AirAsia expands in Philippines, buys into Zest Air

MANILA, Philippines (AP) -- AirAsia, the region's largest budget carrier, has expanded its foothold in the Philippines by acquiring 49 percent of local budget carrier Zest Airways Inc.

Philippines' AirAsia Inc. CEO Marianne Hontiveros said that the deal signed Monday will complement AirAsia's growth strategies. Zest Air operates 11 aircraft on 10 domestic and 10 international routes. It has hubs in Manila, Kalibo and Cebu in the central Philippines, which are major tourist destinations.

Malaysia-based AirAsia started operations in the Philippines in 2012 from Clark airport, a 2-3 hour drive from the capital, while Zest Air operates from Ninoy Aquino International Airport in Manila. AirAsia's routes from Clark include Kuala Lumpur, Hong Kong, Singapore, Taipei and Kalibo and Davao in the Philippines.

Discount airlines have burgeoned in Asia in the past decade, with AirAsia leading the charge, as economic growth that has lifted millions out of poverty boosts demand for affordable air travel.

Under the deal, Zest Air will get a 15 percent stake in Philippines' AirAsia.

"I think size is everything. You've got to get your critical mass," AirAsia founder Tony Fernandes told reporters. He said that combining the resources of the two airlines "enables us to get that critical mass much quicker than if we did it organically."

Fernandes said that having access to Manila's airport will enable quicker growth for both airlines.

The domestic market is dominated by Cebu Pacific and Philippine Airlines, with AirAsia lagging behind.

Zest Air has a bigger fleet in the Philippines while AirAsia has a larger network and will make available its fleet of A320 aircraft to Zest Air, making the partnership a good marriage, Fernandes said.

Fernandes said that AirAsia will continue to operate from Clark and has no plans to fly from Manila. He said details were still being discussed, but both airlines will share resources and sell each other's tickets. Zest Air's flights will be featured on AirAsia's website.

Fernandes also expressed hope that the U.S. aviation watchdog will soon lift a ban on Philippine carriers from mounting additional flights to the U.S.

Safety and management concerns led the Federal Aviation Authority to downgrade the rating of the Philippines to Category 2 from Category 1 in 2007, limiting U.S.-bound flights from the country. In 2010, the European Union also blacklisted Philippine carriers.

Philippine Transport Secretary Joseph Emilio Abaya said he was confident that the ban will be lifted after the country passed the safety audit conducted by the International Civil Aviation Organization from Feb. 18 to 22.