Cebu Pacific sees lower profit in 2011

HIGH FUEL prices and increasing competition are likely to drive down profits of Gokongwei-led budget carrier Cebu Pacific for 2011, officials said.

But Cebu Pacific president Lance Gokongwei said the company remained on track to meet its target of serving 12 million passengers for the year, the most any airline has carried in the country’s history.

“We expect profits to be below last year’s levels. Fuel is such a large part of our expenses,” he told reporters at the sidelines of the company’s shareholders’ meeting late last Thursday.

Close to half of Cebu Pacific’s expenses go to pay for fuel. Gokongwei said the fuel averaged between $125 and $130 a barrel since the start of the year. This is much higher than the $90-a-barrel forecast the company had when it set its targets for the year.

The company said this forced the airline to raise its ticket prices through the imposition of fuel surcharges on domestic and international flights last March.

Gokongwei said newer and smaller airlines, which have been aggressively expanding through the acquisition of new aircraft, have started to undercut Cebu Pacific’s ticket prices.

He said he expected Cebu Pacific to give up some of its market share because of this. Cebu Pacific has a market share of about 48 percent.

Gokongwei said he expected the fierce competition from other airlines to be temporary. “I don’t believe other airlines have a sustainable business model. They do not have sufficient money to fuel their growth. At some point, they will stop growing,” he said.

The country’s improving economy would continue to drive demand for low-cost air travel, Gokongwei said. “We are transforming from a low-income to a middle-income economy,” he said. “Equally important is the shift in market preference to low-cost carriers from legacy airlines,” he said.

He said this would mean continued good prospects for all airlines in the market. Cebu Pacific expects to end the year with a fleet of 37 aircraft from 32 last year.

The company ended 2010 with a net income of about P6.92 billion.