Local airlines seen better off than regional peers in 2017
Cebu Pacific Air, the country’s largest budget carrier, was still poised to report profit growth this year given favorable market conditions in the Philippines, industry think tank CAPA-Center for aviation said.
CAPA noted in a report that overall airline profitability in the region was expected to drop in 2017, mainly as yields shrink on higher competition and as “overcapacity problems worsen.”
The degree of profit decline, however, would be less for domestic carriers like Cebu Pacific, which will “likely report a smaller reduction in profits than average.”
“Market conditions in the Philippines remain more favorable than in the rest of the Southeast Asian region,” CAPA said.
“Capacity levels are generally more rational in the Philippines, and economic growth is stronger. Domestic competition is tough, but not nearly as fierce as in the other main domestic markets in Southeast Asia,” it added.
CAPA outlined Cebu Pacific’s outlook, while saying its fleet expansion plans would be “modest” for 2017. The carrier, it said, would add two planes this year, to end with 59 aircraft, mainly mid-range Airbus planes.
Cebu Pacific also ceded some domestic market share to rival Philippine Airlines last year, although CAPA said these were mainly on “lower yielding and generally unprofitable point-to-point routes.”
Cebu Pacific, meanwhile, is set to take delivery of its eight long-range Airbus A330 aircraft.
“These aircraft are being used to expand capacity on domestic trunk and regional international routes. Cebu Pacific could potentially launch Melbourne in [the second half 2017], but for now has no firm plans for new long haul routes,” CAPA noted.
The carrier also plans to take delivery of its first batch of Airbus A321neos toward the end of 2017.
“Cebu Pacific is relying heavily on the A321neo to drive a new phase of growth, which will not start until 2018 even if Airbus is able to deliver all three of the initial three aircraft in 4Q 2017,” CAPA noted. “Airbus is committed to delivering Cebu Pacific 12 additional A321neos in 2018, with nine of these aircraft being allocated for growth.”
The new Airbus A321neos, which can carry more passengers, would help Cebu Pacific increase capacity without adding flights. This was crucial for air gateways like Manila’s Ninoy Aquino International Airport, where infrastructure expansion options are limited.
CAPA said Cebu Pacific’s fleet expansion plans were expected to “accelerate” in 2018, when it would have about 69 aircraft.
“While faster capacity growth in 2018 could pressure yields, the lower unit costs generated by the A321 neo should offset any yield declines and give Cebu Pacific a competitive advantage,” CAPA said. —MIGUEL R. CAMUS
