How Cebu Pacific, one of Asia’s oldest budget airlines, wants to keep soaring
03 February, 2019
Starting out in 1996 with the aim of providing its fellow countrymen with an affordable way to fly, Philippine low-cost carrier Cebu Pacific has since spread its wings to wherever there is a large Filipino community.
This remains a core principle of the airline and to keep doing so, the man in the pilot seat – president and chief executive Lance Gokongwei – said his job is to ensure Cebu Pacific stays relevant amid rising competition and uncertainties.
This involves revving up its growth engines with an aggressive fleet renewal plan to “enter a new stage of expansion”, as well as making a bigger push into green initiatives.
At a launch event for its new aircraft on Thursday (Jan 31), the businessman, who is the son of Chinese-Filipino industrialist John Gokongwei, said: “From (a) mere 400,000 passengers flown in 1996, we flew close to 20 million in 2017 … (as we made) air travel more accessible to a greater number of Filipinos.”
“The first 22 years of Cebu Pacific were marked by aggressive expansion … but as we enter the 23rd year of our existence, (we’d like to) set a new chapter.”
NEW, BETTER PLANES
As part of its sweeping fleet renewal plan, the discount carrier announced on Thursday that it will be taking delivery of 12 new aircraft this year.
“2019 is the year we accelerate growth,” said Mr Gokongwei. “On average, we will be receiving one brand new aircraft per month which we can use to increase capacity in key markets or even launch new routes.”
Its first plane came last month and the Airbus A321neo is already serving domestic routes, such as between Manila, Cebu and Davao. The remaining 11 aircraft comprises five more of this new generation single-aisle jets from Airbus, five A320neos and an ATR 72-600.
The airline does not plan to stop here; it is looking to expand its fleet size to 82 aircraft by 2022, up from the current 72, with one-third being the A321neo variant.
On why fleet upgrades matter, Mr Gokongwei told Channel NewsAsia that owning a young fleet will help to “substantially” improve operating efficiencies, especially in the areas of fuel consumption and aircraft reliability.
Despite being one of the oldest low-cost carriers in Asia, Cebu Pacific operates one of the youngest fleets with an average age of slightly more than 5 years. That, according to the airline, is way below the average of 9.7 years among Asian carriers.
The A321neos, with its many merits, is also a “gamechanger”, added the chief executive.
For one, the 236-seat jet – having 56 more seats than its A320 predecessor – will allow Cebu Pacific to increase capacity on its flights, thereby maximising the usage of slots at the congested Ninoy Aquino International airport.
It is also an eco-plane that yields about 30 per cent in fuel savings per passenger.
“For our passengers, greater fuel efficiency will also mean the higher (possibility) of lower fare options,” said Mr Gokongwei.
Being able to fly a longer distance, the A321neos will help Cebu Pacific to take a crack at new markets including India and Russia, while gaining a stronger foothold in existing destinations like China.
To be sure, fleet renewal exercises don’t come cheap.
Cebu Pacific told Channel NewsAsia it has spent more than US$1 billion over the past two years on seven A321ceo jets, which it took delivery in 2018, and 10 ATR 72-600 aircraft.
The modernisation of its fleet comes amid rising fuel prices and a weakened Philippine peso that have both weighed on its latest quarterly result. For the third quarter, Cebu Pacific posted a loss of 518 million pesos (S$13.4 million), a reversal from the profit of 42.1 million pesos a year ago.
When asked how he justifies the cost-intensive renewal exercise, Mr Gokongwei replied that the Manila-listed airline still has a “pretty strong balance sheet”, which gives it a “competitive advantage” to pursue such plans.
More importantly, the budget carrier “just can’t afford to be complacent”, he said. “We have to keep up with innovation and if we do, we’ll be in good shape."
SUSTAINABLE TOURISM
This applies to its push for sustainability as well.
Despite being a 35 per cent increase in its supplies budget, Cebu Pacific said last October it would replace all single-use plastic utensils with eco-friendly alternatives on its flights.
It has also voluntarily reduced the number of flights it operates to Boracay since the country’s top sun-and-beach destination reopened after a six-month closure.
At the moment, it operates 42 flights to and from the holiday island weekly, down from last March’s 74 flights, noted a company spokesperson.
“The only way for the Philippines to continue its tourism industry is to develop sustainable habits; you can see the government doing the tough job at Boracay,” Mr Gokongwei said.
“Cebu Pacific has a major role in tourism. We have to do our part and do things with a sense of urgency.”
SOME CHALLENGES
Nevertheless, the budget airline is cognisant of persistent headwinds.
Apart from volatility in oil prices and the currency markets, ever-intensifying competition and technology-induced changes in customer expectations are among others that Mr Gokongwei is eyeing.
“It was challenging last year with fuel prices rising and the peso weakening a lot,” he said. “But oil prices are quite sanguine now and the peso has rebounded with the Philippine economy performing well. So I think this year will be a better year for airlines on this front.”
“But what’s clear is that competitors are popping up from everywhere. Technology is also changing customer expectations … as they are now used to getting information immediately.”
He added: “There’s no more ‘I’ll get back to you’ so we have to provide our front-line staff with the tools to respond quickly too, especially if a flight is going to be delayed by two hours delayed or there is a flight cancellation … We have to be more agile and adapt.”
When asked what he is most concerned about, Mr Gokongwei mentioned persistent issues like congestion and the lack of adequate facilities at the Philippine airports, although he acknowledged efforts by the government to plug these infrastructure gaps.
With these, it is perhaps unsurprising that he describes his role as Cebu Pacific’s chief as “always interesting and challenging”.
“I’m the head of a listed family business so my job is to make sure this business remains relevant 50 or 100 years down the road. We have to maintain this purpose of the company - to make the lives of Filipinos better.”
Satisfaction comes when he hears about how the low-cost carrier has indeed changed people's lives.
“I believe we have made a very significant difference to the lives of people here in the Philippines,” Mr Gokongwei told Channel NewsAsia. “I’ve met passengers thanking me for starting Cebu Pacific … these are the pats on the back that reinforce the purpose to do what you do.”
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