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

Good afternoon, everyone. Thank you for being here with us today. We're excited to share the remarkable progress Cebu Pacific made in 2023. We'll highlight how we finished the past year strongly focusing on how we've expanded our network, fleet and capacity. We'll also share significant improvements in our operations, particularly in our financial performance, customer management and recovery and efforts towards sustainability and governance. Finally, we'll provide an insight into Cebu Pacific's outlook and strategic plans for the upcoming year and beyond. Please sit back, relax and make yourselves comfortable as we go through the exciting journey of Cebu Pacific. Let's dive straight into the highlights of our performance last year. 2023 was a year of remarkable growth for Cebu Pacific driven by robust demand for air travel. Looking into our fourth quarter performance, we've seen our operations accelerate further. We saw a 15% increase in flights year-on-year, and our seat load factor improved by 5 points compared to the same quarter of the previous year. In December alone, we made a strong return, operating at an average of 435 flights while carrying 69,000 passengers each day. Our peak performance was recorded on December 20 and 28 when we reached 446 flights and carried more than 73,000 passengers daily, the highest number of flights and customers in our history. Reflecting on the entire year, it's clear that Cebu Pacific finished 2023 on a high note. Domestically, we carried a total of 16 million passengers marking a 19% increase from the previous year. This growth allowed us to capture a market share of 53%, solidifying our position as the leading domestic carrier. This is a result of several initiatives such as the resumption of routes connecting Manila to Laoag, Iloilo to Puerto Princesa and Iloilo to Cagayan de Oro. Further, our strategic relaunch of operations in Clark International Airport has expanded our network, establishing us as the largest airline servicing Northern and Central Luzon. Our international operations also experienced a significant surge with 4.8 million passengers flown, representing a 260% increase year-on-year. This growth was driven by increased frequencies to popular destinations such as Hong Kong, Singapore and Tokyo as well as the resumption of routes from Manila to Melbourne, Macau and Shenzhen and from Cebu to Tokyo, Hong Kong and Taipei. Additionally, the launch of direct flights between Manila and Da Nang in December 2023 further strengthened our international network, providing our passengers with even more convenient travel options. By year-end, Cebu Pacific boosted the largest network in the Philippines, operating in 60 destinations across 108 routes with over 2,700 weekly flights. We are also proud to announce that our system-wide capacity successfully reached 100% of pre-pandemic levels. Looking into 2024, our load factors in the first quarter are seemed to be improving year-on-year despite higher capacity. CEB has benefited from returning passengers during the Christmas holidays and Philippine festivals and we're also expecting a high volume of travelers as we approach the Holy Week. Moving forward, our commitment to providing affordable, safe, reliable air travel remains unwavering with the largest network in the Philippines, we are focused on network expansion and strategic growth to deliver unparalleled value to our passengers. I will now turn you over to Trina who will provide an update on CEB's fourth quarter financial performance.

Thank you, Xander, and good day to everyone. I am pleased to present Cebu Pacific's financial results for fourth quarter of 2023. It's worth highlighting that fourth quarter marked Cebu Pacific's strongest quarter of the year in terms of revenue as we generated PHP 23.7 billion in total revenue. That's 23% up year-on-year and already 12% higher than 2019. Passenger business generated PHP 16.3 billion in revenue, 29% higher year-on-year. This was on the back of 5.3 million passengers flown during the quarter, which was 21% higher year-on-year. Seat load factor went up 5 percentage points year-on-year to 82.8% while average fares increased over 6% year-on-year to over PHP 3,000. Total passenger revenue for the quarter was already 8% higher than 2019. Ancillary business generated PHP 6.3 billion, 25% higher year-on-year. In addition to passenger growth, various initiatives such as product bundling, price optimization and baggage policy enhancements, improved ancillary yield to over PHP 1,010 per passenger, that's 3% year-on-year. Total ancillary revenue for the quarter was already 35% higher than 2019. Meanwhile, cargo business generated PHP 1.1 billion in revenue, 28% lower year-on-year. We flew 41.5 million kilos of cargo during the quarter, 36% up year-on-year, but this was more than offset by a 47% decline in cargo yield due to stiff competition. Coupled with lower wide-body capacity, cargo revenue for the quarter was 24% below 2019. With PHP 23.7 billion in revenue, Cebu Pacific generated operating income of PHP 2.4 billion for the fourth quarter for an operating margin of 10%. This is a reversal from previous year's operating loss of PHP 232 million but still 13% lower than 2019. Operating expenses totaled PHP 21.3 billion, 9% up year-on-year. Meanwhile, with more international flights, available seat kilometer or ASK, increased by 26%. This reduced our cost per ASK to PHP 2.9 or 13% lower year-on-year. Fuel expenses amounted to PHP 8.3 billion, 12% higher year-on-year as higher volume requirements were tampered by lower prices. Jet fuel prices averaged $107 per barrel during the quarter, 9% lower year-on-year. Versus 2019, however, jet fuel prices have increased by 41%, increasing our fuel expense by 36%. We invested heavily in additional fleet and other related equipment this 2023 to support both growth and operational resiliency. With this, you'll see notable expense increases for depreciation and amortization, crew costs as well as financing charges. Finally, we also invested in the improvement of overall customer experience, both online and on the ground. General expenses for IT and other digitalization initiatives would include those for our website, payment and distribution platforms as well as those for airport passenger experience. With all these, the fourth quarter pretax core income amounted to PHP 754 million. This was supplemented by another PHP 669 million in noncore income, primarily from aircraft sale and lease transactions. This was a net tax benefit of PHP 1.5 billion, brings Cebu Pacific's fourth quarter 2023 net income to PHP 2.9 billion, a significant turnaround from the PHP 1.9 billion net loss incurred last year and notably, 22% higher the net income earned in the same period in 2019. I'll turn you over to Mark now to discuss Cebu Pacific's full year financial performance as well as our outlook.

