Good day, everyone. Welcome to Cebu Pacific's investor briefing for the first quarter of 2025. We are pleased to report that Cebu Pacific started the year strongly, showing substantial passenger and revenue growth during the quarter. Total revenue increased 20% year-on-year to PHP 30.4 billion, despite the shift of the Easter season from the first quarter last year to the second quarter of this year. We flew 7 million passengers during the quarter, representing a 26% increase year-on-year on a 25% seat capacity growth. Our operational performance saw the seat load factor increase to almost 85%. This demonstrates how the additional capacity introduced in the second half of last year has rapidly captured travel demand from passengers.
Cebu Pacific has once again outpaced our industry, increasing our market share to 57% for domestic and 23% for international, solidifying our position as the Philippines' leading carrier in both domestic and international segments. In the third quarter of last year, we announced our strategic investments in our fleet and operations. These are delivering not just network growth, but also ensuring operational resiliency as we've had to manage global aviation supply issues as well as uncertain engine supplier repair timelines. The additional resources required to operationalize our investments into aircraft, new hubs, and network expansion since last year have affected margins, but they are paving the way for Cebu Pacific's future growth. These strategic investments will ensure greater reliability, resiliency, and overall customer experiences that are integral for driving our long-term performance and further strengthening the trust and confidence of the traveling public.
As we continue to improve the performance of our new and existing assets, we remain on track for continued improvements to returns and reduced debt, building on our strong financial position. Finally, we are observing the latest developments around tariffs and trade disruptions. The Philippine economy is largely driven by domestic consumption, and for the time being, tariffs have limited impact on demand for low-cost travel within Cebu Pacific's network. However, we will continue to be mindful of the potential impact on global growth. While changes to trade flows affect costs in industries like aviation, not all of these may be negative. Since April, tariff developments have led to lower fuel prices and a stronger Philippine peso against the U.S. dollar, which represents a tailwind for our bottom line. But there exist potential headwinds and logistical complexities for OEMs and other suppliers between the U.S. and Europe.
This may pose risks to material costs, as well as our broader fleet availability and capacity growth plans. We are actively managing technical and supply chain issues with our OEMs and suppliers to ensure that we continue to sustain both growth and reliability in the long term. As we approach peak season in the second quarter, we are confident in maintaining a positive financial outlook for 2025 and beyond. With the Philippines' long-term economic, geographic, tourism, and demographic drivers, we believe that structural demand for travel at affordable price points between domestic, Asian, and global destinations remain substantial over the long term. My colleagues are here to discuss these themes in more depth. With that, let me turn it over to Trina to discuss the financial results.
Thank you, Mike, and good day, everyone. As Mike said earlier, we saw another record quarter with revenues reaching over PHP 30 billion, driven by passenger demand across multiple customer segments, as well as continued cargo growth supported by our growing fleet. Seat load factor improved even with the seasonal shifts of the Easter holiday period from the first quarter of last year to second quarter this year. Revenue from passenger business grew by 19% year-on-year, generating PHP 21.2 billion. This was driven by 26% passenger volume growth and 85% seat load factor. Ancillary revenue reached PHP 7.5 billion, growing 22% year-on-year, with yields slightly improving to PHP 1,054 per passenger. Increase in our wide-body aircraft allowed for bigger cargo capacity in both weight and size.
Revenue from the cargo business rose by 35% year-on-year to PHP 1.7 billion as we carried 51.6 million kilos of cargo in the first three months of the year. Moving to profitability, first quarter EBITDA slightly grew to PHP 6.7 billion, while operating income or EBIT reached PHP 2 billion from PHP 2.7 billion last year. We faced an increase in operating expenses driven by a larger fleet and an increase in the number of flights, resulting to higher fuel, crew, and maintenance costs. Keep in mind that aircraft and engine investments made since the third quarter of last year have not yet been annualized, putting pressure on year-over-year margins. Meanwhile, a weaker peso and lower non-core gains resulted to net income of PHP 470 million.
With a fleet of 99 aircraft, including one recent addition, total assets reached PHP 239.3 billion by the end of first quarter of 2025, reflecting a PHP 1.1 billion increase since the close of 2024. Meanwhile, total liability stood at PHP 228.9 billion, an increase of PHP 744 million. Unearned transport revenue rose by PHP 1.7 billion, signaling an increase in advanced bookings. We had one aircraft delivery during the quarter, which increased lease liability by PHP 2.3 billion, while short and long-term debt declined by PHP 650 million, with no new borrowings. With these, net debt stood at PHP 159 billion, for an average net debt to EBITDA of 5.5 x. Our current ratio stood at 0.5 x. Total equity improved to PHP 10.4 billion from PHP 10 billion at the end of 2024, and retained earnings rose by PHP 470 million -PHP 5.9 billion.
