Cebu Air, Inc. (CEB) Earnings Call Transcript & Summary

Good day, everyone. We are delighted to have you join us for Cebu Pacific's investor call. Today, we'll be sharing with you our business and financial highlights for the third quarter and 9 months of 2023 and some key commercial and operational updates, including the recent news that will impact our fleet and network. We are eager to discuss the concrete actions we have taken to effectively address ongoing issues to ensure the continued growth and success of Cebu Pacific. Let us now dive into the presentation, starting off with the business and financial highlights. For the third quarter of 2023, Cebu Pacific flew over 35,000 flights, up 18% year-on-year and 1% higher than the same period in 2019. That enabled us to fly 7.2 billion ASKs and 6.3 million seats, up 41% and 12% year-on-year, respectively. Compared to the same period in 2019, that's almost 100% capacity restoration in terms of ASKs and 98% in terms of seats flown. We flew 30.2 million kilos of cargo, 44% lower than 2019 at an average yield of PHP 29.3 per kilo, 7% higher than 2019. We had less wide-body aircraft operating compared to 2019, which impacted cargo capacity, most of all. This was aggravated by the stiff pricing competition across the industry. We flew 5.3 million passengers in the third quarter, 27% higher year-on-year, yet still 4% below 2019 levels. This translated to seat-load factor of 83.7%, 9.7 points more than last year, but still 1.4 percentage points below 2019. We have yet to fully recover passenger volumes in our short-haul international flights, particularly in our China market. However, average fares improved to over PHP 3,000, 17% up year-on-year and 25% higher than 2019 levels. This was largely driven by a shift in travel demand from previously second quarter summer peak to third quarter, particularly July and August, in line with the change in school break calendars. Ancillary yields likewise improved to PHP 1,110 per passenger, 29% higher year-on-year and notably 50% higher than 2019 levels. We undertook various pricing optimization initiatives to improve ancillary takeup, including but not limited to sale of add-on bundles. Similarly, we saw a shift in travel demand as well from several OFW markets and we deem this attributable as well to Filipinos coming home for graduation or school breaks. Given these, we are happy to report that CEB generated PHP 23.3 billion system-wide revenue for the third quarter, a 39% increase from last year and a 23% increase from 2019. Passenger business generated over PHP 16 billion, up 48% year-on-year and 21% higher than 2019. This was followed by Ancillary business, which generated PHP 6.4 billion, 59% higher year-on-year and 52% higher than 2019. Cargo revenue of PHP 972 million on the other hand, remained 34% lower than same period 2019. With total revenues of PHP 23.3 billion, SEB generated operating income of PHP 2.4 billion, a turnaround from last year's operating loss of over PHP 3 billion and 170% higher than 2019. This yielded a 10% operating margin for the quarter, an improvement from 5% margin back in 2019. Higher passenger yields, improved fuel efficiency and prudent expense management improved overall profitability. This is on the back of 47% higher jet fuel prices, which increased to $113 per barrel for the quarter, which was partially offset with improved fuel consumption, increasing our total fuel expense by only 23% versus 2019. Excluding fuel, operating expenses increased only 13%, flight and ground operations increased only 6% versus 2019 despite inflation. Given this, our CASK ex fuel now stands at PHP 1.9, just 12% higher versus 2019. Repairs and maintenance expense increased 87% or PHP 1.9 billion, partly offset by a 15% reduction in depreciation. We had 12 more aircraft versus 2019, comprised of 25 more right-of-use aircraft deliveries less 13 exits of previously owned aircraft. Also, as we shifted towards more power by the hour structure maintenance agreements and maintenance provisioning method for more right-of-use aircraft. Maintenance expense increased but depreciation of previously capitalized heavy maintenance costs decreased. After interest expenses, noncore losses and taxes, we posted net income of PHP 1.3 billion, a turnaround from the net loss incurred both last year and 2019. Moving on to our year-to-date highlights. We've flown over 104,000 flights, 18.4 million seats and 20.4 billion ASKs, all higher year-on-year, but fell 3% to 6% short of prepandemic levels. This is largely due to our short-haul international operations, which remains below pre-pandemic levels, partly due to delayed recovery of our China market. Prepandemic, we flew about 60 flights per week into China through Beijing, Shanghai, Guangzhou, Xiamen, Shenzhen and Macau, whereas today, we fly only 32 per week to and from these China destinations. Cargo volume remained 45% below 2019, but was