Thank you, Trina. Cebu Pacific generated total revenue of PHP 90.6 billion in 2023, a 60% growth year-on-year and already 7% higher than 2019. The passenger business led the steep recovery with PHP 62.5 billion in revenue, 78% higher year-on-year. This is on the back of over 20 million passengers flown in 2023, 41% higher year-on-year. Seat load factor increased almost 9 points to 84% while fares improved 26% to almost PHP 3,000. Passenger revenues in 2023 were already 1% higher than in 2019. Ancillary business generated over PHP 24 billion in revenue, 66% higher year-on-year. In addition to more passengers, ancillary yields have improved 21% year-on-year to over PHP 1,040. Ancillary revenues in 2023 were already 39% higher than in 2019. As mentioned earlier, cargo business displayed a downward trend, generated over $4 billion in revenue, 43% and 29% lower than the previous year and 2019, respectively. With PHP 90.6 billion in revenue, Cebu Pacific generated operating income of PHP 8.6 billion and a pretax core income of almost PHP 4.2 billion for 2023. This remains shy of 2019 profitability levels due to higher fuel and fleet expenses but show a significant recovery from the losses incurred in 2022. Notable expenses include fuel, which was 21% higher year-on-year. Volume requirements increased on the back of 30% more flights but partially offset by lower fuel prices. Depreciation expenses increased year-on-year as we added a net 13 aircraft plus shifted towards more leased aircraft. Crew and airport costs increased to support growing operations. And as Trina noted earlier, embedded in our OpEx, our digitalization and other efforts to support our customer first initiatives, Total operating expenses grew 20% year-on-year to PHP 82 billion, while ASKs grew to over PHP 27 billion, 59% higher year-on-year. This reduced our cost per ASK to PHP 3, 25% lower while CASK ex fuel reduced to PHP 1.9, 25% lower year-on-year. Financing costs increased to support our growing fleet but were offset by noncore gains from sale and leaseback transactions as well as tax benefits accumulated since the pandemic. All these combined Cebu Pacific recorded a net income of PHP 7.9 billion in 2023, 13% shy of the PHP 9 billion net income in 2019 but a significant recovery from the PHP 14 billion net loss incurred in 2022. We ended 2023 with total assets of PHP 187 billion, PHP 39 billion higher than in 2022. Our total fleet count by year-end was at 85 as we took delivery of 18 aircraft plus 4 spare engines, and exited 5 aircraft leases. Aircraft-related assets constituted PHP 146 billion or 78% of total assets. Total liabilities ended at PHP 182 billion, of which over PHP 130 billion are debt-related inclusive of lease liabilities and convertible bonds. The current portion of debt and leases was PHP 14 billion while unearned transportation revenue from passenger bookings increased to PHP 14 billion. With this, we ended 2023 with equity of almost PHP 5 billion. The current ratio ended at 0.5x, while average net debt-to-EBITDA improved to less than 4.7x. Cash inflow from operations amounted to PHP 17 billion as cash income of PHP 23 billion was reduced by requirements for working capital, interest and taxes. Cash outflow of our investment totaled over PHP 9 billion as CapEx of about PHP 19 billion was offset by over PHP 10 billion proceeds from the sale and leaseback transactions. Meanwhile, outflow for financing amounted to PHP 11 billion as debt and lease payments were offset with PHP 10 billion in new borrowings. Lease payments comprised PHP 9.8 billion, while debt payments included a debt pretermination for PHP 5.1 billion. This combined provided CEB with adding net cash and cash equivalents of almost PHP 17 billion. Moving forward, we hope that Cebu Pacific's solid 2023 financial results will set the foundation for a more exceptional performance in 2024. Now allow me to provide some updates on key economic indicators, which affect our financial outlook. On fuel, fundamentals remain unchanged with jet prices still supported at the $100 per barrel mark. With geopolitical tension in the Middle East, supply concerns also way after OPEC Plus members announced the extension of their voluntary output cuts into the second quarter. On ForEx and interest rates, U.S. dollar versus Philippine peso remained above the 55.5 mark as the U.S. Fed remains largely hawkish, waiting to become more confident that inflation is trending down to 2%. With this, rate cuts may likely happen later this year. Throughout 2023, we have actively pursued opportunities to expand our fleet to ensure optional resilience while maintaining our growth trajectory. This 2024, we are preparing to welcome an additional 18 aircraft deliveries to replace that exiting aircraft, ending the year with a fleet of 93. Our 2024 CapEx estimate is at PHP 48.7 billion, including predelivery payments for future deliveries. Financing will be a combination of long-term debt and sale and leaseback transactions. This will allow us to increase capacity year-on-year by 11% to 15% in terms of seats. For the first quarter of 2024, CEB is already offering 14% more seats compared to the same period last year. For the second quarter, we expect to continue double-digit capacity growth as we upgrade several international routes, including Manila to Bangkok, Hong Kong and Incheon. Turning over to Alex to discuss our customer experience updates and sustainability wins.

