Good afternoon, everyone. Thank you for being with us today. A few weeks back, we proudly announced CEB's momentous aircraft order with Airbus. I am delighted to provide updates on this important milestone. The third quarter of the year is typically the leanest period for the airline industry in the Philippines. This year, the early start of the school calendar has further added to the challenge. Nevertheless, we remain committed to our growth journey and continue to adapt to various operational challenges. Today, we will share how we are proactively addressing these hurdles and ensuring our sustained progress. In addition, we are excited to share a noteworthy expansion in our network as we are now able to offer El Nido, one of the most coveted travel destinations in the Philippines following the acquisition of AirSWIFT from the Ayala Group.
This strategic move enhances our portfolio and opens new travel opportunities for our passengers. I know you are eager to hear more about these developments, so let us begin with an update on our largest aircraft order to date. On October 2, CEB made history in Philippine aviation by formally signing a purchase agreement with Airbus for up to 152 A321neo aircraft. Valued at $24 billion at list prices, this agreement represents not only the largest aircraft order in Philippine aviation history, but potentially the largest investment commitment by a Philippine company. Allow me to provide an overview of this landmark Airbus deal. The agreement includes a firm order for 70 A321neo aircraft, along with 82 early options and purchase rights.
Deliveries are scheduled to commence in 2029 and extend into the mid-2030s, and give CEB the flexibility it needs to tailor its fleet plan to match underlying demand through a combination of early slots and purchase rights, as well as conversion and deferral rights. The commercial terms of this order represent a considerable improvement over our previous agreements. While the exact commercial terms are confidential, we are confident that this order will be a source of competitive advantage for CEB for years to come. This order is also part of our fleet modernization strategy, as some of the aircraft are intended to replace our older generation aircraft. Factoring in these replacements, our fleet is projected to grow from 100 aircraft in 2025 to between 126 and 208 aircraft by 2035.
This corresponds to an annual growth rate of anywhere between 2% and 15%, further highlighting the degree of flexibility we have secured with the order. We also chose Pratt & Whitney PW1100G engines to power our new aircraft. Although these engines have encountered reliability issues upon their entry into service, we believe they remain superior to the alternative, and the upcoming a dvantage engine model promises improvements in performance, fuel efficiency, and durability. Finally, while we only wish the best for our friends at Boeing, recent developments at their company have only heightened the strategic importance of having a long-term order in place as global demand for aircraft is expected to outpace supply for the foreseeable future. The timing of this aircraft order was crucial, not only in securing favorable deal terms, but also positioning us to embrace future growth.
Investments in airport infrastructure, including the NAIA privatization project and the new Manila International Airport project in Bulacan, will be transformative for the industry and the broader Philippine economy, enhancing access, connectivity, and the overall travel experience. With these investments in airports and new aircraft, the Philippine aviation industry is now well-positioned to capitalize on its travel potential. The country's strategic location makes an attractive destination for tourists from North and East Asia, as well as major metropolitan centers across the continent. Additionally, the Philippines benefits from a demographic advantage, a young growing workforce, and over 12 million Filipinos living and working abroad, significantly contributing to economic activity. Combined with a stable economic outlook, these factors present a strong opportunity for growth in air travel. CEB's new order book reflects a long-term strategic vision. However, the short-term growth opportunities are equally compelling.
By the end of this year, we will have 99 aircraft in operation, marking a net increase of 16 aircraft compared to 2023. These investments were made to sustain growth and operational resilience amid challenges such as the Pratt & Whitney engine issues, which resulted in an average of seven aircraft on ground throughout the year. This is lower than our initial estimate of 15 AOGs. This additional capacity has accelerated our annual seat growth to approximately 20% year-on-year, likewise higher than our initial estimate of 12%. Come 2025, the early aircraft investments in 2024 will enable us to grow by as much as 25% year-on-year with a net addition of only one aircraft. CapEx should be lower by about half, reducing net debt while EBIT levels improve, with an upside should competition be unable to match our growth.
Turning you over now to Xander to discuss more about our commercial as well as operational outlook and strategy.
