Good day, everyone. Welcome to Cebu Pacific's investor briefing for the third quarter of 2025. The third quarter results reflect a return to the pre-pandemic pattern of lean travel demand in the Philippines. Key factors influencing this year's performance include the earlier start of the school season, which moved from late July last year to mid-June this year, and the onset of the rainy season, with frequent weather disturbances that typically dampen passenger traffic compared to the second quarter's summer peak. We use this period to strategically manage capacity, moderating flights and seat growth while conducting scheduled maintenance activities. This disciplined approach ensures that as we enter the fourth quarter, our operations remain resilient and well-prepared to capture stronger travel demand during the holiday season. For the third quarter, CEB posted revenue of PHP 24.3 billion, up 5% year-on-year.
The earlier school opening contributed to softer domestic travel, offset by continued growth in international passenger volumes, keeping our load factors stable at 84%. Ancillary and cargo revenues continue to post double-digit growth, supported by wet lease revenues and an increase in wide body capacity. This brought Cebu Pacific's nine-month revenue to PHP 87.6 billion, 18% higher year-on-year. We carried 20 million passengers, up 14%, allowing us to maintain a healthy 85% load factor with stronger passenger yields. Lower fuel prices, a stable peso, and gains from spare engine compensation further helped improve our performance. Core income before tax more than doubled to PHP 2.9 billion, and net income rose 181% to PHP 9.5 billion. Meanwhile, fleet availability and global supply challenges persist. The number of aircraft on ground for Pratt & Whitney engine inspections continues to fluctuate and remains above anticipated levels.
We continue to implement proactive measures to mitigate these headwinds, maintaining safe and reliable operations, strengthening supply chain coordination, and enhancing the overall travel experience for our customers. We enter the fourth quarter with a clear strategy to capture peak holiday demand. Looking ahead, we remain confident that long-term demand for budget-friendly air travel will stay strong, supported by steady economic activity in the Philippines and across the ASEAN region. These strengths underpin our confidence in sustaining growth, enhancing profitability, and delivering long-term shareholder value. With that, let me turn it over to Trina to discuss the financial results in more detail.
Thank you, Mike, and good day, everyone. As Mike mentioned, third quarter results reflect the leanest travel season for the Philippines, where CEB strategically aligns with demand by moderating capacity growth and scheduling maintenance activities. This year, on the back of 1% increase in seat capacity, CEB's total revenue grew 5% year-on-year to PHP 24.3 billion. Our seat load factor remains stable at 83.6%, while both ancillary and cargo businesses performed very well. Cebu Pacific carried over 6 million passengers during the third quarter, up 1% year-on-year. Passenger revenue was broadly stable year-on-year at PHP 15.4 billion, as increase in passengers were offset by 1% decline in yields. This is a reflection of the longer lean season this year, as July last year still contained school holidays. Whereas this year, most academic calendars started as early as mid-June.
Meanwhile, ancillary revenue rose 14% to PHP 7.2 billion, supported by 8% growth in international passengers, as well as the wet lease agreement with flyadeal. Cargo volume grew to 53 million kilos, 8 million kilos or 18% more than last year, coupled with a 4% improvement in yield. This was driven by CEB's additional wide body capacity, which captured a growing demand with this segment. With PHP 24.3 billion in revenue, EBITDA for the third quarter grew by 11% to PHP 4.8 billion, reflecting an improvement from a 19% to a 20% EBITDA margin despite the lean travel season, as higher revenues and lower fuel prices more than offset increases in airport, crew, and maintenance costs. However, higher depreciation and financing costs brought by the larger fleet and spare engine ratio resulted in an an operating loss of PHP 122 million and pre-tax core loss of PHP 1.7 billion.
Excluding fuel, cost per ASK increased 7% to PHP 2.14, but total CASK improved, declining 2% year-on-year to PHP 3.01. Peso-dollar exchange rate closed at 58.20 at the end of the quarter, almost PHP 1.9 weaker per dollar versus previous quarter's close. This resulted in a Forex loss of PHP 1.1 billion. This was more than offset by another PHP 1.2 billion in gain from one additional spare engine received from Pratt & Whitney, as well as tax benefits recognized from higher realizable net operating loss carryover or NOLCO, following the additional income from the FOC engines.
As a result, Cebu Pacific reported a net income of PHP 0.5 billion for the third quarter, a turnaround from the PHP 0.2 billion net loss recorded in the same period last year. For the first nine months of 2025, Cebu Pacific's total revenue has reached PHP 87.6 billion, an 18% increase from same period last year. Passenger revenue rose 17% year on year to PHP 59.7 billion. This was driven by a 14% increase in total passengers carried, supporting a healthy 84.8% seat load factor, coupled with a 2% increase in average fares.
We have flown 20 million passengers year to date at an average fare of PHP 2,990 per passenger. Ancillary revenue grew 17% to PHP 22.8 billion, likewise driven by the growth in passengers, plus ancillary yields, which improved by 10% to PHP 1,097 per passenger. Cargo revenues grew strongest, showing a 30% increase year on year to PHP 5.2 billion, as we carried almost 154 million kilos, a 33% increase with only a 3% trade-off on cargo yield. With PHP 87.6 billion in revenue, EBITDA for the first nine months of 2025 reached PHP 22.2 billion, up 26% year-over-year for a 25% EBITDA margin, which is up from last year's 24%.