Thank you, Mark. Last quarter, we shared with you how industry challenges have led to capacity constraints and operational difficulties for Cebu Pacific. This quarter, I am pleased to say that the contingency plans we implemented have enhanced our operational resiliency and reliability. Today, we have ongoing investments in additional aircraft and spare engines. Aside from that, our enhanced customer first efforts helped sustain our commitment to offer passengers safe, affordable and reliable flights. Notably, our on-time performance remained resilient even in December, the busiest month of the quarter. Since October, our OTP has remained stable, moving between 70% and 80%. And we closed the year with an average OTP of 71.4%, which is higher than our OTP in 2022 and also higher than in the pandemic year of 2019. We are likewise happy to report an improvement in our customer sentiment as we ended the year with an average Net Promoter Score of plus 30% for the fourth quarter. This came after we implemented new customer first initiatives and establish the new customer journey management team. For our customer first initiatives at the airport, we've empowered our frontline teams by providing them with training that enhance their skills in communications, customer service and conflict resolution. This aids our initiative of standardizing our disruption handling at the airport, which ensures seamless passenger experience across all of our stations. In addition, we've also elevated our customers' airport experience by allowing them to perform various services on their own. This includes generating their own boarding pass and an ability to independently check in their bags. Passengers may now use their boarding passes to avail meals from CEB-accredited vendors on the rare auctions that their flights might get disrupted. We've placed gate locators at the airport to help our passengers find their way to their assigned gates. We've also supplemented this by notifying our passengers via text messages regarding any last-minute changes in their boarding gates. On top of empowering our frontline teams and elevating our passenger experience, we've also enhanced our online customer support as we introduced an updated and better version of Charlie. Charlie is our virtual assistant. The new and improved Charlie offers customers the fastest way to get answers to their concerns as she links them to the CEB health center. Charlie also offers the fastest way to connect to our live agents with customers waiting less than a second for a response to their queries. As we remain committed to further enhancing Cebu Pacific's customer experience amidst the dynamic air travel landscape, we will also strive to continue offering the best value to our passengers. Now it's worth noting that our success also extends beyond our expanding network, sterling financial recovery and improving customer experience. We also take pride in our efforts to operate sustainably. Now Cebu Pacific's commitment to sustainable aviation has earned us a Gold rating from the Center for Asia Pacific Aviation. This makes Cebu Pacific the top-rated sustainable airline in the Philippines and one of only 2 recognized low-cost carriers in Southeast Asia. I'm also proud to announce that our sustainability efforts have been fruitful as shown by our improved environmental, social and governance scores or ESG scores. So last year, our ESG score moved up from 38 in 2022 to 41 for 2023. This achievement places us among the top performing airlines assessed by S&P Global. Also in 2023, MSCI upgraded our ESG rating from BBB all the way to A, one of the highest among Philippine corporations. Such achievements were made possible through strategic initiatives like our integration of 15 new engine options or NEO Aircraft into our network, transitioning to electric ground vehicles and support equipment as well as using SAF or sustainable aviation fuel for our aircraft deliveries. Our dedication to corporate governance and industry standards likewise remains unwavering. Cebu Pacific's adherence to the code of corporate governance and to the Securities and Exchange Commission regulations has earned us the accolade at the Golden Arrow Awards. These achievements reflect our commitment to transparency and ethical business practices. Before 2023 ended, Cebu Pacific also received an award of appreciation from the Department of Social Work and Development for its significant contribution to providing logistical support during calamities and disasters. None of these milestones would have been achievable without the support and confidence of our investors, stakeholders and of course, our passengers. Your belief in our mission empowers us to push boundaries and elevate our operations in such a way that benefits not only our stakeholders, but also our community and the environment. I'm now turning you over to Mike to provide an outlook into Cebu Pacific's strategic plans for 2024 and beyond.

