Airline profits under pressure; holiday travel offers hope — analysts

AIRLINE COMPANIES’ profitability is at risk in the second half of the year due to unpredictable fuel prices and economic uncertainties, but strong demand during peak travel periods and the holiday season could provide a boost, according to analysts.

“While these companies have demonstrated resilience, their recovery trajectory remains delicate, especially given the persistent volatility in fuel prices, inflation, and geopolitical uncertainties,” Globalinks Securities and Stocks, Inc. Head of Sales Trading Toby Allan C. Arce said in a Viber message to BusinessWorld on Monday.

“Airline companies are likely to see some improvement in profitability during the second half, supported by a seasonal uptick in travel demand during the holiday period,” Seedbox Securities, Inc. Equity Trader Jayniel Carl S. Manuel said in an e-mail.

For the second quarter, both listed PAL Holdings, Inc. and Cebu Air, Inc. posted lower attributable income.

The attributable net income of PAL Holdings, the operator of flag carrier Philippine Airlines, plunged to P2.37 billion, dropping by 61.9% from last year’s P6.23 billion after posting lower revenues and higher expenses during the period.

According to its financial report, Philippine Airlines gross revenue declined to P45.12 billion for the second quarter from P45.24 billion a year ago.

Its gross expense grew by 17.3% to P41.23 billion from last year’s P35.16 billion.

For the first half, its attributable net income declined by 45.2% to P5.97 billion from P10.89 billion previously.

Cebu Air, the operator of budget carrier Cebu Pacific, saw its attributable net income plunge by 50.9% to P1.31 billion for the second quarter from P2.67 billion, mainly due to higher expenses during the period.

It reported a combined revenue of P26.14 billion, higher by 15.3% from P22.67 billion in the same period last year.

Still, despite posting higher revenues, Cebu Air’s attributable net income for the second quarter declined, attributed to higher expenses during the period, its financial statement showed.

The operator of the budget airline registered gross expenses of P23.3 billion for the second quarter, marking a 15.6% increase from P20.15 billion in the same period last year.

For the six-month period, Cebu Pacific’s attributable net income also declined to P3.55 billion, lower by 5.3% from the P3.75 billion in the first half of 2023.

For Globalinks Securities’ Mr. Arce, airline companies will be able to recover but in a gradual manner with the expected growth in demand for travel.

“Efforts to streamline operations and reduce costs could help airlines maintain profit margins despite higher operating expenses driven by inflation and fluctuating fuel prices,” Mr. Arce said.

The surge in demand from both domestic and international passengers will help boost revenues, Seedbox Securities’ Mr. Manuel said.

However, airlines are facing challenges from rising fuel costs and other economic headwinds, Mr. Manuel added.

“The strong demand during peak travel periods positions them for a more positive second half. Though the recovery remains gradual, there is cautious optimism that airlines will end the year on a stronger note, with the holiday season providing a much-needed lift,” he said.

“External pressures such as rising fuel costs and the depreciation of the Philippine peso could dampen profitability. Market volatility, coupled with uncertainties in the global economy, could lead to fluctuations in passenger demand,” Mr. Arce said.

According to the International Air Transport Association’s jet fuel price monitor, jet fuel prices fell by 4.6% week on week to $88.47 per barrel as of Sept. 6. Year on year, jet fuel prices declined by an average of 21.2%.

The Energy department has said that prices of kerosene, which is the base of jet fuel, are expected to rise in the coming months influenced by geopolitical conflicts and the production cuts by the Organization of the Petroleum Exporting Countries and its allies. — Ashley Erika O. Jose