Operating expenses amounted to PHP 79.8 billion, 16% higher than same period last year, driven by 11% more flights and 18% more ASK. This translated to a cost per ASK of PHP 3.05, or 2% lower year-over-year. With this, CEB's operating income reached PHP 7.8 billion, 37% higher than same period last year, for an improved operating margin of 9% versus 8% same period last year. The ongoing transition towards a bigger, more fuel-efficient neo aircraft allowed for better economics per seat, while lower fuel prices and a stable peso environment helped mitigate the impact of higher operations, maintenance, and fleet-related expenses. Pre-tax core income reached PHP 2.9 billion, more than double same period last year.
With additional gains from the free of charge engines more than offsetting Forex losses, Cebu Pacific's net income for the first nine months of 2025 reached PHP 9.5 billion, well above the PHP 3.4 billion net income earned same period last year. Cebu Pacific ended the first nine months of 2025 with total assets at PHP 241.3 billion, a PHP 3.1 billion increase since start of the year, and total liabilities at PHP 225.2 billion, a PHP 3 billion decrease. With two aircraft delivered, CEB ended the quarter with a total fleet of 98 aircraft. Net debt ended at PHP 157.3 billion, a PHP 1.1 billion increase on part of the year, while total equity rose to PHP 16.1 billion, up PHP 6.1 billion. These resulted in an improved net debt to equity ratio of 9.8 times, as well as an improved net debt to EBITDA multiple of five times.
Retained earnings after considering year to date income net of dividends declared ended at PHP 12 billion. That is a 123%, or PHP 6.6 billion increase since the start of the year. Cebu Pacific maintains a stable cash position as we generated PHP 28.2 billion in cash income year to date. After cash outflows for working capital of PHP 11.8 billion and PHP 1 billion in net interest payments, cash flow from operations amounted to PHP 15.4 billion. Cash outflows for CapEx amounted to PHP 4.2 billion. This was more than offset by the PHP 7.6 billion in proceeds from sale of aircraft and engines, and a PHP 1.4 billion increase in other assets, mainly from refunds of security deposits. These resulted in a net cash inflow of PHP 4.8 billion from investing activities.
Financing activities reported a net cash outflow of PHP 24.5 billion, reflecting debt and lease repayments, as well as the PHP 2.8 billion dividend earmarked for payout to preferred shareholders. Overall, these movements resulted in a net cash outflow of PHP 4.1 billion, ending September with a cash balance of PHP 15.8 billion. This liquidity position underscores our ability to fund operations, meet obligations, and support strategic initiatives while maintaining financial flexibility. I now turn you over to our President and Chief Commercial Officer, Xander, to share Cebu Pacific's commercial and operational highlights.
Thank you, Trina, and good day everyone. Our third quarter performance reflects the impact of a longer lean season this year. Unlike last year, when schools opened towards the end of July, most institutions began classes as early as mid-June. This earlier start shortened the traditional travel window and dampened overall domestic traffic during the quarter. Even so, we carried over 6 million passengers, slightly up by 1% year on year. International passenger traffic remained healthy, growing 8% to 1.5 million, and helped offset a 2% decline in domestic volumes, which reached 4.5 million. Overall, our system-wide seat load factor remained stable at 83.6%, reflecting disciplined capacity management despite softer seasonal demand. For the first nine months of the year, we have carried 20 million passengers, up 14% from the same period last year.
This aligns with our growth in seat capacity, showing that demand continues to absorb the additional capacity we've deployed. Domestic traffic rose 13% to 14.9 million, while international grew 18% to 5.1 million, keeping our year-to-date seat load factor steady at 85%. As Mike earlier mentioned, during the lean third quarter, we deliberately managed capacity, moderating flight and seat growth while carrying out scheduled maintenance. This approach positions us well to capture stronger travel demand in the fourth quarter while ensuring resilient operations. While the earlier school start brought a softer third quarter, it also sets up an upside for the fourth quarter with the return of the week-long semestral break in late October, a period that did not exist on their last year's school calendar. This provides added opportunities for leisure travel among families and contributes to a stronger outlook for the rest of the year.
In anticipation of peak holiday travel, we have increased flight frequencies, deployed wide-bodied aircraft on key domestic and international routes, and added capacity in December through a damp lease agreement with Bulgaria Air for two Airbus A320ceos. These initiatives strengthen our readiness to meet robust demand and deliver a strong finish to 2025. CEB continues to demonstrate the strength of its market leadership, reflecting a steady increase in market share across both domestic and international segments. In the domestic market, Cebu Pacific held its market share at 55.4% during the third quarter, despite the limited capacity growth. This is higher than the 54.1% recorded for full year 2024 and the pre-pandemic level of 52% in 2019. Its international market share for third quarter also remained resilient at 21.5%, up from 20.6% last year and 19.5% in 2019.
These continued gains reinforce Cebu Pacific's position as the leading carrier in the Philippines, underscoring its strong network, scale, and ability to capture demand as travel momentum continues to build. Despite various operational headwinds, our on-time performance, or OTP, improved to 74% from 69% in the previous quarter as aircraft movements normalized following the completion of taxiway repairs at the Manila airport. Customer sentiment also showed significant improvement. Our quarterly net promoter score, or NPS, rose to + 40, the highest in the past five quarters, while net sentiment was +9 for the quarter from +3 last year. These gains reflect the positive response to our continued efforts to enhance the end-to-end travel experience from digital booking and payment upgrades to more reliable operations and improved service delivery.