partially offset by 21% higher yields. Since the start of the year, we have experienced a weaker overall demand for airfreight coupled with reduced capacity and competitive pricing overall. CEB flew 15.5 million passengers year-to-date, 7% lower than 2019, but with average fares 6% higher than 2019. Seat load factor averaged 84.4%, about 10 percentage points higher versus last year but still 2 points lower than 2019. On the other hand, ancillary yields per passenger averaged PHP 1,053, 61% higher than 2019. This is partly driven by increase in our long-haul seats by 31% versus 2019 as we increased weekly flights to Dubai from 14 to 24x weekly. As mentioned earlier, the successful take-up of our new ancillary products, particularly the add-on bundles, also improved ancillary yields. Year-to-date, we've achieved revenues of PHP 66.9 billion, 78% above last year and 5% higher than the same period in 2019. Our revenue growth was primarily fueled by our passenger ancillary businesses contributing PHP 46.1 billion and PHP 17.8 billion in revenue, respectively. Ancillary revenues outperformed as it grew 40% higher than 2019 level while Cargo revenues were softer at 33% lower than 2019 levels. With PHP 66.9 billion in revenue, 5% higher versus 2019, operating expenses totaled PHP 60.7 billion, 13% higher versus 2019, respectively. Fuel costs, which made up most of our expenses, amounted to PHP 21.4 billion, 16% higher than 2019, driven by 34% hike in fuel prices from $77 per barrel to over $103 per barrel. Excluding fuel, CEB incurred PHP 39.3 billion in operating expenses, 16% higher than 2019. This was attributable to repairs and maintenance expenses due to more aircraft in the fleet. As mentioned earlier, this is also due to a shift towards more power by the hour maintenance agreements and similar maintenance provisioning structures for more right-of-use aircraft, partially offset by reduced depreciation of maintenance CapEx. Peso depreciation of about 6% to PHP 55.5 per U.S. dollar also increased our overall expenses as about 2/3 of our operating expenses remain pegged to the U.S. dollar. With this, CEB generated operating income of PHP 6.2 billion, 37% below 2019 for an operating margin of 9%. After interest payments of PHP 2.7 billion plus net noncore gains and tax benefit totaling PHP 1.6 billion, CEB now records year-to-date net income of over PHP 5 billion. For our balance sheet. CEB ended September 2023 with total assets of PHP 173 billion, 76% or PHP 131 billion, of which were aircraft related. This was 17% higher versus start of the year after 12 deliveries, 3 returns, 1 ATR sale and 2 sale and leaseback transactions. Cash balance remained stable at PHP 19.5 billion. Total liabilities amounted to PHP 171 billion, PHP 124 billion of which are debt related. Current portion of debt remained below PHP 12.4 billion, driving a stable current ratio of 0.6x. Finally, with PHP 5 billion net income earned for the period, CEB's equity closed at PHP 2.1 billion. Net debt-to-equity ratio still steep at over 50x, while net debt to EBITDA for the last 12 months improved to 5.2x. Now for our cash flows. Net cash from operations amounted PHP 12 billion, driven mainly by our cash income of PHP 18 billion, offset by PHP 5 billion outflow for working capital. Net outflow for working capital was comprised of PHP 7.3 billion in settlements for return obligations and heavy maintenance checks, partially offset by PHP 2.7 billion inflow from unearned transportation revenue or forward bookings. On the other hand, we had PHP 5.7 billion in cash outflow for debt service plus another PHP 7.8 billion CapEx for one engine and 2 narrow-body aircraft under finance lease. With this, for the 9 months ended, CEB generated PHP 535 million net cash outflow, bringing the total cash and cash equivalent balance to PHP 19.5 billion. Before I turn you over to Mike for some of our latest business updates and outlook, allow me to share some of the key economic indicators that would impact our business outlook. On fuel, forward prices for jet fuel tempers about $109 per barrel, about 4% lower versus the average prices in the third quarter. This suggests persistent headwinds as Chinese economic data underwhelms and high U.S. rates continue to erode demand. Uncertainty surrounding the Middle East conflict as ceasefire efforts grow, while the war rages on caused increased volatility with prices. On ForEx and interest rates. USD PHP rates similarly see just a slight dip quarter-on-quarter as the Fed signals less hawkish times, causing market speculation that the Fed is done hiking for the year despite U.S. inflation remaining above target. We are now looking at PHP 55.8 per U.S. dollar for the fourth quarter versus PHP 55.9 average in the third quarter, while SOFR forwards now looking at 5.38%, relatively steady versus the last quarter. I now hand you over to Mike to discuss about the latest business updates and outlook.

