MANILA, Philippines – An HSBC report says budget carrier Cebu Pacific of tycoon John Gokongwei stands to gain the most from the consolidation of the Philippine airline industry.
The report titled, “Asian Airlines: What the accounting margins don’t tell us,” said industry consolidation in the Philippines would foster a better operating environment for Cebu Pacific. “Industry consolidation and disciplined capacity growth together suggest better operating environment for market leader Cebu Air.”
The report was authored by Mark Webb, HSBC Regional Head of Conglomerate and Transport Research, Asia-Pacific, and HSBC Asia Pacific Transport Research Analyst Rajani Khetan.
The Philippines recently saw Cebu pacific acquiring Tigerair Philippines, while Philippines AirAsia Inc. bought into Zest Airways Inc.
“The acquisition of Zestair by the Philippines’ AirAsia in mid-2013 and the recent purchase of Tigerair Philippines by Cebu Air have together created a positive environment for the yield outlook,” HSBC noted.
It also pointed out that Cebu Pacific’s Tigerair acquisition rationalizes capacity in the market since 3 Airbus A320s and two A319 planes will be transfered from Cebu Pacific to Tigerair Philippines.
To optizimize its fleet usage, legacy carrier Philippine Airlines indefinitely suspended 35 flights of its wholly-owned subsidiary PAL Express beginning March 1.
The report said, “Industry consolidation and disciplined capacity growth together suggest better operating environment for market leader Cebu Air.”
However, it also mentioned that Cebu Pacific faced near-term negative earnings due to its recently launched long-haul flights to Dubai. Cebu Pacific would need some time to make up for the investment.
High fuel prices, a weakening peso and lower assumed usage of the long-haul flights increased the pressure on Cebu Pacific, leading HSBC to forecast a 3% to 12% cut in Cebu Pacific’s projected recurring profit for 2013 to 2015.
HSBC recommends buying shares of Cebu Pacific trading at the Philippine Stock Exchange. The bank set the target share price for Cebu Pacific at P60 per share from its current price of P49 per share. – Rappler.com
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