Soaring oil prices cut Cebu Pacific 2011 profits by 48%
The leading budget carrier suffered from the 55.2% rise in jet fuel costs, which accounts for half of its operating expenses

MANILA, Philippines – Local budget airline operator Cebu Pacific Air reported a 47.6% drop in its 2011 net income largely due to soaring jet fuel costs.

On Wednesday, March 14, the Gokongwei-led carrier said in a disclosure to the stock exchange that its net income reached only P3.62 billion in 2011 despite revenues growing 16.7% to P33.93 billion, thanks to improving growth in passenger traffic and ancillary products.

Cebu Pacific’s fuel costs, which account for 50% of its operating expenses, skyrocketed by 55.2% to P15.22 billion. The global market prices of aviation fuel rose 39.3%, the airline reported.

Jet fuel prices also hit core profit, which declined by as much as 41% to P3.36 billion.

“Amidst this challening cost environment, the company was able to sustain robust EBITDA and pre-tax core income margins of 23.3% and 9.9%, respectively,” said the airline.

Cebu Pacific, which has dislodged Philippine Airlines in ferrying the most number of passengers bound for local destination for several years now, is not alone. Other airlines have also complained of how the soaring fuel costs have resulted in lower profits in 2011.

Fuel surcharge

The Civil Aviation Board has scheduled a meeting on March 22 to decide on the application of Cebu Pacific to increase fuel surcharges, which are paid by passengers.

Cebu Pacific filed for an increase of P50-P100, depending on sector length.

It sought for a fuel surcharge of P500 from P400 for flights originating from Manila to Davao, Cotabato, General Santos, Zamboanga, Butuan, Cagayan de Oro, Dipolog, Ozamis, Pagadian and Surigao.

From P300, it sought a P400 adjustment for fights from Manila to Calbayog, Catarman, Caticlan, Tagbilaran, Dumaguete, Cebu, Tacloban, Iloilo, Bacolod, Roxas and Kalibo.

A P50 increase in fuel surcharge, from the current P300, was sought for flights from Cebu to Legaspi, Puerto Princesa, Clark, Zamboanga and Davao.  For flights between Cagayan to Iloilo, Davao to Iloilo, and Cebu to Legaspi, the budget airline likewise petitioned to charge P350 from P300.

From P250, Cebu Pacific also wants fuel surcharge adjusted to P350 for its flights from Manila to Legaspi, Puerto Princesa, Basuanga, Cauayan, and Tuguegarao, and in Manila to Virac flights.  And lastly, the airline sought to collect P300 in fuel surcharge from P250 for flights originating from Cebu to Kalibo, Zamboanga to Tawi-Tawi, Manila to Naga, Manila to San Jose, Cebu to Caticlan, Cebu to Iloilo, and Davao to Zamboanga.

The rising price of fuel in the world market is hurting airlines as fuel normally accounts for 40 percent of an airline’s operating cost per passenger and is considered the second-highest next to labor.

Seeking for an upward adjustment in fuel surcharge before the CAB is a temporary relief to help them recover losses they incur from higher jet fuel prices.

The International Air Transport Association recently said that jet fuel price has increased by 9.7% to $137.1 per barrel from March 2011.


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