Thanks, Mark. Indeed, CEB took the conscious decision to deploy the additional capacity while our competitors are unable to ramp up their fleet. The relaunch of Iloilo and Davao hubs, plus additional flights to and from Cebu and Clark, and the continuation of our upgauging strategy in Manila, collectively pushed CEB's market and capacity share to close to 60% by the fourth quarter of 2024, with our non-Manila share approaching 80%. These charts also show us that until the third quarter of this year, daily capacity of all Philippine carriers combined remained below 2019's average of 162,000 seats. CEB's daily capacity, on the other hand, have long breached 2019 levels. We were already about 108% of 2019 levels this third quarter, and will increase to about 130% come the fourth quarter of this year, whereas other carriers will remain below 90% of 2019 levels.
This effort is more than just adding flights to meet demand. It is also about creating a robust network across the Philippines to expand and strengthen our market presence. We have enhanced our connectivity nationwide by expanding key regional hubs in Cebu, Clark, Davao, and Iloilo. In Cebu, we plan to boost seat capacity by around 67% and increase flights by 54% by the end of this year. In Clark, we expect to more than double our capacity with 102% increase in seats through 97% growth in flights. Davao and Iloilo are also set to experience significant seat and flight increases of 81% and 67%, respectively. Through the expansion of these hubs, we bring more convenient travel options to regions across the country, ultimately supporting tourism and business development in these communities.
On October 7, CEB announced the acquisition of 100% of AirSWIFT Transport, Inc. from Ayala ALI Capital Corporation, bringing El Nido, one of the Philippines' most popular leisure destinations, into our network. Previously, only AirSWIFT operated commercial flights to this privately-owned airport. AirSWIFT currently operates five ATRs across nine routes with 184 weekly flights and holds up to 84 weekly slots at Manila Airport. With CEB's distribution platform, we aim to achieve higher load factors as well as increased fleet utilization and operational efficiencies similar to that of Cebgo. In addition, this acquisition opens up opportunities to upgauge some of these Manila slots to larger, higher revenue-generating aircraft. The transaction was valued at PHP 1.75 billion, consisting of PHP 120 million in equity and PHP 1.63 billion in shareholder advances. We are also proud to share that Cebu Pacific's MSCI ESG rating has been upgraded to a double A.
This rating recognizes CEB as an ESG leader in the Philippines and the global airline industry. CEB is only one of two companies in the Philippines and one of only 11 airlines in the world to achieve a double A rating. We remain committed to building on this momentum by further enhancing our ESG practices, improving our sustainability initiatives and governance framework. Despite our progress, this quarter was not without challenges. The extended lean season, driven by the earlier start of the K to 12 school year, impacted travel demand more significantly than anticipated. We lost a month of what used to be vacation for most kids. While we initially took comfort in the relatively unchanged university calendar, it became clear that families with younger children contribute more to travel demand during school breaks than college students.
Operationally, July, which is this quarter's remaining school break for kids, was particularly difficult due to Typhoon Carina, which caused significant rainfall and flooding at NAIA, leading to over 280 flight cancellations. Additionally, a global software update from CrowdStrike disrupted our check-in, boarding, and reservation systems, forcing us to operate manually and cancel several flights. To support affected passengers, we offered flexible options, including free rebooking, travel fund conversion, or even full refunds. Baggage handling issues at NAIA Terminal 3 also contributed to delays and inconvenience to our passengers. While we are working closely with NNIC to resolve the situation, we have increased manpower resources and streamlined our processes. Despite these challenges, we have seen a steady recovery in our on-time performance, or OTP, since August 2023, maintaining stability over the past year.
Our net promoter score, or NPS, has also increased by 28 points since August 2023, marking a new high for 2024. The only exception was in July, impacted by Typhoon Carina and the CrowdStrike issue. As part of our support for the modernization of NAIA, we continue to collaborate with NNIC on the phased transfer of operations between terminals. This transition, while complex, is essential for long-term improvements that will directly benefit CEB's operations and our passengers. We are committed to careful planning to minimize any disruptions to our customers. Looking ahead, we are excited for the new routes we launched in October, which will provide more travel options just in time for the holiday season. A period when many look forward to reuniting with loved ones or taking well-deserved vacations. Cebu Pacific is here to help you make those moments happen.