Our approach to capital management has kept our cash position broadly stable over the period as we have held back on further CapEx and managed our debt position. Net cash from operations amounted to PHP 4.9 billion as cash income of PHP 8.9 billion was reduced by working capital requirements, interest, and tax payments. We had minimal net cash inflow from investments. Our first aircraft delivery being a right-of-use asset minimized cash spend for CapEx to PHP 1.4 billion, while proceeds from sale of assets provided inflow of PHP 1.5 billion. Net cash outflow for financing was PHP 5.8 billion as we continue to make debt and lease payments. Taken together, these factors led to net cash outflow of PHP 0.9 billion, ending the first quarter of 2025 with a broadly stable cash balance of over PHP 19.1 billion. As mentioned at the start by Mike, 2025 will bring both opportunities and challenges.
We are building on our position of long-term strength as our strategic investments mature, our operations sink into higher gear, and we benefit from potential tailwinds, including lower fuel prices and the stronger peso. I now turn you over to our President and Chief Commercial Officer, Xander, to share Cebu Pacific's commercial and operational highlights.
Thanks, Trina. The first quarter demand continued to be strong as we carried close to 7 million passengers, reflecting an increase of 26% year-on-year. Seat capacity, on the other hand, grew by 25% year-over-year. By the end of the first quarter, Cebu Pacific's network had grown to 64 destinations and 128 routes across five hubs with over 3,290 weekly flights. Meanwhile, seat load factor improved to 85%, showing how demand has quickly absorbed our additional capacity. The domestic market, which accounts for 73% of Cebu Pacific's total passengers, grew 28% versus last year to over 5.2 million, while international passengers saw a 22% increase to 1.8 million. These data points highlight the strong and consistent demand for air travel across all market segments. Cebu Pacific has demonstrated stronger market leadership, achieving growth amid supply chain and industry constraints that have challenged competitors.
Domestic market share rose to 56.9%, compared to 54.1% for the full year of 2024. International performance also remained strong, with market share increasing to 22.5%, up from 20.6% for the full year of 2024. Cebu Pacific has reaffirmed its position as a leading carrier in the Philippines, both for domestic and international markets. Our on time performance, or OTP, remains stable despite flight volume increases. OTP reached 74.23%, up from 73.63% in the previous quarter. Customer sentiment measured by Net Promoter Score, or NPS, remains a net positive at +31, compared to +32 in the previous quarter and +31 last year. We are also starting to unlock various operational synergies with AirSWIFT, including the migration of bookings into our reservation system. For the first time last quarter, Cebu Pacific flew into El Nido for the first time.
Continued improvements are underway in our operations, such as the purchase of additional ground support equipment, which will improve aircraft turnaround time and operational efficiency. This, among other initiatives, underscores our dedication to delivering a safe, reliable, and seamless travel experience for our passengers. I now turn you over to our Chief Financial Officer, Mark, to share some insights on our financial outlook.
Alongside the demand that Cebu Pacific has been capturing from our expanding operations, we continue to assess global macro conditions and identify where tailwinds and headwinds need to be closely managed. First, looking at tariff developments. While global demand and trade face uncertainty, the Philippine economy is largely driven by domestic consumption versus other markets in our region that remain more reliant on exports. At this stage, the direct impact of U.S. tariff policies on Philippine consumer demand may be limited. With this in mind, we remain optimistic regarding Cebu Pacific's growth and performance going forward. Our customers are largely anchored in the Filipino market and economy, domestically and abroad. About 70% of our passengers fly domestic, and a significant driver of our international growth are Filipino leisure travelers and workers.
As noted earlier by Xander, the capacity additions that we placed last year are successfully being absorbed by the market and have put Cebu Pacific in an advantageous position to seize this growing opportunity. On the potential impact on our costs, fuel price and dollar exchange fluctuations are key components of our cost base, representing around two-thirds of our total. Fuel comprises approximately a third of our OpEx and is denominated in U.S. dollars. Since the tariff developments have emerged, global demand forecasts have been revised downward, softening oil prices. At the same time, the U.S. dollar has weakened slightly against the Philippine peso. These developments, lower fuel prices, a stronger peso, and low interest rates create a more favorable cost environment for Cebu Pacific for the time being.
On the other hand, while the Philippines may be relatively insulated, U.S. inflation affects aircraft and materials pricing within our industry, including Cebu Pacific. Even more, a protracted and globalized trade war could have wide-reaching effects, including a possible U.S. or even global recession, which would impact businesses and industries globally, including the Philippines, affecting all industries. As I mentioned just now, we are continuing to maximize our growth potential within the external constraints that have persisted with our suppliers. Aircraft delivery timelines have remained uncertain as Airbus has been addressing its industrial and supply chain issues. Engine availability from suppliers continues to limit our ability to raise our capacity even higher. The resolution of engine recalls by Pratt & Whitney remains uncertain and subject to change, despite our ongoing intensive efforts to address this issue. Aircraft on ground at the moment stands at 13.
