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China lockdown, weak peso hurting CebuPac

Elijah Felice Rosales - The Philippine Star
China lockdown, weak peso hurting CebuPac
Cebu Pacific spokesperson Carmina Romero yesterday said the airline is mitigating risks posed by forex fluctuations and rising inflation by raising its aircraft utilization and managing its loan interests.
STAR / File

MANILA, Philippines — Low-cost carrier Cebu Pacific may find it challenging to climb back to profitability even by next year as it tries to deal with uncertainties dealt by the lockdown in China and the peso’s depreciation, a ranking company official said.

Cebu Pacific spokesperson Carmina Romero yesterday said the airline is mitigating risks posed by forex fluctuations and rising inflation by raising its aircraft utilization and managing its loan interests.

She said Cebu Pacific enters into interest rate swaps—agreements where one stream of interest payments is exchanged for another—to minimize the inflation impact triggered by monetary tightening worldwide.

“As we grow flights, this will bring cost per seat lower as we spread fixed costs, both in peso and US dollar, across more seats. We also mitigate this via interest rate swaps to manage volatilities brought about by changes in policy rates to address inflation,” Romero told The STAR.

Cebu Air Inc., the operator of Cebu Pacific, is struggling to nurse its balance sheet back to health with the peso weakening against foreign currencies. Up to 70 percent of its expenses are denominated in  US dollar, making it difficult for the airline to promise profitability in 2023.

“As our network recovery has been led mostly by domestic travel, Cebu Pacific’s revenues are mostly in Philippine pesos,” Romero said.

“However, about 60 to 70 percent of our expenses are US dollar-based, thus increasing our cost base and even possibly slowing down our return to profitability should the peso continue to depreciate,” she said.

Cebu Pacific also has yet to reactivate its flights to China due to Beijing’s insistence to keep its borders shut for leisure travel, although East Asia in general is showing signs of recovery on passenger demand.

“Domestically, we have already reached 100 percent of our pre-pandemic capacity. International stands at 40 percent, bringing our system-wide capacity to about 80 percent,” Romero said.

“By 2023, we are seeing green shoots of recovery, as Japan and Taiwan reopened at the same time. We remain cautiously optimistic of 100 percent recovery versus pre-crisis levels, as China and Hong Kong have yet to reopen,” she said.

For the year, Cebu Air saw its net loss drop by 69 percent to P2.54 billion as of the third quarter, from P8.2 billion a year ago, even as it posted a triple-digit growth in revenue with demand for air travel surging.

However, Cebu Air reported that its forex losses widened to P3.86 billion from P1.83 billion as the airline took a beating from the peso’s decline in the forex market.

CEBU PACIFIC

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