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Low-cost carrier rules out return to profitability this year despite revenge travel plans
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Cebu Pacific COO Mark Cezar says higher operating costs, weakening peso and higher interest rates dragging earnings despite passengers paying fuel surcharges due to rising oil prices
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The airline’s losses grew to P24.9 billion in 2021, versus a net loss of P22.2 billion in 2020, as new COVID variants spread in the second year of the pandemic
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The carrier, however, is showing signs of a rebound, especially in flight frequency, says Candice Iyog, its vice president for marketing and customer experience
Low-cost carrier Cebu Pacific does not expect to return to profitability this year despite expectations of a nearly five-fold increase in passenger volume arising from revenge travel plans by people confined to their localities by the COVID crisis.
Mark Cezar, chief financial officer of the airline, said in a press conference that higher operating expenses, Philippine peso depreciation and rising interest rates continue to drag earnings despite fuel surcharges imposed to soften the impact of high oil prices.
“The triple whammy of fuel prices, weakening peso and interest rates rising had a significant weight on our financial performance,” Cezar told reporters on July 6 on the sidelines of the first media event the company held since the pandemic began.
“A lot of what the final number would be on the net loss or net income is dependent on those three factors,” he added.
Losses of Cebu Air Inc., which operates the carrier, grew to P24.9 billion in 2021, as against a net loss of P22.2 billion in 2020, Cezar said, as new variants spread in the second year of the coronavirus contagion, prompting the reimposition of lockdowns.
The government began loosening travel restrictions, including opening the country’s borders to foreign visitors in February to help revive the local economy.
Cezar said Cebu Pacific targets a passenger volume of 16 million this year, up from a paltry 3.4 million in 2021, as the airline has restored 88% of its pre-pandemic network, including international flights. In April, it reached 100% of pre-COVID domestic capacity.
He said the depreciation of the peso hurts the carrier as it relies on domestic travel to drive its recovery, and the bulk of its sales is peso, which is vulnerable to foreign exchange fluctuations.
The peso was the worst-performing currency in Southeast Asia last week when it shrank to P55.06 to a US dollar, its weakest since October 2005. On July 6, the exchange rate was P55.67 to a dollar.
Carriers have been allowed since July 1 to impose a Level 11 fuel surcharge, which ranges from P355 to P1,038 per passenger for domestic flights, and P1,172.07 to P8,714.84 for international flights, depending on the distance.
Previously, the surcharge was at Level 7, or from P201 to P769 per domestic flight passenger.
Cezar said that for Cebu Pacific to have some breathing room in terms of flying costs, the fuel surcharge should be ideally at Level 20, or from P661 to P1,993.
He noted that at the end of 2021, jet fuel prices were at US$80 per barrel. But as of June, Cebu Pacific was paying US$160 per barrel. Each barrel is equivalent to 159.1 liters. An A320 with a 180-seat capacity consumes 3,500-4,000 liters of jet fuel an hour.
Candice Iyog, vice president for marketing and customer experience, said Cebu Pacific has shown signs of a rebound, especially in flight frequency. She said the carrier averages 340 flights a day to 34 domestic and 18 international destinations, for a total of 64,000 seats offered daily.
Cebu Pacific would bank on recovering demand for domestic travel, for which the airline has prepared by reinstating 100% of its local routes, Iyog said.
The airline guarantees its offering of the lowest fares in the industry even at the height of fuel price surges. According to data, domestic fares on Cebu Pacific fell 26% in the second quarter of 2022, compared with the same period in 2019.
Iyog, meanwhile, said the carrier is offering a base fare as low as P188 one-way for domestic destinations, and as low as P499 one-way for international destinations. The sale period is from July 7 to 11, while the travel period is from September 1, 2022 to January 31, 2023.
