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Philippine Seven Corporation Franchise: A Case Study
Philippine Seven Corporation (“PSC”) was registered with the Securities and Exchange Commission (SEC) on November 1982. It acquired from Southland Corporation (now 7-Eleven Inc.) of Dallas, Texas the license to operate 7-Eleven stores in the Philippines in December 13, 1982. Operations started on February 29, 1984 with the opening of its first store at f Kamias Road corner EDSA Quezon City. Despite the country’s economic turmoil at that time, the firm expanded slowly in its first year of operation.
In July 1988, PSC transferred the Philippine area license to operate 7-Eleven stores to its affiliate, Philippine Seven Properties Corporation (“PSPC”), together with some of its store properties. In exchange thereof, PSC received 47% of PSPC stock as payment. Concurrent with the transfer, PSC entered into a sublicensing agreement with PSPC to operate 7-Eleven stores in Metro Manila and suburbs. As part of PSPC’s main business, it acquired or leased commercial properties and constructed retail store buildings, leasing the buildings to PSC on long term basis together with most of the capital equipment used for store operations. Hence, PSC concentrated on managing its stores and effectively took the role of a pure retailer.
Currently, PSC had manpower of 2,017 personnel, 856 of whom are regular employees, 1,159 contractual/probationary and part-timers to augment temporary needs during peak hours or season in the stores and the support services units. The company does not have existing labor union and collective bargaining agreement. An Employee Council regularly coordinates to management the employee concerns.
7-Eleven today concentrates on strengthening convenience through strategic initiatives designed to take advance of new technologies and merchandising procedures, but which remain based on the fundamental principle of the simple business concept it pioneered over 70 years ago – to provide customers an ever changing selection of quality products and services at fair everyday prices, through speedy transactions in a clean, safe and friendly environment.
In July 2009, PSC announced to open 80 stores in that year. It costs about P5 million to set up one 7-Eleven outlet, which, on the average, brings in P50,000 in sales per day. The expansion is due to the increasing sales of the company since 2008 and the growth of BPO firms in the country, despite the economic condition.
Problem Statement:
This study aims to answer the question: “Will you invest in a 7-Eleven franchise?”
Methodology:
This study uses different techniques in addressing the problem statement, specifically:
• Analysis of PSC financial ratios
• Stock trend analysis of SEVN
• Comparative Analysis with Ministop
• Interview with an existing 7-Eleven franchisee
Analysis of Financial Ratios:
Highlights:
• Earnings per share is increasing from 2005 to 2007.
• Net income jumped by 173% from 2006 to 2007.
• Franchising revenue rises every year from Php 58,727 to Php 204,272 in 2007.
• Other income rises also from 2005 to 2007.
Stock Trend Analysis of Philippine Seven Corporation (SEVN):
This study determines the profitability of owning a franchise of 7-Eleven today. A comparative study with Robinsons Convenient Stores, the license owner of Ministop, has been used to effectively present the competition in Philippine convenience stores.
Highlights:
• Increase in the value of SEVN stocks from about 4.00 to 8.00 in November 2009. This is attributed to the announcement of a 10% stock dividend in SEVN.
• SEVN posted as the biggest gainer for November 2009 with 175.86% increase.
• Stable stock price in the past three months.
Comparative Analysis with Ministop:
This study determines the profitability of owning a franchise of 7-Eleven today. A comparative study with Robinsons Convenient Stores, the license owner of Ministop, has been used to effectively present the competition in Philippine convenience stores.
Highlights:
• Both firms offer the same requirement for store size and training for franchisee.
• Ministop has lower initial investment compared to 7-Eleven.
• Both firms are being managed by Asian firms.
Click here to view the interview with an existing 7-Eleven franchisee
Conclusion:
Based on the analyses and interview conducted, this study concluded that it is profitable to own a franchise of 7-Eleven due to the following findings:
• Philippine Seven Corporation, the owner of 7-Eleven, has an established name for operating convenience stores in the Philippines.
• The financial ratios posted robust operations in the country.
• Philippine Seven Corporation’s stock (SEVN) is attaining bullish trend in the past three months, making it a “buy” for investors.
• The company offers attractive franchise package to prospective entrepreneurs. Philippine Seven Corporation has full support to its franchisees from putting up their own stores to procurement and marketing.
• Philippine Seven Corporation is backed-up by leading retail firms in Asia. The brand, 7-Eleven, has also a reputable image globally.
Welcome to 7-Eleven!
