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

Good morning, everyone. Welcome to the Annual Stockholders' Meeting of Cebu Air, Inc. It is my honor to give you an overview of the company's business and operational highlights for the full year 2024. We are proud to share that we finished the year on a high note with significant growth in total revenues. This success was driven by expansion across multiple revenue streams such as ancillary services, cargo and, of course, passenger revenue. The driving force behind this growth, record-breaking passenger numbers, coupled with a consistently strong seat load factor throughout the year. As part of our continued commitment to excellence, we've also expanded our network -- the introduction of new routes and destinations has helped us maintain our leadership in the domestic market while solidifying our position as the Philippines' leading international carrier. This success has been built on strategic investments in both aircraft and infrastructure. In 2024 alone, we took delivery of 17 aircraft, underscoring our unwavering dedication to serving more Filipinos and fulfilling our mission of flying everyone. We've also pushed forward with the development of hubs across the country, ensuring more people have access to affordable air travel. Despite the rising costs associated with these investments, we've managed to achieve a notable increase in both operating and net income. These investments have created a strong foundation, positioning Cebu Pacific to meet the rapid growth anticipated in Philippine aviation for years to come. Looking ahead, our seat capacity is set to grow even further. The early months of 2025 have already shown a 30% year-on-year increase in passenger traffic with higher load factors proof that additional capacity added in the latter part of last year has been absorbed by the market, and we're seeing the demand firsthand. On top of that, we're anticipating a significant reduction in our capital expenditures, which will improve our returns, strengthen our financial leverage and bolster our overall financial position. And to top it all off, our historic order for up to 152 aircraft signed just last year shows our unyielding commitment to fueling the Philippine growth story far beyond 2025. In the next part of our meeting, my colleagues will give you a deeper look into our accomplishments for 2024. Joining us are Cebu Pacific's Chief Executive Officer, Mr. Michael Szucs; Cebu Pacific's Chief Financial Officer, Mr. Mark Julius Cezar; and our Corporate Secretary, Attorney Josine Mendoza. But for now, let us proceed with the first agenda item. May I request the Corporate Secretary to please certify on the sending of notices to the stockholders and to the existence of a quorum for this meeting.

Mr. Chairman, I hereby certify that notice of this meeting has been sent to the stockholders of record as of April 7, 2025, via the following methods: first, by delivery to the stockholders of record to their addresses as registered in the books of the corporation; second, by posting on the website of the corporation; and third, by disclosure to the Philippine Stock Exchange. The stockholders have thus been notified of this meeting in compliance with applicable rules and regulations. I hereby certify that there are present in this meeting via remote communication or by proxy, stockholders entitled to vote representing 77.3% of the corporation's total outstanding voting shares and that this meeting is therefore competent to transact the business provided for in the agenda. A quorum is present, Mr. Chairman.

There being a quorum, the Annual Meeting of the Stockholders of Cebu Air, Inc. is hereby called to order. May I request the Corporate Secretary to share the rules and procedures for this meeting.

The rules and procedures are set forth in the definitive information statement and the explanation of the items in the agenda is integrated into the notice of this meeting. All tabulation results of this meeting are subject to validation by Punongbayan & Araullo. In case there are stockholders who are with us now during this broadcast, you may send your questions to us at our e-mail address, and we will reply to your questions. The corporation will reply to the questions and comments not taken up in this meeting through e-mail. The e-mail address of the corporation is flashed on the screen. We would also like to remind everyone that for stockholders participating in live voting during the ASM that they will have 40 seconds per question to cast their votes. Voting will take place concurrently with the ASM following the timing of each question as it is presented. Our secure voting system safeguards the integrity of the process, ensuring that stockholders cannot revisit previous questions or advance ahead. A timer will be flashed at the bottom of the screen.

Let us now proceed to the next item the agenda, which is the approval of the minutes of the Annual Meeting of the Stockholders held on May 9, 2024.

