Budget carrier Cebu Pacific had a difficult time keeping costs in check in the second quarter of the year, with profits likely going below 2011 levels, the company’s president said.
However, Lance Y. Gokongwei, president and CEO of Cebu Pacific operator Cebu Air Inc., said the company remained on target to meeting revenue and passenger traffic growth goals even as high fuel prices led to thinner margins.
“In general, the second quarter was probably below last year on an operating [income] basis. Revenues were up, but that was also when oil prices reached their peak for the year,” he told reporters at the sidelines of the firm’s annual shareholders’ meeting.
He said the company also felt the impact of China’s travel tour ban on the Philippines, which was a result of ongoing tensions at the disputed Scarborough Shoal.
“It’s not good,” Gokongwei said, describing the airline’s flights to China. “As you know, most Chinese tourists come to the Philippines on package tours.”
Due to low demand, he said the airline has switched its China flight to the smaller Airbus A319 that carries 150 passengers. The company previously used its flagship Airbus A320 jets that carry 180 passengers. Cebu Pacific’s flights to China, to the cities of Beijing, Guangzhou and Shanghai, represented 2 to 3 percent of total revenues.
The drop in profit would be in line with the company’s performance so far this year. In the first quarter, Cebu Air’s profit fell 19.8 percent to P962 million due to higher fuel prices. This was despite a significant increase in the company’s passenger volume to 3.4 million at the end of March, up from 2.8 million the year before.
For the whole of 2012, Cebu Pacific expects to serve 14 million passengers, up from 11.9 million in 2011, and record an average load-factor level of 85 percent. Load factors are the measure of the average number of seats filled on flights relative to capacity.
Gokongwei said the company would remain profitable due to a likely 20-percent increase in revenues for the year. This will be driven by a rise in the company’s ancillary revenues, which represent extra services the company charges on top of basic ticket prices. This includes fees for extra baggage and food on flights.
Excluding ancillary revenues, Gokongwei said the airline’s average revenue per passenger has gone down by as much as 5 percent. With ancillary revenues in the equation, passenger revenues have risen 2 to 3 percent, he said.