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Asian Spirit-SEAIR merger could lead to stiffer competition

THE PUBLIC stands to benefit from the impending merger of Asian Spirit, Inc. and Southeast Asian Airlines, Inc. (SEAIR) through better service and cheaper flights, industry players said yesterday.

In separate interviews, analysts said the merger, which juice taipan and banker Alfredo M. Yao plans to initiate within the year, would lead to a stronger airline that could better withstand competition.

Mr. Yao plans to complete negotiations for his takeover of SEAIR within the next two months, shortly after buying Asian Spirit last month. Both carriers operate in top tourist destinations like Boracay, Caticlan.

Astro Del Castillo, First Grade Holdings managing director, said consolidating and streamlining the carriers’ operations is a logical business decision.

This would allow the merged entity to channel its resources to other previously unserved routes.

"It is good to know that the airline industry is getting more investors. It is the prudent decision. The riding public will benefit from this as more flights will be launched in previously unserved areas," Mr. Del Castillo said. The marriage between Asian Spirit and SEAIR would eliminate duplication of routes and maximize resources, he added.

Joan R. Parayno, research head of PAPA Securities Corp., said the merger would strengthen the companies, which on their own are both incapable of competing with Lucio Tan’s Philippine Airlines (PAL) and the Gokongweis’ Cebu Pacific.

"A particular market for relatively small carriers is going to be developed. And this will provide additional competition to PAL and Cebu Pacific, which will translate to better service," Ms. Parayno said. She added that improved service and route expansion would be underpinned by the profitability of the merged entity.

"In terms of market share, [the merger would] allow them to offer better services at more competitive prices," 2Trade Asia, Inc. analyst Charisse G. Nierra said.

A PAL official who wished to remain unnamed admitted that the merger would lead to increased competition, especially with PAL about to reenter secondary routes now operated by Asian Spirit and SEAIR.

PAL is also venturing into destinations with smaller airports after it bought nine small Bombardier aircraft last week.

"Even if the industry lost one player, a bigger one will emerge. One less player does not mean a loss of competition. If anything, it will even be heightened if the merger pushes through," the PAL official told BusinessWorld.

"It is probably wiser on their part to combine their resources. It is part of the usual market dynamics. This is the kind of development that we are prepared for," he added.

But the merger could lead to layoffs, and Civil Aeronautics Board (CAB) Deputy Executive Director Porvenir P. Porciuncula said this is expected as operational components are aligned.

The job cuts, however, would likely occur only on the administrative side. "On the technical side, where the bulk of the manpower is concentrated, I think there should even be more people considering their planned expansion," he pointed out.

SEAIR President and Chief Executive Officer Avelino L. Zapanta said he did not have information on negotiations for Mr. Yao’s acquisition of SEAIR, and could not say what its impact will be.

"If they agree [on the acquisition], then we will make the necessary operational performance changes. Whatever they want, we will implement it," he said in an interview.

Donald G. Dee, new chairman of Asian Spirit, declined to comment on the proposed merger. Mr. Yao on Friday said he intends to merge the two airlines within the year to strengthen domestic operations.

Set up in 1995, Asian Spirit flies to 12 local and three international destinations like Incheon, Korea; Sandakan, Malaysia; and Macau using a fleet of 10 planes.

SEAIR was established in the same year and now has 11 planes that fly to 16 domestic destinations.

Mr. Yao said he would streamline redundant destinations once the merger is completed.

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