Now, I'll turn you over to Trina to discuss our financial performance and outlook.
Thank you, Xander, and good day to everyone. For the third quarter of 2024, Cebu Pacific reported total revenues of PHP 23.1 billion, a 1% decline compared to same period last year. Passenger revenues reached PHP 15.5 billion, marking a 3% year-on-year decrease, while ancillary revenues totaled PHP 6.2 billion, down by 2%. Despite these declines, the airline flew over 6 million passengers, a 14% increase from previous year. This resulted in an 84.2% seat load factor, up by 0.5 percentage points. As Xander discussed earlier, due to the change in school calendar, this quarter saw a month-long reduction in school break, impacting revenue. Additionally, Typhoon Carina and disruptions related to CrowdStrike last July led to the cancellation of over 350 flights. Rebooking disrupted passengers into available future flights constrained incremental revenue opportunities for Cebu Pacific.
On a positive note, the cargo business showed significant growth, generating PHP 1.4 billion in revenue, 40% higher than last year, carrying 44.6 million kilos, a 48% year-on-year increase. The average yield per kilo was PHP 30.5, only 5% lower than prior year, supported by the expanded capacity from our new wide-body aircraft. With PHP 23.1 billion in revenue, Cebu Pacific's EBITDA for the quarter was PHP 4.3 billion, a 24% decline from same period last year. Operating income reached PHP 200 million, while pre-tax core loss stood at PHP 1.4 billion. Gains from the sale and leaseback of engines provided an additional PHP 1.1 billion, resulting in a net loss of PHP 200 million for the quarter. The margin pressures were significant due to the seasonality, coupled with our earlier fleet investment in additional aircraft and engines.
Depreciation and amortization expenses rose by 26%, and financing costs increased by 41%, attributed to 10 more aircraft and engines compared to last year. Other expense increases included higher crew requirements and airport costs. Total ASK, or available seat kilometers, increased by 3% with 6% more flights. In addition to the expense increases, such reduction in our average sector length also contributed to higher cost per ASK. Year-to-date results for the first nine months of 2024 showed total revenues of PHP 74.5 billion, an 11% increase year-on-year. Passenger revenue contributed PHP 51.2 billion, up by 11%, driven by over 17.5 million passengers flown, a 13% increase from last year. The average seat load factor for the period was 84.9%, up by 0.5 percentage points, while average fare was over PHP 2,920, 2% lower than last year.
Ancillary revenue reached PHP 19.3 billion, 9% higher than previous year, despite a 4% decline in ancillary yield per passenger. Cargo revenue grew steeply, up by 35% to PHP 4 billion, as Cebu Pacific transported 115.4 million kilos of cargo, a 35% year-on-year increase, maintaining a yield of PHP 34.6/ kilo. With year-to-date revenues of PHP 74.5 billion, EBITDA reached PHP 17.6 billion, 16% up year-on-year. However, depreciation and amortization, financing expenses again saw significant increases due to the expanded fleet. With this, Cebu Pacific's operating income was PHP 5.7 billion year- to- date, 8% lower than last year, for an operating margin of 8%, down 1% versus last year. Pre-tax core income stood at PHP 1.5 billion, supplemented by PHP 1.9 billion in gains from engine sale and leasebacks, leading to a net income of PHP 3.4 billion, 33% lower than previous year.
For cash flow, Cebu Pacific generated PHP 21.2 billion in year-to-date cash income. Debt service, including interest and lease payments, accounted for PHP 18.9 billion in outflows. CapEx reached PHP 19.6 billion, partially offset by PHP 9.6 billion from asset sales and sale and leaseback transactions, resulting in a net cash outflow of PHP 10 billion for investments. New borrowings added PHP 14.6 billion, but PHP 7 billion was also needed for working capital, which included settlements for return obligations and heavy maintenance for our leased aircraft. These activities led to a net cash inflow of PHP 600 million year- to- date, bringing cash and cash equivalents to PHP 17.4 billion. As of September, Cebu Pacific's total assets exceeded PHP 214.1 billion, up by PHP 26.9 billion from start of the year.