We view NPS as a key indicator of customer trust and loyalty, and we remain committed to building on this momentum by further improving reliability, convenience, and overall customer experience across every touch point. With the third quarter behind us, we enter the fourth quarter with a stronger outlook versus last year. Revenue per available seat kilometer, or RASK, is currently tracking 5% higher year on year. This improvement is supported by strong consumer spending, resilient travel demand, and disciplined capacity deployment, positioning Cebu Pacific to deliver higher profitability by the end of the year. I now turn you over to our Chief Financial Officer, Mark, to share some insights on our financial outlook.
Thank you, Xander. The underlying fundamentals of the Philippine economy remain generally favorable, outpacing many regional peers and demonstrating resilience and steady growth. Consensus forecasts point to GDP expansion in the mid 5% - 6% range for 2025, improving modestly in 2026, supported by robust domestic consumption, gradually easing inflation, and looser monetary policy. Higher disposable income should continue to bolster demand for affordable air travel. As Trina mentioned earlier, Cebu Pacific incurred FX losses in the third quarter as the peso closed weaker at PHP 58.20 per USD. Following the Bangko Sentral ng Pilipinas rate cut in early October, dollar peso six-month forward exchange rates per Bloomberg remain within the PHP 58 -PHP 59 range. That said, exchange rates depend on a variety of external factors, including capital flows, shifts in interstate differentials, and global risk sentiment. This stability remains pLaosible but not guaranteed.
On the fuel front, analysts expect easing in oil prices to continue, with six-month forward prices showing jet fuel below $80 by the first quarter of next year. This is driven by rising supply from non-OPEC producers, planned production increases, and moderating global demand. Although some upside risk remains should geopolitical tensions reemerge. Taken together, a stable currency, moderating fuel cost pressures, and resilient domestic demand provide a supportive backdrop for cost management and profitability through the remainder of 2025 and into 2026. These fundamentals strengthen our ability to manage exposures, maintain operational discipline, and sustain earnings momentum going forward. We maintain a favorable outlook for the remainder of the year as we are encouraged by solid nine-month operational and financial results, continued strong travel demand, and stable economic environment. Growth remains healthy, and Cebu Pacific's growth trajectory continues to outpace competitors in both domestic and most regional markets.
Despite strong demand fundamentals, the primary constraint to growth remains on supply side challenges, specifically engine availability and parts supply. These factors pose near-term risk to capacity deployment and could limit revenue upside if delays persist. We are actively mitigating these risks through contingency measures, including wet leases and close coordination with OEMs, but the situation underscored the importance of disciplined cost management and operational flexibility as we navigate these headwinds. This fourth quarter, we expect to receive five aircraft deliveries. That is three narrow bodies and two wide bodies, replacing three exiting aircraft. This will bring our fleet to 100 aircraft by year-end, with neo seat capacity increasing by at least 35% year-on-year, whereas seat capacity of older CEO aircraft will decrease by 18%. This reflects steady progress in optimizing our fleet and improving cost efficiency. Nonetheless, we continue to manage 12 aircraft on ground, still higher than anticipated.
While we expect the situation to improve toward the fourth quarter peak season, we now project full year 2025 capacity growth in the range of 11% and 13%, slightly below our earlier guidance of 15%, due to these fleet availability and AOG constraints. For 2026, we expect capacity to grow between 6% and 12%, depending on the pace of engine return to service and aircraft deliveries. Capital expenditure is projected at PHP 35 billion- PHP 40 billion, primarily for fleet renewal, replacing three CEOs and three ATRs with six new neo aircraft. This keeps our year-end fleet at around 100, while enabling seat growth through up gauging to higher capacity aircraft. Over the long term, our transition from Airbus CEO to A220 and A321neo aircraft remains a key strategic pillar.
The NEOs deliver 15%-20% lower fuel burn, greater seat density, and overall lower cost per ASK, reinforcing Cebu Pacific's cost leadership and sustainability goals, and ensuring we remain among the region's most efficient and competitive carriers. I'm happy to note that our ESG principles are firmly embedded across the organization, including within finance, where we view sustainability not as a cost, but as an opportunity fully aligned with our low-cost operating model. We are proud that Cebu Pacific was recognized with the Sustainable Aviation Lease Deal of the Year at the 2025 Airline Economics Sustainability Deals Awards in London for our sustainability-linked Japanese operating lease with call option, or JOLCO, that financed a new Airbus A321neo. This transaction ties financing costs to measurable emission reduction targets, creating strong alignment between our financial and sustainability objectives.
In addition, CEB was named Low Cost Carrier of the Year by CAPA and Best Airline by Routes Asia, alongside other ESG awards such as Diversity and Inclusion and Sustainable Transportation from ESGBusiness Awards and ETHRWorld Southeast Asia. These milestones in both our growth and ESG efforts affirm CEB's leadership, not only in the Philippines, but also in the global aviation industry, poised to deliver long-term operational resilience, profitability, and sustainable growth. Our ESG strategy goes beyond compliance. It is about creating sustainable value by proactively managing risks, improving efficiency, and strengthening stakeholder trust. We will continue to embed these principles across the business, ensuring that every aircraft, financing decision, and operational initiative reinforces both our cost advantage and our commitment to a sustainable future. I will now turn you over back to Mike.
