The Chief Strategy Officer Of Cebu Pacific discusses how COVID-19 has affected the airline and the progress towards a recovery.
Below is a rush transcript of our interview with Xander:
Chen Chuanren: Hello. Welcome to Air Transport World. Today, we are speaking to Xander Lao the Chief Strategy Officer of Philippines low cost carrier Cebu Pacific. Welcome, Xander and thank you for joining us today.
Xander Lao: Thanks for having me.
Chen Chuanren: Well Xander, let's start by describing what's the state of the Philippines' air transport industry right now.
Xander Lao: Well, I think similar to all, I guess, other industries that's been hit by this COVID pandemic, really the travel and transport and tourism industries have been hit the hardest in this pandemic specifically here in the Philippines. I think we had a pretty long lockdown, which started, I think late March and was actually only lifted partially last June 3rd. And we continue to deal with those lock-downs to date. So I think in terms of the travel transport, similar again to other carriers, Cebu Pacific has been substantially affected, and you can see that in our second quarter results.
Chen Chuanren: The government did extend the state of emergency till next year. Has there been any impact to your operations or future operations?
Xander Lao: I think there have been some, I think government assistance. I guess it comes in multiple forms. So I think during the first stages of the pandemic or during the early stages of the lock-downs, they had extended, for example, a landing and takeoff waivers for operation, some deferrals on concession piece and the like. There has been a recent legislation that was passed in the Philippines called Bayanihan 2 and there is some financial assistance that will be extended to the transport industry. So clearly we're waiting for, more specific implementing rules and regulations of this Bayanihan 2. But we are certainly looking forward to see the additional assistance that will be extended by the Philippine government.
Chen Chuanren: How is Cebu Pacific surviving right now? Are you receiving any capital from your parent company JG Summit?
Xander Lao: It's a good question. I think if we cut up the way we've handled this crisis, into a few bits. I guess the first part for us was really, the most important part was to do some cash conservation. So I think in the early stages again of the lockdown, what we had done was negotiate with key suppliers, put our workforce on... Not everyone's working full-time, management had to have pay cuts, we had to review some of our capital expenditures and deferred actually a substantial amount of our capex. So I think in the early parts of crisis cash conservation was critical and we had to take steps towards that. But I think soon after that, we did launch into our transformation plan. Really taking into account some key transformation items that we could implement into the company.
Xander Lao: And that has been our story that, which we've come out with to investors. And we're happy to say that Cebu Pacific has approved the or the shareholders of Cebu Pacific have approved raising at least 500 million US dollars. Now I think 250 million dollars of this would be in convertible preferred shares from our parent company JG Summit. And we are offering another 250 million in convertible bonds to a number of reputable international investors at this time. So clearly we had to clean our own house to make sure the story to the investors was good. And we're quite happy with the support that our parent company is extending to us. Now, considering the importance of aviation to the Philippines, JG Summit does think that Cebu Pacific will play an important role, again, moving forward.
Chen Chuanren: You did mention talking to lessors about your fleet. Now what's your fleet strategy right now? You have one of the biggest orders for the A330neos, and A320s families. What's the strategy right now?
Xander Lao: Well, I think, and again, if we want to take a look at it, we have to cut it up into a few things now. First of all, we know that demand is going to be relatively slow over the next few years. So I think one of the things that we did was undertake an aircraft preservation program. We've sent a number of aircraft down to Alice Springs in Australia to make sure that we're able to preserve those assets quite well. I think the second part was really to take a look at our fleet moving forward. So we've had discussions with key suppliers to see whether we can defer some of the orders that were supposed to come on schedule and clearly trying to extend that a little further down the road. Because I think would be unrealistic for anyone to think that next year we'll have a 100% of our 2019 levels. That's not going to be the case. So I think we've done some homework in terms of the fleet, in terms of trying to branch that out into the future.
Chen Chuanren: Okay. You do have a regional or domestic arm called Cebgo. How is it performing right now?
