Cebu Pacific seen headed for some turbulence

Cebu Pacific Air’s planned long-haul expansion, which may include points in Australia and the Middle East, is expected to open up opportunities for growth, but the airline should expect near-term losses here given stiff competition, aviation consultancy firm Capa-Center for Aviation said in a report.

Capa recently came out with a series of reports on the budget carrier’s long-haul strategy. It noted that the low-cost carrier had a challenging start for its Manila-Dubai flights, which marked the formal start of its long-haul business.

Capa expected the same for Australia and new Middle East destinations like Saudi Arabia, Kuwait, Oman and Qatar, some of which may be launched by the end of 2014, it said in the report.

“Cebu Pacific needs to be open minded as it looks to find suitable markets for its new and rapidly expanding widebody fleet,” Capa said.

“But there will almost certainly be losses in the short-term for the Cebu Pacific long-haul unit, even potentially hefty losses. The reality is, the Philippine long-haul market is not nearly as underserved as it was two years ago when Cebu Pacific decided to engage in the long-haul LCC sector.”

Cebu Pacific operates a fleet of 48 planes, including two long-range A330s, and plans to increase this with four more A330s. The next A330 is slated for delivery next month, Cebu Pacific said in a separate statement.

Capa said that there were ample opportunities for Cebu Pacific in the long-haul market, describing the long-term outlook as “bright.”

Capa said one factor that dampens the carrier’s short-term prospects is the ambitious expansion of flag carrier Philippine Airlines, which also relaunched flights to the Middle East last year.

“The expansion at PAL has particularly made the Philippines-Middle East market more competitive,” Capa said.

The aviation consultancy firm nevertheless highlighted potential opportunities for Cebu Pacific should it start flights to Australia.

“Australians will be attracted to low advance purchase fares as they make their holiday decisions. Cebu Pacific’s leading domestic network will also be appealing, as accessing the most popular tourist spots require domestic flights,” Capa said.

Any expansion moves at the moment hinges on successful air talks between the Philippines and Australia, which would pave the way for an increase in flights as well as other commercial rights.

Talks held in June last year did not result in a new deal, and the Philippine Civil Aeronautics Board has yet to announce when talks would restart.