Philippine airline Cebu Pacific recently announced 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 speedy progress lately, with the fleet rising from 72 to 85 plane between 2022 and 2023. Within the first half of 2024 alone, Cebu took delivery of seven extra planes. The take care of Airbus, which is predicted to be finalized later this yr, would speed up this enlargement.
Cebu has been working for the reason that Nineties, and makes a speciality of super-low airfares. By 2023, Cebu managed about 53 % of the Philippines’ home market, making it the most important airline within the nation by passenger quantity. The corporate’s technique is easy and interesting to native shoppers: give attention to no-frills flights at reasonably priced costs. Its plane are sometimes modified in ways in which maximize effectivity, as an example by eradicating bathrooms so as to enhance passenger capability.
This may be seen in a clip from travel 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 a lot of the bathrooms, galleys, and different facilities Cebu may put 460 individuals on the flight. It’s not probably the most snug option to fly, however it’s reasonably priced. It additionally means working the flight is cheaper on a per passenger foundation, which is all the enterprise mannequin of a low-cost airline.
Other than a small fleet of ATR 72-600 turboprop airplanes that present regional companies, Cebu solely operates Airbus plane. The MOU with Airbus is for a agency order of 102 A321s, with an choice 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 price.
Nonetheless, an order for this many plane will include a steep price ticket. We don’t know if $24 billion is de facto what it can price, and plane manufacturing has a protracted lead time that means Cebu will probably be receiving, paying for and financing these planes over a very long time horizon. However definitely, buying this many new plane will price many billions of {dollars}, which reveals simply how a lot religion the airline has within the home market, in addition to its skill to dominate that market into the longer term.
Like many different nations within the area, 2019 was a high-water mark for tourism and air journey within the Philippines, with 60 million people 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 yr for the reason that COVID-19 pandemic when the service returned to profitability, recording internet earnings of $135 million (utilizing present alternate charges). The corporate’s fairness, which was unfavourable in 2022, got here in at $82 million final yr. This implies property exceeded liabilities, however solely by a really skinny margin.
Usually, an organization with that form of steadiness sheet may 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 get well than in some neighboring nations, home air journey in 2023 was simply 2 % 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 reasonably priced flights will proceed rising at a speedy tempo, and it desires to have enough capability to take care of its market-leader place. This take care of Airbus thus represents a powerful guess on two issues. One, the buying energy of the home client class will proceed rising into the 2030s. And two, Filipinos with disposable earnings will, above all, admire the worth of an excellent deal when shopping for airline tickets.