Good afternoon, everyone. Let's take a moment to celebrate the incredible journey we've had over the past year. We've achieved remarkable milestones and received recognition that speaks volumes about our dedication to excellence, safety and customer satisfaction. We're proud to be recognized as one of the Philippines' strongest and most valuable brands, reflecting the trust and confidence our passengers have in us. Our commitment to excellence has also earned as titles such as the Best Low-Cost Airline Brand and the Most Sustainable Low-Cost Carrier in the country. Further, our dedication to safety has placed us among the top 20 safest low-cost airlines worldwide. These accolades reflect our unwavering focus on delivering exceptional service and ensuring the safety of our passengers. Building on this strong foundation, we look to the future with great optimism for Cebu Pacific. With a young and growing population and the economy back on the growth treadmill, there are boundless opportunities for the aviation sector. Significant advancements are underway in aviation infrastructure marked by improvements in the Ninoy Aquino International Airport and the ongoing construction of the new Bulacan Airport. Moreover, the recent privatization of NAIA is a welcome development that adds another dimension to our progress. These are crucial in amplifying our ability to serve more passengers and connect to a wider range of destinations. Cebu Pacific is also making a historic investment in what will be the largest aircraft order in Philippine aviation history. This is a strategic move to meet the increasing demand for air travel. In doing so, we are engaged in a rigorous selection process with the different manufacturers to ensure we ultimately make the best choice for our passengers, our company and the environment. This expansion isn't just about adding more planes. It's about creating more opportunities and more connections. None of this would have been possible without the unwavering support and confidence of our investors and stakeholders. I extend my heartfelt gratitude to everyone for joining us in this journey. As we move forward, let us continue to focus on our mission of providing safe, reliable, affordable and sustainable flights to our passengers. Thank you for your continued trust and support. Together, let's sort to greater heights and create lasting value for all. Let's fly everyone.

Good afternoon, everyone, and thank you for joining us today. For our Q&A session, we will be joined by Mr. Mike Scuzs, Chief Executive Officer; Mr. Mark Cezar, our Chief Finance Officer; and Ms. Trina Asuncion, our Director of Investor Relations. [Operator Instructions] So first question that we have is from [ Paolo Garcia ]. Can you provide color on the Pratt & Whitney issue as of late? How many planes are grounded because of the issue? The general overall effect on operations thus far? And when we expect this issue to be fully resolved?

Okay. This is Mike. Let me give an update on that. So currently, we're at 10 aircraft that are what we call long-term AOG to the Pratt & Whitney issue. And we project that number to grow through this year. Where IT finally ends up? It will probably be in the range of maybe between sort of 12 to 17 aircrafts, something like that, within that range in terms of overall AOGs as we go through the year. There is a range there because there are a number of uncertainties in terms of -- so the worst case would obviously be 17. The best case would be around the 12 scenario is we've obviously got spare engines that we've got coming in. We managed to get hold of some additional spare engines, which is going to give us some additional lift. And also, there is some uncertainty in terms of the amount or when the engines currently in shop or waiting to go into shop will then come back. So -- the indications from Pratt & Whitney currently are actually on the encouraging side in terms of overall momentum. So more spare engines are becoming available. So -- and it looks like more MRO capacity over the next 12 to 18 months is going to become available as well, which should reduce the turn times in the shops. So -- but that's where we are today. It's going to be about -- it's 10 AOGs we have at the moment, that is going to increase through the year. What I would say is that this is a better picture than if you'd asked us maybe 4 or 5 months ago. And that's why I think 4 or 5 months ago, we would have said our growth this year versus on a VLY basis would have been in the range 5% to 8%. We now think we're going to be maybe 12% to 15% in terms of our overall growth this year on a versus last year basis because we've got an improved situation. Of course, this is on the back as well of us having brought in a number of additional aircraft last year. So we were able to bring in 12 additional aircraft last year when we saw the Pratt & Whitney issues materializing and a further aircraft as well this year. So hopefully, that's answered the question. And also, I think, sort of puts down a marker as well that we are in a position to be growing this year at a more optimistic growth rate than we anticipated maybe 4 or 5 months ago.

