Cebu Pacific FY23 profit: P7.9-B (up 156%)

Cebu Pacific [CEB 32.00, up 3.2%; 195% avgVol] [link], the Gokongwei Family’s budget airline, reported an FY23 net income of P7.9 billion, up 156% from its FY22 net loss of P14.0 billion. Revenues were up 57% to P85.1 billion, with the passenger segment up 78% to P62.5 billion and the ancillary revenue segment up 66% to P24.1 billion. Cargo segment revenues were down 42% to P4.1 billion. CEB reported flying 20.9 million passengers (up 41%) on 140,730 total flights (up 30%) in FY23, with a load factor of 84.0% (up from 75.3%). CEB’s average fare was P2,993, up 26.4% from FY22’s average fare of P2,367. Looking ahead to 2024, CEB said that a “return of the global aviation industry to normal growth patterns is expected”, with “international recovery” (mainland China and “traffic rebound”) a major focus for regional airlines in SE Asia. CEB said that it expects to announce the “single biggest aircraft order in the history of Philippine aviation” in the second quarter.
 

MB BOTTOM-LINE: This is the first year of profitability for CEB since COVID obliterated domestic and international air travel as we knew it. Globally, airlines are projected to generate record operating profits in FY24. Domestically, CEB’s metrics for FY23 were exceptional, and its prospects for an even stronger FY24 are basically certain. The company is poised to sign on the dotted line for the biggest plane buy deal in PH history. On paper everything is great, but there’s an issue beneath the surface that makes these boom times different from previous periods of hypergrowth in CEB’s life: plane scarcity. To put things in Cars (Disney/Pixar) terms, the pre-COVID growth of CEB was like Lightning McQueen’s journey through the Piston Cup in Cars 1: sleek rookie ripping through a field of aged race cars, marking the change in the game from legacy largess to upstart efficiency. Then, the global tragedy occurred: Cars 2, which we will not discuss here. Also COVID. Now, in its Cars 3 phase, CEB is back to its old tricks, pushing the limits of what its fleet can do, but it’s struggling to achieve growth without a little help from friends. There’s a plane shortage. Every airline in the world is growing. Like when McQueen supports his friend Cruz Ramirez to race on his behalf, CEB has had to basically rent planes from other airlines to satisfy its route commitments. Can you tell I have a toddler? The moral of this bad analogy is that Cars 2 should have never been made as a sequel to Cars 1, and CEB’s ability to sustain growth will come as a function of its ability to cobble together a ragtag team of homegrown and rented assets to bridge the gap between now and whenever it can get the first deliveries of its new set of planes.

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