Philippine airline Cebu Pacific just lately introduced that it had signed a binding Memorandum of Understanding with Airbus to buy as much as 152 plane. The deal at present costs has a possible worth of $24 billion. Cebu has seen fast development in recent times, with the fleet rising from 72 to 85 plane between 2022 and 2023. Within the first half of 2024 alone, Cebu took supply of seven extra planes. The cope with Airbus, which is anticipated to be finalized later this 12 months, would speed up this enlargement.
Cebu has been working for the reason that Nineties, and focuses on super-low airfares. By 2023, Cebu managed about 53 p.c of the Philippines’ home market, making it the most important airline within the nation by passenger quantity. The corporate’s technique is straightforward and interesting to native customers: concentrate on no-frills flights at inexpensive costs. Its plane are sometimes modified in ways in which maximize effectivity, as an illustration by eradicating bogs with a view to improve passenger capability.
This may be seen in a clip from journey vlogger Noel Philips who flew Cebu Pacific from Manila to Bangkok on an Airbus A330. The A330 is often configured to hold about 300 individuals, however by eradicating many of the bogs, galleys, and different facilities Cebu might put 460 individuals on the flight. It’s not probably the most snug method to fly, however it’s inexpensive. It additionally means working the flight is cheaper on a per passenger foundation, which is your complete enterprise mannequin of a low-cost airline.
Apart from a small fleet of ATR 72-600 turboprop airplanes that present regional providers, Cebu solely operates Airbus plane. The MOU with Airbus is for a agency order of 102 A321s, with an possibility for a further 50 plane within the A320 household. These are lengthy, narrow-body airplanes meant for brief and medium-range flights. It appears clear that Cebu plans to double (triple?) down on its technique of specializing in low-fare, no-frills, densely packed home and regional flights utilizing a fleet of plane it’s accustomed to and which may be operated at low value.
Nonetheless, an order for this many plane will include a steep price ticket. We don’t know if $24 billion is basically what it should value, and plane manufacturing has a protracted lead time that means Cebu can be receiving, paying for and financing these planes over a very long time horizon. However actually, buying this many new plane will value many billions of {dollars}, which exhibits simply how a lot religion the airline has within the home market, in addition to its skill to dominate that market into the long run.
Like many different nations within the area, 2019 was a high-water mark for tourism and air journey within the Philippines, with 60 million individuals flying domestically and internationally. Then, like each different airline on this planet, Cebu was hit arduous by the pandemic and booked three consecutive years of losses. 2023 was the primary 12 months for the reason that COVID-19 pandemic when the service returned to profitability, recording web earnings of $135 million (utilizing present trade charges). The corporate’s fairness, which was unfavourable in 2022, got here in at $82 million final 12 months. This implies belongings exceeded liabilities, however solely by a really skinny margin.
Sometimes, an organization with that form of steadiness sheet could be hesitant to tackle billions of {dollars} in new debt to broaden the fleet. However tourism within the area is on the rebound. And whereas worldwide arrivals to the Philippines have been a bit slower to recuperate than in some neighboring nations, home air journey in 2023 was simply 2 p.c decrease than in 2019. In 2024, home passenger visitors is projected to exceed the 2019 determine and Cebu doesn’t need to be caught flat-footed.
Clearly, the airline believes demand for inexpensive flights will proceed rising at a fast tempo, and it desires to have ample capability to take care of its market-leader place. This cope with Airbus thus represents a robust wager on two issues. One, the buying energy of the home shopper class will proceed rising into the 2030s. And two, Filipinos with disposable earnings will, above all, respect the worth of an excellent deal when shopping for airline tickets.
