Cebu Air boosts 2015 capex to $280M

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Cebu Air Inc., the listed operator of budget carrier Cebu Pacific Air, has increased its capital expenditure to $280 million this year to fund the airline’s fleet acquisition.

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“This year’s capex is quite substantial. It’s about $280 million. It’s primarily for the acquisition of four A320s, as well as predelivery payments on our upcoming ATRs and ATI Neos,” Lance Y. Gokongwei, president and chief executive officer, told reporters after the company’s annual stockholders meeting late Wednesday

“For the first quarter, we have already spent P3.4 billion, so that’s about $75 million,” he added.

The 2015 capex compares with the $250 million the airline spent in 2014. Most of the 2015 capex will be sourced from current operating cash flow, with the rest coming from a planned long-term financing via bank loans.

Under its 2015-to-2022 fleet expansion plan, Gokongwei said Cebu Air is set to bring in three net additional aircraft. Out of the total fleet expansion, a total of 21 aircraft will be retired – six A319 jets to be sold this year and next, seven A320s for lease return from 2016 to 2019, and eight ATRs to be replaced in 2017 to 2018.

The company’s fleet is expected to reach 59 by 2017.

Gokongwei noted the airline plans to connect direct flights to regional airports and drop the current practice of flying to Manila as a hub to get to other parts of the country.

“Our plan is to set up a lot of additional hubs outside Metro Manila. We’re going to station a lot of ATRs in Cebu, Davao, Iloilo, Caticlan so that we can fly direct and connect cities together without necessarily going to hubs like Manila or Cebu. We’ll offer direct flights like in Davao, Caticlan, Zamboanga, and others,” Gokongwei said, referring to
ATRs being used in short term routes and for opening new markets.

“Our main opportunity is that only 29 or 30 of the 90 airports in the Philippines are jet capable. There are a lot of islands and communities that cannot be reached by jet. And second, there’s a limitation of slots in Manila. I think the big market is really connecting these communities or secondary cities directly with the turboprop aircraft which is a prudent aircraft,” he said.

The company hopes “to exceed” the 18 million passenger volume target for the year, of which 20 percent are passengers outside Metro Manila.
For its long haul flights, Cebu Air said it is still in the middle of requesting for regulatory approval for slots to fly to Hawaii.

Gokongwei also announced that plans for the long term are afoot to consolidate all jet operations to Cebu Pacific, while turboprop aircraft operations for provincial and short routes will be placed under Cebgo – formerly Tiger Air which the company acquired in 2014.

During the stockholders meeting, the company announced a regular cash dividend of P1 per share with an additional of special cash dividend of P0.50 apiece payable on August 11.

“We want to reward our shareholders as well. I think it’s a reflection [of the company’s performance]. We hope that the coming years are more sustainable economic growth and the oil prices are more subdued,” Gokongwei said.

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