While this is the highest to date, the additional engines in the aircraft we have acquired have allowed us to continue growing our capacity, though behind the demand we can see and could otherwise capture. Our teams have also been resilient in ensuring our operations remain as seamless as possible after implementing lessons learned since the beginning of the extended engine recall. We are also managing our suppliers around the life limits for our wide-body engines. While Rolls-Royce has committed to implementing life extensions and providing spare engines, our A330neo fleet may also be affected by possible delays and future service needs. Given persistent uncertainty from suppliers for resolving the AOG situation, we are updating our 2025 seat capacity growth from an initial guidance of 25% to now 15%-20%. Our fleet plans will remain unchanged.
We have a net two aircraft additions this year, with one already delivered this first quarter. CapEx for the year remains within the PHP 30 billion-PHP 35 billion range, approximately half of 2024, creating space for the company to deepen our focus on financial returns. Earlier investments in fleet and operations back in 2024 serve as catalysts for capturing consumer demand and also provide us with strong foundation to ensure operational reliability amidst varying external and operational scenarios. Based on the foundation we have built for sustainable growth, while 15%-20% capacity growth is lower than our initial guidance, this level of capacity expansion remains sufficient to improve profitability and strengthen our overall financial position. With that, I will now turn you back over to Mike.
In summary, 2025 will be another exciting year for our company as we build on our strong position as the Philippines' aviation leader while navigating the turbulence created by external supplier constraints. We have taken every step to maximize our ability to capture substantial growing demand for travel and build resilience throughout our operations. We have done this as we have been faced with aircraft on ground due to engine supply challenges and other ongoing industrial issues impacting supply deliveries for our fleet and operations. Though we have reduced our capacity growth guidance to 15%-20% based on these external constraints, Cebu Pacific remains well-positioned for growth and improved performance. The additional capacity and foundational investments made last year will allow us to further strengthen the established bases of Manila and Cebu while developing new hubs.
These earlier investments have not only led to our accelerated growth over the past two quarters, but also provided a solid platform for operational reliability amid an environment of heightened global uncertainty. Now that we are in the second quarter, which is the peak travel season for the Philippines, we will focus on managing our capacity to ensure we optimize availability, balanced with reliability, and relentless focus on the customer. Together with a healthy balance sheet and disciplined CapEx, we are on track to improving our returns and leverage ratios. Moreover, Cebu Pacific's capacity expansion plans are aligned with growing domestic and regional economies and population in the world's most dynamic and exciting region for aviation.
The Philippines' economic, geographic, tourism, and demographic drivers all enable growing and long-term demand for air travel. Millions of individuals continue to aspire to travel to more places, more often for the first time, and at affordable prices. Cebu Pacific has placed itself at the forefront of the industry, positioning us to take full advantage of this opportunity. Again, thank you for being with us today. Let's fly, everyone.
Good afternoon, everyone. My name is CJ Sarino, Cebu Pacific's Director for Investor Relations, and joining me here for the Q&A portion of this call are Xander Lao, our President and Chief Commercial Officer, Mark Cezar, our Chief Financial Officer, and Trina Asuncion, our Vice President for Investor Relations. We also have Mike Szucs, our Chief Executive Officer, who is joining us online. Hi, Mike, can you hear us?
Yes, I can hear you. Can you hear me, Cesar?
Before we begin, a quick reminder on our ground rules. If you need to communicate with the host, if there are any issues on your end, just please use the chat function. If you have a question, please use either the Q&A feature or the raise hand button below your screen. Kindly state your name and company and make sure to unmute before speaking. And lower your hand if you have no further questions. To keep the discussion smooth, please limit your questions to a maximum of two so we can address them properly. If time allows, you will have the opportunity to ask a follow-up question once you have tackled the initial ones. We will tackle the questions that were sent in advance via email.
The first question is: Can you elaborate more on your growth strategy over the next three to five years, given the competitive landscape in the industry? Will you add more routes and hubs? Probably Xander, can you further comment on this, please?
Yeah. Thanks, CJ. First and foremost, our growth strategy is really going to be anchored on the Philippines or what we call the Fortress Philippines strategy. A couple of factors are playing into that. First, we think that the economy will continue to grow at a healthy pace, maybe 6%-6.5% over the next three to five years. Second, we are seeing a growing workforce with greater propensity and ability to travel. GDP per capita is also growing. Effectively, what we will see is maybe an overall growth in air travel, roughly 10%-15% annually over the next three to five years if we think that air travel grows at 1.5x to 2x that of GDP. We think that growth for us, in particular this year, will be roughly in that 15%-20% range.
