March 26, 2015

CEB posts 2014 net income of P1.1b +315% YoY

In its annual report, Cebu Air Inc (CEB) reported net income of P1.1b a 315% YoY growth versus the P256m earned in the previous year. This however, included a hedging loss of P2.3b in 4Q14 which resulted in a net loss of P1b. Stripping out the forex and fuel hedging gains and losses, CEB EBIT would have grown 73% to P4.16b in 2014.

This was due to a 26.8% increase in gross revenues on the back of an increase in both average ticket fares and load factors. For 2014, average ticket fares rose 8% to P2,382 with seat load factors increasing two-percentage points to 84% from 82% in the previous year.

Our take: Notwithstanding the large hedging losses incurred by CEB in 4Q14, we believe company has convincingly turned the corner following the domestic airline industry consolidation over the past two years. This can be seen in the significant gains made by CEB in both average ticket fares and load factors.

CEB is a primary beneficiary of the industry consolidation as it came out on top with more than 60% share of the domestic market, giving it significant pricing power over its competitors. Moreover, with fuel costs to remain reasonably low throughout the year, we believe this could turn into a banner year for the company. – WealthSec