Aircraft-related assets amounted to PHP 169.9 billion, an increase of PHP 23.8 billion, with 12 aircraft and 10 engines delivered year- to- date. Total liabilities reached PHP 206 billion, with debt including lease liabilities on convertible bonds comprising PHP 161 billion. That's an increase of PHP 26.4 billion due to new aircraft financing. The airline ended the period with 91 aircraft, including 47 Airbus neo, 27 Airbus ceo, and 17 turboprops. Unearned transportation revenue rose by 24% to PHP 17 billion, reflecting robust forward bookings. Equity stood at approximately PHP 8.1 billion with retained earnings at a PHP +3.4 billion following the quasi-reorganization approved by the SEC last August. Our current ratio was 0.5 x, and net debt to EBITDA was at 5.6 x. Allow me to give you a broader view of our quasi-reorganization initiative, which we initially disclosed to the PSE last July.
The quasi-reorganization aimed to eliminate the PHP 16.3 billion retained deficit from end of 2023 through a reduction in capital surplus or APIC, with no impact on our par value, shares issued, or paid in capital. The deficit was allocated to the APIC of common and preferred shares based on their paid in capital. Through the elimination of accumulated retained losses, combined with continued profitability and improving capital efficiency, we hope to accelerate our ability to provide returns and distributions to our shareholders in the future. Some comforting news. In addition to upcoming Christmas peak, our economic indicators show a stable to positive outlook. Consensus outlook for fuel prices have continued their downtrend, with Q4 below $92 a barrel average in the third quarter, which is notably lower than the $102- $98 seen last Q1 and Q2 respectively.
CEB has yet to feel the full impact of such lower prices. We now consume about 1.3 million barrels of fuel per quarter, giving us an equivalent amount in US dollar savings for every dollar reduction in fuel price. On FX, while median of fourth quarter forward prices and bank forecasts still show some resilience, U.S. election period have caused some volatility risk this November. As about 2/3 of our expenses are pegged to the U.S. dollar, and with a $2 billion debt exposure, a stable peso outlook is significant for us. Xander earlier discussed the acquisition of AirSWIFT, which we had disclosed last October 7. Last October 29, the board has likewise approved the conversion of a portion of CEB's existing loans and advances to 1Aviation in the amount of PHP 113 million into an equivalent number of common stock in the company.
1AV is CEB's provider of ground handling services in the Philippines. It is currently present in 34 airports across the Philippines and continues to expand its operations, supporting the country's largest airline and other international carriers. This increased stake enhances CEB's operational control in 1AV, allowing us to better integrate their services into our operations for efficiency and align our strategic plans more effectively. It also provides greater opportunities to improve our service quality. We understand that travel starts well before boarding. Given various changes and industry challenges, we are committed to providing our ground handling team with the support they need. This is crucial as their efforts have a direct and significant impact on our passenger experience. This debt-to-equity conversion is still subject to necessary approval by the SEC. I now turn you over to Mark for some closing remarks.
Thank you, Trina. Before I close, I'd like to share with you our most recent update. In an effort to manifest our confidence in CEB's value and prospects, we sought and received approval from our board of directors to amend and resume our share buyback program, initially approved in 2011, which involved up to PHP 2 billion worth of common shares. From 2011 to present, CEB has bought back about 12.92 million shares, costing PHP 950 million. Terms and conditions set forth in 2011 shall be amended to increase total amount of the buyback program to PHP 2 billion and include the convertible preferred shares. Other terms and conditions set forth in our share buyback program, as originally approved in 2011, will remain and apply now to both common and convertible preferred shares, and the program shall remain to be implemented via open market purchase.