I guess outside of that or next to that is within that four to five-hour flight circle within the Philippines, there are roughly 2 billion people residing in that area. These are areas where the economies are continuously growing. So we're pretty excited about where we are. If anything, the last thing that will help propel some of this growth is a lot of the infrastructure projects are already ongoing. We see the development of many. For example, Bulacan will come online in a couple of years. We're also seeing the development of infrastructure outside, such as Clark, Cebu, and the other airports that the government is either awarding to private concessionaires or improving themselves. So clearly, we are excited in that matter.
Mike, anything you'd like to add?
No, the only thing I'd say is what we've consciously done is, given what we think is an extremely strong opportunity in the Philippines for the reasons you've just said, is we've made the conscious decision to invest in the capacity. We see that we're the only carrier that can do that, and it's pleasing to see that the demand has filled all those seats that we put into the market. Not only are we now substantially the largest domestic carrier, but we are now the largest international carrier as well in the Philippines.
All right. We now move on to the second question. Could you explain further the limitations that the suppliers' situation has placed on growth? What are the areas within and outside Cebu's control regarding the AOG situation? Mark, can you take this one?
Sure. It's well known that global supply chain issues have been impacting original equipment manufacturers and maintenance repair organizations, so OEMs and MROs, in fulfilling their commitments to their airline clients. We have been managing this closely with our suppliers. It's been a two-year situation, at least since we came out of the pandemic. So at least in 2023, this has been a reality we've been living. In fact, since last year, we secured additional engines and aircraft that, despite all of these issues, have enabled robust growth for our business. Still, I think the reality is the situation two years or so later remains very fluid. We have had some recent events and updates from our suppliers, again, both OEMs and MROs, that have prompted us to update our guidance downwards for capacity growth to 15%-20%, as noted earlier.
Three factors going to this. One of them is delays in aircraft deliveries. We've been notified officially by Airbus that to expect up to three-month delays on deliveries for this year. Second is that on the AOGs, on AOG days on grounded with the engines on the narrow body fleet, the new generation narrow body fleet are growing, to say the least. We are currently at 13, actually down to 12. We ungrounded one aircraft the past 24 hours. Just to remind everyone, we were at 10- 11 last year. Our initial expectation going into this year was we would have around eight for the course of this year. Instead, we're at 13 highest, I noted earlier, highest we've ever had. We're also expecting further engine service requirements later this year for both narrow bodies and wide body engines, which will disrupt availability, obviously.
We've increased spare engines for our narrow bodies, and we have commitments from our manufacturers about extending life limits. They're also spare engine, provision of additional spare engines for our wide bodies. Still, we would still need to ground the aircraft to carry out these engine replacements. An engine change could be anywhere from three to seven days easily, and we have a lot of them lined up in the second half later.
Okay. Let's turn on to the next question. Can you give us more color on maintaining the strength of your balance sheet, as you mentioned, specifically on deleveraging and managing costs from the fleet expansion last year? Probably Trina can take this.
Sure. Thanks. There's really twofold. First, of course, the shift in the Easter peak from Q1 last year to Q2 this year, which basically reduced our fares. Although you've seen that the seat load factor or the passengers have been quite robust in growth. Average fare decline, as noted earlier, was about 6% year on year. That in itself reduced the margins. Secondly, our CapEx last year was quite significant with all the investments. So we did see things like depreciation, amortization, interest increase year on year significantly for first quarter 2025. In particular, a lot of the aircraft and engine investments that we did last year was at the back end of 2024.
We expect that as these investments annualize and as our CapEx is reduced by about half the levels of last year, and more so that regular debt payments for the previous investments are done, then effectively these costs, depreciation, amortization, other fleet-related costs, will grow at a slower pace. Meanwhile, with continued revenue growth, the margins automatically will improve. That's our outlook. Hopefully, this is our outlook for this year. Hope that answers the question.
All right. Thank you. Can we go to the next question? What is your outlook for tourism recovery in the Philippines in 2025? You mentioned customer segments in the presentation. Do you see domestic and international travel demand increasing, and how will it benefit your business? Probably Xander for that.
Sure. Thanks, CJ. We think that outlook for Philippine tourism continues to remain very promising, very strong. We are seeing a recovery, as noted by the Secretary of Tourism. We are recovering to like, I think 9% on a year-on-year basis, with total arrivals now closer to 6 million. That's one component that's coming back. We think the other component that's been quite helpful is based on the
WTTC studies, the Philippines has the largest domestic tourism market in Southeast Asia. Their estimates feel like the contribution is close to around 21% of the total economic activity. Internally, what we are seeing that more and more Filipinos, based on our own internal data, are traveling overseas, whether it's to popular destinations such as Japan and Hong Kong. We continue to see a strong growth in markets like Thailand, Taiwan, and even Vietnam. If anything, one of the key considerations that we see that travelers look at is really affordability, and we believe that Cebu Pacific is positioned quite well in that aspect. We do continue to have a focus on filling up the aircraft and making sure the fares are affordable, and that should help boost overall tourism for the country and obviously for Cebu Pacific.
