Cebu Pacific buys 37 new planes for $3.8 B

MANILA, Philippines - Gokongwei-controlled budget airline Cebu Pacific (CEB) is investing $3.8 billion to acquire 37 new aircraft – the largest single aircraft order ever made by a Philippine carrier – that will double its fleet size by 2021.

CEB president and CEO Lance Gokongwei said the low-cost carrier has turned into firm orders its existing purchase options for seven Airbus A320 aircraft, and has placed a new order for 30 A321neo (new engine option) aircraft with options for an additional 10 A321neos. The latter will be a first-of-its-type to operate in the Philippines, being a larger and longer-haul version of the familiar A320. The list price for each A321 is around $100 million.

The orders for seven A320 and 30 A321neo aircraft will be delivered between 2015 and 2021. These are on top of firm orders for 18 A320 aircraft to be delivered from the second half of 2011 until 2014. This increases CEB’s total firm orders of Airbus aircraft to 57. By 2014, CEB will have the largest jet fleet in the Philippines.

“Cebu Pacific has made the largest firm order for the Airbus A321neo aircraft in the world. These 220-seater aircraft will be a real ‘game changer’ for us because the A321neo will have a much longer range. We will be able to serve cities in Australia, India and Northern Japan, places the A320 cannot reach,” Gokongwei said.

The new aircraft will be financed by a combination of export credit agency financing and commercial lending.

Gokongwei said CEB is the first Asian airline to order the A321neo. “These will be delivered between 2017 and 2021. We also have an option for 10 more A321neo. So with the previous order (20 more arriving between 2011 and 2014), this will make us the largest operator of Airbus aircraft in the Philippines, the first Asian airline to order A321neo, and the largest operator of this type of aircraft,” he pointed out.

He explained that the A321neo will reduce their unit cost per seat to a level that cannot be achieved flying A320s. “This means that Cebu Pacific will be able to offer even lower fares to our guests and be much more competitive with anyone flying less cost efficient aircraft,” he added.

CEB currently utilizes 33 brand-new aircraft, 25 of which are from the Airbus A320 family, and eight ATR turbo-prop aircraft. By 2012, CEB will more than double its fleet and triple its capacity.

Airbus chief operating officer for customers John Leahy explained that with the A321neo, Cebu Pacific will be able to fly more people further at significantly lower cost per seat than any other competing aircraft, and with less impact on the environment.

The A321neo is the largest model in the recently launched A320neo series. It incorporates new engines and large wing-tip devices called sharklets, allowing CEB to achieve 15 percent reduced fuel burn (15 percent less fuel cost), and function on a lower operating cost.

CEB vice president for planning Alex Reyes explained that by 2014, CEB will have a fleet size of 47. Including the 37 firm orders and 10 optional purchases, CEB will end up with a total of 94 aircraft by 2021, or double the number in 2014. “The order will take care of our fleet requirements from 2015 to 2021,” he said.

Reyes also said that this new type of aircraft can fly for five hours, allowing CEB to fly to areas like Perth in Australia, New Delhi in India, and Hokkaido in Japan. “With the A320s, we cannot serve these cities,” he pointed out.

Meanwhile, Gokongwei said they expect to fly more than 12 million passengers this year both on domestic and international flights, a 19 percent growth from last year.

In the first quarter of 2011, CEB registered a 12 percent system-wide passenger growth, a 32 percent international passenger growth, and an 81.2 percent on-time performance. It also flew more than one million passengers in each of April and May this year.

CEB’s current international destinations include Brunei, China (Beijing, Guangzhou, Shanghai, Hongkong, Macau), Indonesia (Jakarta), Japan (Osaka), Korea (Busan and Incheon), Malaysia (Kota Kinabalu, Kuala Lumpur), Singapore, Taiwan (Taipei), Thailand (Bangkok), and Vietnam (Ho Chi Minh). Since the A321neo can fly longer, Gokongwei explained that they can now reach places within a five-hour flying distance from Manila or Cebu.

Gokongwei pointed out that CEB remains optimistic about future increases in domestic and international demand, and is therefore investing $3.8 billion to expand further.

He said that while the new order appears to be large in number, this just reflects a 10 percent increase in terms of passenger number annually

CEB’s top executive explained that the aviation industry is still a difficult environment to operate in, although both 2009 and 2010 were record breaking years for them. “This year, we intend to break records further both in terms of revenues and passengers flown,” he said.

He added that even with the country’s recently implemented pocket open skies policy, CEB being a world class carrier can still be competitive. “We can compete with anybody head to head,” Gokongwei said.

He said that while they expect domestic aviation to grow 10 to 15 percent every year, international flights will grow at a faster pace of 25 percent each year.