[Operator Instructions]

Yes, a few questions for me, if you don't mind. My first question would be, can you tell us more about what transpired in the fourth quarter? Because I noticed that on your revenue base, it didn't improve that much from the third quarter. I was wondering, is -- are you seeing any competitive pressures or things that -- or is demand weaker than expected -- yes -- that's my first question.

On a quarter-on-quarter basis, [indiscernible], what we did see was, again, the third quarter became a bigger peak for us versus in the past, it was a low. So normally, in the past, it would really spike up from third quarter to fourth quarter as opposed to now where it looks like, at least this year, July was -- July and August were stronger than anticipated, and it flattened out basically second and third quarter as well. It also minimize the decline from second to third quarter. In the same manner, it minimized the uptick from third to fourth quarter. Having said that, yes, October became weaker than anticipated, but it was offset by November and in fact, a much stronger December. What we did see as well was while the demand was -- as a seasonality effect, one of the bigger attributes of the fourth quarter was improvement in spares because there were a lot of demand improvement, particularly with the international sector. So the change in mix of lagging with significant improvement in the international sector also helped our revenue base, not the volume, but our revenue base because the average fare also increased. I hope that helps.

Yes. I also wanted to ask how come -- because it was flat on a revenue basis, but on EBITDA, it was up a lot versus third quarter. I was wondering if this is all entirely due to lower fuel prices? Or were there other items that also declined or at least kept in check in the fourth quarter relative to the third quarter?

Yes, there is also improvement in operating expenses ex fuel. For example, repairs and maintenance costs, we did have a high level of repairs and maintenance for second and third quarter, not -- compared to the fourth quarter where it declined. [indiscernible] there was less of surprise -- technical difficulties, to say, or challenges with respect to AOGs other than Pratt & Whitney. That's one. But also we concluded several of our exits or lease return exits and thus, the recalibration of our provisions for return obligations as well as heavy maintenance visits clearly reduced. So those are the 2 key components that assisted. Are there others? Yes, lease term -- short-term leases also declined. We had less short-term leases already as we exited some of the early short-term leases. I think those helped us.

Understood. So my last question would be because I heard earlier that your seat growth so far in the first quarter of 2024 has been 14% -- around 14%. I was wondering if that also resulted in better load factors? And if not, when do you expect your load factors to revert to pre-pandemic levels?

Passenger increase with respect to load factor increase. It's been quite steady honestly. It's been quite steady because capacity growth is also forthcoming as well as seat growth -- sorry, as well as passenger growth. So with the 14% capacity growth, the volume is looking like it's trending just as much.

Sorry, one last question for me. The -- I was wondering if you could talk more about the competitive dynamics that you're seeing. Is it improving to your favor already? Because I understand -- I'm guessing that your competitors are still struggling to find I guess -- to grow their network as much as you are, but please correct me if I'm wrong on that.