All right. Thanks, Xander. We go to the next. For Mike, is there anything to add, Mike, on that part?
No, I think Xander's covered it extremely well. I think that, again, the main thing is that we have seen strong demand on a 25% growth in Q1. We're now coming into Q2, and we've actually pulled off the level of growth, not by design, but by the reasons that Mark has alluded to. That should lead to a strong performance in Q2.
All right. Our next question is, can we expect Cebu Pacific to pay out dividends for shareholders soon? Given the positive operating and financial outlook, is shareholder return one of your capital allocation priorities? Mark?
No. Shareholder returns are definitely one of our capital allocation priorities. Part of the roadmap to be able to do this is to be able to accumulate retained earnings sufficient for dividend distribution. That's just, again, just to remind everyone, we talked about this at previous calls. It's not just retained earnings per se, it's adjusted retained earnings available for distribution. I think while our revised capacity growth doesn't help and may delay the timing of the declaration and payout, we do remain on track to having sufficient earnings this year available for dividend distribution within the year.
All right. Thanks, Mark. I guess we now turn over to those who have raised their hands. I guess we'll start with Mr. Albert Casanova. Albert?
Yes, hello. Good morning.
Go ahead.
Good afternoon.
Okay.
Thank you very much. I have a couple of questions, if I may. Maybe the first one for Xander. Congratulations on the increase on seat load factor on such a large increase in capacity. That is very good, actually. I noticed, though, that the average fare, on average, is going down. When you look at your individual route performance, do you see that behavior on the average fares across the whole network, or it is just a result of the growth with the new routes and the difference? First of all, there is a lack of revenue maturity with new routes, and second, you probably have a different stage length and so on and so forth.
Sure. Happy to take that question. I think a couple of things. Clearly, the first part is some of the expansion that we have built in our network, but actually, we have seen the fares progress quite well on a quarter-on-quarter basis for that. I think if anything, the other one that Trina mentioned, there really has been an impact in terms of overall seasonality. Because last year, Easter was actually in the first quarter, whereas this year it is now in the second quarter. So what we are, in fact, going to see is an uptick in terms of average fares, clearly on a year-to-year basis, as we will see that shift to Easter coming this second quarter. In fact, also Trina mentioned earlier that in spite of all of that capacity growth of around 26%, average fare decline was only around 6%.
We do think there's additional upside coming in the future.
Okay, thanks very much. It's very good to know. Then another one, maybe it's probably more for Mike. If I look at your network, and I'm mindful that it's growing a lot, and there is a number of airports which have plans to improve their capacities or the runway. But if I look at the network and specifically on the narrow body, do you see any part of your network where the A321neo, which is kind of your target long-term ideal aircraft, would have payload restrictions, and where the A320 neo does not have those payload restrictions?
Right. I think in general, if we had the luxury of very long runways and strong runways throughout the Philippines, then undoubtedly we are a simplified A321neo operator in the same way that Wizz Air would be, and that would be the way that we would do things. We are more complicated, very much so because of the infrastructure constraints, hence we even have ATRs, and we have a mix of A320s and A321s. If you look at all of our orders, our previous order from before the one we announced last year, and indeed the order that we have, we have all the flexibility to choose between A320s and A321s. And this is precisely because we don't know the extent to which runways will be upgraded.
We believe there will be ongoing upgrading of runways in capacity and infrastructure in the Philippines, as been mentioned before, and we think there's a strong momentum for that. But it's just a question of how much that comes on. We would love to have A321neos throughout, but we envisage for a long period of time that we'll have to have some A320s still. And that really is about the length, and as much as that is the strength of the PCN of the runways as well. So it's something we just have to monitor, and within the remit of our order book is the ability to swap between A320s and A321s as we go along.
Excellent. Thanks very much. Maybe my last one, this one is maybe for Mark. Can you provide some color, to the extent you can, on the bond redemption features, especially potential to early redemptions?
Sure. The bond matures in 2027. The bond was originally issued to Indigo Partners and IFC in 2021. It has a six-year term, so maturity in 2027. The bondholders can convert at any time. At 2027, they basically have to make a decision on whether to convert themselves into equity or get their principal back. The option sits purely with them, the bondholders.
Okay, thanks very much.
All right. Thanks, Albert. Our next question will come from John Bugg. John, go ahead.
Hello, all. Congratulations on the revenue growth. Great operating effort there. My question is around, I think it's a fairly obvious one, around maintenance. Very sharp jumps year-on-year for both repairs and maintenance. Aircraft and traffic servicing, aggregate, they grew 60%. Should we consider this new base or was there anything specifically one-off in the quarter in the repairs and maintenance that wouldn't be repeated in coming quarters? Have we set a new base or were they one-offs in the quarter with repairs and maintenance? Thank you.