Corporate History
7-Eleven
The brand name 7-Eleven is now part of an international chain of convenience stores, operating under Seven-Eleven Japan Co.,Ltd., primarily operating as a franchise. It is the largest chain store with more than 36,842 outlets operating around the world, surpassing the previous record-holder McDonald’s Corporation in 2007 by approximately 1,000 retail stores. Its stores are located in eighteen countries, with its largest markets being Japan, the United States, Canada, the Philippines, Hong Kong, Taiwan, Malaysia and Thailand. 7-Eleven, Inc. as a former U.S.-originating company, is a subsidiary of Seven-Eleven Japan Co.,Ltd, which in turn is owned by Seven & I Holdings Co. of Japan. On a per-capita basis, Norway for example has one 7-11 for every 47,000 Norwegians, versus for example Canada which has one for every 74,000 Canadians. Among 7-Eleven’s offerings are private label products, including Slurpee, a partially frozen beverage introduced in 1967, and the Big Gulp introduced in 1980 that packaged soft drinks in large cups ranging in size from 590 ml to 1.8 L (20 to 64 fluid ounces). The US chain has its headquarters in the One Arts Plaza building in Downtown Dallas, Texas.
Philippine Seven Corporation
Was registered with the Securities and Exchange Commission (SEC) on November 1982. It acquired from Southland Corporation (now 7-Eleven Inc.) of Dallas, Texas the license to operate 7-Eleven stores in the Philippines in December 13, 1982. Operations commenced with the opening of its first store in February 29, 1984 at the corner of Kamias Road and EDSA Quezon City, Metro Manila. Considering the country’s economic condition at that time, the company grew slowly in its first year of existence.
In July 1988, PSC transferred the Philippine area license to operate 7-Eleven stores to its affiliate, Philippine Seven Properties Corporation (“PSPC”), together with some of its store properties. In exchange thereof, PSC received 47% of PSPC stock as payment. Concurrent with the transfer, PSC entered into a sublicensing agreement with PSPC to operate 7-Eleven stores in Metro Manila and suburbs. As part of PSPC’s main business, it acquired or leased commercial properties and constructed retail store buildings, leasing the buildings to PSC on long term basis together with most of the capital equipment used for store operations. Hence, PSC concentrated on managing its stores and effectively took the role of a pure retailer.
In May 1996, the stockholders of both PSC and PSPC approved the merger of the two companies to advance PSC’s group expansion. In October 30, 1996, SEC approved the merger and PSPC was then absorbed by PSC as the surviving entity. With the consolidation of the respective lines of business of PSC and PSPC, the PSC’s retailing strengths were complemented by PSPC’s property and franchise holdings. Their management as a single entity enhanced operational efficiency and strengthened ability to raise capital for growth. In September 17, 1998, PSC established Convenience Distribution Inc. (“CDI”), a wholly owned subsidiary, to provide a centralized warehouse and distribution system to service its 7-Eleven stores.
With the effectivity of the Retail Trade Liberalization Act (R.A. 8762) on March 25, 2000, foreign entities were allowed to invest in an existing retail company subject to the requirements of the law. President Chain Store Corporation of Taiwan (PCSC), which is also the 7-Eleven licensee in Taiwan operating about 2,700 stores, purchased 119,575,008 common shares of PSC or 50.4 % of PSC’s outstanding capital stock at the price of P8.30 per share. The purchase was made under a tender offer during October 9 to November 7, 2000 by President Chain Store (Labuan) Holdings, Ltd., a Malaysian investment holding company, wholly-owned by in strengthening its organizational structure and operating systems. This shall enable PSC to pursue store expansion plans on sound and profitable basis. A new affiliate, Store Sites Holdings Inc., was also established on November 9, 2000, as the entity to own land properties of the Company. These land properties are leased to PSC by SSHI. The Corporation’s area license to operate 7-Eleven Stores in the Philippines has an initial term of 20 years which shall expire on December 12, 2002 and it is expressly provided under the contract that the same shall be renewed for another 5 years (or until Dec. 12, 2007) under the same terms and conditions subject to approval of supervising agency under Department of Trade and Industry. PSC and SEI have completed the area license renewal document with the approval of the Intellectual Property Office of the submitted copy and shall complete the execution of the agreement this year.
The company had a manpower complement of 2,017 personnel, 856 of whom are regular employees, 1,159 contractual/probationary and part-timers to augment temporary needs during peak hours or season in the stores and the support services units. There is no existing labor union in the company and collective bargaining agreement. There is an Employee Council which communicates to management the employee concerns.
7-Eleven today is focused on redefining and enhancing convenience through strategic initiatives designed to take advance of new technologies and merchandising processes, but which remain based on the fundamental principle of the simple business concept it pioneered over 70 years ago – to provide customers an ever changing selection of quality products and services at fair everyday prices, through speedy transactions in a clean, safe and friendly environment.
Corporate Vision
Vision
Our vision is to be best retailer of convenience.
Core Purpose
To make daily life easier by providing modern convenience.
Oath of 7-Eleven Employees
I want to treat everyone honestly and promise to try my best to serve our customers in order to create a better future for the company, my family, and myself.
The 5 7-Eleven fundamentals are quality, speed, selection, and value in a safe and pleasant environment.
