Cebu Pacific CEO Update: New Aircraft

Transcript

Mike Szucs:Why did you cut long-haul routes to the Middle East? Well, I think first of all there's 2 parts to it and they're both of equal importance. One is what was going on in the Middle East. It wasn't performing well and I'll come on to that. The other point is investing in the regional market, which needed investment for its own rights. If we look at the Middle East, we'd invested into that. 3 of the routes weren't doing well. We were facing some, what I would consider as some pretty irrational and illogical capacity growth and pricing within those markets. We pulled off 3 markets. We pulled off Doha, Riyadh, and Kuwait, all in short order between mid-June and the start of July. On some of those routes, we'd seen capacity increases in the last year of almost triple price drops of circa 50%. And even though we're by far and away the lowest-cost operator on those routes, this was, you know, when you're getting really illogical pricing from the competition, then we kind of sort of say we're deploying expensive assets here. Is there something else we can do with them? And that brings us to the other point. Yes, there is something we can do with them. We can sensibly invest those into the regional markets in ASEAN. And I think that comes to the point that Cebu Pacific has for a long time, and it's, you know, the foundation of its success is its domestic strategy. And that's very important to us. We're in a very strong position, very powerful brand in the domestic market. Our next stage of growth is really let's make sure we're a powerful brand and performing well in the ASEAN market. And it kind of reflects the growing confidence in the Philippines. The Philippines used to be going international was just to support the overseas Filipino workers, hence the Middle Eastern flying. Yeah, that's still true. But actually, the Philippines is a dynamic business center in its own right. It's promoting tourism inbound, but it's also got customers in the Philippines want to go tourism around ASEAN. So we now need to invest more in getting the right capacity, schedules, frequencies into the places like Narita, Bangkok, Incheon, Singapore, Hong Kong, which is where we've redeployed these 330s that are perfectly suited, of course, to going into these short-haul markets. We've now got a very, very big bus flying to Japan, Narita, when before it was an A320. Now it's 436 seats on a 330. Oh, and by the way, we're about to go double daily into Narita in the coming months, not with a 330, but it'll be an extra 320. So we're really investing in these regional markets, which I think is a reflection of where we see some real value. And yes, perhaps a little bit closer to home than some of the routes in the Middle East. But it's not to say we won't go back into the Middle East. But we'll go back when it makes sense and if it makes sense. Some of these markets may never look good again because the competition may forever be irrational. I think, well, first of all, whenever you put that amount of capacity growth in, you are going to see some impact on yield. We're due to be coming up with our financial results in the coming days, so I'm not going to talk too much about the specific numbers. But yeah, in the short term, certainly in the first month of July, Because we did the changes very, very quickly. So it was all about filling the seats. What we're now starting to see is a maturity of those yields. The important thing was filling the seats, and we're delighted that that extra capacity that we've deployed has, has been filled. It's seat factor first and foremost before you go anywhere else. And now we're starting to build off and starting to see the yield improvements. We think it's a superbly competitive proposition on these routes like Japan, like Narita, like Singapore, where we're putting in one flight with lots of capacity. It's an incredibly competitive proposition. And, you know, I think it will do really well. I think one of the things we've got within our fleet, existing fleet, and specifically with the A321 starting to arrive next year, is we've got flexibility to redeploy. I mean, we're very much being about an upgauging strategy with the A321s coming in to replace A319s. and ultimately A320s. The A330 has been great because it's been flexible. It can do short haul and it can also do long haul. As the A321s come in next year, we'll be able to start redeploying, I think, some of those A330s again into some targeted long-haul markets. You mentioned Australia. Australia is doing really well for us. We've grown the Manila-Sydney market phenomenally. We are the number one player in terms of passenger traffic on Manila-Sydney. We are increasing Sydney to daily frequencies from this December, and there's every chance we're going to be looking at Australia in a more general sense. Melbourne is on, is on the agenda for sometime next year. Not there yet. We need to go and finalize the numbers, but Melbourne's looking interesting. So I think Australia as a market is, is good for us. Honolulu potentially. But again, we've got to look at the numbers there. It's very competitive. You know, PAL's there, other people are not sure. We're not