Cebu Air seeks more overseas, local flights

by Neil Jerome C. Morales, BusinessWorld

Posted at Oct 27 2010 07:14 AM | Updated as of Oct 28 2010 08:32 AM

MANILA, Philippines - Gokongwei-led Cebu Air, Inc. gained 6.4% to close at P133.00 apiece yesterday, beating its initial public offering (IPO) price of P125.00 on its debut in the Philippine Stock Exchange (PSE) on Tuesday.

Cebu Air, Inc., operator of low-cost airline Cebu Pacific Air, marked its first day in the Philippine Stock Exchange yesterday, raising P23.3 billion from an initial public offering.

The public listing, which featured dancing flight attendants that had taken YouTube by storm, was the first this year and the largest for the PSE in dollar terms.

The $539-million (P23.3-billion) IPO was also the largest of a low-cost carrier globally, beating Tiger Airways’ $175.94 million and Air Asia’s $220.32 million.

Moving forward, the operator of Cebu Pacific wants to increase the number of its local and international passengers and destinations, the firm’s top executive said.

In a press briefing, Lance Y. Gokongwei, Cebu Air president and chief executive, said the company was aiming to increase domestic passengers by 15% and foreign passengers by 25%-30% per year in the next five years toward a combined 20 million passengers annually.

“I think over time, the international business will be larger than the domestic business in four to five years,” Mr. Gokongwei said.

The company obtained 62% of its revenues last year from the domestic market.

“Our model is we will fly within four and a half hours radius from Manila and Cebu,” Mr. Gokongwei said, adding that the company is the only low-cost carrier in the world that has direct access to China, Japan and Korea.

To date, Cebu Pacific’s fleet of 29 planes flies to 33 domestic and 16 foreign destinations. New flights to Busan, Tokyo and Nagoya will soon be available.

Mr. Gokongwei said the budget carrier would “keep unit costs low, keep on-time performance high, and keep customer satisfaction strong.”

The firm originally planned to go public in 2008 but this was postponed due to difficult market conditions. A March 2010 date was later set but the firm decided to wait until after the May national and local elections.

“The timing for Cebu Pacific’s offering could not have been better with the recent record highs in the stock market,” Hans B. Sicat, PSE chairman, said in his opening remarks.

The company is looking at raising an additional P3.5 billion under an overallotment option to sell 28 million more shares, amid high investor demand.

“We expect [the overallotment] to be taken up because there is some oversubscription in the international tranche,” Bach Johann Sebastian, senior vice-president and head of corporate planning at Cebu Air parent JG Summit Holdings, Inc., said in the briefing.

Cebu Pacific topped the first day performance of the last two major public offerings in the local bourse’s first board.

Share prices of San Miguel Brewery, Inc. gained 6.25% to close at P8.50 on its May 12, 2008 IPO while Pepsi-Cola Products Philippines, Inc. shed 5.7% to close at P3.30 in its first day on Feb. 1, 2008.

Cebu Air plans to use the amount raised from the IPO as downpayment for 22 Airbus A320 planes. Cebu Air’s net profit grew by 46% year on year to P3.17 billion in the first half.

The carrier cornered about 48.7% of the Philippines’ air passenger market in the first semester, flying some 5.096 million individuals to domestic and international destinations, Civil Aeronautics Board data showed.