It has been a rough year for Cebu Pacific. Last 2018, the famous airline ferried about 20.3 million passengers and although it almost hit the its passenger target for the year, it’s net income plunges by 50.6%, from P7.9 Billion in 2017 to P3.9 Billion in 2018. This is indeed a significant change in the firm’s income figures. So, what caused the decrease in CebPac’s net income? Is it something that should alarm its current investors?
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Cebu Pacific Reported that the decrease in its net income is because of the challenging macro environment. The firm acknowledged that there has been an increase in fuel prices, the Philippine peso is unstable, the interest rates is rising, and the competition is steep. The macro challenge experienced by the airline also include the six-month closure of Boracay, one of the top tourist destinations in the country. These external factors have seen to increase the overall costs of the firm for flying over 20 million domestic and foreign travelers.
The high fuel prices in 2018 didn’t just affect Cebu Pacific, it also hit several airlines around the world. Based on the report from International Air Transport Association (IATA), airline companies have been challenged by the rising fuel prices which only began during the last quarter of the year. On top of this, another problem for CebPac is the volatility of the Philippine Peso. The currency weakened, from P50.40 per dollar in 2017, it moved down to P52.66 per dollar in 2018.
Investors shouldn’t be alarmed by the firm’s net income decline. There are still other factors that should be considered. In spite of the net income fall, the firm managed to increase its revenue by 7.9% equivalent to P74.1 billion. This hike in revenue is driven by its cargo business and passenger revenue, which posted a 19% and 9% growth respectively. Although 2018 put a pressure on the firm, the company still showed resiliency. In fact, it was able to increase its capacity by replacing their small planes with larger ones.
The firm is optimistic and hopes to bounce back in 2019 with the plan to acquire planes that are fuel-efficient to mitigate the effect of the high fuel prices. Adding to this plan, the firm is pushing its project to open new routes. It will also continue its upgauging strategy in order to carry more passengers this year. The cargo business is expected to expand as they transform into a digital environment.