Cebu Air shares gain 6.4% in market debut

MANILA, Philippines - Cebu Air, the corporate entity behind the Cebu Pacific airline closed 6.4 percent higher on its trading debut yesterday, completing yet another milestone in its history with the holding of the world’s biggest initial public offering (IPO) by a low-cost carrier.

Cebu Air opened at P132 and went up to as high as P133.50 each share prior to closing at P133, which is above its IPO price of P125.

A total of 25.91 million shares valued at P3.4 billion changed hands. Cebu Air has a market capitalization of P76.65 billion.

The IPO, the country’s biggest maiden share offering in dollar terms, raised P23.3 billion (approximately $539 million) for Cebu Air and its parent JG Summit Holdings Inc.

Cebu Air CEO Lance Gokongwei said the airline is proud to be not only in the forefront of tourism but also on the global map with its IPO surpassing AirAsia Bhd.’s $227-million maiden offering in 2004, Ryanair Holdings Plc.’s $160-million initial share sale in 1997, and Tiger Airways’ $175.94 million IPO this year.

Philippine Stock Exchange chairman Hans Sicat said Cebu Air’s listing came at no better time when the bourse was setting new all-time highs. The main composite index has already risen 40 percent since the start of the year.

“It is the first transaction in the aviation business, and perhaps more importantly, it is a landmark deal in the low-cost carrier sector, setting a benchmark amongst regional and global LCC peers,” Sicat said.

Gokongwei said the IPO proceeds will be used to beef up its fleet with the expected delivery of 24 aircraft by 2014 as part of efforts to increase flights.

He said their international business will be larger than the airline’s domestic business in less than five years with the increase in flight frequencies and addition of new destinations in the Asia Pacific region.

While international passengers account for 15 percent of the total flown by the airline, they account for 38 percent of total revenue, Gokongwei said.

He said the company is looking to fly 20 million passengers by 2014, or twice its target this year, as he expects international fliers to grow to 35 percent. Local passengers are likewise forecast to increase by 15 percent over the next five years.

For this year, Cebu Air expects passengers to hit 10 million. It claims to hold nearly 50 percent of the total domestic market while it controls 15 percent of international traffic.

Cebu Air, which has a fleet of 29 planes that fly to 33 Philippine and 16 international destinations, reported a 29.4 percent growth in revenues in the first half this year, performing better than other LCCs in Asia - Air Asia and Tiger Airways.

Cebu Air senior vice-president and vice-president Bach Johann Sebastian said JG Summit will use the estimated P19.5 billion share of the IPO proceeds for the payment of debt.

The airline has around P300 million worth of debt maturing between 2011 and 2013.