So let me have a stab at that. So I think first of all, let's talk about those 2 very distinct competitors, right? They're very, very different in terms of profile, Philippine AirAsia and obviously PAL. PAL is absolutely in a honeymoon period in terms of financial performance at the moment. Obviously, having done the Chapter 11 restructuring. But more importantly, having done that restructuring, they're benefiting on their long-haul routes, principally to the United States because the Asia to U.S. market is still substantially down in terms of capacity versus pre-COVID. And in large part, this is due to China. China, obviously, was a point of [indiscernible] connecting traffic for all of Asia going into the U.S. and that's just not there. So you're seeing a lot of the long-haul carriers in this part of the world that are able to benefit, particularly the premium ones are able to benefit with extremely high yields often. It's a case of what used to be a business class yield is now a domestic yields. So they've got a very, very strong financial performance on the long-haul side. And you'd see that they made an order of A350s for which we'll start delivering in 2025, and we think this is the right focus for PAL because whilst they've got traffic, their fleet is aging a little bit. So they've got the long-haul focus, but they are struggling to get the short-haul lift that they will have been looking for. So you're right in that sense, how can -- or will they be able to grow their short-haul capacity and there's a question mark on that. When I say short haul, that will include, obviously, domestic. Now if I move on to PAA. PAA is still only 2/3 of the size that it was in terms of 2019. It's got 16 aircraft operating versus what was 24 in 2019. And the outlook according to OAG seems to see -- showing them at around about the same level, perhaps growing to 17% by year-end. Normally, AirAsia project very, very large growth. So maybe this is a more realistic assessment for them and probably reflects their difficulty in bringing aircraft back into service, which is still an ongoing problem for not only them but the group as a whole. As a consequence, obviously, Philippine Air Asia will be key to protect their Manila flying, obviously. And that does leave opportunities elsewhere, for example, in Cebu as a base. So if you correlate that with the fact that we're looking to grow. I mean we're looking to grow now, as I say, could be between 12% and 15% this year, which is ahead of what would normally be our run rate for growth. So this is a high growth on a VLY basis, probably kind of double what we might normally do, close to double what we might normally do. But some of that growth is going to be into spaces that are left by Philippine AirAsia. And if I look at the growth overall, versus 2019, so I've said we're going to grow, say, 12% to 15% this year versus last year. Last year was still down overall versus 2019 because of the capacity issues that we faced during the year and in large part due to Pratt & Whitney. If I look at this year's growth versus 2019, we'll be growing at about maybe 6% to 8% this year. And so 6% to 8% versus 2019 over a period of many years, that's not a massive growth rate. So we're confident that it's very, very doable. It's not going to be overly dilutionary. And as I say, it's -- at the same time, you're seeing other airlines are still going to be smaller than they were in 2019. Of course, during that time between 2019 and 2024, of course, GDP has grown. So we think our growth rate this year is perfectly as it's come out, is well placed to deliver a good outcome for us this year. And if we're looking at kind of market share just as a final step, we anticipate, as we go into Q2, our domestic capacity will -- domestic capacity share overall when I look at Manila and the other basis, total country will get to about the 56%, maybe 57% mark. So we would expect our domestic market share to be at least at those sort of levels as well. So we anticipate growing our market share position as we go into Q2 from where we are today.

Our next question will be from [ Julian ].

Congrats all for the great results. A couple of questions for me. The first one is maybe just to pick up on the market share. Can you just tell us what's the difference versus 2019? So you're in the low 50s, now 53%. What was the number before in 2019?

52% on a full year basis, Julian. And as I say, it fluctuated through last year because -- in many ways, we were looking to push capacity growth last year, very much to take advantage of our competitive strength relative to others in the Philippine market. We got thwarted by, frankly, the AOG issues, the capacity constraints placed on us by principally the engine-related issues. So in many ways, what we're doing this year is almost like a deferral from a year from last year. We managed to bring in 12 additional aircraft last year on top of what our original plans are. We managed to get a hold of further spare engines. So it's on that basis that we've got this VLY growth of maybe 12% to 15% this year. And that's why I think what is I think our domestic capacity share, based on what we're seeing will go into sort of like the 56%, 57% mark and on. I say capacity share translates to market share often, we're slightly ahead, that should translate to a market share, which is up consistently above 55%.

Great. Now shifting to the ancillary revenue. It seems -- I mean, it represents, if I'm not mistaken, something like 26% of total. I mean that's kind of on the low side for LCC. What are -- why -- and I think [indiscernible] around $20, if I'm not mistaken. Can you just comment on that? And I don't know if you've got a target for '24 and medium term?

