Friday, 17 June 2011

CebuPac buys $3.8-B planes

"This year ... we expect to be one of the few airlines in the world that will remain solidly profitable despite the high fuel prices."

Business Mirror

CEBU Air Inc. has placed firm orders for 37 new Airbus units with a total list price of about $3.8 billion, or roughly P165.4 billion, making it the largest single aircraft order ever made by a Philippine carrier.

The low-cost carrier is going to use internal funds and tap loans from export-credit agencies to finance the payment for its orders.

“We will be using the same financing sources for our current fleet. We will try not to take in more than we can absorb, and we expect to fully fund the predelivery payments through the old means that we have, which are internal cash flow, access to export credit- agency financing and commercial lending market,” Lance Gokongwei, airline president, said at a press conference on Thursday.

The orders are composed of seven A320s and 30 A321neo aircraft, with options for a further 10 A321neos. The orders will be delivered between 2015 and 2021. These are on top of firm orders for 18 Airbus A320s to be delivered from the second half of 2011 until 2014. This increases Cebu Pacific’s total firm orders of Airbus to 55.

The airline currently utilizes 33 brand-new aircraft, 25 of which are from the Airbus A320 family and eight ATR turbo-prop aircraft. By 2021, it will more than double its fleet and triple its capacity.

Gokongwei said the new fleet will be used to mount flights to new destinations such as Australia, India and northern Japan—places which the A320s cannot reach.

The new fleet will help the company save on fuel cost by about 15 percent and reduce its unit cost per passenger, which will redound to lower fares.

“The new aircraft provides us savings in two ways. First, on the use of fuel alone, we get 15-percent savings. The second benefit is that we are ordering a larger plane, which means more capacity,” he said. Fuel covers more than 60 percent of Cebu Pacific’s operating cost.

The airline is making this investment amid the rising cost of fuel in the world market and uncertainty in the aviation sector.

“We do believe that the Philippines’ tourism agenda will add fuel to [Cebu Pacific’s] growth,” said Gokongwei. “The years 2009 and 2010 were record-breaking years for Cebu Pacific. In 2011 we intend to fully break our record further in terms of passengers carried and revenue.”

In 2010 the airline carried 10.5 million passengers. Gokongwei said Cebu Pacific intends to carry more than 12 million this year.

“The general trend in the industry is that the load factors are staying quite constant—mid- to high-80s. I would say that there is a little bit of pressure given the amount of new capacity. Overall we expect profitability this year below than last year but we expect to be one of the few airlines in the world that will remain solidly profitable despite the high fuel prices,” Gokongwei said.

According to Gokongwei, Cebu Pacific is the third-largest low-cost carrier in Asia. The largest is Air Asia of Malaysia, followed by an Indonesian carrier. “Cebu Pacific is definitely larger than Tiger Air,” he added.

Cebu Pacific will be the first airline in the country to operate the A321neo, which is a larger and longer-haul version of an A320 unit. “There is very high demand for this aircraft. We expect our regional competitors will be making the same orders,” Gokongwei said.

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