CEB's valuation has historically been limited by long-term growth prospects, given infrastructure constraints in the Philippines. But the country's aviation industry is now well positioned to fully capitalize on its economic, geographic, and demographic potential. Airport and aircraft investments open a market potential for CEB that is significant with further upside should competition remain unable to match our growth. We will grow rapidly in the next 18 months to seize this opportunity. Increased fleet and operational costs, coupled with the opening of various new routes, impact our margins this year. But everything Xander, Trina, and I have just discussed show how hard we've worked to build ourselves a solid foundation to ride through these challenges. This foundation will not only allow us to face challenges, it will allow us to take advantage and contribute to the Philippine growth story. Thank you all.
Good afternoon, everyone. I'm Rhobee Pilares from Cebu Pacific's corporate communications team. Joining us for the question- and- answer portion of this investor call are Mike Szucs, Chief Executive Officer of Cebu Pacific, Xander Lao, President and Chief Commercial Officer, Mark Cezar, Chief Financial Officer, and Trina Asuncion, Vice President for Investor Relations and Controllership. Room is now open for questions. The instructions for the Q&A are now flashed on the screen. Go over them briefly. Please raise your hand if you have a question and wait to be called. State your name and company before asking your question. You may also type your question in the Q&A function in the dashboard, and we will do our best to accommodate and answer all questions. We now have several questions that were sent in earlier. I'll turn this over to Trina for those questions.
It says here you mentioned lower CapEx guidance. Can you please give us more color on this? Around how [audio distortion] dollars and how much of this will be funded via leases?
Well, this is for next year?
Next year.
We're expecting somewhere between PHP 35 billion -PHP 40 billion. That's roughly-
Billion pesos.
Yeah, about $600 million. That'll be about half of what we're expecting for this year. Aircraft, or at least four wide-bodies will be funded with operating leases, while the three narrow bodies were open. We haven't made a decision. Operating leases will be one of the alternatives we will consider, but definitely, there may be a preference to do debt financing.
Thanks, Mark. There is another question here. Do you have guidance on CASK and CASK ex-fuel movements?
Go on. Go ahead, please.
CASK, I think, despite all the pressures that are on supply chain and just inflationary pressures overall, I think you saw that CASK ex-fuel has been reasonably well controlled through this year, currently tracking at about a 4% increase, some of which is FX related, of course. As we go into next year, one of the advantages of the growth profile that we are on, we do anticipate that we should be getting some low single-digit CASK ex-fuel reductions as we go into next year. So well controlled through this year and some modest improvements, modest reductions on CASK ex-fuel as we go through next year, despite all the challenges that the industry is facing on supply chain and inflation.
Thanks, Mike. There is just one more question here. I think it is for Mark. Do you still expect further increases in your net debt and leverage ratios?
No. We think our net debt has peaked in October. Q4 levels, probably in line with Q3, but then it goes down from there.
Thanks, Mark. No more questions on the chat.
We would like to invite everyone again to send in their questions either via the chat function or the Q&A function on the dashboard, or you may raise your hand and we will unmute you. Please identify yourselves.
Okay, I see an anonymous question here. What is the current market share of 1AV ? Do you have any plans to expand your airport presence from 34 airports?
It should mirror our own market share. No, we don't have market share for 1Aviation .
Suffice to say, we should-
It should mirror our network.
It will mirror our market share in the Philippines.
It's probably going to say, Sorry, go ahead.
Yeah, no, it mirrors our market share pretty much in the Philippines. Outside of Cebu Pacific, it has a very small customer base, but that's something in the future that could be increased. What was the second part of the question there, Trina?
Do they have any plans to expand airport presence from 34 airports?
Well, 1AV, their expansion is very much linked to ours.
Yes.
It really does follow our footprint. If we open up new domestic destinations, then they will surely follow.
Copy it.
We have a question from the floor from [Clyne Resudiar]. Clyne, we will unmute you now. Go ahead.
Hi there. Good afternoon. Two questions for me. Can you just discuss the competitive landscape that you faced in the third quarter and what you are facing so far in 4Q? Are your competitors increasing capacity already? Just any update on that. Second question is related to your, I guess, I just want to understand how the, you mentioned that you increased capacity a lot. How is the ramp-up of these capacity increases, and how should we, I guess, look at the load factors in succeeding quarters? Thank you.