Corporate Values
Customer focused
Teamwork
Integrity
Reliability
Results oriented
The First 7 Years
On October 26, 1982, Philippine Seven Corp. (PSC) acquired the license agreement to use the 7-Eleven Convenience Store system in the entire Philippines from Southland Corporation of Dallas, Texas. After a month, PSC was registered with SEC on 29 November 1982. The incorporators were Jose T. Pardo, Vicente T. Paterno and Francisco R. Sibal. The company’s chief mission was to introduce an entirely new retailing concept to the Filipino consumers, i.e. operating a chain of 24-hours convenience stores. The first corporate office was located at the ninth floor of the Century Tower building in Salcedo Village, Makati City.
In order to apply Southland technology in all phases of managing a 7-Eleven convenience store, PSC sent five of its employees to various Southland installations in the US. The so-called Five-Man Team was consisted by Francisco R. Sibal, Executive Vice President; Ramon de Jesus, General Manager; Jose Blanch, Merchandising Manager; Wilfredo Villanueva, Accounting Manager; and Teodoro Wenceslao, Store Operations Manager. They left on February 15, 1983 to undergo a five-week in-depth training in their respective fields. Upon their return to the country, the Five-Man Team immediately set out to practice what they’ve learned from the functional training: site selection, design and construction of the first 7-Eleven store, negotiation with suppliers, ordering of equipments, recruitment and training of first batch of employees.
The assassination of Ninoy Aquino at the Manila International Airport on August 21, 1983 triggered the steady deterioration of the economic and political situation in the country. In spite of the bleak state of the market, PSC decided to proceed with the 7-Eleven project. On this account, the company needed fresh capital to build its first two stores. The Board of Directors increased their respective equity contributions in PSC and invited two outstanding businessmen, Mr. Jorge L. Araneta and Mr. Ernesto B. Rufino Jr., to become new shareholders and directors of PSC.
Despite the aggravating political and economic adversities, PSC gamely opened its first 7-Eleven convenience store, located at the corner of EDSA and Kamias Streets in Kamuning, Quezon City, on February 29, 1984. This store proved to be a tough one as it weathered all types of calamities, the EDSA revolution, and coup’d'etats. The second 7-Eleven convenience store was opened at President Ave., BF Homes, Parañaque, which was adjacent to the entrance of a posh subdivision, in April 1984. Having been able to open two stores within the same year, PSC was able to make necessary comparisons in the operations of its stores. It has learned that the primary customers of 7-Eleven stores came from the middle class: the salaried, busy employee who preferred a quick fix, while on his/her way home or to the office.
Because PSC steadily lost money during the years of 1984 to 1985, and due to the outrageous impossibility of securing bank loans, Francis R. Sibal was compelled to sell his share in the company and relinquish his responsibilities as executive vice president and managing director. His duties as Managing director was assumed by Mr. Vicente Paterno, while his responsibility for external affairs was taken over by Mr. Jose T. Pardo.
To infuse additional capital into the company, PSC sought the assistance of a friendly large Philippine organization who later offered a substantial semi equity term loan. Because of this, the company had adequate funds to open its third 7-Eleven convenience store at the corner of Harrison and Libertad Streets in Pasay City in October 1985, and patterned it to the characteristics of the Kamias branch. Management also came up with a clever leasing scheme wherein the lender participates in store profit when an individual store achieves higher than target sales volume. This was an effective way to source out funds for the construction of more stores. The first 7-Eleven Convenience Store built through this scheme was the branch located in Nagtahan Rotonda, at Santa Mesa, Manila.
On May 19, 1988, PSC’s sister company, Philippine Seven Properties Corporation (PSPC) was registered with SEC, and its incorporators were Manuel Agustines, Jorge Araneta, Jose Pardo, Vicente Paterno, and Alfredo Ramos. PSPC undermined the difficulties posed by the Constitution, and made it easier for PSC to raise money through acceptance of foreign and corporate investments. PSPC was able to successfully generate additional funds which were used by PSC in the construction of six stores in 1988, and five stores in 1989. Indeed, a tremendous blast of enthusiastic action from PSC Management.
Though still inexperienced in the field of the convenience store industry, PSC showed remarkable results. In fact, according to Southland’s technical representatives, PSC’s 7-Eleven stores compared favorably with other 7-Eleven stores anywhere in the world. The stores were clean, comfortable, and the ambience was very inviting and pleasant. Surely, the company has learned its lessons well.
The Board of Directors
Corporate Officers
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* As of Board of Directors’ Meeting dated July 19, 2007
Community affairs
7-Eleven is truly committed in being the friendly neighborhood convenience store. It is always one with the community in uplifting the lives of the Filipinos as it continuously supports the community’s various social programs and services. To site some are the “Computer Donation Project”, our participation in environmental welfare programs sponsored by local NGOs, and assistance extended to several charitable institutions.
7-Eleven is in partnership with the Philippine National Red Cross (PNRC), a voluntary humanitarian organization that serves as the government’s auxiliary arm in providing relief, health, and welfare to the most vulnerable people in need including victims of disaster and other emergencies. And 7-Eleven takes pride in supporting their Coin Can Project which is seen in our store’s cash register counters. Our way of saying, “7-Eleven cares for our less fortunate Filipinos.”