Xander Lao: I think whenever we look at Cebgo... Cebu Pacific and Cebgo are effectively... We tried to run them as similar entities or complementing entities. I think the domestic market itself, whether it's a Cebu Pacific or Cebgo has slowly started to recover. I think in terms of flying where they're on 14% of 2019 levels. And that's really a mixture of passenger and cargo flights. So I think our ATR freighter, for example, is under the Cebgo franchise. So cargo has been quite an important portion of our business in the last couple of quarters as we see that ramp up. Because I think in during the early stages of the lock-down, really the only transport that was allowed was really for cargo. So in terms of Cebgo it's an important component of our strategy. Because again, we don't necessarily know what's going to happen and on a specific route that we operate into, we don't know what the demand is going to be like.
Xander Lao: The restrictions are quite high now. So I think, for example, on Boracay, that recently opened for tourism, I think early October. And we initially started out with a three times a week ATR and we are actually bringing that to a daily ATR by the middle of November. So again, at some point we hope to upgrade that into an Airbus or back into Cebu Pacific's Airbus aircraft. But in the meantime, we are using the ATR to try and develop and test out some of these markets. So whether it's Cebu Pacific or Cebgo, I guess at the end of the day, we think that a resurgence or return of domestic traffic is going to be more important to us.
Chen Chuanren: So outside of Philippines with geographic market is Cebu Pacific targeting right now? Because demographically the middle class and the overseas Filipino workers are your primary target markets right? But do you see that changing as recession and retrenchment sweeps across the globe?
Xander Lao: Yeah, that's a good question. I think the volumes are going to be vastly different. We do expect, I guess the Philippines is expecting lower remittances. A number of overseas Filipino workers or OFWs could lose their jobs. And clearly there are repatriation efforts ongoing. But I guess the other piece of good news is Filipino workers are still in high demand. We still are seeing a number of outbound Filipinos going to several countries now. So in terms of our international networks strategy, I think first of all Cebu Pacific is quite blessed to have 10 million overseas Filipino workers as part of its core markets. And we will hope, or we hope to continue to fly to these OFW markets. And so Dubai, which we're flying to, I think four or five times a week now, Hong Kong, Singapore, these markets, which have substantial OFW traffic we will continue to fly to and that'll be, I guess, a major pillar of our network strategy moving forward.
Chen Chuanren: Well, lastly some carriers have turned to alternate revenue streams like doing flights to nowhere, opening up restaurants for example. What are some of the strategies you are looking at to earn some extra income for the time being?
Xander Lao: Well, I think digitalization is really a key initiative for us. Are we looking for say, converting aircraft into restaurants or flights to nowhere? No, we're not necessarily, I think, okay. I think at the end of the day, what's going to be important is what do our customers want, what our customers require. So for our external customers, for example, we're really looking at the contactless and more seamless digital experience for them. So in terms of the contactless, airport experience, we've already rolled that out. In fact, in Manila, we're already doing self bagging, which is again, I think, consistent with what one of the new customer requirements of can we be more contactless? Can we be more digital given the, I guess our fears and risk of transmission? I think from a booking perspective, for example, from a customer digital experience perspective, we have continued to invest in our digital platform.
Xander Lao: So we hope to roll out our OMNI X platform by the first quarter of next year which will make the customer experience more seamless and in terms of booking and whether he's switching from device to device. So those are the investments we've made. Internally again for our own internal customers, how could we... I guess we've also put in some improvements as part of our transformation plan. So for example, we recently launched Aeroxchange, which is a digital online market base for EFM, for maintenance and engineering procurement of parts and the like. So I think it does a couple of things for us. One is it makes the experience for the employee much better at the same time, it does enable us to recover our aircraft much more quickly. And at the same time, probably drive a bit more savings into our cost structure.
Xander Lao: Look, I think what we've undertaken as part of this transformation plan is not necessarily what new business can we get into. But rather could we reshape and reform the, reshape the airline to have a much lower, a much more competitive cost base in the future? So we think this COVID-19 pandemic will end at some point, but we need to make sure that the airline is well positioned and quite strong at the end of it. With a lower cost base, we should be able to stimulate what we think could be a weaker economy in the future. And we think that Cebu Pacific as a low-cost carrier is well positioned to address that.
Chen Chuanren: Well said, Xander. Well, with that thank you so much for your time Xander, and I hope to fly to Philippines to see you soon.
Xander Lao: Thanks so much. Take care.
Chen Chuanren: Okay. Bye-bye.
Xander Lao: Bye.
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