Hello, everyone. Thank you for joining us today. Allow me to provide you a broader view of our latest commercial and operational performance and outlook. First, on the commercial front. CEB's system-wide recovery by the third quarter was already at 98% of prepandemic seat capacity with domestic leading the way. And going into the fourth quarter, we remain optimistic as we saw our domestic market share in October at 55% despite challenges on fleet availability. We expect that by the end of the year, our system-wide network recovery will be at 103%. Domestic will continue to exceed prepandemic levels, while international will be at about 93% of 2019. We will continue to boost our international network. For example, we recently launched our Manila-Da Nang route and resumed Manila-Shenzhen. We also added international frequencies from our non-Manila hubs such as Cebu and Clark. And by year-end, we expect to fly to 60 destinations through over 100 routes and at least 2,700 weekly flights. Now Mark has mentioned earlier how we've seen third quarter fares improve compared to prepandemic. This is in part due to a notable shift in travel demand as seen through our forward booking curve. Traditionally, our peak months were April to May, coinciding with Easter and summer breaks. However, the change in school calendars, shifting school breaks towards the period June to August, resulted in higher yields for these months, particularly for domestic. In the international market, routes with a high concentration of Overseas Filipino Workers such as Hong Kong, Singapore and Dubai saw similar trends with Overseas Filipino Workers adjusting their travel plans to align with Philippine graduations and school breaks. North Asian markets, on the other hand, showed no significant changes compared to 2019, with demand still driven by external events like the Cherry Blossom mid-Autumn festival and Lunar New Year. And regardless of the year, September remains to be our weakest month. Now last quarter, we discussed the challenges posed to CEB's operations, which included various issues, problems with Pratt & Whitney engines, aircraft delivery delays and supply chain disruptions. As of the end of September 2023, CEB had four aircraft on long-term AOG due to these issues. And later on, I will mention the outlook for next year. Most importantly is that amidst these challenges, we have demonstrated resilience by effectively addressing these issues in the best possible way. We bolstered our spare aircraft capacity by acquiring new aircraft and increasing our spare capacity ratio, even if this meant tempering our growth targets in the near term. We introduced improved customer recovery options and policies and enhanced our customer support teams both on the ground and online to enhance customer communications and engagements. And we further collaborated with MIA and other partner agencies to improve handling processes throughout. We've taken all these initiatives to uphold our commitment, delivering affordable, safe and dependable flights. With these enhancements, we are pleased to report that we've seen a significant improvement in customer sentiment. Our Net Promoter Score has recovered to plus 35 by the end of September. Moreover, our on-time performance has also seen excellent progress, climbing to 81% by the end of September. Our fleet plan continues to be busy for both good and bad reasons. The good. We have ramped up ahead of the holiday peak as we expect 7 more deliveries until the end of this year. As a result, we look to close this year with 79 aircraft in our fleet. However, despite all this activity, growth outlook for 2024 remains softer than we would like as we are unexpectedly confronted with yet another engine issue that will impact us in the next couple of years. Pratt & Whitney have disclosed the defect in the manufacturing process that affects engines powering the A320neo and A321neo fleet worldwide. Whilst this is not a safety issue, it has accelerated engine removal and inspection that will ensure the continued and long-term safe operation of the Pratt & Whitney fleet. As a result of the unanticipated engine removals, we expect to have between 10 and 20 aircraft on the ground through 2024. We continue to explore various opportunities to supplement the fleet and ensure operational resilience, including securing both brand-new and used aircraft as well as exploring ACMI leases for certain times through the year. We expect to increase our fleet to 92 come end of 2024. But despite the higher fleet, active aircraft will be lower than initially guided. With this, we expect our year-on-year seat growth to be within 5% and 8% in 2024. Whilst we acknowledge the challenges we will face in 2024 and 2025, we remain very optimistic on the long-term economic prospects in the Philippines for our aviation industry. There will be substantial infrastructure improvements with the privatization of NAIA, the development of the Bulacan Airport and further enhancements of regional airports to relieve congestion and increase connectivity. These are the game changers in the overall capacity landscape of Philippine aviation, which will enable us to grow our future network and operations without the previous infrastructure constraints. And now let's look more broadly at the Philippines as a whole within the Asian region. Southeast Asia is forecast to be the fastest-growing region in the world with GDP growth forecast of 4.2% for the next 20 years and RPK is growing at close to 10%. The Philippines is very much at the forefront of that with average GDP growth forecast even higher than that. As well as serving the growing domestic market, the Philippines is situated right in the heart of the Southeast Asia region. Within four hours of flying time from Manila, there are 2 billion people. And just for the Philippines itself, the low air travel penetration we see today will grow substantially as the Philippines benefits from its demographic dividend, a very young, fast-growing and increasingly wealthy population that wishes to travel more. So, to service the Filipino market over the next 20 years, Philippine carriers, including ourselves at the forefront, will need to roughly quadruple in size to cater to the growing demand. Recognizing this opportunity, Cebu Pacific has recently issued a request for proposals to both Boeing and Airbus for 100 to 150 narrow-body jets. This size of order of value of circa $12 billion based on manufacturer catalog prices will represent the largest ever commitment of any airline into the Philippines aviation industry. Discussions with representatives of Boeing and Airbus are already well underway, and we expect to make an award prior to the end of Q1 2024. Such a commitment aligns our vision with the shared commitment of the government and private airport operators collectively striving to provide a world-class air transport service to all passengers. Once again, thank you for joining us today. Together, let's soar to greater heights and create lasting value for us all . Let's fly, everyone.

