Airlines may sustain growth amid travel pickup

By Ashley Erika O. Jose, Reporter

AIRLINE companies in the Philippines are expected to sustain their gains this year as airport investments including the rehabilitation of the country’s major gateway drive investor sentiment, analysts said.

“It is a positive sign that major airlines are investing in fleet and network buildup,” Juan Paolo E. Colet, managing director at China Bank Capital Corp., said in a Viber message on Wednesday. “In addition, airport investments and efficiencies, such as through the privatization and rehabilitation of the Ninoy Aquino International Airport (NAIA), will help create more favorable conditions for the airline industry.”

The Department of Transportation has set the signing of the concession agreement for the rehabilitation, operation and maintenance of NAIA by March after attracting four bidders for the upgrade project.

Easing inflation and growing travel demand are also expected to drive the profitability of local airlines this year, Mr. Colet said.

The Philippines recorded 5.45-million international visitors in 2023, surpassing its 4.8-million target, the Tourism department said. This year, the agency is targeting 7.7 million visitors.

“Airlines saw a recovery last year given normalizing travel conditions and revenge travel,” Rastine Mackie D. Mercado, research director at China Bank Securities, said in an e-mail. “We expect continued improvements this year, with the International Air Transport Association expecting Asia-Pacific international passenger volumes to surpass 2019 levels.”

The attributable net income of PAL Holdings, Inc., the listed operator of flag carrier Philippine Airlines (PAL), climbed by 33.3% to P4.28 billion in the third quarter from a year earlier. Consolidated revenue rose by 16.7% to P47.13 billion.

Its nine-month attributable net income more than doubled to P15.16 billion.

Cebu Air, Inc., had P1.28 billion in attributable net income in the third quarter, reversing a net loss of P2.54 billion a year earlier. Revenue rose by 38.5% to P23.34 billion.

For the nine months to September, Cebu Air posted an attributable net income of P5.03 billion, reversing a net loss of P12.05 billion a year ago.

Airlines are expected to post modest gains due to the challenging economic environment, Toby Allan C. Arce, head of sales trading at Globalinks Securities and Stocks, Inc. said.

“At the global level, net profitability is anticipated to remain well below the cost of capital in both years,” he said in a Viber message. “While the airline industry’s profits in 2024 are expected to show a slight improvement over 2023, the return on invested capital is projected to lag behind the cost of capital in both 2023 and 2024.”

Airline revenues are expected to outpace expenses, Mr. Arce said, adding that while operating expenses would increase, profits might rise slowly as further interest rate cuts seem unlikely.

Meanwhile, some operational challenges might continue this year, pulling down optimism on the demand side, Mr. Mercado said.

“Some operational challenges are seen to persist into 2024 as the backlog in aircraft maintenance for some widely used aircraft may weigh on capacity,” he said.

Cebu Air earlier said it would cut fleet growth this year as engine maker Pratt & Whitney (P&W) inspects A320/321 NEO aircraft engines worldwide after suspected issues.

The company said it expects a number of its aircraft to be affected in 2024, adding that inspections would ensure the safe operation of its P&W-powered fleet.

“The major issues for airlines, as they look to ramp up capacity, have been the supply chain slowdown, delivery delays and engine problems that have caused aircraft to be grounded,” Mr. Arce said.