Cebu Pacific Is Profitable Again
The ULCC model thriving once again in the Philippines.
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As Spirit and Frontier struggle with rising costs and competition from legacy carriers that are using more sophisticated yield management to poach their customers, U.S. airline investors may wonder if juicy ultra-low-cost profits will return. But in Asia, where conditions are different, the region's best-run ULCC has its mojo back.
Cebu Pacific posted a hefty profit for 2023. Last week, Cebu Pacific announced that it made 7.923 billion Philippine pesos in 2023, or about $140 million, on total revenues of 90.6 billion pesos. It was a big swing from 2022, when it lost 13.98 billion pesos as the airline (and the country) struggled to recover from lingering Covid concerns. That finally faded in 2023, as travel demand returned and Cebu Pacific’s top two competitors reduced their reliance on the domestic market. For short-haul flyers, Cebu Pacific is the airline of choice, despite its no-frills service.
I think Cebu Pacific deserves more credit and attention than it gets. Yes, the airline is small — it operated 85 aircraft at the end of 2023 — but it is consistently among the world's top performing carriers. Loyal readers know I like Cebu Pacific CEO Mike Szucs, who, unlike some others, remains a full-on disciple of Ryanair's Michael O'Leary. As other discounters chase better revenue with more premium options, Szucs has stayed consistent, pushing to pack seats on aircraft, including the 459-seat Airbus A330neo that the CEO tells me is more comfortable than it looks.
That airplane mainly flies to slot-restricted international airports, such as Singapore, Hong Kong, Sydney and Tokyo Narita, and to airports popular among Filipino overseas workers, such as Dubai. But the airline’s strength is its domestic network, where Cebu Pacific owns 53 percent of market share. It’s far bigger than its top two competitors: Philippine Airlines (32 percent) and Philippine Air Asia (17 percent). And with both competitors distracted by other plans, Cebu Pacific now plans to further increase domestic operations.
One thing I like about Szucs is that he gives good answers to many questions, so we learn more about Cebu Pacific's business than other airlines. Speaking on the airline's March 26 fourth quarter 2023 earnings call, Szucs shared some analysis about why the domestic market in the Philippines has limited competition, why Cebu has less ancillary revenue than U.S. and European LCCs, and why the airline (a A320 family operator) is seriously considering the Boeing 737 Max. Cebu Pacific also shared interesting information about what drives customer satisfaction scores.
Read on for details.