7-Eleven believes that protecting the environment is one of the best ways to invest in the country’s future. Thus, we took part in ABS-CBN Foundation’s La Mesa Watershed Project. Said program aims to reforest some 1,200 hectares of open areas to ensure the sustainability of Metro Manila’s water source.
During 7-Eleven’s celebration of the 204th Grand Store Opening Celebration, 7-Eleven donated monobloc chairs to the Barangay Satellite of Highway Hills in Mandaluyong City. Barangay Captain Severo Servillon gleefully accepted them.
Franchising
7-Eleven is the leading convenience store chain in the Philippines for over 25 years, and became the country’s first franchisor in convenience retailing when we awarded our first franchisee in 1998.
Today, over 200 stores are operated by our Franchisees; entrepreneurs and business partners who are dedicated to giving 7-Eleven® customers what they want when they want it.
7-Eleven provides:
• a reliable, fresh assortment of high-quality products
• speedy transactions
• every day fair prices
• a clean, safe and friendly environment to shop.
7-Eleven provides an opportunity for entrepreneurs and business partners to operate their own convenience store with the leading name in the business.
What They Offer
Philippine Seven Corporation gives you the chance to operate your own business by having access to 7-Eleven expertise, business operating systems and support of a highly successful global corporation.
You need determination to do it, the smarts to get it done, the power to motivate your employees and the financial commitment to make it all happen. It can be a rewarding experience for those willing to take the challenge.
7-Eleven offers:
A popular and reliable global brand with a wholesome image. The top-of-mind convenience store among customers in the Philippines;
An established retail operating system proven over 25 years of retail experience;
Access to 7-Eleven‘s logistics and distribution resources;
Continuous developmental marketing, product R&D, and operational support;
A comprehensive 8-week training program on the operation and management of a 7-Eleven store;
Assigned Operations Field Consultant (OFC) who visits with the Franchisee at least once a week to provide counsel on every aspect of the business;
Monthly financial and marketing records prepared by 7-Eleven for the franchisee
Frequently Asked Questions
Q. What are the qualifications of a 7-Eleven franchisee?
A. You love a good challenge, ready to put in hardwork, manage people and monitor finances, be a creative salesperson and help foster a shopping environment that entices your customers.
• A self-driven entrepreneur;
• Knows how to motivate his staff;
• Willing to directly oversee the operations of a 7-Eleven
• Service oriented, hardworking and possess strong entrepreneurial skills
• Financially capable to fund the investment
• Must not and is not directly or indirectly engaged in any similar business in conflict with 7-Eleven
Q. How much is the investment required for a 7-Eleven?
A. The financial requirement ranges from P3.5 to P7 Million.
Q. What is included in the investment?
A. The investment includes the operational rights of the store, equipment and facilities, furniture and fixtures, air-con system, signage, and initial inventory.
Q. If I don’t have a location can I apply for a franchise?
A. Yes, you can still apply.
Q. Can a corporation apply for a franchise?
A. Yes, a corporation may apply the franchise, but it is the required that the majority shareholder be the principal applicant and attends the training.
Q. How much is the return on investment?
A. The convenience store profitability is dependent on several factors such as; satisfying customer’s needs; how well you implement and work the 7-Eleven operating principles; sales performance; and your ability to control operating expenses. Other questions on financial viability will be discussed only during the application process.
Q. What is the required lot size or floor area?
A. The floor area for a 7-Eleven store is ideally 120 square meters.
Q. How long is the training program?
A. The franchisee is required to successfully complete a 4-week full time training program which is combined classroom and in-store.
Q. Who will provide the manpower to operate the store?
A. Store manpower salaries and benefits will be provided by the Franchisee
Property Conversion Program
Lease out your property or convert your existing business to a 7-Eleven® Store!
Are you a property owner or do you run a business with a prime location looking to leverage the strength of a global retailer for growth? There’s no time like the present to lease out or convert your business and franchise a 7-Eleven® Store, the Philippines’ leader in convenience store retailing.
7-Eleven® is looking for energetic property and business owners who share our passion for retailing and have a desire to serve customers. If you an existing business located in a prime location in any part of Metro Manila, and the major provinces, town proper, and thoroughfares in Luzon, we would like to discuss this business opportunity with you!
Minimum requirements include:
- located in a prime location such as business and call center districts, transit stations, factory, residential and schools areas
- Preferably a corner location with double frontage, or a non-corner location with a 7 meter frontage
Qualifications
You need to be an ambitious, entrepreneurial person who is willing to assume the risks – and reap the rewards of owning your own business.
Our company seeks the right individual who will operate selected 7-Eleven Foodstore:
Ability to fund investment requirement
Willing to undergo full-time, 4 weeks training
Willing to devote time to oversee day-to-day operations
Willingness to work within the franchisor’s guidance
Ready to put hardwork, manage people, monitor finances, and be a creative salesperson and help foster a shopping environment that entices your customers.