Good afternoon, everyone. Once again, thank you for joining us today. For Q&A session, we will be joined by Mr. Mike Szucs, our CEO; Mr. Xander Lao, our President and Chief Commercial Officer; Mr. Mark Cezar, Chief Finance Officer; Mr. Alex Reyes, Chief Strategy Officer; and Ms. Trina Asuncion, Director for Investor Relations. [Operator Instructions]

Yes, Klyne here from Regis. Just going back on the issue -- Pratt & Whitney issues for 2024. I heard that your guidance for seat growth next year is 5% to 8%. Is that correct? And how would that translate to ASK growth?

Klyne, this is Mike. So on the 5% to 8%, yes, that's about right in terms of seat growth. I don't have it on ASKs. Trina, have you got a rough guide on ASKs?

In terms of ASK growth, Klyne, it's still in the double digit.

Would that be at low double digit? Or...

Yes, probably at the low double digits.

Low double digit, yes.

Okay. And I guess for -- in terms of your -- you mentioned earlier that your market share, at least for the domestic market, has risen to 55% in October. How does that compare with 3Q?

3Q overall was slightly lower than that, Klyne. And I think one of the things that we did, as you know, we have had some fleet availability issues. And during Q3, we were very cautious in terms of ensuring that we had the standby capability available, and we were bringing some other aircraft. We had some aircraft that we grounded not just due to Pratt & Whitney issues, so those were being recovered. So we had less flying in Q3 than we had anticipated. When we got into October, we managed to bring some further aircraft in, so we're back to the sort of market share that we are looking to maintain. But also it's worth saying we were hoping to be higher than this if we didn't have the aircraft on the ground as we have, then we would obviously be looking to have a higher market share than this. But 55%, given the circumstances that we're facing is a very good place to be having been through the challenges of fleet availability in Q2.

Last question from me, please for this round, I think. How are your -- I guess, your forward bookings looking for the fourth quarter and even the first quarter of next year? If you can provide some details and how are fares trending as well? Have they started to deteriorate relative to where you are in 3Q?

Thanks, Klyne. Xander here. So maybe a couple of points. In terms of our forward bookings, we're still looking at a relatively healthy December. Q4, overall bookings are still relatively healthy. We are seeing some fare -- quite a bit of fare competition. But having said that, the -- from what we're seeing thus far, the planes are actually getting -- are fuller than they were in, say, third quarter or even second quarter.

Thank you, Klyne. We have a question from the chat box. Could we have some color on the guidance for growth in freight demand for Q4 or 2024? Is the decrease in freight demand due to competition or weaker domestic demand?

So I think when we -- I guess based on some of the explanations, one is freight demand is less for us in particular because of the lack of wide-body aircraft that we have in our fleet. 2024, we should see some of that freight demand come back as we bring in more A330s into our network. But having said that, it has been more I guess, competitive environment on the cargo market, given that there's a lot more capacity that's come back, a lot more options for people to ship their cargo on. So it has been really a driver of 2 things. One is capacity from our perspective as we bring back more 330s and also a lot more competitive pressure.

But I think -- this is Mike. I think the cargo market has been softer. Undoubtedly, the market has softened overall. I think PAL's results came out in the last couple of days. Their cargo performance versus last year has dropped off similarly to the manner that we have. They obviously have a much higher international component than we do particularly benefiting from the North Pacific carriage. But I think overall, the market is softer. We're also seeing, in the domestic market, some of the customers that we had historically back in, say, 2018 and 2019, a number of these customers are shifting now into road and ferry transportation as well. So they have explored those options and sort of moved away, perhaps, from air freight. So it's not that they've gone to another airline, but they've literally chosen a different mode of transport altogether. But I think underlying all of this, I think the market is soft. It's certainly softer than it was last year.