Thanks, Mark. As we close the first nine months of the year, I'm happy to note that Cebu Pacific delivered a strong year-to-date performance despite seasonal headwinds in the third quarter. This reflects the resilience of our business model, the strength of underlying travel demand, and the discipline of our teams in managing cost and capacity amid an evolving operating environment. We effectively navigated a longer lean season brought by the earlier school opening while managing ongoing supply chain challenges affecting the global aviation industry. Even with these headwinds, we maintained healthy growth ahead of the market and are well-positioned for a stronger fourth quarter, supported by the return of the semester break, delivery of more wide-body aircraft, and the peak holiday travel.
Our performance also validates the benefits of our early investment in a more efficient and sustainable fleet, which continues to enhance our growth and cost position, support our ESG goals, and strengthen long-term profitability. While supply side and engine availability issues remain, Cebu Pacific remains financially sound, operationally resilient, and strategically positioned to capture long-term opportunities in Philippines and regional aviation. We will continue to focus on affordability, efficiency, and sustainability as we pursue our mission of enabling everyone to fly. Thank you, and we look forward to an even stronger finish to the year.
Good afternoon, everyone, and thank you for joining us for Cebu Pacific's third quarter 2025 Q and A session. Joining us for today's Q and A session are our Chief Executive Officer, Mike Szücs, our President and Chief Commercial Officer, Xander Lao, our Chief Financial Officer, Mark Cezar, and our VP for Investor Relations, Trina Asuncion. As a reminder, this Q and A session is being recorded. If you have a question or a comment, you may use the Q and A feature or the raise hand button at the bottom of your screen. Please state your name and company so we may address you properly. To ensure a smooth and efficient discussion, we kindly request that you limit your questions to a maximum of two per turn to provide others the opportunity to participate. 1st, we will be addressing the questions that were submitted in advance via email.
Our first question: Could you share your latest assumptions for the number of aircraft on ground, or AOG, in the fourth quarter and for 2026 to 2027? In light of your demand outlook and the competitive environment, how should we think about the implications of lower capacity guidance for profitability? Does it pose a net earnings headwind, or do you see offsetting upside through pricing and mix, i.e., higher average fares? I think this question is for you, Xander.
Yeah. Thanks, CJ. I think on AOGs, we entered the year really assuming eight aircraft on the ground, which I think supported the seat growth guidance of greater than 20% on a year-on-year basis. Currently, we're managing around 12 - 14 AOGs, which is limiting our full year growth to approximately anywhere between 11% - 13%. I think based on, I guess, more recent developments, it now looks to be closer to 10% - 12%. Aircraft availability remains the key limiter to capacity expansion and really by extension, to our net income growth. Having said that, demand is robust. Our revenue still grew 5% in our weakest quarter. In fact, peak Christmas travel is looking to provide extra uplift to our travel demand. We did mention earlier, RASK is actually tracking up around 5% higher on a year-on-year basis.
Really to capture the strength, we are adding near-term capacity, in December with a damp lease with Bulgaria Air for two A320ceos, alongside some of the incremental frequencies, given the upcoming wide-body deliveries. I think all of these combined actions really are positioning us to finish the fourth quarter, with really both year-on-year growth and improved margins. We do remain in close coordination with Pratt & Whitney. We expect AOG issues to remain, but gradually improving through 2026 - 2027.
I think on that basis, we do see the potential for anywhere between 6% - 10% growth in 2026 and 2027, if anything, remain fluid. On a net-net basis, the capacity constraint is a headwind. But we do think that the resilient demand in the Philippines, disciplined revenue management, as well as the mix and pricing, which will lead to higher average fares, are offsetting a meaningful portion of the impact. And clearly, as engines return and the aircraft reenter service, we do expect to scale efficiently and continue to lift margins back towards pre-pandemic levels. Back to you, CJ.
Thank you, Xander. Our next question: Could you provide guidance on your 2026 aircraft deliveries, CapEx, and financing plans? Additionally, please discuss your debt and leverage outlook. What is your target steady state net debt to EBITDA ratio? And given your outlook, when do we expect to achieve it? I think this question is for Mark, our CFO.
Quite a few topics to go through there. 1st, to go through the fleet and CapEx outlook for 2026. So we expect six deliveries in 2026. That is four narrow bodies and two wide. That would be replacing six exiting aircraft. So with that, we expect 2026 CapEx will be between PHP 30 billion and PHP 35 billion, which would be lower than this year, which we expect to be between PHP 35 billion and PHP 40 billion. And we would finance those aircraft with a combination of finance leases and JOLCOs for narrow bodies and operating leases for the wide bodies. On the net debt and leverage levels. As Trina mentioned in her part of the presentation earlier, leverage stands at about five times net debt to EBITDA versus about two times pre-pandemic. I think it is worth noting that the current net debt levels reflect two key drivers.
First would be the $250 million convertible bond issued during the pandemic, which remains classified as debt until the conversion in 2027. And second is the impact of the accelerated investments since 2023 in both aircraft and engines. If you recall, CapEx in 2023 was close to PHP 60 billion, last year was PHP 64 billion. And we have begun to slow down. We are expecting between PHP 35 billion and PHP 40 billion for this year. So well over about PHP 150 billion of incremental CapEx that we added to the balance sheet over the past three years, including this year. And this was a deliberate strategy to offset AOG capacity constraints and to capture the strong demand and growth potential we saw in the Philippine market. And the success of this strategy, you can see it manifests in our nine-month growth and profitability improvements.
