Cebu Pacific expects strong cargo contribution on new Melbourne-Manila service

Cargo will be a significant revenue contributor on Cebu Pacific’s new Melbourne-Manila service and could enable the route to quickly become profitable.


Summary

  • Cargo could account for over 20% of total revenues on Cebu Pacific’s new Melbourne-Manila service;
  • Cargo accounts for 7% of total Cebu Pacific revenue but some markets such as Dubai have a cargo contribution over 20%;
  • Cebu Pacific also expects strong passenger demand in the Melbourne market with the mix of ethnic Filipino and outbound Australian leisure traffic varying depending on the time of year.

Cebu Pacific is launching three weekly flights to Melbourne on 14-Aug-2018. Melbourne will be the Philippine LCC’s second route to Australia after Sydney, which was launched in 2014, and only its third long haul destination after Sydney and Dubai.

Cebu Pacific COO Advisor Rick Howell told CAPA TV in Mar-2018 that Sydney-Manila is now a profitable route with Cebu Pacific the market leader, carrying more passengers than the two full-service incumbents – Philippine Airlines and Qantas Airways. Mr Howell, who is originally from Geelong in Victoria, said Cebu Pacific may have added Melbourne earlier but did not have the capacity until now. Cebu Pacific is not adding any widebody aircraft in 2018 but is taking delivery of eight A321s, which are freeing up some A330-300s currently used on regional international routes.

While Cebu Pacific packs its A330s with 436 seats, it is also able to carry about 15 tonnes of cargo on an eight-hour flight. Cargo has been an important contributor on Sydney-Manila and is expected to have an even bigger impact on Melbourne-Manila.

“Melbourne as an airport is home for about 30% of Australia’s air freight, so Melbourne actually has more air freight than Sydney,” Mr Howell said. “There’s a good commercial opportunity below the floor.”

Cargo could potentially account for over 20% of total revenue on the Melbourne-Manila route. Cargo overall accounts for 7% of revenues at Cebu Pacific but in a few markets the figure is more than 20%.

In a recent report, CAPA stated that Cebu Pacific Pacific for several years has likely had the highest cargo contribution among LCCs globally. Mr Howell pointed out Cebu Pacific handles cargo like a full-service network airline, while for passengers it follows a pure point to point LCC model. “You can check in a box at Sydney and have it travel on one of our airplanes and end up in Kuwait, even though we don’t fly to Kuwait. We have interline deals with a variety of airlines and we actually aggregate a lot of freight,” Mr Howell said.

“We’ve changed the way that we sell cargo, and we’ve changed the commercial relationships,” he added.

In Dubai, cargo has become such a big contributor for Cebu Pacific it is now experimenting with intentionally holding back on seats to make room for more cargo. Cebu Pacific could potentially do the same in Melbourne, which would enable it to carry more than 15 tonnes. Cebu Pacific recognises that if it sells fewer seats at the cheapest buckets its passenger load factor will be impacted but the lower load factor enables it to carry additional cargo which in some markets during certain times of the year can generate more revenue than the cheapest seats.

Cebu Pacific is also confident of strong passenger demand on the new Melbourne-Manila route. Mr Howell pointed out there are approximately 180,000 Filipinos living in the Melbourne area. “These are people that actually know our brand,” he said. “We don’t have to get out there and advertise and try to drive growth to our airline.”

The ethnic or visiting friends and relatives market fluctuates significantly depending on the time of year. However, in the Sydney market Cebu Pacific has noticed that demand for Australians travelling to the Philippines for a holiday peaks at different times of the year than the peaks for ethnic traffic. Cebu Pacific expects similar behaviour in Melbourne with the mix of passengers varying seasonally.

“Fortunately for us the seasonality of the network of our Asian network is actually quite different to the seasonality of our Australian network. February is a really busy month for us in the Philippines and around the region here, and February is the death in Australian aviation because everyone’s just back from holiday … So, if you want to look at it from the point of view of holidaying Australians looking for a leisure experience versus Filipinos connecting with friends, relatives, it varies over the season. Load factor varies over the season, our yield varies over the season as well but it’s actually turned out to be quite a stable mix.”