Well, look, I agree with your global reference, Julian. But I think if you look in market specifics or regional specifics. I think there is great variation. So if you look in Europe and the U.S. of A., then I think you see very, very high numbers in terms of ancillary revenue. Now of course, ancillary revenue, the -- I mean, despite all the wonderful innovations and there's some great things that everyone is doing, airlines are very innovative in terms of ancillary offerings. But still, it's the core products, the bag is still a huge element in terms of what you get in terms of overall ancillary revenue. And frankly, we cannot charge. We don't -- I mean, our market will not take. And it's a regulated market as well in terms of pricing, too, in terms of -- we have to get an approval for what we might charge for a bag. We simply can't -- a $50 bag in there -- that maybe you might be able to do in for other markets. And so we are -- it's perhaps not right to compare ourselves to maybe Northern European carriers or to U.S. carriers. What I would say, if you looked at the region overall, I would say that we are a very good performer and amongst the best now in terms of other LCCs in this region. I think in principle, partly due to the changes that we made, we've increased that revenue per pax on the ancillary basis versus 2019, it's close to about a 40% increase versus 2019. So I think that's a substantial move. And that has obviously helped to offset what has been a substantial rise in input costs such as fuel. If we look at 2019, we're obviously a very, very strong year for us. But fuel through that year, it was probably about 40% lower than where we are today. So I mean, that's been a key. The growth in our ancillary revenue which actually, I think, has been a very creditable performance by the team has actually helped to offset some of the fuel price increases that we've had to do with. So I agree with you on the global sense. But actually, I think if you look at the regional sense, I'm happy to see -- come offline and get some of your statistics. But I think actually, we're doing very well if you look at on a regional comparison compared to other LCCs.

Okay. So if I understand correctly, you don't charge at all for bags? Is that correct?

No, we do. We do. We just can't charge excessive. So look, we've done changes in baggage policy, we get better. I mean the things have helped us have been things like bundling. And I mean, we've done some of the clever things that the other airlines have been doing as well. And this is something that we were back in 2019, we weren't -- we were just starting out on this journey so we become more sophisticated, we become smarter. But at the end of the day, the actual charge that we can make for a number of these items simply can't be at the levels that other people can do.

Okay. Got it. The second question is on the unit costs on CASK ex fuel, which is up 17% versus '19. How do you see that going forward? I mean, is this the new level that we should expect? Or is the scope to get back to get it down?

Mark here. First of all, no, we do have to acknowledge the inflationary environment that we operate in. They have an impact on our unit cost. So the many more parts, areas [indiscernible] going to be more expensive than pre-pandemic. But there are also, I think there's a significant impact bought about by the grounded aircraft so we have assets that we still -- for which we still carry the depreciation and interest charge in our P&L that do not generate any unit of measure for us. So there is also an overhang of that, which will probably safe to say, be with us to some extent for over a couple of years, through 2026 maybe, then we have a [indiscernible]

The other one I'd add in there, Julian, just as a reminder, we've got about sort of 60% to 65% of our costs are dollar based, right? So if you look at 2019 versus is close to a 10% depreciation of the peso, if you look versus 2019 versus last year. And so out of your numbers. So you've got a 6% delta, which is just FX based, all right? So I think it's a creditable performance in the headwinds that we've been facing, which includes, of course, that FX impact.

And so the grounded aircraft, what's that contribution? Because that's obviously a 26%, 27%, that's going to go away. So what's just out of that -- what's that component?

I don't have the specific number. I don't -- afraid, Julian.

We will follow up on that.

But yes, there should be improvement in the utilization of our aircraft going back to 2019 levels and maybe even more with more or highly configured seats per plane. So once we fly those aircraft, it would generate more ASK than existing seats.

We have Ellis Taylor on the line.

It's Ellis Taylor from Cirium. I just had a question around sort of your aircraft financing plans over the next year or 2. Are you still primarily looking at sale and leasebacks? Or are you considering JOLCO or other forms of financing? And do you have any RFPs out at the moment for aircraft finance?

We [indiscernible] RFP early in this year. That's an ongoing evaluation. That's for the financing of one of the narrow-body deliveries for 2024. On preferred mode of financing, [indiscernible] for widebodies there, clear preference for sales and leaseback financing only -- that's just our view on the [indiscernible] proposition of [indiscernible] value of that particular asset value -- for narrow-bodies, trying to get back to doing more finance leases. So actually last year, we did 3 JOLCOs. And we're doing at least a couple more this year and I think it's fair to say for the remaining narrow-body deliveries, there is a preference to the finance leases [ over ] JOLCOs.

We have [ Brendan ].

I have a question about Clark. You mentioned the bringing back of the Clark domestic basis, driving the domestic growth last year. But I noticed in the schedule over the next few months, a lot of Clark capacity goes down. It looks like about 50% goes down, and it looks like you might be moving capacity to Cebu where that goes beyond pre-COVID levels. What -- do you have any color on that? What's happening there if indeed it did...