Must not and is not directly or indirectly engaged in any similar business in conflict with 7-Eleven
Franchise Disclaimer
Investment may vary for each store. As a result of the continuous marketing efforts of the franchise division, availability of stores may also vary from opportunities presented herein.
Sources: www.7-eleven.com, www.7-eleven.com.ph, www.wikipedia.com
Case 4:Vehicle sales increased by 3.7% in November
Brief Summary:
The local automotive industry reported a sales increase of 3.7% as of end-November. The Chamber of Automotive Manufacturers of the Philippines claimed that sales for November almost matched the sales of October. Elizabeth Lee of CAMPI believes that the sales growth is contributed by the Typhoon Ondoy catastrophe, strong remittances of OFWs, and attractive promotions and financing terms from banks. Toyota obtained the biggest chunk in sales followed by Mitsubishi and Honda Cars. Compact wagons, vans, and commercial vehicles are among the top selling vehicles in November. (Source: The Philippine Daily Inquirer)
Problem Statement:
Why vehicle sales increased in November?
Factors of Sales Growth:
1. The damage to vehicles caused by catastrophe of Typhoon Ondoy prompted consumers to buy brand new automobiles.
Law of Demand explains that the demand for a good is a factor of these variables:
- Price of good
- Price of other related goods
- Household income
- Taste and preference
- Government policy
- Future expectations
- Climate and weather
- State of business
The Typhoon Ondoy created a massive damage to major parts of Metro Manila, including the vehicles. Several cars submerged in the floods. This affected the performance of the vehicles such as the engine parts, interiors, and casing. Consumers resorted to buy cars instead of availing car maintenance services.
Given that climate affects the demand for a good, it is expected that disasters usually leads to higher demand for goods. Also, disasters allow other parties to provide financial assistance. This serves as an increase in income. In economics, an increase in income results in increase in the demand for a good, ceteris paribus.
2.Remittance of OFWs
Fourth quarter of the year is usually the highest volume of OFW remittance. This is because of Christmas season and college enrolment for second semester. This increases the household income which contributes the higher probability of availing luxury goods such as automobiles.
3.Attractive promotions and financing scheme
The automotive industry is considered as an oligopoly/monopolistically competitive market. Big companies such as Nissan, Toyota, Mitsubishi, Honda, among others dominate the market for vehicles. An oligopoly uses different strategies to stay competitive in the industry. Price war is a classic example of a market strategy where firms lower their product price vs. the market price. This allows consumers to choose them over other firms. Hence, other firms will also lower their prices to be competitive and so on.
Innovation in the business system contributes to the increase in sales and competitiveness of the firm. The easier, cheaper, and faster transactional processing makes it more enticing to consumers. In economics, competition leads to increase in industry growth.
Financing schemes limits the hesitations of the consumers to purchase vehicles. Nowadays, financial institutions such as banks and lending companies help consumers by providing financing system suitable to their income.
Methodology:
This study presents this case by creating a brochure of a pseudo- company selling brand new vehicles. Brochures, as a tool to advertise, consist of price list of products and services, existing and future promotions, and brief financing schemes. This marketing paraphernalia allows sellers to inform them about the products and services tailorfit to the customers’ needs.
The team opted to create a brochure to incorporate all hypotheses on why vehicle sales increased by 3.7% in November. Highlights of the brochure are the following:
- Q4 2009 price list of leading automotive companies in the Philippines: Nissan, Toyota, Honda, and Mitsubishi. This presents the market structure of the local automotive industry by showing its characteristics: competitiveness and market segmentation.
- Season-long promotions to Typhoon Ondoy survivors whose cars need replacement and repair. This part explains the increase of vehicle sales through economic theory.
- Special package for OFWs upon purchasing vehicles for livelihood. This part explains the growth of commercial vehicles such as vans and wagons.
- Partnership with leading banks on automobile financing schemes. Trade discounts and top-ups are employed to demonstrate the application of Mathematics to Consumer Behavior.
Written by Michael Lualhati
DOWNLOAD BROCHURE here
ZEST AIR: Asia’s Most Refreshing Airline
Zest Airways
Is an airline based in Pasay City, Manila in the Philippines. It operates scheduled domestic and international tourist services, mainly feeder services linking Manila and Cebu with 24 domestic destinations in support of the trunk route operations of other airlines. Its main base is Ninoy Aquino International Airport, Manila, with hubs at Mactan-Cebu International Airport and Diosdado Macapagal International Airport in the Clark Special Economic Zone, Angeles City, Pampanga. Also these hubs outside Manila still have to be made operative as of July 2009. The airline was originally founded as Asian Spirit, the first airline in the Philippines to be run as a cooperative.