But with that said, we do have to address the path to deleveraging the balance sheet. We see that the accelerated aircraft and engine investments are reaching its tail end. After this year, we would only have two more wide-body deliveries. With that, we think we are reaching the height of our net debt levels. We expect net debt to decline as EBITDA ramps up and CapEx moderates. We would expect additional uplift on growth and EBITDA also will come from aged aircraft as we bring in more A330s and A321s. Most importantly, ungrounding of the grounded Neos. I think going forward, we do expect EBITDA growth will outpace CapEx and net debt, thus improving our ratios.
To be specific about targets, we are looking at a sub three net debt to EBITDA by 2028, with the potential to return to pre-pandemic levels thereafter. Over time, we do also aim to return to a 50/50 own versus lease ratio on the fleet to reduce our financing cost and improve capital efficiency. So overall, we remain focused on balancing growth with financial resilience, ensuring that the fleet expansion is matched with prudent financing and long-term value creation. That's it, CJ.
Thanks, Mark. Our next question would be on the competitive landscape. How do you feel about today's competitive landscape? AirAsia has finalized its restructuring and announced an aggressive narrow-body order, including for non-ASEAN hubs, while Philippine Airlines is expanding its long-haul fleet and refurbishing its older aircraft. How will you defend market share and yields? I think I'll let Mike answer this question.
Okay. Very difficult to really know what's going on with AirAsia at a group level and indeed at a local level with Philippines AirAsia. Philippines AirAsia isn't publicly listed, but they just published their accounts under the SEC requirements. They have to publish them once a year. Just to show the difficulty that Philippines AirAsia is in, they ended December 2024 with just PHP 42 million of cash and with an OpEx of about PHP 24 billion. So that equates to about one week of cash. So they're totally supported by the parent company for them to carry on. Of course, that all depends then on the PN17 resolution. Whilst I think probably the AirAsia Group's going to satisfy the PN17, I think the next challenge is then the level of equity that they've got to raise.
But just when you look at the situation in Philippines AirAsia, they have got PHP 24 billion of liabilities that sit outside of the group. That is an awful lot of money that has got to be repaid at some point in time. So lots of challenges for Philippines AirAsia, and I honestly do not know where they go. They are talking about growth. They are talking about aircraft orders at the group level. Just in terms of growth, they are talking about growing in Cebu in the next week or so. They will launch some new routes. But as per our tracking, they are still at 14 aircraft, as opposed to the 25 aircraft they had pre-pandemic. So honestly, difficult to predict. You will have your own views on AirAsia overall. We will just carry on doing what we are doing and focusing on our own business.
With regard to Philippine Airlines, as we said before, we think they did a successful restructuring through COVID. We do think their business is different to ours. They will be very focused, I think, on long haul and their A350-1000 order, which will start delivering soon, will focus very much on that strategy. So I think their strategy is different to ours. We are principally a low-cost carrier in the short-haul market. They are a long-haul carrier that will focus on premium. Of course, there will be some overlap because they will need feed from domestic and from short haul. But we do not think that their existence is something that is going to be massively challenging to us.
For us, we want to focus on the enormous opportunity that sits here in the domestic and short-haul international, primarily. As we have always said, it is about 115 million people in the Philippines, and so the domestic market is key. Then flying within four hours flight time of Manila is 2 billion people. So really, we are a low-cost carrier delivering in short haul. Yeah, a little bit of long haul, but really short haul, and that will be our focus.
Right. Thanks, Mark. So for our next question would be on capital returns. With profitability and cash flows improving significantly, would you be reinstating dividends for common shareholders? Are there specific financial covenants or milestones that need to be achieved? Mark?
Sure. Look, Cebu has a strong history of annual dividend declarations and payments prior to the pandemic. This reflects our commitment to returning capital to shareholders. I think this commitment was reaffirmed with the recent dividend payout of the preferred shareholders, which brought those obligations up to date. Now with the preferred dividends current, Cebu Pacific is now positioned to resume dividends to common shareholders for subject availability of retained earnings for dividend distribution. I think based on current outlook, barring any significant economic downturns or unforeseen events, we think we can be in a position to declare and pay out the dividends to common shareholders with the release of the full year results by next year. Specifically, sorry, the full year results in 2025.
All right. Thanks, Mark. We go to our questions from the chat box. Our first question would be from Rainier Yu from Abacus Sec. His question is what led to the fluctuations in international market share for Cebu, especially in relation with PAL?
Yeah, thanks, CJ. Let me take that. Maybe to state first, market share is not a target for the company. Having said that, we did see Philippine Airlines actually expand internationally in the third quarter. They did launch a couple of new routes, expanded into North America as well. But at the same time, we also do match the capacity in relation to the demand. Given that the third quarter is a relatively soft, in fact, the softest quarter for the airline, we did decide to pull back some of the international flying. That is really one of the reasons on why there were some market share shifts throughout in the third quarter.