Thank you, Mike. We have a question from [indiscernible]

Just a few questions from me. So first of all, for the 2024 outlook, any other guidance you can provide besides the seat growth for next year? Perhaps like do you provide revenue guidance, margin guidance and so forth? And my second question, just to confirm my understanding. So in the third quarter, the -- there was an availability issue, and you mentioned it's from the Pratt & Whitney. So sorry, what was the engine issue in relation to again? Has there been recall and -- so you mentioned October is back to normal already. But then next year, there's another recall based on the slide you showed earlier.

All right. Let me just -- I'll do it in reverse order just because -- the Pratt & Whitney issue. So first of all, there's been 2 Pratt & Whitney issues or two phases. The first phase, which was encountered earlier this year, which came and hit us around about late March, April time. And this was really due to what they call hot section issues and vibration issues, and it caused some unscheduled engine removals, and it wasn't just us. It was other airlines that are powered by Pratt & Whitney that faced the same issue. There became a complete shortage of spare engines because so many and all of the airlines were affected. And also the MRO, the shop capacity to repair the engines or to overhaul the engines became constrained. Now that was the first issue. And that was the one that resulted in us having sort of 4, at times occasionally 5 AOGs due to Pratt & Whitney. We did some mitigating issues to bring in some additional spare engines that we managed to locate ourselves, but that was the initial phase of Pratt & Whitney that the industry was dealing with, and it was very, very well publicized. Now more recently has come the second issue, which is in relation to powdered metal. This is the metal that they kind of vaporize to then put that together to make the discs, the turbine discs, the compressor discs, which are very, very precise pieces of engineering that are engineered to withstand extreme pressures and extreme temperatures. And the technology that goes into this is quite a marvel in actual fact. Now what Pratt & Whitney discovered through there was one incident actually on an aircraft in an airline in Mexico that alerted them to this issue and this happened back in December of last year, so about 11 months ago, where one of these discs failed and it failed in a manner that they felt was far from ideal. The issue was contained, but they felt that there was a very, very, very extreme risk that this could be an uncontained failure. Therefore, with an abundance of caution, they've now asked all of the airlines operating the GTF-powered NEO, so this particular engine, the Pratt & Whitney 1100 that they have to come off wing once they've done so many cycles to have an inspection of these discs and be replaced if required. And they need to come off after a certain number of cycles that have been performed. And so this is an airworthiness directive that's been talked about for the last couple of months, and we now know the airworthiness directive has been issued, and it will come into effect in December -- sorry, in January, on January 1. There will be a kind of like a grace period for those engines that are immediately affected. You've got like 100 -- I think it's about 100 cycles additional that you can do if your engine is immediately one of these that's over the cycle limits. So we anticipate we will have, in January, about 10 -- an additional, bearing in mind, we've got 4 engine -- 4 aircraft at the moment that are grounded due to Pratt & Whitney, we will have an additional 6 aircraft that will have to be grounded in January, which will take us to a total of 10 grounded aircraft in January due to this issue. Obviously, the engines will come off and then that will go to the MRO to then go through the overhaul -- the inspection and then to see if they need overhaul or if they can be inspected and then just released back to us. Through the year, we will have further engines on our aircraft on the remaining fleet, further engines that will then hit those cycle limits. And then those engines will then need to go through the same procedure where the engine needs to come off wing and the engine needs to go and be inspected. So we know in January, we're going to have 10 aircraft that are going to be on the ground. And we anticipate, based on the flying of the remainder of the fleet and also based on when we will get engines back from shop after they've been inspected and/or overhauled, that we will go from 10 up to a maximum of 20 aircraft that will be grounded through 2024. So that's basically the issue. It's a worldwide issue. There are about 41 operators of the GTF powered NEO in the world, they are all affected to a greater or lesser extent. There are many of the airlines out there that will not be growing at all as a result of the impact. So thanks to the activities of fleet planning department, legal, engineering, et cetera, where we've been able to bring in additional aircraft this year. We are still able to maintain growth through next year because we've got a lot of additional hauls and of course, we've got some further deliveries next year. So that's the extent of the issue. It really is a very serious issue. I think what we've demonstrated, however, is that we've been able to work through it and still, despite the challenges, maintain a growth outlook, admittedly one that we would rather be exceeding. We certainly would have hoped to have been well into the double-digit percentages in terms of growth rate next year as opposed to the 5% to 8% that we're providing. In terms of your first question, which is, do we add any other further flavor to the outlook that we give, no, we don't. And also -- no, we don't. I mean, I think we're giving the outlook as much as we can in terms of seats. And bear in mind, given what I have just described in terms of fleet, it's actually quite difficult at the moment to give outlook because there's been some movements around in terms of trying to understand what the Pratt & Whitney impact will be. Thankfully, we've now got a clearer picture, although I think we've still got a little bit more clarity to come in the months ahead. But we are confident of the schedules that we're now putting out and the fact that we will be able to grow admittedly less -- more modestly than we would have anticipated earlier.

