Facing a future of empty seats, Cebu Pacific forced to scuttle big plans

Budget airline Cebu Pacific is slashing spending this year by over 50 percent as the new coronavirus disease (COVID-19) pandemic forces a review of its long-term expansion plans.

Operator Cebu Air Inc. expected capital spending in 2020 to hit P13 billion, down from the original budget of P28.3 billion, company CEO Lance Gokongwei said on Thursday.

The COVID-19 crisis has dealt a severe blow to the airline business as carriers were forced to ground their fleets amid strict quarantine rules and as countries raise travel bans.

Cebu Pacific is coming off a strong 2019, when it placed a $6.8-billion order for next-generation planes from Airbus to support aggressive growth targets. Its main concern today is winning back customers afraid of flying amid the pandemic.

“This is the biggest challenge we face today: When will Cebu and everyone be ready to fly again?” Gokongwei said during the company’s annual mee­ting, which was streamed live to shareholders on Thursday.

Data from the International Air Transport Association points to a slow recovery spanning several years. It said on May 13 the industry could return to precrisis numbers in 2019 by 2023 or 2024.

Cebu Pacific’s capital spen­ding is mainly for the acquisition of new planes. Gokongwei said they would pursue an “overall review” of the firm’s long-term fleet plan.

“We will have a discussion with Airbus on how we [will] manage these airplanes and for the succeeding years,” he said, referring to aircraft deliveries this year and those on the pipeline.

From 76 planes today, Cebu Pacific has 61 plane deliveries until 2026 to upgrade its fleet and replace older jets. It earlier expected to have 88 planes by 2024 through a mix of A330 NEOs, A320NEOs and A321NEOs, A321 XLRs and ATR 72-600s.

Gokongwei said the review was part of broader talks with aircraft lessors, equipment manu­facturers and suppliers for “commercial concessions and payment deferrals” as Cebu Pacific manages its balance sheet during the crisis.

The first quarter of 2020 offered a preview of COVID-19’s impact on the airline sector. Cebu Pacific said it swung to a net loss of P1.18 billion from a P3.36-billion profit during the same period last year.

Cebu Air said passenger traffic stood at 4.4 million, a drop of 16.5 percent or 900,000 flyers.

The budget carrier also said forward bookings until September this year showed just 14 percent of available seats sold. This is 50-percent lower versus the same period in 2019.