Mr. Chairman, the minutes have been made available to stockholders through a link included in the information statement and by displaying the QR code on the screen before the meeting. Stockholders participating in our live voting may now cast their votes. [Voting]

Stockholders, you have 20 seconds to cast your votes. Stockholders, you now have 10 seconds to cast your votes. Stockholders live voting for this agenda item is now closed. The minutes of the Annual Meeting of the Stockholders held on May 9, 2024, has been approved as submitted by votes representing 77.3% of the total outstanding voting shares of the corporation.

Thank you. The minutes of the annual meeting of the stockholders held on May 9, 2024, are hereby approved as presented. Moving on to the next item of the agenda. May I now call on Mr. Mark Julius Cezar, Chief Financial Officer of the corporation, to present his financial report together with the audited financial statements for the preceding fiscal year.

Good morning, everyone. I am pleased to present Cebu Pacific's business updates and financial results for full year 2024. We're happy to report strong full year results, marked by continued network expansion, fleet growth and increased capacity. We carried 24.5 million passengers in 2024, reflecting an 18% year-on-year growth. This contributed to a solid seat load factor of 84.4%, slightly up from our 84% average in 2023. Domestically, we served 18.5 million passengers, 15% higher than the previous year. Internationally, we carried over 6 million passengers, marking a 25% year-on-year surge. Our strategic expansion outside Manila played a key role in our accelerated growth. We expanded our hubs in Cebu, Clark, [ Liloan ] and Davao. We introduced new destinations, including San Vicente via Cebu and Chiang Mai via Manila. And with the acquisition of AirSWIFT in the fourth quarter, we also added El Nido to our network. By year-end, Cebu Pacific had the widest network in the Philippines, serving 123 routes with over 3,800 weekly flights. Cebu Pacific was a leader and the driver of aviation industry growth in the Philippines. By the fourth quarter of 2024, our seat capacity had surpassed 2019 levels by 27%, while the combined seat capacity of other Philippine carriers remained 16% below pre-pandemic levels. With this, our domestic market share for the year strengthened to 54%, up from the pre-pandemic levels of 52%. And in the fourth quarter, with the growth of our operations throughout the year, this rose further to 58%. We also outperformed competitors in the international market. In 2024, we captured 20.6% of the total international market, an increase of 1.1 percentage points from our 2019 share. In the fourth quarter, our international market share had risen to 22.5%, making us the leading international carrier in the Philippines. This secured our position at the forefront of both the domestic and international markets, solidifying our leadership in Philippine aviation. Cebu Pacific triumph over the complexities and challenges of 2024. We've kept you informed about the evolving landscape of the aviation industry. Factors such as global supply chain constraints, delivery and maintenance schedules and engine reliability have required us to adapt and innovate. In response, we have taken decisive steps, investing in additional aircraft