Maybe I'll take that, John. Trina here.
Thanks, Trina. Hi.
Just to put things in perspective. You're right, repairs and maintenance costs increased quite significantly last year. A lot of that really is the aircraft deliveries and the spare engines. Basically the power-by-the-hours for that would have increased it. If you look at our fleet size, the right-of-use asset value, this asset value alone increased about 30% year-on-year. So on a power-by-hour basis, the maintenance cost, the early provisions we do for these maintenance requirements is quite significant on a year-on-year basis. Having said that, this year, having a lower net addition in fleet, and yes, as the spare engine requirements annualize, the increase this year should be slower. That's one. Second, on your question on airports, yes, that's real. The flights, of course, increased.
The rates also increased with the growth in the network as we grow more international, as well as the rates here as the airports privatize. They have increased. Those are really twofold. I think similarly, that will annualize year on year around September this year. Those are the key areas, really. I hope that answered your question.
Sure. Thank you. A follow-up question on fares. If you did strip out Easter and compared the other months, I know two months, and you've got Chinese New Year in that and all, but would fares have been up if you did strip out Easter? Have you done that analysis? A follow-up question to that would be, are we expecting fares to rise with Easter in the second quarter annually year on year? Or are we seeing a slower decrease of low single digits that's a longer-term trend or a medium-term trend? If there's any analysis you can share on that, it'd be much appreciated. Thank you.
Sure. Let me take the fares piece then. Clearly, we are going to see a jump on year on year fares given the shifting seasonality. I think fares are also related to, I guess, the competitive response. When we take a look at our competitors, for example, Philippines AirAsia, we've seen their fleet shrink compared to pre-COVID. They're about 13- 14 aircraft compared to the 24 aircraft they've had. Clearly their pricing power is limited. We believe Philippine Airlines is more concentrated and focused on longer routes such as the Transpacific network. We do think there is some upside clearly on a year-on-year basis, as well as a quarter-on-quarter basis. We do think second quarter fares are going to be higher, clearly. Obviously we have some upside in the next few quarters. I hope that answered your question.
Sure. Thank you. One last one, a quick one. The second aircraft coming this year, is it an A330 again?
That's correct.
Thank you. Cheers. I'm good. Thanks, guys.
Thank you.
Okay. Thanks, John. Just a gentle reminder on the two questions each, per person, until we finish the round. Our next question would be from Klein Rasiliar. Klein, you may go ahead and ask your question. Thank you.
Hi. Can you hear me?
Yes, we can hear you.
Okay. I'll limit my questions to just two. My first question is, I understand that the persistent global supply issues is again affecting your guidance when you lowered your growth guidance. Are there risks that you will need to accelerate investments again this year, similar to what you did last year, given that you also face the same challenges? That's my first question.
You want to take that one?
Okay, Klein. I think the latest guidance we're providing is based on sound assumptions, based on conditions of our CCOM. I think we're confident that should be a fairly accurate representation of the outlook of the business going forward. I think unlike in previous years where we chose to add more aircraft, add more engines, I think that option's not available to us honestly at this point in time. I think the supply of aircraft and engines in the market is extremely tight. I think we will just have to make do with what we have in the pipeline in terms of new aircraft deliveries, which is not small. We still have six coming for the balance of the year. We still have also five spare engines for the balance. Yeah.
We're pretty confident about meeting the 15, the lower guidance.
Yes, I think that there's already an amount of conservatism built into that.
Okay, thank you. My second question is related to, there is news that the CAB wants to increase airport fees across the board. Across all airports in the country, I guess. Is this a big concern for you? Could you pass this on immediately?
Sure. Let me take that. Couple of things we did with CAAP. To your question, Klein, there have been public hearings in terms of adjustment of airport costs for CAAP. To be fair, these costs have not been adjusted for, I would say, a couple of decades now. I think the recent discussions and negotiations we've had with them, both Cebu Pacific and the local airline association, we discussed could we stagger some of these cost increases in which they've kindly agreed to. We are going to actually see a two-phase increase in top airport costs. In terms of passing on those costs, we intend to pass on some of those costs, clearly. Whether that can be immediate or not is something to be seen. But we have so far looked at additional revenue streams to try and pass on these costs accordingly.
All right. Thanks, Klein. Our next question will come from Mr. Gary Pinch. Gary, you may go ahead.
Can you guys hear me?
Yes.