No, I think you've -- I think you've captured it there, Brendan. I mean we've -- obviously, Manila comes first as yourself completely understand, that everyone will understand. And then, of course, we've got 2 other principal bases at this point in time, which is Cebu and Clark. And I think we've seen more opportunities in Cebu than we have in Clark. So as we're able to, I believe, release more aircraft this year for flying than we anticipated previously, I'd say our outlook on growth is more rosy than it was if you'd asked us 4 or 5 months ago. Our order of preference will be to take advantage of the Cebu opportunity more so than the Clark opportunity is probably the best way of capturing.

Okay. Is it also a competition thing? I mean, although our competitors are still way down on both bases, do you see more -- less competition in Cebu?

Yes. Well, look, I think both to be honest. I mean, I think the competition is struggling to -- I mean the first and foremost, they do Manila, they will cover that, but they are struggling to get back to the levels that they had in both of the bases. And look, we just see a better performance overall out of the Cebu on a vis-a-vis basis versus Clark. And I think AirAsia recently has had to pull back some of its Cebu flying in order to support its Manila flying. And again, we see this as an opportunity for going in and strengthening our position in Cebu.

Okay. Just one other question. I like your A versus B slide. That slide makes it seem like you have 2 choices. But do you actually have 3 choices because you can go with either engine on the...

Yes, absolutely. Yes, you're absolutely right. On the A version, there are 2 engine choices. You're absolutely right. For everyone's benefit who're are not aware, on the Airbus, you can have either the CFM engine or the Pratt & Whitney engine. On the Boeing, it really is only sole source is with CFM only. So there are actually 3 potential combinations.

I just wanted to clarify and make sure that you were doing the competition in that way. So -- but I thought you were. Thank you.

Following on the Airbus and Boeing, there's a question from [ Paolo Garcia ]. Any update [indiscernible]

No. Look, we've been making progress. We're getting into what I would consider maybe the closing stages now where we're pleased with the engagements we made. I think we spent a lot of time and the OEMs have spent a lot of time with us. So there's a clear understanding of what we expect. We think the aircraft type side from Boeing or indeed from Airbus, fit the purpose in terms of what we'll be looking to do with the engine options as has been described. And we're now absolutely want to make sure that we get the best economic outcome for us, for our stakeholders and ultimately for the customers. It's important for us to ensure we get very competitive pricing. We expect the best pricing that's out there in order to make sure we can pass that benefit on to our consumer, our customers over the years to come. So it's getting into the sort of closing stages. So maybe a month or 2 away from an announcement that's what we're looking to. That's what we're targeting.

Another question from Paolo, how are forward booking [ as of late ]? What [ tracks ] more demand? And are we seeing a shift from domestic to international travel?

Paolo, Trina here. Yes, actually, our -- as Xander mentioned already during his video, our load package for the first quarter seems it's improving year-on-year. And this is on the back of higher seat capacity. So the forward booking percentage is actually increasing, even if our seats are increasing. I guess some of the key drivers really would be the festivals, [indiscernible] traffic from Christmas and New Year. Several Philippine festivals coming up as well as the Chinese New Year this first quarter. And then, of course, the Holy Week. They is still very much a peak for us this March. For -- so it's a combination of domestic and international for first quarter. For Q2, I think very much the summer traffic is still mostly evident on domestic, leisure routes very much on the beaches as is customary and it would be a lean season on the other hand, for some short-haul markets. And then June is very interesting month for us right now because with an anticipated shift in this full calendar again. What used to be lean for us and it was showing some sort of steadiness already last year. We think it's going to be another expectation of possible peak this year, again, compared to last year. So domestic, again, would likely be the driver for that. And then for international, the Overseas Filipino Workers market, we see it customarily during graduation season. So I guess, easy to see. A lot of it is seasonal. A lot of it is event driven or celebratory driven as is very much for the Filipino market.

We have -- we will be getting -- or asking our last question, given that there is no more time. This is from [indiscernible]. Are there any updates to the planned [indiscernible]? And can you give more color on the noncore gains both for the fourth quarter '23 and full year 2023?

[indiscernible] expect to get it done in [indiscernible], and Trina you can take the second part of that.

The noncore gains, 3 particular drivers there. There's the sale and leaseback gains. So we did enter into several sale and leaseback transactions as well as a buyback transaction for the assets that we've disposed, so those have resulted in gains for us. There is also the mark-to-market gain on the convertible bonds which fluctuates with share price basically. So the option on the convertible bond has actually resulted in a gain for us for the year.

For any other questions, given that we [indiscernible] time. We can just set up a meeting after and we will take your questions offline. For now, we want to thank you, and we will now end the call. Thank you for joining us today.