Beginnings
Zest Airways was established as Asian Spirit in September 1995 by three friends: Antonio “Toti” Turalba, Emmanuel “Noel” Oñate and Archibald Po, who contributed $1 million each to start up the Airline Employees Cooperative (AEC). They invited 36 of their friends, mostly former Philippine Airlines employees, to run Asian Spirit through a salary-to-equity swap deal. It started operations in April 1996 with two second hand Dash 7 aircraft servicing only one scheduled commercial route with two flights per day from Manila to Malay, serving the fledging resort island of Boracay. To maximize its aircraft utilization, it introduced new routes to the present-day towns of San Jose, Virac, Daet and Alcantara, and the cities of Cauayan and Masbate, regarded as secondary and tertiary routes by Air Transportation Office, and are not serviced by major airlines. In 1997, the cooperative changed to a corporate set-up with the establishment of Asian Spirit, Inc., whose registration was approved by the Securities and Exchange Commission in 2005. At the time, Asian Spirit has the distinction of being the first scheduled airline to serve Boracay. Other operators served the airport on a charter basis then. It became the Philippines’ fourth flag carrier (after Philippines Airlines, Cebu Pacific and Air Philippines) in 2003.
Transition to Zest Airways
Asian Spirit was sold to AMY Holdings, a holding company controlled by businessman Alfredo M. Yao, in March 2008. After the success of the takeover, Yao expressed interest in merging Asian Spirit with South East Asian Airlines (SEAIR). The two airlines have been in merger talks and were expected to make a decision soon. Yao was supposed to purchase a sixty percent stake in SEAIR, although the deal fell through because of a stolid response from SEAIR management. The merger talks failed and both airlines are operating independent. On September 30, 2008, Asian Spirit officially announced that it will be re-branding itself as Zest Airways. Reports say the name switch reflects the Yao’s stake in the company, as well as an allusion to the flagship business of AMY Holdings: juice maker Zest-O. The firm’s board approved the name change in August, while the Civil Aeronautics Board approved the switch earlier this month. The airline wants to fly to three international points to Sandakan, Malaysia from Zamboanga, to Seoul from Kalibo, Laoag, and Davao, and Macau from Angeles City. It intends to commence international expansion to Bangkok and Singapore from Manila sometime 2009.
Fleet
The founding member of the best selling Airbus single aisle family, the A320 is the world’s pioneering fly-by-wire jetliner. In addition, the aircraft 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 in the community we serve and allows Zest Air to operate a more cost efficient and reliable fleet.
| Number | 3 aircraft |
| Power | 2 x International Aero Engines IAEV2527-A5 @ 27,000 lbf each |
| Max Cruise Speed | 485 kts |
| Capacity | 162-168 Passengers (1-class layout) + 37.4 cu. m. cargo space |
| Seat Pitch | 31 in. |
The MA60 is an advanced 50-60 seat class regional turboprop aircraft developed by Xi’an Aircraft Company of China aviation Industry Corporation I (AVICI). Characterized by remarkable passenger comfort, operational adaptability and low operating cost the MA60 is suitable for frequent short and medium-haul commuter operations as well as multi-role applications. The MA60 can meet the increasingly demanding needs of modern transport and offer operators with the greatest operating benefits.
| Number | 3 aircraft |
| Power | 2 x Pratt and Whitney PW-127J @ 2,280 shp each |
| Max Cruise Speed | 280 kts / 514 km/h |
| Capacity | 56 Passengers (1-class layout) + 9.5 cu. m. cargo space |
| Seat Pitch | 31 in. |
Promos
Zest Air has travel tour packages both domestic and international with competitive prices ranging from Php 900.00 to up to Php 15,000.00 depending on the destination and package. Detailed descriptions like prices, package inclusions and policies are found on links of the Hotel and the different destinations affectionately called Zestful Getaways are in the website.
Domestic Destinations
International Destinations
Tour Packages
Here are some of the destinations included on the domestic tour packages. Complete details of the location and partner hotels and tour providers can be found on the website.
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My Two Cents Worth
Most of the rates of Zest Air are standard and recent travel dates as shown on the January and February 2009 fares are a tad higher. Fares from March to September are relatively low since given the enough time to book them in advance, benefiting both the the company and the customer. Airlines usually provide low rates with distant travel dates because of better leverage and enhanced lead time. Also, depending on various situations (demand, premier locations, attractive destinations), when the travel date is fast approaching and the airlines noticed that they do not have enough reservations, they often resort to promos. Instead of having their planes fly empty. Inconsequently, when they know, based on past experiences backed by figures that they still enjoy a striking offer, they will either stay put with the rates and in some cases jack up prices a bit more. They use statistics and study the pattern of ticket sales quarterly, semi-annually and annually, then come up with a strategy and then rest a decision.
Source: www.wikipedia.com, www.zestair.com.ph,
Frequent Flyer Program
The PAL Mabuhay Miles provides opportunities for travel rewards through accumulation of mileage credits earned on flights with PAL and partner airlines. Members also earn miles throughpurchases and availment of services from partner establishments including credit cards, banks, telecommunications, hotels and resorts, tour operators, cruise services, insurance, car rentals, and other merchandise companies. PAL Mabuhay Miles has a website, “www.mabuhaymiles.com”,which provides access to account information. This allows members to check on individual account balance, view latest activity statement, update personal profile, refer to the award charts, download important forms, request for retroactive crediting of miles, and be informed on latest promotions and offers.The SportsPlus Card is a privilege card designed for sports enthusiasts, which grants members the benefit of extra free baggage allowance.
