Cebu Pacific Q1 profit shrank 4%; stuck in “no man’s land” recovery
Cebu Pacific [CEB 44.00 2.22%] [link] posted a Q1/22 net loss of P7.6 billion, 4% worse than its Q1/21 net loss of P7.3 billion, and 147% worse than its Q4/21 net loss of P3.1 billion.
CEB reported plenty of very promising metrics by comparing Q1/21, when movement restrictions were much more strict, with Q1/22, when movement restrictions were beginning to ease considerably.
Total revenues were up 147% y/y, which CEB attributed to a “significant increase in passenger volume”.
CEB segments its revenues into three buckets: passenger, cargo, and ancillary.
For the passenger bucket, revenues were up 256% y/y, passenger volume was up 272%, and flights were up 128%. Flight occupancy was nice, up to 69.9% from 53.2%.
For the cargo bucket, revenues were up 40% to P1.8 billion.
For the ancillary bucket, revenues were up 239% to P1.7 billion. That’s the good news. The bad news is that CEB’s expenses ballooned to P12.0 billion, up 26%, and its average passenger fares decreased by 4.3% to P1,543. As CEB explained, “a material portion of [CEB’s] expenses are based on flights and flight hours.”
More flights mean more expenses. CEB also said that the weakening peso relative to the USD further amplified its expenses.
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Way more passengers flew on CEB plans, way more CEB planes flew in the sky, and the company lost more money than it did when it was barely operational. The issue is that CEB is stuck in something of a “no man’s land” for discount airlines: too many passengers to ignore the growing demand, and too few passengers to turn a profit through normal operations.
Even flying at 70% average capacity is not nearly enough for CEB to turn a profit.
Sure, CEB avoided going bankrupt like Philippine Airlines [PAL 5.99 1.80%] did, thanks to the Gokongwei Family’s injection of additional capital and the sale of convertible preferred shares to the public, but the company only has P25 billion in cash and other current assets, and that’s only about four quarters of operations at this current pace.
I imagine that domestic travel and international travel will continue to recover somewhat over the course of 2022, but the situation in China, one of CEB’s most profitable pre-COVID destinations, is only getting grimmer by the day.
The Chinese government’s incomprehensible pursuit of a zero-COVID policy all but guarantees challenging circumstances for some of CEB’s most historically-profitable routes.
Will passenger volumes take another huge step forward by this time next year, or will the headwinds caused by higher fuel prices, the continued COVID problem in China, and the possibility of a global economic slowdown leave CEB management looking at the market for another top-up? Time will tell.
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Merkado Barkada's opinions are provided for informational purposes only, and should not be considered a recommendation to buy or sell any particular stock. These daily articles are not updated with new information, so each investor must do his or her own due diligence before trading, as the facts and figures in each particular article may have changed.
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