Just over twelve months ago, the Philippines-based carrier Cebu Pacific signed a firm order for 16 long-range A330neo aircraft. The order was a part of the airline’s broader strategy to transition to more fuel-efficient and eco-friendly aircraft while also modernizing its fleet. But a lot has changed since then, both at Cebu Pacific and across the aviation industry in general.
The A330neos were ordered along with 10 A321XLR and five A320neo single-aisle aircraft in November 2019. According to Cebu Pacific, the 16 A330neos cost US$4.8 billion. The A330neos were scheduled for delivery between 2021 and 2024. By then, Cebu Pacific planned to have an all-Airbus fleet.
The A330neos were to replace Cebu Pacific’s existing fleet of nine A330-300s. Cebu Pacific’s CEO, Lance Gokongwei, said;
“The A330neo is integral to our fleet modernization program. With this purchase, we aim to reduce our fuel emissions and build a more sustainable operation.
“This will also give us the lowest cost per seat, at the same time enabling CEB to increase seat capacity and maximize valuable airport slots in Manila and other Asian megacities.”
Cebu Pacific said the A330neo could fly 5.5% more passengers than their current A330-300s and burn 12% less fuel.
The Cebu Pacific A330neo order stood out
In 2019, the aviation industry was booming, including in the Philippines and around the South East Asian neighborhood. New aircraft orders were a dime a dozen. But Cebu Pacific’s A330neo stood out. They wanted all-economy planes that would seat 460 passengers. That would make for a fairly cozy cabin.
While that number of people on an A330 might surprise some travelers used to more spacious A330 cabins operated by full-service airlines (even the most cramped Philippine Airlines A330 seats just 363 passengers in three cabins), Cebu Pacific is a low-cost carrier with a reputation for packing its passengers in tight. Cebu Pacific’s current A330-300s pack in 436 passengers in a single-class configuration.
That’s not necessarily a bad thing. Cebu Pacific’s fares are keen, and if you’ve done your homework, you know what you are in for. Still, Cebu Pacific plans to operate the A330neos on trunk routes within the Philippines and the rest of Asia and on longer-range services to Australia and the Middle East. Some of those flights will take a while, pushing the limits of many travelers when it comes to crowded cabins and personal space.
A changing environment presents Cebu Pacific with a challenge
Cebu Pacific’s operating environment has deteriorated significantly since the A330neos were ordered. The airline presently has 68 planes (of which 30 are parked). However, off the back of strong growth in recent years, contracts were signed to grow the fleet size to 88 by 2024. With flying not expected to get back to 2019 levels for several years, that presents Cebu Pacific with a challenge.
Of the airline’s current fleet of A330-300s, two are presently parked in Alice Springs, one is parked at Ninoy Aquino Airport in Manila, two have been converted into dedicated freighters, and the remaining three are mostly flying freight around the region.
Last May, amid the travel downturn, Cebu Pacific held a shareholders meeting. The airline had just posted a loss of US$24.5 million for the first quarter of 2020. This contrasted with a $70 million profit in the same quarter in 2019. At that meeting, CEO Lance Gokongwei indicated the airline’s future fleet plans were under review.
“We will have a discussion with Airbus on how we manage these airplanes.”
Mr Gokongwei also said he would be seeking concessions and payment deferrals from a range of suppliers and lessors. In August, Cebu Pacific reaffirmed it was in discussions with Airbus regarding future deliveries.
In a presentation to investors, Cebu Pacific said negotiations with Airbus for deferral of aircraft deliveries in line with lower utilization rates were continuing. The airline also outlined a strategy to rightsize its network and fleet deployment. Part of that strategy was acknowledging the reduced demand over the new few years. Without addressing specific aircraft orders, Cebu Pacific said it wanted to optimize the existing fleet and defer planned aircraft deliveries to later years.
Where does this leave the Cebu Pacific A330neo order?
Cebu Pacific lost approximately $305 million in the first nine months of 2020. In contrast, the airline made a small profit in the first nine months of 2019. At an investor’s mid-November presentation, Cebu Pacific said it was running about half its 2019 capacity. According to CFO Andrew Huang, management sees the need to “fast-track a transformation of the corporation.” Mr Huang made further comments about right-sizing the fleet and adapting to the new market conditions.
However, while there is ample suggestion Cebu Pacific wants to defer delivery not only of the A330neos but other aircraft on order, there is no definitive statement yet on the matter from Cebu Pacific.
The line coming from Cebu Pacific indicates a deferral of A330neos may be on the cards, and negotiations with Airbus continue. With the first A330neo due to touch down in Manila next year, a decision will need to be made reasonably soon.
The A330neo is morphing into a problem plane for Airbus
Cebu Pacific isn’t the only airline locked in talks with Airbus to renegotiate orders and defer deliveries. But the A330neo order book throws up some particularly interesting challenges for Airbus. Embattled AirAsia X has a large A330neo order that looks shakier by the week. The AirAsia X order represents 27% of total orders for the A330neo. In contrast, Cebu Pacific’s order of 16 A330neos represents around 5% of the total A330neo order book. One of the A330neo order book’s defining characteristics is its exposure to financially stretched airlines, including Virgin Atlantic, TAP Air Portugal, and Iran Air.
That Iran Air order is up in the air due to political issues. Further, there are multiple orders from leasing companies and undisclosed buyers who may not proceed. The strongest airline listed on the order book is Delta Air Lines. The United States-based airline is on the books for 35 A330neos. Of course, even Delta may find that, like Cebu Pacific, the new normal in commercial flying isn’t what it once was.