and engines to enhance our operational resilience and ensure a more reliable and efficient service for our passengers. I'm pleased to report that these initiatives have delivered positive results. Our on-time performance or OTP has improved, averaging 73.6%, an improvement from our 2023 OTP of 71.4%. We also saw improvements in customer sentiment across all touch points, even as our passenger numbers and overall operations grew. We ended the year with an average Net Promoter Score, or NPS, of 38, a significant jump from 14 in 2023. We also saw higher customer satisfaction scores for airport experience, agent service and cabin crew service. Now for our financial performance. Cebu Pacific generated total revenue of PHP 104.9 billion, a 16% increase from 2023. Passenger business grew 14% to PHP 71.3 billion, while ancillaries grew 16% to PHP 28 billion. To support passenger growth, average fares softened by 3% to PHP 2,905, while ancillary yields remained steady at PHP 1,013 per passenger. Cargo business generated over PHP 5.6 billion in revenue, 39% higher than 2023. We carried close to 169 million kilos, 32% higher than 2023, with yields improving 5% to PHP 33.5 per kilo. With a bigger fleet, we faced higher repairs, maintenance and crew expenses as well as higher airport costs. Despite these, operating income for the year improved to PHP 9.2 billion, 7% higher than 2023, yielding a steady operating margin of 9%. Higher financing costs, on the other hand, reduced our pretax income to PHP 3.1 billion, lower than the PHP 4.2 billion earned in 2023. With additional gains of PHP 2.2 billion, Cebu Pacific generated net income of PHP 5.4 billion for 2024, yielding a stable 5% net income margin. While this is lower than 2023 net income, this marks our strategic investments in aircraft and engines to sustain growth while ensuring reliable and efficient service to our passengers. These efforts have already positioned Cebu Pacific for stronger and continued leadership in the industry. With a fleet of 98 aircraft, we ended 2024 with total assets of over PHP 238 billion and total liabilities of PHP 228 billion. Net debt was PHP 156.2 billion. Current ratio was 0.5, while average net debt to EBITDA was 5.4x. Our equity position ended at PHP 10 billion, up from PHP 4.8 billion at the end of 2023. Through the quasi reorganization we undertook last year, our retained earnings improved to PHP 5.4 billion, a turnaround from PHP 16.3 billion deficit at the end of 2023. Cash from operations amounted to PHP 23.8 billion as cash income of PHP 30.9 billion was reduced by working capital requirements, interest and tax payments. Cash outflow for investments totaled over PHP 15.6 billion. CapEx for property and equipment amounted to PHP 36.5 billion. This excludes the asset values for right-of-use aircraft and engines, which are funded via operating leases. Including these, CapEx for 2024 was PHP 64.7 billion. These were partially offset by PHP 21.7 billion in proceeds from sale as well as sale and leaseback transactions. Net cash outflow from financing of PHP 5.9 billion as proceeds from new borrowings were offset by PHP 31.5 billion debt and lease payments. These combined provided Cebu Pacific with net cash inflow of PHP 3.1 billion, ending 2024 with cash balance of over PHP 19.9 billion. That ends my report, Mr. Chairman.

