. The
potential area or location for another international airport should (a) operate within the
requirements by the ICAO, (2) it should have access to the different modes of
transportation, (3) it within a freeport zone, (4)It should have a logistics supply facilities.
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4. There should be a creation of a Logistics Infrastructure, Inventory Management Facilities
contained in an area near the seaport and an airport.
5. Creation of an Aerotropolis wherein a Cargo Village can be located.
6. Develop areas like Clark. (GGLC. Berthaphil Business Park
E. GOVERNMENT:
1. The government might have no synergy when it comes to implementing and prioritizing
projects.
2. CAAP is still working on the Category Upgrade.
3. The government lacks political will in implementing policies in the air cargo sector.
STRATEGIES: (GOVERNMENT SUPPORT FACTOR)
1. Re-structure or Re-organize the CAAP. The responsibility of CAAP, being both an operator
and a regulator should be thoroughly thought about. In other countries, an airport operator is
different from a regulator. This is to have a more efficient operations in the airport. The
government can remove one of these responsibilities from CAAP so it can focus and
concentrate more on its assigned duty. In this way, the quality of CAAP will also be
improved. In the new CAAP law, the Airport Transpostation Office was changed to CAAP,
it was only the name that was believed to be changed, the structure was still the same.
2. There should be no presence of customs within the free port zone. The BOC should be
relocated near the exit of the Freeport zone so as to monitor cargo going out of the zone.
This would create ease in the cargo movement.
4. Presence of Political Will. The government must take the lead in creating policies and
implementing these policies. The Philippines has the capacity to compete with its
neighboring countries specifically in being a logistics hub in Asia. The leaders just have to
set mind to it. They should start creating the need for cargo volume by improving all the
systems, improving all infrastructure and facilities, then making sure policies are in place
and are implemented. Once all these have taken place it would be very easy to attract and
invite investors to do business in the country.
5. In terms of supporting Marketing Strategies and Promoting Clark as the Next Air Cargo
Hub, there should be a focus on negotiations for express cargo flights, Organize a one-stop-
action center specifically catered to aviation industry needs, Focus overall marketing efforts
of CDC on aviation-related and aviation-dependent industries, Maintain airport fees which
are lower or comparable.
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6. For the government to release an Information Campaign Strategy. Continue to advocate for
open skies in order to increase cargo operations.
7. For the government to have an Infrastructure Development Strategy. It should look into
targeting big players who have financial resources to have their own cargo handling and
sorting facilities, Use political ties that could provide help in negotiations with cargo liners,
Negotiate for Bank Loans or finance continuous airport improvements.
130
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