Thanks, Clyne. Really good questions. Maybe on the third quarter, it really was a challenging environment for all of us. In particular, fares were quite low given the change in seasonality. There was a lot of pressure in terms of the average fares across all of the carriers. Clearly, part of that is because we are trying to grow into some of that capacity. In the fourth quarter, we are going to continue to see some of that growth throughout our network. From a competitive response, we have seen our competitors actually reduce frequencies in some markets. We do think Philippine Airlines is going to be relatively stable. What we are seeing now is a response maybe from AirAsia , where we have seen them start to pull up certain routes and reduce frequencies. That we think will be beneficial over time.
But I guess over the next 6- 12 months, we need to be building up towards this capacity. Maybe going to your second part of your question. When we take a look at our overall market growth, right? Let us take a look at it in three particular segments. The first is on Manila domestic, which we have grown through the upgauging of aircraft, which have delivered more seats here in a capacity-constrained or slot-constrained airport, for that matter. We have seen, I guess, some weakness initially on average fares. We have seen that starting to turn maybe by the end of the fourth quarter, and onwards. I think our, if anything, from a seat perspective, from a seat distribution perspective in terms of domestic, Manila domestic continues to be the biggest source of our overall domestic seats.
Maybe 3/4 of our total capacity in 2024 on our domestic capacity, for that matter, is on Manila domestic. We are also growing into our non-Manila domestic markets now. We have increased frequencies and flying in Cebu and Clark. We've also established two new bases outside Metro Manila, such as Davao and Iloilo. As you can imagine, part of that growth will need lower fares, a lot of promotions in order to increase awareness and the like. We are growing into that. That will take a bit more time, but historically, we have seen new routes, for that matter, come to some steady state anywhere between 6 - 12 months after we've launched it. International, on the other hand, seems to be relatively stable. We have seen average fares dip slightly on international, but this has been offset actually by higher load factors, generally speaking.
I guess ultimately in the fourth quarter on a system-wide basis, what we are seeing, unit revenue is still slightly down compared to the same period last year. It's what we're forecasting, but already above 2019 levels, or still above 2019 levels rather. Hopefully that paints a picture of where we are in terms of our growth, as well as the competitive response.
Thank you. May I just ask an additional question to that? In terms of your seat growth for 2025, how should we see the mix in terms of passenger volumes change, or will you still be dominantly expanding or most of the expansion will be domestic?
I think. Yeah, go ahead, Clyne.
Yeah, I guess I just want to get some guidance on the mix as well. Thank you.
Well, a couple. Let me take a stab. First is we'll continue to grow in Manila through the upgauge strategy. We still think that there's some room for growth next year. In fact, maybe half of our absolute seat growth will be actually coming from Manila. This is our strongest market. We know that demand has been scaling for many years now, and we do think that'll stabilize over time. In fact, we've already seen some of it turn as early as December of this year. So we will have to grow into some of that capacity, obviously. A lot of that growth is on Manila. Obviously, some of the other growth is still going to be coming from some of the smaller hubs.
Davao and Iloilo, for example, in terms of growth percentages, will be triple digit, but that's coming off a very small base, and maybe something similar for Clark. Most of that growth will still be domestic. We are looking to, for example, deploy our wide-body aircraft into some of the domestic routes where we can. So we do still think that a lot of the growth next year will primarily be domestic. Mike, do you want to add anything?
Clyne, maybe the way we think about this, if we look at the sort of three segments, first of all. If we look at Manila domestic, which has sort of obviously been a very important part of our story and will continue to be so. We put a lot of growth into that, about 15%-20% growth in this coming quarter. In actual fact, let's step back a bit. Actually, a lot of the growth that's going in, we're seeing the big step in growth that's coming in the last four or five. It's coming at the back end of Q3 and into Q4. When we get into next year, our capacity overall generally stays pretty flat until we get into Q4, when we got some additional deliveries and some upgauging. Generally, the big growth is now. And we've been going through the pain.