Yeah. Okay. Well, thanks very much. So two questions. A couple of my questions have already been answered before. But for Trina, I understand the hours of power went up. You said asset values were up 30%. So on a year-on-year basis, it's not really great to look at the number, right? But even on a quarter-on-quarter basis, the repairs and maintenance costs went up, I don't know, roughly around 40%, 45%, I guess. Just on the back of John Bugg's question, where do you think repairs and maintenance stabilizes? Where do you think the quarterly run rate will sit eventually? Is the first question.
Okay. Sure. I think safe to say by the end of this year, maybe a year-on-year basis. If you notice, we do have the aircraft deliveries, gross deliveries, but we also have the exits. We have to be conservative in our provisions as we exit those, or return those leased aircraft within the year. You will only have a net addition of one this year, and then going forward, the net additions will be quite conservative already. I think, while it might still be at a year-on-year basis high until third quarter, maybe a year-on-year basis come the end of this year, or fourth quarter this year or next year could stabilize a bit. What do you think, Mark?
I think the positive thing there is, was with a particular transaction we did on the A321neo that changed our treatment for maintenance.
That is also impacting. They converted from a finance lease an operating lease, and with that, the standards require us to provision for, in particular, the engine visits of basically seven A321neo. Those shop visits are coming up within like the next 18-24 months. We do not have a lot of time to build up the provisions for them. After that, we then could probably see a more stable picture of what our maintenance will look like in the long run. Probably towards middle of next year.
Okay. Some of those costs, I guess, in the reclassification are kind of extraordinary, if you could put it that way. Is that fair?
Of course.
Okay. Was any of that in the first quarter? Were there any reclassifications in the first quarter that drove up the number quite meaningfully?
Yes. Not in the first quarter. We feel it now in the first quarter because the reclassification was done last year, late last year.
Okay.
Basically, we're converting it from property and equipment that we own. We now want to exit it, and with that exit to prepare for its return, and that increased the provisions until it's on its way out.
Got it. Okay. You should have some higher provisions for the second and third quarter as well?
Yeah.
Okay. Got it. My second question, was you've got Indigo there as a partner. I know I read somewhere that you guys kind of leverage their buying power in the market. Does the relationship with Indigo help you on the servicing and maintenance side to bring capacity back on stream faster? Are there any cost benefits on the repair and maintenance side that you can see as well? Can you kind of talk us through that?
Mike, would you like to take that?
Well, we get. In fact, Mark is part of the joint procurement committee. So there is a joint procurement on sort of big-ticket items. As much as confidentiality clauses allow, we share information. There is obviously Chinese walls as appropriate and as required. But, on certain big-ticket items, we will actually look to go to the market as a group. So one for now, for example, would be on aircraft seating. It has to be a fairly big-ticket item for it to have value. We won't get down into sort of nuts and bolts on a joint procurement exercise. But on the larger big-ticket items, we will do so. And it has proven to be a great benefit to us. So it is something that we will continue to do on an ongoing basis.
Okay. Thank you, guys. That was it from me.
Thanks, Gary. On to the next question. Mr. Julian Cook. Go ahead, please.
Can you hear me?
Yes.
Yes, Julian.
Great. Thanks a lot. First question is on the Pratt & Whitney issue. Quite surprising to see a reverse. I mean, the last couple of calls, you seemed much more optimistic that it was more under control, and things seem to have gone backwards. Can you elaborate a bit more on what is the issue there? And maybe also comment how many days is it taking for the engines to come back? Is it due to parts availability? Is it just queues in the shops? If you could just elaborate, and if you see that again, I would have expected more visibility. So do you have visibility beyond the next six months and how that is going to evolve?
Let me take that. The reason why I am not in the room with the others, Julian, is I am actually over here in Singapore and I have been meeting Pratt & Whitney. The principle issue, and there has been improvements in terms of the, I have just been around the facility they have here, which has got increased capacity here in Singapore. So on a number of the aspects in relation to doing the overhauls of the engines, they have improved. The single biggest issue is on the availability of the materials. Actually, all the preparation, and all the getting an aircraft inducted and then sort of stripped down, and then once it is all rebuilt, the bits that you rebuild it and you test it, all of that bit is fine, but it is once you have taken it apart and you need to have sufficient materials to fix it essentially or to do the overhaul.
And it is that part of the process where Pratt & Whitney is still a little bit behind from where it expected to be. It is not just a Pratt & Whitney issue for those who are monitoring the situation at large for indeed LEAP engines and, well, basically every platform that is out there. This is an issue around the industry. But it really is materials more so than anything else. There is another issue that has just recently arisen, which is the strike for Pratt & Whitney, which we do not believe is going to have an impact. But for the moment, in terms of our outlook, we think we are probably at the sort of levels of AOGs, plus or minus one or two for the remainder of this year. And that is kind of leading us into our outlook of 15%-20% in terms of capacity growth.