Just a few clarifications. So you mentioned the 10, 20 aircraft being grounded. You mean in accumulation throughout 2024? And how long would each aircraft need to be grounded for? And for the 4 aircraft that's already been grounded, is that the Phase 1 of the issue or is this a Phase 2 of this needing to be replaced?

Yes. So the first -- the ones that we've had so far are all down to the Phase 1, which was due to what we call hot section and vibration issues, right, which -- so those were -- that was the one that was understood previously. And yes, when I say 10 to 20, that's kind of like the running total. So the maximum that we anticipate that they'll be on the ground will be 20. Now in terms of how long an aircraft will be on the ground, it's very much dependent on what is now the shop times for the engines to be inspected and overhauled. Now depending on whether the engine will be -- just have an inspection and it will clear the inspection or whether have an overhaul will determine exactly how long the engine will be unserviceable for. So if it needs a full overhaul, then given the MRO constraints that there are at the moment, it's going to be maybe Pratt & Whitney are talking up to 400 days for that engine to be off wing. We think that will improve next year as they bring MRO capacity online. That's something that Pratt & Whitney is doing. For engines that just require -- that only require an inspection, the time will be much, much less. But based on all of the indications that we're getting from the moment from Pratt & Whitney, given when we anticipate an engine to hit its cycle limits and therefore come off wing and also when Pratt & Whitney anticipate providing us back the engines that are already off wing now and waiting to go through shop or in the process of going through shop, we anticipate that we will be in this range, 10 to 20 aircraft grounded at any one time. As I say, in January, that's when we start at 10, and then it will move up towards 20 through the year.

Okay, 96 aircraft, how many would be impacted by this?

Sorry, I've said 20 not [indiscernible] We're growing next year -- to 92 next year. So if you can see 79 at the end of this year, growing to 92, so there's a lot of fleet growth in there. But a lot of that fleet growth -- some of it is going to be made effectively redundant because we're bringing an aircraft in, but also we're going to be grounding an aircraft. But when we look at the phasing of it all, the net effect is a seat growth of between 5% and 8%, bearing in mind as well that some of the aircraft that are coming in next year, the ones from Airbus, are going to be slightly higher on gauge, so slightly higher seat count. So that is also helping the fact that we're getting more seats even though we're maybe putting an aircraft on the ground. But the overall seat impact is a 5% to 8% growth next year, although it would have been well into the double digits had we not had the impact of Pratt & Whitney.

Thank you, [ Bo. ] We have some questions in the Q&A chat box. We have one from [ Naomi Muange. ] Could you share your outlook on the weakness of the shortfall market, particularly into China? And if and when do you expect that to return to 2019 levels? Are you facing any delays on secured MRO capacity for regular maintenance as well as on engine issues? And number three, how are you seeing lease rates for aircraft spare engines trending in 2024, given the tight supply overall due to delays from the OEMs?

Sure. So let me take the first question. We are actually reintroducing capacity on China slowly. Our network isn't fully back yet. For example, we started operations in the Shenzhen starting the northern winter season, but have deferred Beijing. Actually, we are looking at -- where we have brought up our frequencies, for example, on the Chinese New Year period, but we do have to wait and see. From what we're seeing in terms of industry data, international capacity out of China is only above 50%. So the, I guess, bookings from China have been slow thus far. But recent data is encouraging. We have seen, for example, growth in bookings for Thailand. But we have yet -- I guess we have yet to see that in the Philippine perspective. We are ramping up for the Chinese New Year. But I think at this point, it's wait and see for China. I'll pass on to Mike for the second question on MRO piece.

