May 18, 2015

Cebu Air, Inc (CEB) posts 1Q15 net income of P2.24b, +1256%YoY

In its quarterly report, Cebu Air, Inc (CEB) announced 1Q15 net income of P2.24b, 1256% higher than the P164m registered in the same period last year. This may be primarily attributed to the better competitive landscape in the industry in 2015 and lower fuel prices which resulted in a 15ppt increase in operating margins to19.9% in 1Q15 from just 4.3% in 1Q14.

Revenues increased by 20.6% to P14.2b on a 22% increase in passenger revenues and the 17% increase in ancillary revenues. Operating expenses, on the other hand, increased by only 1% as flying operations expenses, which include fuel expenses, decreased by 83% despite a 14.3% YoY increase in the number of flights. The decrease in flying operations expenses is primarily due to significantly lower average realized prices for jet fuel which decreased by 43% to US$68.98/barrel in 1Q15 from the average realized jet fuel price of US$121.47/barrel in 1Q14.

Our take: CEB’s first quarter results accounts for 35% of full-year consensus estimates of P6.35b. As long as oil prices do not rise sharply from current levels, we believe CEB to likely beat consensus estimates following the consolidation of the domestic aviation industry and the limited capacity increase in the domestic market. Moreover, travel would possibly see a boost starting in the traditionally weak 3Q as the 2016 national elections approaches. – WealthSec