CAPA Analysis: 2016 Cebu Pacific Expansion Plans, Growth Rate Slows

Cebu Pacific is SEAsia’s 3rd Largest LCC Group

Southeast Asian LCC groups ranked by fleet size: Dec-2015

Airline Group  Number
of carriers 
fleet size 
Lion Group 4 198 512
AirAsia/AirAsia X 7 188 385
Cebu Pacific 2 55 51
Garuda (Citilink) 1 36 44
SIA (Scoot/Tigerair) 2 34 50
Nok 2 31 13
Jetstar 2 29 0
VietJet 2 27 89
Golden Myanmar 1 3 0
TOTAL  23 601 1144

International expansion accelerated in late 2013 when Cebu Pacific’s long haul operation was launched with Dubai the first route. Three more long haul routes were added in the last four months of 2014 to Sydney, Kuwait and Riyadh. Doha was launched as Cebu Pacific’s fifth long haul route in Jun-2015.

Cebu Pacific currently operates six A330-300s although the equivalent of two of these aircraft are currently used on short haul routes. Its narrow body fleet consists of eight A319s and 33 A320s while Cebgo operates eight ATR 72-500s.

Double Digit Capacity in 2015

In 2015 Cebu Pacific has taken delivery of its sixth A330 along with four A320s. Two of these A320s were pure growth aircraft while the other two replaced smaller A319s.

Through the first nine months of 2015 the group reported a 13% increase in seats and a 27% increase in ASKs. Passenger numbers were up 9% and RPKs were up 24% as the group’s load factor has slipped by 3ppts.

Seat capacity was also up by 14% in 2014 while ASKs surged by 27%. The increase in seats was partially driven by the Tigerair Philippines acquisition while the new long haul operation drove the higher increase in ASKs.

In 2013 seat growth was a slightly more modest 9% while ASKs grew by 14% with the first three months of the Dubai service contributing to the higher ASK figure. In 2012 seat growth was 16% and ASK growth was a similar 15%.

Ready to Launch Honolulu

The double digit ASK growth for 2016 will be driven partially by the full year impact of Doha which was launched in Jun-2015. Cebu Pacific is also aiming to launch Honolulu and Melbourne in 2016. But as these routes are not likely to be added until 2H2016 their contribution to ASK growth will be relatively modest.

Honolulu and Melbourne have been in the business plan for Cebu Pacific’s long haul unit since it was established. Preparations for Honolulu advanced after the Philippines was upgraded in Apr-2014 by the US FAA to a category 1 safety rating. Under category 2, Philippine carriers were barred from launching new services to the US.

Cebu Pacific had been looking at launching Honolulu in 2015 but the process of securing all the required approvals has taken longer than expected. Cebu Pacific now has all the required regulatory approvals but is still waiting for approval from Manila Airport, which needs to allocate the proposed new A330 service to Honolulu terminal space. Pending airport approval Cebu Pacific is now looking at launching three or four weekly flights to Honolulu as early as 2Q2016 but at this point a 2H2016 launch seems more likely.

Advanced Stages of Preparing for Melbourne

Preparations for Melbourne have been underway since May-2015, when the Philippines and Australia agreed to an expanded air services agreement. Cebu Pacific was previously limited to five weekly flights to Australia, which it is now using for Sydney.

But Melbourne is also currently being held up by a pending request to Manila Airport for a gate to support the new service, which Cebu Pacific has proposed operating with four weekly flights. Once the final approval comes Cebu Pacific will run a final check on the numbers before proceeding and setting a launch date.

Cebu Pacific will need some time to launch both Melbourne and Honolulu as it first needs to free up A330 capacity by removing some of the short haul flights now operated with the A330. This requires a re-jigging of its A320 schedule to free up A320s to back fill capacity in the regional markets that will lose A330 flights.

Plans 3rd Doha Frequency but Shifts Focus Away from Middle East

Cebu Pacific is now seeking to increase Doha to three weekly flights. The proposed additional flight to Doha is also waiting for approval from Manila Airport.

Besides the additional Doha flight Cebu Pacific is not planning any expansion of its Middle East operation in 2016 as it focuses long haul growth on Australia and Hawaii. The Middle East currently accounts for 32% of Cebu Pacific’s international ASKs, which is more than any other region.

The shift away from the Middle East is sensible as it results in a more balanced long haul operation. By the end of 2016 Cebu Pacific will likely have 57% of its long haul seat capacity allocated to the Middle East compared to 73% currently.

Australia and Hawaii are very different to Cebu Pacific’s four Middle Eastern destinations. In the Australia and Hawaii markets Cebu Pacific relies on Filipinos who are now permanently residing overseas and pay for their own flights to visit friends and relatives in the Philippines. In the Middle East market most of Cebu Pacific’s passengers are temporary workers with flights paid for by their contractors.

With Sydney Cebu Pacific has been able to stimulate demand in Australia’s Filipino community as well as from Australians looking for an alternative destination in Asia for holidaying. In the first 12 months of Cebu Pacific serving Sydney (Sep-2014 to Sep-2015), the total Sydney-Manila passenger market grew by 67%, according to Australian government data.

Cebu Pacific captured a leading 38% share of the Sydney-Manila market during this period. PAL’s share of the market has slipped but its passenger numbers in Sydney have also grown while Qantas’ traffic on the Sydney-Manila route has dropped only slightly.

Cebu Pacific is confident it can similarly stimulate demand in the Melbourne and Honolulu markets. PAL is currently the only carrier with non-stop flights from Manila to both Melbourne and Honolulu.

In the Manila-Middle East market it is more difficult to stimulate demand as the Filipinos in the Middle East are generally not there permanently and rely on their contractors to cover their flights home. The Philippines-Middle East market is also more competitive and has seen a large increase in capacity in recent years from PAL and Middle Eastern carriers.

Intense Competition in the Middle East Market

PAL will start competing against Cebu Pacific in the Kuwait market in Jan-2016. PAL currently serves four destinations in the Middle East – Abu Dhabi, Dubai, Dammam and Riyadh – all of which it has launched since late 2013.

Kuwait and Jeddah are being added by PAL in Jan-2016, both initially as a tag to Dubai. As CAPA analyzed in the first installment in this series of reports on the Philippine market:

Manila-Dubai has been a challenging market for PAL since the group launched the route two years ago – at about the same time as Cebu Pacific. Manila-Dubai is now profitable for Cebu Pacific, which reported a 3Q2015 load factor of 87.5% load factor for Manila-Dubai, while it is still loss making for PAL.

PAL is hoping the new tag to Kuwait and Jeddah will improve its performance in the Dubai market. PAL will have uplift rights from Dubai to Kuwait and Jeddah which it intends to utilise. PAL is also hoping to carry significant traffic from Manila through to Kuwait and Jeddah, enabling it to improve load factors on Manila-Dubai.

The earlier report also pointed out that PAL has experienced a significant erosion in yields in the Sydney market since Cebu Pacific entered in Sep-2014. The route has since been unprofitable for both carriers and PAL will likely be similarly impacted in Melbourne, Guam and Honolulu. All these markets are primarily price sensitive leisure market which plays to Cebu Pacific’s strength as the LCC has a significant lower cost base than its full service rival.

Source: CAPA, http://




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