going to go in there just for the sake of it. We want to make sure that we've got a product that's selling well and ultimately is going to give us a profitable return. Australia is working well because it's selling well at both ends. We've got plenty of inbound Australians coming in who want to see the Philippines. Of course they do. Business as well, lots of BPO activity, so small-medium enterprises coming in from Australia, and of course from the Philippines it's going out. into Australia, some tourism, but also overseas Filipino workers. So Australia is a very good market for us. But the key to all this, we've got a flexible fleet. We can deploy it in many ways over the years ahead. What we're seeing at the moment is we've seen massive growth in this particular part of the world. And you've also seen the growth of sort of new mega hubs. You know, it's not just the Singapores and the Cathay Pacifics who are doing 6 freedom out of Asia. You're now seeing it from the Chinese carriers. You're seeing it in Incheon. You're seeing phenomenal capacity growth that's linking Manila to any part of the US. It could be the West Coast, it could be to the East Coast. You can do Manila return to New York in economy for $500 at the moment. Now, the economy segment is specifically the market that we're looking at. Now, maybe New York's not top of the agenda and we're talking about the West Coast, but West Coast prices have been eroded, not by direct services, but by one-stops, but by good one-stop services. And if we're aiming primarily at the price-sensitive consumer, they're not going to worry too much about a 2, 3, even 4-hour stopover in, in a good hub. So we're not going to go throwing brand new capacity. This would be a brand new fleet, an expensive fleet, to fly it all the way to the West Coast. Given the current yield backdrop, we don't think it's sustainable because we don't think carriers operating in that space can operate long-term at a profitability. It's not possible. So there will be some sort of correction. I think, as you know, Brendan, that's our same view in terms of what's happening at the moment between a lot of the Asia to Europe flows that's going over the Middle East and Turkish. Some of the yields on offer are astonishing, both in economy and indeed in the business cabin. Great time for the consumer. As you know, we've never had a specific target about market share, but we like We like our position of being, you know, strong in terms of market positioning. And at times, maybe a year and a half ago, we were close to 60% domestic market share. We dropped down closer towards 56% towards the end of the first half of this year. We have put more capacity in just because we, we just want to regain a little bit of that. We haven't got a specific target, so we'll be moving up again towards the 60%. Close to, I would think, with the capacity growth that we put in. This is the redeployment we've got for the short term. Some 330s operating on, say, Cebu, on Davao. This is good. And when the 321s come in next year, that will be upgraded. So again, it will enhance the domestic position. Domestic is doing really well. And of course, on the back of a booming Filipino economy, I mean, it's still bundling along at 6 to 7%, you know, GDP growth. And, you know, whether that's, you know, the major metropolises serving each other or indeed these, you know, island hopping that we're starting to feed with these new ATRs, it's all looking very encouraging. So domestic is going to continue to be an important foundation and cornerstone of what, what we are doing. But yet domestic is a very nice story indeed. We did a lot of work this year in terms of fleet. One was around the long-haul changes that we did. The other one was looking at our A321 deliveries. As you know, we should have taken a few already this year. Back end of this year, we were slated to take 3, but we chose to defer some of those or all of the initial order to put them back. Our first neo delivery comes in, in November next year. But we frontloaded now an additional 7 A321ceos. This was down to the engine-related issues, which Pratt Whitney are on their way to solving. I think it'd be a great, great engine. Its fuel performance is wonderful. Time on wing at the moment is a bit of a concern, but they'll resolve that. But we've got 7 A321ceos coming in. First one arrives in March and we've got 3 in April. So a rapid uplift and it's an upgauging. So we'll go into markets like Cebu, it will go into Davao, it will go into some of the regional markets as well. We'll start to see it on, say, Singapore. We'll start to see it on, I know, maybe Bangkok. But certainly domestic is a key place to put it, to upgage some of the domestic because it's performing so well, the domestic market. The neo comes in, the fuel burn numbers that are coming out from Airbus and Pratt are impressive. And so the longer sectors that we put those on, the better benefit we will have. So it's fair to say the A321ceos will probably be more on the domestic and the A321neos will be on the On the longer sector, short-haul regional stuff, because that's where we'll get the better fuel burn benefits.

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