All right. Thanks, Xander. Our next question will be coming from Klyne Resullar from Regis Partners. Her question is actually three. First question would be, how should I reconcile your EBIT loss in the third quarter with Philippine Airlines' 43% EBIT improvement, given that your revenue was slightly stronger in the third quarter? The second question is, can you walk us through the reasoning for pursuing a damp lease with Bulgaria Air in the fourth quarter? Wouldn't this constrain your ability to respond to peak season demand? The last question is, can you provide CapEx guidance for 2026 and funding plans, which I think Mark already mentioned? When do you expect dividend levels? Will you be able to repay dividends to performance?
Trish, do you want to go first?
Sure. On Philippine Airlines, one of the things, yes, you are correct in that both of us had a single-digit growth for the third quarter, but it looks like their EBIT has grown significantly higher year-on-year in the third quarter. It is disclosed, though, in their financial statements that they had a one-time revenue of about PHP 1.8 billion from the recognition of what they think would expire from their Mabuhay Miles program. It is a one-time ancillary revenue which basically has no cost component, so it will go straight down to their EBIT line.
Having said that, this will bring down their year-on-year. It will be a reduction in their year-on-year EBIT, but they will also have still a positive operating income, minimal positive operating income. Other factors that they are ahead could probably be the long-haul segment still supporting them, that is one. And they could be benefiting more from the fuel price decline given the heavier fuel debt and consumption that they carry. I think that is for the first question. The second question, I think-
The second question was about wet leasing. I think Klyne , you may have misunderstood that we were going to be damp leasing out our own capacity. What we are doing is bringing in additional capacity. This is two A320ceos from Bulgaria Air. You may recall that we used Bulgaria Air, I think about a year and a half ago for a similar purpose, two A320ceos. This is very targeted. It is only six weeks. It is over the super peak period, and it is absolutely to give us additional capacity during the super peak. So it is actually to enhance our ability to make money during the peak period.
And third one, I think I answered Klyne , but anyway, just to reiterate, PHP 30 billion - PHP 35 billion CapEx for 2026. We are hopeful that the full year financial results and financial position would allow for a declaration of dividends sometime in 2026.
All right. Thanks, Mark. We have Jon raising his hand. Jon Ogden from Eastern Value. Jon, you may go ahead and ask your question.
Good afternoon, everybody, and thank you very much for the presentation. I've just got a couple of more long-range ones for you. The first one is, let's think about Ryanair. They were trading at about $1 or something per share back in like 2004, and now they're about $27. So, of course, everyone knows Ryanair has been this tremendous success story. So if we drill down, why did they succeed so well even though people often don't like them?
Then what lessons can we draw if we look at ourselves in 20 years' time? I mean, we'll be trading at PHP 500 instead of PHP 28 or something. I don't know. So yeah, I was just intrigued to think about what's the same and what's different about Europe in 2003 versus Philippines in 2025. You have this big market share in domestic, a growing Aviation market. Anyway, I'll leave you to-
Shall I answer that one first, Jon, and then you can come back with your second one, right? First of all, I think there's a lot of. Look, Ryanair has been the most successful airline in the world for the last 25 years, I think, and 205 million passengers in the last 12 months. Despite people apparently saying that they don't like them, there's 205 million passengers that have flown with them. Their service credentials are actually very good in terms of on-time performance. A lot to admire about them, frankly, and from pretty much every lens. I would say that's almost a guide to us as well in terms of our own principles about where we're going. We are very clear about what our strategy is and who we are in a similar basis.
Ryanair, despite the wonderful yields that exist in premium long haul across the Atlantic, is staying focused on short-haul travel. We ourselves are quite categoric in saying whilst there's a bit of long haul that we might do because we can use the A330s for that, we are absolutely focused on short-haul travel. We are a convenient, affordable, safe, reliable bus service in the sky for people flying domestically in the Philippines. We're an archipelago and also regionally, where within four hours is 2 billion people. The only, probably one of the differences we have is we face infrastructure constraints, which mean that we have a complicated fleet. We do not choose to have all the different aircraft types we have.
It's just that some runways aren't long enough or strong enough for anything other than a turboprop, and some runways aren't strong enough or long enough for an A321neo, which is why we have A320s as well. So we face complexities and perhaps, the other one is they're in a much freer regulatory environment when you look across the region. We are multi-regulators. But look, I would say that Cebu Pacific, if it looks at who it would like to mirror or looks at where is a guide in terms of simplicity and purity of strategy, I would hold Ryanair up as that example.
Their success has been that they've stuck to it. In the same way, we will not get hyped up about the fact that premium long haul post-pandemic has been the most attractive segment to be in for airlines. At some point, there will be some correction to that. We're not going to go chasing it now. We are going to stay doing what we did pre-pandemic. Back in 2019, we were producing metrics that were very much the top of the industry, and we're going to stay doing what we were doing then, just better.
Thank you. That's a very good answer, Mike. The other question, it's another sort of strategic one, is just if you can shed any light. There's obviously ongoing saga with the airline, sorry, airports in Manila and elsewhere, Clark and so on. That's an always an evolving situation. So how do you see that situation unfolding with also renovation in the NAIA, the Bulacan Airport, possibly Sangley Point, Clark, the railway. There's obviously opportunities for more flights, but also possibly more competition. People like Lion Air might come in perhaps, and they seem to be very price insensitive. Anyway, so there's a lot of things there to sort of go at as well, but it'd be interesting to hear what you say.