All right. Just on MRO capacity. I think 2 different things here. I mean, first of all, 4 regular checks, I think you have to plan well in advance. And I think our team has been well on top of making sure that they can plan for the regular events. So we haven't faced problems in that aspect because, I think, because of very forward planning from the team. Where I think we face problems is if you have unexpected activity that is required, then you are then running into constraints because you're then trying to go to an MRO last minute, can you help me out, and they are booked up. So yes, if you're doing something last minute, you're going to face difficulties with MRO capacity. The third question, I think, was with regard to lease rates, whether it be engines or indeed aircraft. I mean, the reality is the Pratt & Whitney issue in particular, and bear in mind, there's also an issue as well on the LEAP engine, too. It's less publicized and it's not as material, but it is an issue on the LEAP engine as well. But all of this is putting constraints on capacity. So there is a rush particularly now for people trying to pick up additional capability, additional capacity. If you can find a spare engine, then that's going to be very bid up, that's if you can find a spare engine on the Pratt & Whitney. And certainly, aircraft pricing has gone up. Particularly for example, on saying what would be the CEO, the classic engine option on the A320 where you're seeing secondhand rates for mid-life aircraft really being bid up and lessors being able to secure very good terms and on relatively long leases. I have to say, I'm pleased that we were able to move early this year in terms of securing some additional lift. I mean, we brought in some additional CEOs earlier this year and I think before the big surge in pricing came. As I said, the pricing now is it's some pretty hefty levels for some midlife aircraft. And so -- and very competitive if you want to secure some. So yes, pricing has gone up because of the capacity constraints.

Thank you, Mike. We have another question. Do you intend to see compensation from Pratt & Whitney or is this covered by insurance for the engine issue?

No, this will be a discussion with Pratt & Whitney in terms of compensation.

And then we have another question from Rainier. Are there any updates to the quasi-reorganization? Hi, Rainier. None so far, but we continue to look into this avenue. As earlier guided, this will likely come sometime next year, but it's not in the near term. I mean no update yet for now. Our next question will come from Jose Luis Lim.

Luigi from Sun Life. Just a question on your growth plans, right? So I noticed there that you plan to add about 100 to 150 planes medium to long term, I guess. Would you be able to finance any of this in peso? What -- I guess, are you planning to time this and wait for lower rates before doing this? And what is -- how much of your fuel requirement for next year is already hedged?

You want to do the...

The hedging?

Yes, do the hedging first.

Yes. Luigi, Trina here. On the hedging side, I think our last hedge was back in October, which is already done, but it was less than 10% below $100 mark, so it wasn't the money. But for now, no outstanding I think October onwards, we don't have any outstanding hedges. We continue to look at this on a more opportunistic basis. I see that one of our competitors are hedging. We don't want to go completely out of the herd on that.

Let me -- Mark has lost his voice because he's been unwell. So -- but let me just put a bit of context on the aircraft order, right? So the aircraft order is for -- the first deliveries we'll be looking for will be in 2027. And so it will be very much the late '20s and then in the first half of the 2030 decade. So that's when it is. So what rates will be at that point in time, I don't know. We do -- one of the great advantages we have at Cebu Pacific, and I think one -- I mean, two aspects to this, I think a very strong financial track record prepandemic over -- consistently over many years. And then I think going through the pandemic, where we -- frankly, we didn't let anyone down. Yes, we had some negotiations with people, but we didn't go through any bankruptcy restructurings or whatever. We didn't cancel any orders. We didn't let any lessor down, didn't let any bank down. So we are a very credible counterparty to the finance community as witnessed by our ability to access the [indiscernible] market on a regular basis and an ongoing basis. So whatever the rates might be the time that we come to take delivery of these aircraft, we can -- we will anticipate that we will be getting the best access to financial products to assist us with that when the time comes. I don't know if, Mark, you've got a bit of voice and you wanted to add anything to that. You want to take that, Trina?

Sure. Just on the aircraft delivery. So we're not -- obviously, we're not really funding this onetime, right? It will come with a delivery schedule. And as and when the aircraft are to be delivered, that is when we will fund a big chunk of that aircraft price, right? There will be some predelivery payments also scheduled similar to previous orders with Airbus. So there will be a predelivery payment schedule up to date. In the past, we've never had any external financing for our predelivery payment schedule, not to say that we'll never look into this, but it remains an opportunity. But for now, there's no significant plan on any onetime capital funding for these. So it will remain -- all options remain out there, commercial financing, whether peso or U.S. dollar, [indiscernible] as Mike mentioned, finance lease, operating lease and sale and leaseback are all available. We always look into this as and when we do a separate RFP for the financing of each aircraft. Hope that clears. We have a question from Julian. How do you expect your market share to be affected by the slower growth in 2024? And how do you see the return to full capacity in 2025, not having an important impact on yields, given the very significant amount of capacity that we're returning to work.

