July 01, 2014

CEB expanding international routes

Over the past week, Cebu Air inc (CEB, Not rated) has made several announcements regarding impending expansion of its international routes. Yesterday, it announced to the media its plans to launch flights from Manila to Sydney, Australia by 9 Sept and direct flights to Kuwait by Sept 2.

It has also reportedly received regulatory approvals to fly to the United States and has been seeking seat allocations to Canada. While the company said it is unlikely in the near-term to fly to mainland US cities given limitation of its long-range vessels, it is considering launching direct flights to US territories like Guam, Saipan and Hawaii.

Our take: CEB’s optimism in expanding its long-range international routes probably stemmed from the encouraging results of its Manila-Dubai operations which were commenced in October last year. But as the company pointed out to the media, these potential expansions may result in near-term losses but could turn around within six to 18 months. In all, we still view these developments as positive news flows on the shares. It remains to be seen, however, how soon these new routes can start contributing to the bottomline.

Recall that while CEB’s 1Q14 results showed improvements in passenger load and domestic market share expansion, these were offset by lower yields, higher maintenance expenses and costs related to redelivery of vessels. Rising oil prices may also take toll on near-term profitability.– WealthSec