We talked about August, September, and coming into October, November. What we're seeing, and it's important we break this down into the three separate market segments. First of all, Manila domestic. It's clearly a core market, and the market is taking it very quickly and rapidly. As Xander said, already by the end of this year and going into next year, we are seeing that the market has taken that additional capacity growth on Manila domestic. That's not a surprise. We know that Manila's been constrained for slots for many years, and everyone's always talked about it's been spilling demand. That's playing out. Manila domestic is performing well going forward from where we are today. Manila international, similarly, and that's taking 20%-25% growth, that is performing well as we're going forward. Those are the two powerhouses really of our financials.
It gives us the confidence to then invest into the new bases and further growth into Cebu and places like Clark. That's, as I say, two new bases, Iloilo and Davao. Those have got large growth in them, and they will require longer to grow. They won't mature as quickly as the additional capacity that's gone into those other two markets I've described. But because those other markets are now bigger and profitable, they will be able to fund readily that investment that should mature over maybe 12 - 18 months, but will be a very sound investment for the long term. When we talk about market share, we are in a very strong market share position now, extremely strong outside of the Manila market, and that is one that we'll choose to enhance even further.
Let me read you a few more questions on the chatbot. First, when will AirSWIFT and 1AV revenues be consolidated within CEB, and what is the expected percentage of passenger revenues AirSWIFT will contribute? I think I can take that one. The SPA was already signed, so we own 100% of it. While AirSWIFT continues to be a separate entity, the revenues will already be consolidated into the Cebu Pacific Group starting this fourth quarter. Although on a percentage contribution at only five ATR, it's not going to be much. It's like 2%, in my view. Of course, that's as it is today. The next question is, should we continue to expect heightened finance costs moving forward?
I think Mark has already answered that earlier, but maybe I can corroborate that the net debt will probably peak this quarter, fourth quarter, and then they start to taper off next year as the existing payments will outpace any new debt coming in from new capital. With that, I would assume the same for the finance cost or the financing expenses. Now, it will continue to be heightened at the fourth quarter, and then as we normally amortize them next year, that should start tapering off as well in terms of a year-on-year growth. The last question I have on the chatbot before any raised hands, if you have it there, Rhobee . How are the flights from domestic and international, and anything notable to be expected during the fourth quarter? Although I think Mike has answered this already.
I think I may answer that.
But don't need to be earlier already. Thanks.
Great. The floor is still once again open for any questions from the audience. Please raise your hand or you may once again type it in the Q&A box. Although we would prefer you did ask your questions live. We have a raised hand from Clyne again.
Go ahead, Clyne.
Go ahead, Clyne.
Hi. Yes. Just a question on your buyback. Just wondering what was the decision-making process of doing the buyback instead of a cash dividend? Is this a prelude to cash dividend declaration?
I did not hear that question clearly.
I think the question was basically what was the rationale for the buyback? Will this conflict with any plans for dividends? Okay. I'll try to take a snap at that, Clyne. The rationale for the buyback is simply to manifest confidence in CEB's prospects. It is really to avoid any confusion with respect to seasonality or short-term headwinds that we are facing, whereas the Cebu Pacific team or our prospects, we believe are continuing to be more long-term thematic. It is really just to manifest your confidence in terms of the valuation of the shares. In terms of any potential conflict with the dividend, that wasn't part of the rationale, I suppose, in terms of this. We continue to hope that it is in both interests that we are able to give shareholder distributions as soon as we can.
Just to add, I think to what Trina mentioned, Clyne. Look, we think the share is undervalued.
Yeah.
The market doesn't price in how we see the performance and the prospects of the company. We think some of our worst days are over, and the outlook is generally positive going forward. It's a good time to. We think it enhances shareholder value if we do the buyback now. Whether it conflicts with the dividend? Not necessarily. I think because of SEC rules, we're not able to pay out dividends at the moment. So far, we have a positive retained earning, but we also have different tax assets that need to be considered in defining what is distributable income. We cannot at this moment. Given the circumstances, we think the best action that we can take to drive shareholder value is the buyback program.
