Cebu Pacific sees lower 2011 profit on fuel costs

Reuters

Posted at Jul 07 2011 07:42 PM | Updated as of Jul 08 2011 03:42 AM

* Sees Q2 net profit higher than Q2

* To add flights, routes in China, Japan

MANILA, Philippines - Budget carrier Cebu Air Inc. said on Thursday high fuel costs were hurting the airline industry, but the strength of Asian economies would support the growth of low-cost carriers (LCC) in the region.

Cebu Air, operator of the country's largest budget airline Cebu Pacific and a unit of conglomerate JG Summit Holdings Inc., expects a lower net profit this year compared to 2010's P6.9 billion on costlier fuel and lower passenger load, Chief Executive Lance Gokongwei said.

However, profit in the second quarter was likely to exceed its net income in January to March because the airline had raised its fuel surcharge in late March, he told reporters.

"2011 is proving to be a tough year for all airlines, particularly with the issue of rising fuel costs and increasing competition," Gokongwei told reporters.

"But we believe the LCC market in Asia will continue to grow given rising purchasing power and increasing aviation liberalization."

First-quarter net income was P1.2 billion, down 23% from a year earlier.

Cebu Air has said it expects to at least meet its target of flying 12 million passengers this year, up 14% from last year, despite high fuel prices.

The company had 48% of the domestic passenger market in 2010, Gokongwei said.

Cebu Air competes with flag carrier Philippine Airlines locally, and with Singapore's Tiger Airways and Malaysia's Air Asia Berhad in the region.

"Our balance-sheet strength will be a key differentiator versus other LCCs, especially under the current challenging fuel environment," Gokongwei said when asked about increasing competition in the budget airline market.

The company plans to expand operations in the region, particularly North Asia, as it more than doubles its fleet in the next 10 years with a $3.8 billion order of 37 planes from Airbus, a unit of France's EADS.

Gokongwei said Cebu Pacific plans to fly to more routes and add flight frequencies to China and Japan within the year.

The airline has 33 jets, of which 25 are A320s and eight are turbo prop planes from aircraft maker ATR, jointly owned by EADS and Finmeccanica.

Cebu Air lost 1.4%on Thursday to hit a two-week low as the broader market index slipped 0.5%.