Well, look, again, let me take that one on. First of all, I think if you're looking at Manila and the existing airport and you're looking at Bulacan coming online potentially by towards the end of this decade, some people say 2029, some say 2030. But anyway, maybe by the end of this decade, you'll see Bulacan coming on. I think first of all, it's worth explaining that Manila's been spilling demand for as long as any of us can remember. So additional capacity overall will be welcomed. I think the market can absolutely take that in the Manila catchment that is only getting bigger and bigger. That fed through very much to a large part of our fleet order. When Bulacan arrives, we won't be transferring fleet from the existing Manila airport.
We'll be introducing a new fleet in addition, and we want to be able to put a sizable footprint down there straight away to make sure we have a presence there, but also maintaining our place here in Manila. So Manila we see very much as the Haneda of Tokyo and Bulacan more of the Narita of Tokyo. So Manila will still attract a premium. If I look at Manila in terms of the airport changes that have taken place, it's undoubtedly the case that as an operating environment, it's improved, and we expect to see further improvements. For sure, there's been an increase in operating costs for us. We've talked about that in the past in terms of the additional hit that we've taken this year in terms of cost versus last year. Now that's done. That's kind of been the adjustment, and we're now living with that.
What we can look forward to is the developments over the next 12- 18 months when we see further rollout of the enhancements that NNIC is making, and which will include terminal reallocations, we think, which will help us reduce things like taxi times, thus fuel burn, which will increase utilization as well. So there's a number of benefits that we think we can see that will flow through to our operations in Manila. Given that's the largest part of our operation, we think that will overall be beneficial. So in summary, we think operational improvements coming through in Manila will be enormously beneficial to us, and with regard to the recent increase in airport costs, we think that's done now and is now built into our underlying performance.
Great. Thank you very much indeed for the answers, Mike.
Thanks, Jon. Our next question will be coming from John Bugg from Bamboo Investment Partners. His question is: i s it accurate observation that the entire uplift in ancillary revenues was wet leases, i.e., the plus PHP 0.9 billion? On page 17, the right-hand graph, do you expect the average fare would increase month-on-month into November and December, as we saw last year?
Once again?
I can take that.
Do you want to start the first bit?
Sure. On the ancillary revenue, that's not it. While we were very satisfied with the performance of our short-term wet lease this third quarter, I think we guided that it's not big. It's two aircraft for just two months. While we saw that it was high margin and it's counter-cyclical revenue opportunity, it did not take the whole PHP 900 million lift on ancillary revenue. What it did do for us, and I think Mike mentioned it the last call, is that we are now more confident that we can move this forward in greater scale in the future years. We know how to execute it, and we know that it works. While this year is just dipping our toes into the program or into the structure, next year we hope to do more.
We hope to at least scale it to at least six aircraft maybe, and possibly more in the coming years. This third quarter was a combination of that, plus there was also success on a lot of our other initiatives. The take-up of bundles is still successful. The Plus One, the Choose Your Seat or Go Flex Seat, or instead of GO Basic, that take-up of those bundles were still manifest in the third quarter. Some pricing on the bags. That's I think it.
I think the second half of the question. Go ahead, Xander. I think it was on the passengers fares, I think.
I think we're. Let me have a look at the question. I think in terms of overall passenger fares, we are still seeing increases month on a year-on-year basis, and actually pretty strong. We are looking at a really strong December in terms of our average fares. As we did mention, we are seeing pretty strong RASK improvements. So that is actually driven by pretty strong demand and actually pretty good average fares on a year-on-year basis.
All right. Thanks, Trina and Xander. Our next question via chat is from Jon Ogden. Just a follow-up question. Can you explain the big increase in cargo revenue and what was behind this in terms of what cargo, and is it sustainable? And how about for 2026?
Sure. Let me take that as well. I think what we had mentioned earlier was there was, I think, increase in wide-bodied aircraft. So clearly, cargo market loves the wide-body aircraft, loves all of the ULDs. And that has been a key component or a key driver for us in unlocking a lot more of the cargo revenue. In fact, it's a combination of both domestic cargo revenue, where we're able to deploy the wide-body aircraft into places like Cebu and Davao, but also into markets that are doing transshipment.
So for example, we do bring some of the cargo from North Asia, and we do bring it to other markets like Middle East and Australia. So in reality, a lot of the cargo revenue growth has been driven by the wide-body growth. For next year, given that we only have maybe two wide-body deliveries, we should still expect pretty good volumes in terms of total cargo. But the key driver to that has really been the wide-body capacity that we have brought in the last year or so.
All right. Thanks, Xander. Our next two questions will be coming from Rowan Alalima from Maybank. Can you give me color on the current visibility and strength of your forward bookings for the fourth quarter of this year and into the first quarter of 2026? Are there notable trends by market or channel? And the second question is: What is the fair value of the five free of charge engines recognized as of the nine months of this year? Can you please confirm that it is PHP 5.95 billion?
Sure.
Sure. Thanks, CJ. Let me take the first question. We are seeing pretty strong first quarter forward bookings. It is, I guess I would say, a mix. I think domestic remains pretty strong, pretty resilient. We are seeing long haul to be okay on a year-on-year basis. Having said that, the forward booking profile as a whole is doing pretty well. And it has been really driven primarily by the strong domestic market. Mark, do you want to take the second one?
Yeah. That is confirmed. It is about PHP 6 billion. Yeah.
Yep. All right. Our next question will be from Alfred from FlightGlobal. You mentioned that the supply chain challenges continue to remain above anticipated levels. Do you have any numbers to share on what the actual versus anticipated levels are?