Thank you, Mr. Cezar. May I now call on the Corporate Secretary to proceed with live voting and to present the results for the approval of the audited financial statements for the preceding fiscal year.

Stockholders participating in our live voting may now cast their votes. [Voting]

Stockholders, you have 20 seconds to cast your votes. Stockholders, you now have 10 seconds to cast your votes. Stockholders live voting for this agenda item is now closed. Mr. Chairman, we are pleased to report that stockholders representing 77.3% of the total outstanding voting shares of the corporation have approved the audited financial statements of the corporation for the preceding fiscal year as presented.

Thank you, Ms. Corporate Secretary. The report of the Chief Financial Officer is accordingly noted and the audited financial statements for the preceding fiscal year are hereby approved as presented. May I now call on the Corporation's Chief Executive Officer, Mr. Michael Szucs to present Cebu Pacific's outlook and strategic plans for the upcoming year and beyond.

Thank you, Mr. Chairman. Good morning, everyone. I'm happy to present Cebu Pacific's outlook and strategic plans for the upcoming year and beyond. Let me say that everyone at Cebu Pacific is proud of what the company achieved in 2024, turning various obstacles faced by the industry into strategic opportunities to embrace change and accelerate our growth, whilst much of the competition was unable to do so. While our investments in fleet expansion, operational improvements and the development of new routes have had an impact on our 2024 margins. These efforts are now beginning to pay off. We have seen noticeable improvements in our reliability, resiliency and overall customer experience in the face of continuing challenges in our industry. Just as important, these investments have laid a strong foundation that we can further build on to sustain and enhance our market-leading position. We have always been optimistic about the potential of Philippine aviation, driven by the country's strong economic, geographic and demographic advantages. Strategic investment in our hubs and aircraft fleet have been key catalysts for Cebu Pacific's growth. By seizing these opportunities early, we have not only outpaced the competition, but also further solidified our position as the industry leader. This gives us great confidence as we look ahead to 2025, where we expect to continue our rapid growth. Our seat capacity is projected to increase by as much as 25% year-on-year. Our traffic performance reports for January and February already show a 30% year-on-year increase in passenger traffic with higher load factors. These indicate that the additional capacity added in the second half of last year has already been absorbed by the market in the first quarter. Furthermore, we will leverage the aircraft investments made in the second half of last year. Our CapEx will reduce by half to about PHP 30 billion to PHP 35 billion. This will improve our returns, enhance our financial leverage and strengthen our overall financial position. I would also like to highlight our commitment to sustainability. Cebu Pacific has reached a new milestone with an environment, social and governance or ESG rating of 46 in the 2024 S&P Global ESG score. This reflects the airline's progress in strengthening its climate strategy, enhancing risk management and deepening its commitment to responsible business practices. In the fourth quarter, we launched our digital office, a dedicated team focused on leveraging technology to drive innovation and streamline processes and ensure Cebu Pacific continues to thrive in today's increasingly digital environment. In 2024, we made a historic investment with the largest aircraft order in Philippine aviation history, securing our position well into the next decade. This milestone reinforces our commitment to supporting the Philippines continued growth and development. We look to the future of Cebu Pacific with great optimism. Thank you for your continued trust and support. This concludes my report, Mr. Chairman.

Thank you, Mr. Szucs. We now go to the election of the members of the Board of Directors. May I request the Corporate Secretary to read the names of the incumbent members of the Board of Directors.

The incumbent members of the Board of Directors are: Lance Y. Gokongwei; Jose Fernando B. Buenaventura; Robina Gokongwei-Pe; David Gulliver G. Go, Brian H. Franke and Alexander G. Lao. And the independent directors are: Bernadine T. Siy; Brian Matthew P. Cu; and Richard Raymond B. Tantoco.

Thank you. May we now have the list of nominees for election to the Board of Directors and voting results after proceeding with the live voting.

Mr. Chairman, in accordance with the nomination process stated in the bylaws of the corporation. The following have been nominated as members of the Board of Directors. Lance Y. Gokongwei; Jose Fernando B. Buenaventura; Robina Gokongwei-Pe; David Gulliver G. Go, Brian H. Franke; Alexander G. Lao. And as independent directors, Bernadine T. Siy; Brian Matthew P. Cu; and Richard Raymond B. Tantoco. Stockholders participating in our live voting may now cast their votes. [Voting]

Stockholders, you have 20 seconds to cast your votes. Stockholders, you now have 10 seconds to cast your votes. Stockholders, live voting for this agenda item is now closed. There being no other nominations, the affirmative votes in favor of those nominated have been tabulated and the following are hereby declared as the duly elected members of the Board of Directors of the corporation for the ensuing year until their successors shall have been elected and qualified: Lance Y. Gokongwei; Jose Fernando B. Buenaventura; Robina Gokongwei-Pe; David Gulliver G. Go, Brian H. Franke; and Alexander G. Lao. And as independent directors, Bernadine T. Siy; Brian Matthew P. Cu; and Richard Raymond B. Tantoco.

Thank you. Let us move on to the next item on the agenda, which is the appointment of the external auditor of the corporation. May I call on the Corporate Secretary to present this agenda item as well as proceed to the live voting and subsequently present the results of voting for this matter.

Mr. Chairman, the accounting firm of SyCip Gorres Velayo & Company has been nominated as the external auditor of the corporation for the fiscal year 2025. Stockholders participating in our live voting may now cast their votes. [Voting]

Stockholders, you have 20 seconds to cast your votes. Stockholders, you now have 10 seconds to cast your votes. Stockholders live voting for this agenda item is now closed. After tabulation of the votes, the appointment of SyCip Gorres Velayo & Company as external auditor of the corporation has been approved by stockholders representing 77.28% of the total outstanding voting shares of the corporation.