Thank you. Sorry, just one last question. I was just wondering if you have any comments on the recent news that the Department of Transportation or at least the Secretary of Transportation saying that the CAB may not approve the terminal fee or the airport terminal fee increase that the airlines are asking for.
Yeah.
Could this be, I guess, significant? Do you think that this could derail your acquisition plans?
I didn't get the last part of the question. Sorry, Clyne. Do you think it will be?
Do you think that you will not be able to pass on the increase in terminal fees if this terminal fee is not approved?
Sure. Let me try to take that on. First of all, there's been no final decision on the terminal enhancement fee that's been filed by not just by Cebu Pacific, but all the other airlines. I think the reason we had done so was because we wanted it to be very transparent that any of these cost increases are because also we are expecting the improvement in the airport. To be fair, the private operator has nothing to do with it. All of these rates were already set primarily by government. We're looking for a way to make sure it's clearly established. In fact, it's not necessarily new. In other parts of the world, like Hong Kong and Singapore, you can actually see that there's an airport development fee or a terminal. We've proposed it to be called the terminal enhancement fee.
Whatever way you dress it up, it's a similar fee that is being charged in other airports. That's one. We think we should still be able to pass on these costs whether or not we get approval of the terminal enhancement fee. We will be looking to see if we can adjust our average pricing or take a look at how we sell ancillary revenues, et cetera. Overall, we intend to pass on these costs ultimately to the customer. Not all of it, obviously. We'll have to take some of it, but we intend to pass the majority of those costs on to the customer, whether we get the terminal enhancement fee or not.
I have a follow-up chat. Why did we do the equity restructuring, or will Q3 loss continue? Any outlook on Q4? On the equity restructuring, it is simply to wipe out the accumulated net losses since the pandemic that was basically just sitting on our retained earnings. That deficit has always been with us. It is simply to wipe it out with the additional paid-in capital that has also already been in there since history. By wiping that out, that gives us an accelerated position so that the SEC may approve any shareholder distributions in the future. As you may know, we cannot distribute any dividends if we have negative retained earnings on our balance sheet.
By equitizing with our surplus capital, we will, of course, hopefully with continued profitability and returns from the business, we put ourselves in a better position to provide shareholders distributions in the future. Will Q3 loss continue and outlook for Q4? I think that has been answered by Cebu Pacific.
Let me just be clear on this. Again, three segments on this. We've applied a lot of growth now across all of the segments. When you put the growth in, it has an impact. We've seen that on Q3, and we'll see that a little bit at the beginning of Q4 as well. Towards the end of this year, so the end of Q4, I think we've seen two things that we've said. In the two largest of the contributors, which is Manila domestic and international, we're seeing ourselves getting to unit revenue positions that are close to where they were last year. They're certainly ahead of where they were in 2019.
What we are waiting to see and what takes a longer time to develop, but it is smaller in terms of capacity, is the investment in the markets outside of Manila, where we are investing further in Cebu and Clark as bases and the opening of Davao and Iloilo. These have very good long-term potential, but they need a longer runway in order for them to turn that investment into sort of a very good positive contribution. That maybe could be six, could be 12, could be even 18 months away. But the fact that we have got the powerhouse of the other two markets starting to show that they are responding very positively to the growth that we put in gives us confidence to continue investing in there. Look, on the two powerhouses, unit revenue is coming back very quickly to what we would have expected previously.
On the other one, we need to wait and see how quickly those develop. They will develop, just a question of how long that will be. That will continue to depress unit revenues for a short period of time or for a period of time, however long it takes, but it is relatively small in the overall scheme of things. What is more important is the performance of Manila domestic and on the international markets as well.
We have one more question in the chat.
It is basically how are we looking at fares moving forward, but I think Mike has answered already.
Okay. Are there any further questions from the floor? Okay. With that, I think we can end this quarter's investor call. Thank you, everyone, and we look forward to seeing you next quarter.
Thank you, everyone.
Thank you.
Thank you.