Cebu Pacific has touted its strong position and “clear focus” in managing the fallout from the conflict in the Middle East, even as it warns that the current jet fuel price volatility is “clearly not sustainable” in the long run,
Airline chief Mike Szucs says the low-cost operator has “started taking steps” to manage the challenge, including “passing on the incremental costs” through fare adjustments.
He was speaking at an analysts’ briefing following the release of its full-year and fourth-quarter financial results. Cebu Pacific is one of the few carriers to be reporting its financial results in the wake of the Middle East conflict, which began in late-February with a surprise attack by the USA and Israel on Iran.
Indeed, much of Cebu Pacific’s briefing unsurprisingly focused on fuel prices and its impact on the airline’s operations.
Szucs acknowledges that the fuel is Cebu Pacific’s “largest operating bill” and the ongoing volatility in prices has the potential to “double our fuel bill”.
Despite an uptick in fares, Cebu Pacific says demand still remains healthy in the short-term, at least until the April/May period.
Airline commercial chief Xander Lao states that demand in March is tracking “above our initial forecast”, while the April-June quarter – traditionally a peak travel period in the Philippines – will see “healthy” demand.
“We continue to see demand actually taking up the higher fares, and we’re quite encouraged by that,” Lao says.
Nonetheless, Szucs warns: “However, we know from history that there are limits to fare increases before demand softens.” This underscores the delicate balance a “price-sensitive” carrier like Cebu Pacific has to tread amid cost pressures.
What remains a looming uncertainty for now is the third-quarter of the year. Both Szucs and Lao note that the July-September period is a seasonally weaker quarter for the airline.
Szucs says it is still “too early to tell” if its third-quarter will be impacted – or how significant the impact will be.
The airline has already began cutting back on some of its routes in response to the increase in fuel prices, a move not unlike that of US operator United Airlines which on 21 March said it would be trimming “temporarily unprofitable” routes until the third-quarter of the year.
Cebu Pacific will suspend four international routes – all of them non-Manila flights – through end-October, which marks the end of the Northern Summer period. These include Davao-Bangkok Don Mueang, Clark-Hanoi and Iloilo-Singapore. Several other routes, including flights to Australia, will see their frequencies reduced.
And despite the short-term capacity cuts, Cebu Pacific says it remains on track for capacity growth of around 10% in 2026. Barring the latest frequency reductions, Szucs says the carrier will operate “as planned” for second-quarter, with growth “in the mid teens”, or around 12-15%.
Szucs also insists that the carrier is “well-positioned in the current environment relative to the competition”.
For one, it has the “structural advantage” of a younger, more fuel-efficient fleet, which the airline says will help reduce fuel burn per flight by between 15-20%.
Szucs notes that Cebu Pacific’s domestic-heavy network is another advantage. He states: “About 80% of our flights and 70% of our [seat capacity] are domestic, where the impact of higher fuel prices…is significantly less [on these shorter sectors] than…on long haul sectors.”
The majority of its domestic operations are on trunk routes, which “serves essential travel”, including visiting friends and relatives and business traffic, where “demand is more resilient”.
Noting that the airline is “both commercially and financially resilient”, Szcus says: “What we don’t want to do now is take drastic panic action when we’re actually in a very strong place.”
“We are no less bullish on the fundamental advantages [of] Cebu Pacific – and its growth outlook as the LCC in the Philippines and in the region – over the medium to long term,” he adds.