Okay. I think we may have touched on it in the presentation. There was lots of data in there, so apologies if you did not pick it out. We probably were looking to average this year at about eight aircraft AOG, and we have been in the 12 - 14 sort of. So it has been probably on average five or six aircraft higher on AOGs through this year. That has been why we have undershot in terms of our growth targets. Of course, that brings challenges for us in terms of the manage. I mean, we are currently carrying a surplus of pilots, which of course will grow into next year. These are costs that we have to incur, that sometimes people do not necessarily reconcile because they think it is just an aircraft on the ground. We have actually recruited people to fly these aircraft.
As I say, we have got growth next year as well, even when we look at the different scenarios and predictions coming out of Pratt & Whitney. By the way, we do need to build in the potential supply chain issues from new aircraft deliveries. Factoring all of those in, we have a window now of growth of about 6%-10% through next year. It sounds like quite a wide window, but when you have the variability that we currently have, then that is where we anticipate growth next year. I guess just as predicting what might be another question is, when do we see the Pratt & Whitney situation fully flushing itself out?
I think the earliest would be, as we currently sit here today, and it could change, but we are probably. We have got a few scars from it now, so we are not massively, we do not look at this with big optimistic lenses. We look at it with some realism. We think probably, sometime in 2028 that things will be to the stage where we will be at zero AOGs. I think that ties in with something that Mark said earlier on when people are looking about our leverage ratios.
Our leverage ratios are going to consistently come down in the coming years. Certainly, by the time we get to 2028, that is when we can free up these assets that are sitting on our balance sheet that have a cost that are not generating any revenue because they do not have any engines. That is the time when we really see that we can get the kicker in our performance, and we will be able to get to our financial leverage ratios similar to getting down to where they were pre-pandemic.
All right. Thanks, Mike. Our next question will be coming from Dolden Modesto of Oak Drive Ventures. Based on results, passenger revenue was essentially flat year-on-year, while ancillary revenue grew double digits and became the primary driver of top-line growth this quarter. Can you give more color on how much of this ancillary uplift is structural versus seasonal? As passenger volumes were unchanged, how should we think about sustainability of the sustainability of ancillary growth going into 2026?
Yeah, thanks, CJ. Let me take that. Trina mentioned earlier that we did some recent enhancements in terms of the bundles, in terms of the baggage products that we have offered. Some of it is clearly sustainable. We do think now it probably won't be double digit year in, year out. Having said that, we do think there is a focus to grow ancillary revenue on a per passenger basis. Part of that could be the network mix. The ancillary revenue per pax is much higher on international than it is on domestic, for example.
We did also have improvements in terms of our booking fees, for example. We did have improvements in terms of the take-up on the bundles. We also put in additional onboard meal offerings. We do think that some of these improvements have really driven up the ancillary revenue per pax. Teams have done a great job in really pushing that portion up. That is clearly a focus of management to see how we can deliver more ancillary revenue yield per passenger in the coming years.
Yeah. Thanks, Xander. Our next question would be coming from Brendan Sobie. How did the flyadeal wet lease help offset the seasonally weak third quarter? Will we see more of this in the third quarter next year? Did it have a positive contribution to your bottom line?
Okay, let me take that. Yeah, I think as Trina said, it did absolutely have a positive contribution. It was profitable, but small. It was small. It was only two aircraft. The other thing was, it was our first time looking at it, so we effectively over-resourced it because we wanted to make sure that we could deliver it well. We were dipping our toes, finding out how to do it. So two things will happen as we go into 2026 and in the years beyond. We now have a much better idea of what sort of level of resources need to go in. Plus, if we upscale as well, we get efficiencies of scale. We would think next year we would look to grow to at least six aircraft that we wet lease out during Q3.
In years beyond, we think this could grow to sort of 10 - 2 because it is worth bearing in mind that our Q3, whilst very soft for us, Q3 is super peak season in North America, Europe and Saudi Arabia as well, in particular, is strong. The other element that we need to think about is, we have an increasing fleet of A330s. So we talked about A320s. That has been our method of wet leasing those two A320ceos we put into flyadeal earlier this year.
We have the potential as well to utilize the A330s going forward, and that is going to give a much bigger capacity swing or capacity offset. So there is great potential there. Anyway, we anticipate into next year we would be doing at least six as opposed to the two, and then longer term, we would look to build this up even further. But it was profitable. Very small this year because we wanted to make sure we could deliver it. As I say, we were learning the ropes, dipping our toes.
Right. Thanks, Mike. Just to remind everyone, if you have a question, feel free to press the Raise Hand function at the bottom of your screen or type in your question in the chat box. Our next question will come from Kenneth Gutierrez from BDO. To clarify Mark's statement regarding the funding of six aircraft deliveries next year, no commercial loan will be considered? He mentioned that the financing of the six aircraft deliveries will be a combination of JOLCO and operating lease.
I may have just inadvertently missed that, but certainly we are open to commercial loans, commercial debt to finance next year's deliveries, at least at our marks.
Thanks, Mark. So far, we've gone through all of the questions in the chat box. If there are no more further questions, we'd like to conclude this briefing. Should you have further questions, feel free to send us an email anytime at the address shown on your screen. Thank you, and we hope to see you again on Cebu Pacific's next investor call.
Thank you very much, everyone.
Thank you.