PSE Stock of the Week: CEB to Benefit on Abandoned Domestic Routes by Other Carriers

When Air Philippines Express decided to abandon 7 major domestic routes, Cebu Pacific Air (PSE:CEB) immediately offered willingness to mount additional flights to fill the void and prevent disruption. CEB recently received delivery of additional aircrafts and plan to purchase more, so they have enough planes to support the gesture. 

The change in strategy for Airphil was triggered by a change in management control, when San Miguel Corp. took a majority stake early this year with PAL Group, Airphil's flagship owner. PAL will focus instead on their full service brand the Philippine Airlines for the abandoned routes. For CEB, this is clearly an opportunity to expand further its market share. The company currently accounts for 46% of domestic capacity, while PAL and Airphil combined for 39%.

source: CAPA

CEB's move is without risk. Fuel prices are still high and is not expected to decline anytime soon, which will continue to increase their costs and decrease earnings. This is the most probable reason why the company was dropped in the PSE main index benchmark and replaced by Petron Corporation, an oil company.

Despite this, CEB continue to be aggressive and takes hint of possibly acquiring another low-cost carrier airline, Zest Air. The company continue to improve its service and has taken some recognition and improved on its on-the-dot flight departures. 

A simplified summary of CEB's net income (amounts in 'millions)

As of last trade, the stock was priced at P57.20 per share, almost close to its one-year low of P52. As of June 2012 financial report, their revenues have improved, but their expenses have also increased faster that their net income could not keep up. Still, the company remains to be the leading budget carrier in the country and is run by the Gokongwei's, one of the most respected business clan today. For investors, CEB is one of those stocks you'd like to have in your portfolio if you have spare cash, given its strong management and its willingness to take calculated risks will help it improve further in the future.


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Disclaimer: This article is solely the opinion of the blogger based on personal research. Any statement made is not a conclusion of absolute fact and is not intended to impose or persuade anyone's judgement.