Okay, I think for 2024, we don't -- to be honest, we don't expect either any of our major domestic competitors here, either Philippine Airlines or Philippine AirAsia to grow substantially. We think that PAL, for example, is awaiting widebody growth. And that's really been their focus whereas AirAsia has been struggling to, I guess, reinstate aircraft back to pre-COVID levels. Having said that, we will -- and Mike has mentioned early, we will continue to grow overall capacity by around 5% to 8%. We think we will be growing by redeploying some of our larger aircraft assets into Manila. So we do expect our market share to stay steady if not grow for 2024.

And with regard to 2025, I think very, very good question. I think what we anticipate in 2025 is the Pratt & Whitney issue here is going to be with us for a couple of years. So this is a 2024 issue and it's a 2025 issue. What we anticipate is that the issue will be less in 2025 than 2024. And the principal reason for that is that we should see the benefits of MRO capacity coming on stream through 2024. And also a large number of the engines because this is worldwide, those engines that go in, in 2024, when they come out, they will be good to run. So there will be a lot that will be serviced in the first wave, and then they will run for a good period of time. So we will undoubtedly be affected in 2025, but we'd anticipate that the impact will be less in terms of the number of hauls that will be on the ground that we are getting in 2024. But the number on that, we don't know what the number will be. We don't -- but we anticipate that it will be less impacted in 2024.

[Operator Instructions] And then we have [ Brandon. ]

Yes. Just a quick question. I was wondering if you can expand a bit on the forward outlook from a demand perspective. You touched on China, but are you seeing any weakness in some of the regional markets and markets like Macau, where you're actually still significantly down on pre-COVID capacity? I'm just curious if you have any color on some of the -- if you're seeing some weakness in some of these other markets.

[ Brandon, ] it does vary for market. So for example, in markets like Japan, Thailand are doing very well in terms of our current performance as well as forward bookings. There are some markets that are slower. China, we pointed out earlier. Macau is not -- is probably one of them. And I think we need to wait and see in terms of the Overseas Filipino Workers deployment there. We understand that there are some continuing labor restrictions in Macau, for example, but it does vary by market. Again, some markets are much better than others. So there's no -- there's not really one answer to what we see on the international side.

Okay. And how about long-haul? Does that still remain very strong at the moment? [indiscernible] seems to me that regional is weakening faster than long-haul generally speaking.

I think long haul as -- is continuing to show pretty good performance, Middle East, in particular. Having said that, we were planning to make inroads into Dubai and Australia, but we've had to redeploy some of the A330 capacity on our short sectors given the Pratt & Whitney engine issues that Mike has elaborated on earlier.

We have one question from Paola Garcia. What is the estimated split for passenger revenues between international and domestic?

I don't have it at the top of my head. Paola, we will follow up with you on that one.

[Operator Instructions] We have another question. When does the company target to recommence dividend payments?

I think Trina touched on this. It relates to the question about quasi restructuring as well. So that's something that we're exploring to do sometime next year, and then we will get into a position where, first of all, we've got to look at the pref shares in terms of the dividends that are due there, and that's an accumulated dividend. So it would be when the payout does come there, it's also got to capture the previous years, and then we can look as well at the same time as the regular dividends to normal stockholders. I think realistically, the earliest that a dividend could possibly be would be in Q3 of next year, but that's probably right at the very, very front end. So I wouldn't want to raise too much expectations. But Q3 is probably the very earliest. And I think that's the guidance we gave previously on the last call, but that's dependent on a quasi restructuring, which really is just an administrative process we need to go through. But then it depends on the underlying performance of the company as well to be in a position to catch up really on the preferred shares because that's the dividend that we would need to pay first before we can then look at normal dividends that would need to come either at the same time or after that.

Thank you, Mike. Given that we have 2 more minutes left, we will just have this last question. What is the update on the Senate inquiry and the cancellation and delay? Is the company expected to pay any compensation? And has this been provisioned?

Good question. But ultimately, we have been working with our regulators. But having said that, we've already provided some customer improvement policies and guidance that we've already elaborated on the previous call. We've increased our standby coverage. We changed some of our customer policies, making the travel fund unexpirable. The travel voucher validity has already been extended to 180 days already. So we have, I guess, responded to some of the inquiries coming from the second quarter at Senate inquiry. We don't -- we continue to work with regulators. I think as Mike has also elaborated, our Net Promoter Score has actually come up. We've had record NPS levels, given the additional amount of standby aircraft and the changes in customer policy that we have already done.

Once again, given that we are -- it's almost 3 o'clock, we will be ending the call right now. Once again, everyone, thank you for joining us today. For the questions -- other questions, you may email us through our email. Once again, thank you, and everyone, you may now all disconnect. Thank you.

Thank you, everyone.