Philippine Airlines “Asia’s Sunniest” now at its 60 years of service as a flag carrier
Centennial Airport
Philippine Airlines (PAL) began life with a noble mission: to serve as a partner in nation-building. With this in mind, PAL took to the skies on 15 March 1941, using a Beech Model 18 aircraft amid the specter of a global war. It became Asia’s first airline.
Primarily a regional carrier, PAL in 1946 also flew its first international flight, to California. Further flights to the US, then Asia and Europe, were added over the next few decades. Today PAL flies to 13 countries, while also maintaining extensive networks inside Asia and the Philippines. International destinations include Vancouver, Los Angeles, Honolulu, San Francisco, Seoul, Tokyo, Okinawa, Kota Kinabulu, Jakarta, Singapore, Kuala Lumpur, Ho Chi Minh, Bangkok, Hong Kong, Shanghai, Cairo, Riyadh, Doha, Dubai, Sydney, Melbourne and Amsterdam.
PRODUCTS OR SERVICES CONTRIBUTING TO THEIR REVENUE
Percentage of sales or revenues and net income contributed by foreign sales
PAL’s operations for FY2008-07 are described as follows:
During the year, PAL carried an average of 20,935 passengers (11,371 domestic and 9,564 international) and 336 tons of cargo (174 tons domestic and 162 tons international) per day.
Operations Summary: Systemwide
| FY 2008 (in billion PHP) | Domestic | International | System wide |
| Total Transport Revenues | 12,371 | 52,428 | 64,799 |
| Total Transport system wide revenues | 19.10% | 80.90% | 100% |
Aside from the core business, PAL also generated revenues from ancillary businesses including ground handling, inflight sales, and flight & ground training. These non-transport operations generated PHP 6O8 million in revenues
NET REVENUES BY ROUTE
Based on FY2008-07 results, the revenue contribution by route is shown below.
| Transpacific | 35.80% |
| Asia & Australia | 45.10% |
| Total International | 80.90% |
| Total Domestic | 19.10% |
| Total system wide | 100% |
Domestic Passenger Services
The domestic network covered 18 cities and towns in the Philippines. In FY2007-08, PAL flew approximately 3.4 billion Available Seat Kilometers (ASKs) on its domestic routes which represented 15.2 % of the Airline’s total capacity. PAL operated all its jet aircraft (B747-400, A340-300, A330-300, A320-200, and A319-100) on its domestic routes, serving the following domestic destinations : Bacolod, Butuan, Cagayan de Oro, Cebu, Cotabato, Davao, Dipolog, General Santos, Iloilo, Kalibo, Legazpi, Laoag, Manila, Puerto Princesa, Roxas, Tacloban, Tagbilaran, and Zamboanga.
Competitive business conditions and PAL’s competitive positions in the industry
PAL continues to maintain a strong market share in its international routes despite competition with flag carriers of the host countries where PAL flies and with the ‘fifth freedom’ carriers which fly to the Philippines en route to their final destinations. The following table shows main competitors and PAL’s total market and capacity share per route
PAL’s market share and capacity share
| ROUTE MARKET SHARE | CAPACITY SHARE | AIRLINE COMPETITORS | ||
| Transpacific | 36.60% | 34.50% | ||
| Asia and Australia | 31.60% | 32.20% |
CONCLUSION:
PAL competes with the biggest carriers in the airline industry. Northwest Airlines, Continental Airlines and Japan Airlines are among the world’s ten biggest airlines in terms of fleet size,passengers carried, and total sales. Cathay Pacific, Singapore Airlines, China Airlines, Korean Airlines, Thai Airways, and Qantas Airways are leading carriers in the Asia and Pacific region. Most of these international airlines belong to the largest alliances in the industry (including the Star Alliance, Wings, Sky Team and One World).
PAL held a 38.8% share in the domestic market in the fiscal year ending March 2008. Competitors include Cebu Pacific, Air Philippines, Asian Spirit, and Seair. The continuous enhancement of products and services, competitive fares, and an excellent safety record enables PAL to keep its dominant position in the market served. On the trans-Pacific routes, PAL has the advantage of providing the only nonstop service to mainland USA and Canada. The distinct Filipino flavor in the PAL inflight service which appeals strongly to the Filipino ethnic.
source:www.philippineairlines.com
Cebu Pacific ranks 3rd in Asia’s top 10 Budget Airline List: A Case Study
CEBU PACIFIC - Asia's 3rd Budget Airline
- Background
- Reason behind the cheap air tickets
- PROs and CONs of choosing a budget airline
- Financial Status: Annual Report FY2008
- Revenue Model
Background:
Cebu Pacific Air is a low-cost airline based in Pasay City, Manila, the Philippines. It is the country’s second largest airline after Philippine Airlines. Its main base is Ninoy Aquino International Airport, Manila, with a hub at Mactan-Cebu International Airport.