As we've said, that's down from where we thought it was going to be, but still substantial growth. I think our focus is really on what does this mean for 2026, and I'll be honest to say that we are keen to ensure that we continue to grow. That is our plan. Continue to grow, hopefully, at low to mid double-digit figures for next year. But we need to seek some further clarifications from Pratt & Whitney in the months ahead. At the moment, Pratt & Whitney is still understanding and trying to project itself what's going to be happening in terms of the material supply. As I say, it's not just them. But that's as much of the situation as I can tell you.
We don't have absolute clarity in terms of what 2026 will look like, but we do anticipate we'll be growing still from where we are this year.
Thanks, Mike. Second question on the balance sheet. You've got a net debt to EBITDA, which is elevated, should we say, quite elevated, over 5 x. What's your, I don't know, medium-term objective there? I was a bit surprised earlier to hear that you are even thinking of paying dividends when you still have a lot of debt, you still have this convertible bond that might have to be repaid in a couple of years. So I'm just curious to understand a bit better how you're thinking of the debt levels and capital allocation.
Okay. Maybe I can take that. Yes. We acknowledge that our 5.5x net debt to EBITDA is on the high side, given our history. But we really hope and we really think that within the year, we can reduce this maybe even below 5 x, and then we will remain positioned for further improvements in the future. As Mark said, this is notwithstanding the plans, because the retained earnings will be growing on its own and hopefully, we will have sufficient retained earnings available for dividend distribution within the year.
If I may add, Julian, I think that the first thing we should say is, some of this additional debt is absolutely a conscious decision that we have taken in order to grow more quickly. The competition that we have is not able to grow. Despite the challenges we have with Pratt & Whitney supply chains, generally, we took the decision, given the opportunity that is present, to frankly load up the balance sheet in a way that we normally would not have done. But that is giving us the opportunity to grow now where others cannot. And ultimately, we believe that will feed back with improved earnings, et cetera. So we think that is going to be worthwhile. And as Trina says, the CapEx is coming down by about half this year as well. So over time, this will correct.
The second one is just as a perspective, whilst I cannot guarantee and I cannot necessarily speak in absolute certainty for two stakeholders, Indigo Partners and IFC. They are not in it for a bond, really. They want to look this as equity. So we would not anticipate, we would think it extremely unlikely that we would repay the bond. We would anticipate that they will convert to equity at some point.
Great. No, thank you very much. It's just that when you're in a high growth situation, and I think you're doing absolutely the right thing, it's just surprising that you would think of dividends instead of just using the excess cash to keep your debt levels lower. It's just a comment.
No, I understand, Julian. I think one of the things that we would say is we, again, pre-pandemic, when we were very much an airline with consistently strong financial performance. Philippines was very badly hit through the pandemic, more so than anywhere else. We went through it on our own accord. No help from anybody. That is why we have to recover. But pre-pandemic, we were a consistent dividend payer. It is kind of in our DNA that we want to get back to that position. So I think we recognize what you are saying in terms of the metrics that you described, the ratio described, but equally, we have kind of got it in our DNA that we have got a duty to shareholders to provide them a regular dividend.
And of course, to address the pref shares and the accumulated dividend aspect there, we have to do that before we can then return a regular dividend to our ordinary shareholders, which is absolutely one of our objectives. It is what we were known for pre-pandemic.
Great. Thanks. Thank you very much.
All right. Thanks, Julian. Just conscious of time. We will take the last few questions from Rona Daligo. Rona, go ahead, please. Thank you.
Hello. Okay. First of all, congrats on the strong performance. I believe my questions have been addressed, but I just need some clarification on the margin side. So what caused the sharp drop in GPM and EBITDA margins in Q1 2025? What steps are being taken to improve margins, and when can we expect recovery? Thanks.
Yeah. I'll take that. As noted earlier, Rona, a significant part of that really is the fair decline due to seasonality. The peak season last year was first quarter, and the peak season for travel is second quarter this year. Notwithstanding that, I think our EBITDA levels has actually been the same, whilst the margin has a bit declined. That's telling because it's already same level of EBITDA even with the fair decline. The second really is the year-on-year increase on the fixed assets cost because our deliveries and our additional fleet costs happened at the back end of last year. So on a year-on-year basis, that's quite significant in terms of an increase in cost, including financing. But as that annualizes, and as we have a slower CapEx growth this year. Oh, sorry.
A slower increase in depreciation, amortization this year because we have half the CapEx that we did last year. I think we are in a position to improve that profitability margin on an annual or by the back end of this year. I hope that clarifies, Rona.
Yeah. Thank you.
All right. I guess with that, we can end this call. Thank you again, everyone, for attending Cebu Pacific's first quarter. Have a great day.
Thank you, everyone, for joining and for having patience as well. We had a few technical sound difficulties, so thank you everyone for sticking with us through the presentation. We will see you again at the end of when we report the next quarter. Thank you very much.