Cebu Pacific Update

Transcript

Rick Howell:Why Melbourne? The relevance of it being my hometown is actually, unfortunately, zero. If I had that sort of influence, then yeah, we would have been doing it a long time ago. I guess capacity opportunity. With the A321s entering the fleet, we now have the ability to upgage on some of our— some of the routes that we're running the A330, upgage and increase frequencies. We still do have a few slots left at Manila that we can add A321s to and liberate an A330 to do some more long-haul. It's taken us a while to build our brand in Australia, but as I think I've said before, 6 months after we started the Sydney service, when we were competing with 2 well-entrenched full-service incumbents, we doubled the size of the market. We'd dropped average fares by about 30%, and we'd become the dominant player in the market. It's now a mature market for us. It's well profitable. We've got a great cargo network out of Melbourne. We distribute to lots of different places. We interline with a couple of different airlines. And of course, Melbourne as an airport is home for about 30% of Australia's air freight. Okay. So Melbourne actually moves more air freight than Sydney. So there's a good commercial opportunity below the floor as well as around about, from memory, around about 180,000 Filipino or Filipino heritage residents of the Melbourne area. So with that sort of diaspora, These are people that actually know our brand. We don't have to get out there and advertise and try to drive growth to our airline. But it's just been a case of having the available A330 capacity, and once the A321s arrive, then we can actually release some. Do you remember there was a US Fed chairman that used the term irrational exuberance? We saw some irrational exuberance from some of our competitors into the Middle East. Fares were, fares were unsustainably low, and if they were unsustainably low for us, then we know that the other guys that were on the same city pairs were losing an enormous amount of money to compete. We don't actually have the sort of ego that requires us to stick to a business model even if it's not the best use of the assets. So the redeployment of the assets from, from a couple of the Middle East destinations into regional operations was very sensible in the middle of last year because the A321neo has been delayed. We needed to find a way to get some more seats into the regional, the ASEAN market. That actually has been a very successful program. But yeah, you're right. If you told me that 4 or 5 years ago, That wasn't our business plan. But you know what? As a famous economist once said, if the facts change to not fit your argument anymore, change your argument. The first 7 A321s that we're collecting this year are ceos, so they're a shorter-range aeroplane than the neos just by fuel efficiency. They're also coming in at a slightly lower max takeoff weight. So, in essence, they'll fit into our existing A320 network and sort of like for like. The neos have a bit longer range and that gives us the ability to connect some more Asian ports that we don't touch right now. Probably, to be honest, from the response that we've actually seen, I think that what's coming up for us next on the widebody side is probably some more deployment into some of the major slot-restricted Asian airports. Because what we are seeing, and we saw it quite spectacularly with Narita, when we moved from an A320 to an A330, we sustained the same load factor after only a couple of weeks. So the demand actually far exceeded the available supply at the time. The maximum benefit from the aircraft right now is not in adding another long-haul destination. Yep, we're still looking at other options, and yet the opportunity to get to the US is— or further to the US, further than Guam— is very attractive. But it needs to make sense as a business case. It's not just, you know, we've got to do it because it sounds like a good idea. It varies. It varies because of the seasonality. So, you know, fortunately for us, the seasonality of the network, of our ASEAN network, is actually quite different to the seasonality of our Australian network. February is a really busy month for us in the Philippines and around the region here. And February is the death month in Australian aviation because everyone's just back from holidays. So the similar sort of argument that the Allegiant guys were making about, you know, no one flies in September for Allegiant, well, in Australian aviation, February is always a very low month. So if you want to look at it from the point of view of holidaying Australians looking for a leisure experience versus— Business travel. versus Filipinos connecting on a, you know, connecting with friends, relatives. It varies over the season. And yeah, our load factor varies over the season and our yield varies over the season as well. But it's actually, it's quite a, it's turned out to be quite a stable mix. Look, it's a good question. The cargo side of the business has been, has grown about year on year, it's actually up over 30%. High 30s in volume and over 30% in revenue as well. And that's— a lot of that's been to do with the fact that we've changed the way that we sell cargo. We've changed the commercial relationships. But on the cargo side of the business, I mean, we're clearly a low-cost point-to-point carrier above the floor. But below the floor, we're actually a full-service cargo network carrier. So you can check in a box at Sydney and have it travel on one of our aeroplanes and end up in Kuwait, even though we don't fly to Kuwait. We have interline deals with a variety of airlines. We actually aggregate a lot of freight a lot of cargo out of China to move to Dubai through Manila, which of course is probably not something that would have been forecast. Revenue-wise, on a lot of our A330-dominant routes, cargo is actually more than 20%, or around about 20% of our total revenue, which is sort Sort of similar to ancillaries. So, you know, it's clearly a real driver. It actually changes the way that we can charge for passenger tickets. A321ceo is primarily a— sorry, just a continuation of the answer to the previous one. We're actually taking all of our A321s with palletized underfloor, so that actually gives us 2 opportunities. One, we actually get to carry palletized freight, which freight forwarders actually really prefer. And 2, it means that we can actually shave about 8 minutes out of a turnaround because it's a whole lot faster loading cans and pallets than it is individual bags. So the A321 network will actually change the way that we do cargo within the domestically. Primarily, though, the, the, the, the A321ceos are just going to be an upgage of an existing service. A321neos give us the opportunity to operate, operate efficiently at a, at a longer range. We've looked at lots of, lots of different options for the aeroplane. It gets us a, you know, it gets us a range circle that, that takes in It takes in part of Russia, northern Japan, India, parts of Australia. So we haven't actually come to a landing on what that's going to do to our network just yet, but it certainly gives us a lot more options. Yeah, we do see a future, and, you know, we expect that the partnership with Tiger Australia is actually going to be quite quite beneficial. It's been a while because, you know, nothing's simple when it comes to res systems and the, you know, the software and the business rules and the integration across, you know, across the 7 carriers is— it's not sort of click your fingers and turn it on. It actually has required quite a lot of oversight and a lot of effort in the background. We're starting to see We can see the increase in throughput of the Value Alliance now. We probably are benefiting from it more than a lot of other carriers, but we do expect that with Tiger so prevalent in Melbourne that we'll probably see a real kick in Value Alliance bookings once we launch Melbourne in August this year. Okay, so other than the death threats that I got after the morning panel, No, look, the takeaways, it's like most CAPA conferences, there are some really interesting people to actually speak to and to listen to. The discussion, sort of the ongoing discussion about long-haul LCCs, I think is, the thing for me, having now been involved in it a few times, I think is that it's It's possibly a little narrow because long-haul LCC discussion is not just a discussion about long-haul LCC. It's actually a discussion about wide-body LCC. And so the discussion about what makes it successful might actually just be how the aeroplane fits into your existing network rather than just finding destinations that are a long way apart. Thank you, Rick Howell, Cebu Pacific's Chief Operations Advisor.

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