The airline was established on 26 August 1988 and started operations on March 8, 1996. It initially started with 24 domestic flights daily among Metro Manila, Metro Cebu, and Davao City. By end 2001, its operations has grown to about 80 daily flight to 18 domestic destinations.
Cebu Pacific operates 100+ flights a day, to 27 destinations in 7 countries.
Cebu Pacific flies to 36 domestic destinations, and to 14 international destinations in 10 countries.
Reason behind the low fare rate:
Cebu Pacific Budget Airlines revolutionized the air industry with low fares by adopting a completely different way of working to the traditional airlines. By ditching expensive overheads like free food and drink, only using the same type of airplanes to minimize maintenance, training and repair costs, and flying to airports with cheaper landing fees, the Cebu Pacific Budget Airlines have passed on huge savings to their customers. This business philosophy has been adopted by pretty much every budget airline around the world.
By selling tickets electronically online or via telephone, the Cebu Pacific Budget Airlines’ marketing costs are much lower too – no travel agent commissions to pay or paper tickets to print and post. Virtually all Cebu Pacific Budget Airlines use a system of dynamic pricing on their tickets, which means their prices change continually based on demand. Usually the further ahead you book a budget ticket, the cheaper it will be. Sometimes you can get last minute bargains on empty flights, but usually the closer you book to your departure day, the less of a bargain it will be.
You can get the best value from Cebu Pacific Budget Airlines by being prepared in advance:
- book your ticket as far in advance as possible to save money
- check the exact location of the destination airport and how far it is from the city you want to visit – and how to get there from the airport
- know your baggage limits and pack accordingly to avoid excess charges
PROS
- Cheap!
You get there just as fast for almost half or lower the price! — That made it Cebu Pacific popular!
- Quick and convenient to book online
Booking online is really convenient. You just print out your confirmation ticket and you’re good to go! They also have hotlines where you can inquire 24/7.
- You only pay for what you want
Food and drink are not free on budget flights, which is no problem on short hops. They are the only airlines that have games and prizes which makes it fun. They have a show-me/ bring-me game wherein they ask passengers for something and the first one to raise the item wins a prize. Often there are also in flight magazines, usually early in the morning when some passenger hasn’t stashed them yet.
- Frequent special fares with virtually one peso flights
Cebu Pacific Budget Airlines run frequent promotions where they slash their ticket prices for half the price.
CONS
- Possible delays from turnaround
Some cebu pacific flights have delayes.
- Restricted baggage allowance
Most Cebu Pacific Budget Airlines charge for excel baggage beyond 15kg
- Minimal compensation if canceled
During the Ondoy Typhoon, my flight to Palawan was canceled. It was another excruciating experience dealing with a budget airline. They can rebook you but only for date ranges within the week and you still have to pay some fees and taxes.
- Comfort
Philippines Airlines (PAL) gets 2 thumbs up for seating comfort. Definitely more leg room and space to recline. Because the airplanes are much bigger, they seat more passengers and are not often full. One cool feature that contrasts PAL with CEB is their LCD television screen that shows actual time, altitude, temperature, estimated time of arrival and other things a tense passenger (such as myself) might want to know while on a flight. ebu Pacific (CEB) airplanes are quite small which accounts for cramped spaces. You’ll have to sit upright most of the time mostly because there is no room left.
Cebu Pacific president Lance Gokongwei said they expect the greatly reduced fare prices under their “Go” fare discount program to increase travel and boost revenues by up to 20 percent.
FINANCIAL STATUS
- Cebu Pacific is wholly-owned subsidiary of JG Summit Holdings Inc- one of the largest conglomerates in the Philippines.
- Annual Report FY2008
REVENUE MODEL
“Our new initiative is good for the traveling public, the economy and Cebu Pacific,” Gokongwei said in a press conference yesterday at the Crowne Plaza in Ortigas Center, Pasig City to announce the airline’s new markting program.
Under Cebu Pacific’s Go fare program, their current Manila to Cebu ticket airfare of P2,569 — already about 10 percent lower than the price offered by the competition — will go down to as low as P999, exclusive of the add-on fees such as insurance, fuel surcharges and the 10-percent value-added tax.
He added that the new program is based on “studies that pre-selling seats at lower prices would generate higher revenues” and make Cebu Pacific “financially stronger.”
By selling discounted seats that otherwise would not be sold, especially during the lean months, the airline believes it would maximize its revenues and “smooth” out some of the demand peaks and valleys of the seasonal airline business.
“This is the revenue model that made many foreign airlines, especially Southwest Airlines, on which (Cebu Pacific) was patterned, successful,” Mojica said.
By selling discounted seats that otherwise would not be sold, especially during the lean months, the airline believes it would maximize its revenues and “smooth” out some of the demand peaks and valleys of the seasonal airline business.
