Acquisition By Cebu Air, Inc, Of Southeast Asian Airlines (Seair), Inc

Notifying Parties:

Cebu Air, Inc. and Tiger Airways Holdings Limited   

Notifying Date:

23 May 2014

Summary of transaction:

PART 5
INFORMATION FOR THE CCS PUBLIC REGISTER
(TO BE COMPLETED BY THE APPLICANT(S))

Please provide a comprehensive, non-confidential summary of the merger including at least the following information:

  (i)           the names of the merger parties;

·         Cebu Air, Inc. (“Cebu Pacific”); and

·         Southeast Asian Airlines (SEAir), Inc. (“SEAir”).

 (ii)          a description of the transaction;

This notification is made by Cebu Pacific and Tiger Airways Holdings Limited (“Tigerair Holdings”) (the “Applicants”) in relation to Cebu Pacific’s acquisition of sole control by Cebu Pacific over SEAir (the “Acquisition”).

In connection with and inter-conditional on the Acquisition, Cebu Pacific and Tiger Airways Singapore Pte. Ltd. (“Tigerair Singapore”). Tigerair Holding’s wholly-owned subsidiary, have entered into a Strategic Alliance Agreement on 7 January 2014 (the “Strategic Alliance Agreement”). Cebu Pacific and Tigerair Singapore are collectively referred to as the “SAA Parties”. The Strategic Alliance Agreement provides for the SAA Parties to:

(a)    jointly operate common routes between Singapore and the Philippines, and other markets that may emerge, on a metal-neutral basis;

(b)   jointly sell and market common and non-common routs using codeshare of interline arrangements; and

(c)    cooperate in relation to sales and marketing, distribution, airport operations and ground handling, scheduling, pricing, service policies, innovation, procurement and other matters to improve the overall quality of service offered to passengers on their respective operations and to reduce cost.

(iii)          a description of the business activities of the merger parties worldwide and in Singapore;

Cebu Pacific

                Cebu Pacific is a low-cost carrier (“LCC”) based in the Philippines. It operates in 33 domestic destinations and 24 international destinations.

Cebu Pacific currently operates flights on four routes between Singapore and the Philippines, namely:

(a)    between Singapore and Cebu;

(b)   between Singapore and Clark;

(c)    between Singapore and Iloilo; and

(d)   between Singapore and Manila.

Cebu Pacific does not operate any flights to Singapore, other than the above.

SEAir

SEAir is a commercial airline based in the Philippines. Prior to the Acquisition, SEAir operated domestic flights within the Philippines and international flights to destinations such as Singapore, Hong Kong and Bangkok. SEAir currently operates under the “Tigerair Philippines” LCC brand.

Prior to the Acquisition, SEAir operated flights on two routes between Singapore and the Philippines, namely:

(a)    between Singapore and Clark; and

(b)   between Singapore and Kalibo (Boracay).

Tigerair Singapore

Tigerair Singapore is a LCC based in Singapore which operates an Airbus A320-family fleet of 23 narrow-body aircraft to destinations within a four-to six-hour range from Singapore, within Asia.

Tigerair Singapore currently operates flights on four routes between Singapore and the Philippines, namely:

(c)    between Singapore and Cebu;

(d)   between Singapore and Clark;

(e)   between Singapore and Kalibo; and

(f)     between Singapore and Manila.

 (iv)          a description of the overlapping goods or services, including brand names;

Prior to the Acquisition, Cebu Pacific and SEAir overlapped on the following routes involving Singapore:

(a)    Between Singapore and Clark.

The SAA Parties overlap on the following routes involving Singapore:

(a)    Between Singapore and Cebu;

(b)   Between Singapore and Clark; and

(c)    Between Singapore and Manila.

 (v)                  the applicant’s views on:

a.             definition of the relevant market(s);

b.            the way in which competition functions in this market;

c.             barriers to entry and countervailing buyer power; and

d.            the competitive effects of the merger (non-coordinated, coordinated and/or vertical effects, as relevant).

The Applicants are of the view that the relevant market should be economy-class passengers for full service airlines and all classes of seats for LCCs on each of the overlapping routes between Singapore and the Philippines (the “Relevant Markets”).

The Applicants submit that the Strategic Alliance Agreement and the Acquisition are inter-conditional on each other and that the Strategic Alliance Agreement is directly related to the Acquisition. Accordingly, the Strategic Alliance Agreement falls within the Ancillary Restriction Exclusion.

Neither the Acquisition nor the Strategic Alliance Agreement will result in a substantial lessening of competition in view of several factors, including the following:

Non-coordinated effects

(a)           the intense nature of competition and myriad of competitors that currently exist in the provision of international and domestic (i.e. within the Philippines) air passenger transport services, including potential competitors in the Relevant Markets;

(b)           the ability of customers to switch easily between suppliers, and the high price-sensitivity of customers in the air passenger transport services industry in the Philippines; and

(c)           absence of significant barriers to entry in the provision of international and domestic (i.e. within the Philippines) air passenger transport services generally, and the ease and likelihood of entry of potential competitors into the Relevant Markets.

Coordinated effects

(d)           there are numerous competitors in the provision of international and domestic (i.e. within the Philippines) air passenger transport services, and the ease of switching by, and high price-sensitivity of, customers in the air passenger transport services industry in the Philippines creates strong commercial incentives for carriers to continue pricing competitively, creating instability and reducing sustainability of co-ordinated behaviour; and

(e)           absence of significant barriers to entry in the provision of international and domestic (i.e. within the Philippines) air passenger transport services generally, and accordingly high potential for increased competition, which similarly creates disruptive effects and reduces sustainability of any coordinated behaviour.

Decision:

The proposed acquisition, if carried into effect, will not infringe the section 54 prohibition.

Decision Date:

20 August 2014

Click here for the decision.