Thank you. The accounting firm of SyCip Gorres Velayo & Company is hereby appointed as external auditor of the corporation for the fiscal year 2025. Let us proceed to the next item in the agenda, which is the ratification of the acts of the Board of Directors and its committees, officers and the management of the corporation. May I call on the Corporate Secretary to explain this agenda item as well as the results.

Mr. Chairman, the list of acts for ratification of the stockholders are shown right now on the screen. Copies of the said list have also been distributed to the stockholders present by showing the link to the said list on the screen prior to the meeting. Stockholders participating in live voting may now cast their votes. [Voting]

Stockholders, you have 20 seconds to cast your votes. Stockholders, you now have 10 seconds to cast your votes. Stockholders live voting for this agenda item is now closed. After tabulation of the votes, we are pleased to report that stockholders representing 77.3% of the total outstanding voting shares of the corporation have confirmed and ratified the acts of the Board of Directors, its committees, officers and the management of the corporation for the period beginning from the last Annual Stockholders' Meeting up to the current stockholders' meeting as duly recorded in the corporate books and records of the corporation.

Thank you. The acts of the Board of Directors and its committees, officers and management of the corporation for the period beginning from the last Annual Meeting of the Stockholders up to the current meeting of the stockholders as duly recorded in the books and records of the corporation are hereby confirmed and ratified. Are there any other matters to be taken up for consideration to stockholders or questions raised via e-mail for the management?

We will now address the inquiries sent to us via e-mail by our shareholders. We have received several questions from our shareholders, and we will try to answer some of them. If we are unable to get to your questions, the corporation will reply to the questions and comments not taken up in this meeting through e-mail. Our first question is, how do current fuel and foreign exchange trends influence the company's costs?

Thank you for the question. Approximately 2/3 of our operating expenses are pegged to the U.S. dollar, including jet fuel, which comprises 1/3 of our costs. Given this, we estimate that every peso strengthening for U.S. dollar will reduce our operating expenses by about PHP 110 million per month and every dollar per barrel of cheaper fuel will reduce our operating expenses by another PHP 30 million a month.

Thank you, Mr. Cezar. Our second question is how is the average revenue per fare performing in the first quarter, considering the significant increase in market capacity?

Thank you for that excellent question. We have flown 4.7 million passengers for the first 2 months of 2025, marking a 30% increase versus the same period of 2024 and even improved our seat load factor. This indicates that the capacity that we had introduced late last year has already been absorbed by the market. There has been some fair trade-off, but this is largely due to seasonality. As Easter break this 2025 will occur in the second quarter compared to the first quarter of last year. Despite this, overall revenue growth for the first quarter will be very strong.

Thank you, Mr. Szucs and for a last question, given favorable demand and economic trends versus higher cost for fleet and financing, when do you expect to see year-on-year improvement in net profit?

We are already seeing strong revenue growth as early as the first quarter, but given the significant fleet growth only started in the second to third quarter of 2024 we still anticipate year-on-year increase in fleet and financing cost this first quarter. So what we are seeing is a very steep peak in second quarter where both revenue as well as profit growth and margin improvement will show.

Thank you, Mr. Chairman, and thank you to our shareholders presenting any questions. This concludes the Q&A session.

Are there any other matters to be taken up for consideration to stockholders or questions raised via e-mail for the management?

None, Mr. Chairman. Thank you.

Before we wrap up, let me take this opportunity to thank each and everyone here for taking part in the Annual Stockholders' Meeting of Cebu Air, Inc. Our work over the past couple of years have placed Cebu Pacific in a position to take advantage of the Philippine growth story, and we are confident that our airline will continue to reach new heights on the back of the outstanding work of the organization, other stakeholders and, of course, your unwavering support. We look forward to connecting even more cities, communities and people. Our purpose remains the same. Let's fly everyone. With this, the 2025 Annual Stockholders Meeting of Cebu Air is hereby adjourned. A link where a replay of this meeting will be made available on the website of the corporation. Thank you very much for joining us.