Socioeconomic Impact of Cebu Pacific Airlines Inc.

A Socioeconomic Study Presented to the

Senior High School Department
De La Salle University - Dasmariñas
Dasmariñas, Cavite

In Partial Fulfilment of the Requirements

for Applied Economics

So, Akirha Xyniel B.

December 2021
 TABLE OF CONTENTS

Executive Summary 1
Introduction 1
Statement of the Problem 2
Significance of the study 2
Review of Related Literature 3
Swot Analysis 5
Discussion 7
Conclusion 7
Recommendation 8
 1

I. Executive Summary
Tourism is extremely important to the country and its people. Countries will benefit from this
industry because it stimulates the economy. Cebu Pacific Airlines Inc. has a major impact on their
socioeconomic status during pandemic. They’ve struggled on how they will cope up with the
company’s problem however, they become optimistic and find a solution on how they will manage
with the current situation. As a result of the pandemic, countries began to implement travel bans
to prevent the virus from spreading. According to S. Lock (2021), as many countries implemented
curfews and travel restrictions to prevent the virus's spread, global travel decreased significantly
in early 2020. Cebu Pacific was unable to operate as usual due to travel restrictions and a small
number of customers. Because they are unsure when they will operate again, the company must
refund the customers' tickets in early 2020, resulting in the loss of employees and net income.
According to R. Royandoyan (2021), Cebu Air has been struggling for more than a year since the
pandemic damaged the entire aviation industry, with net losses increasing 50.9 percent over the
year to P13.8 billion in the first six months of 2021. To overcome the company's difficulties, such
as net loss within their socioeconomic status, Cebu Pacific should prioritize their relationship with
the people, particularly with their investors and travelers.

II. Introduction
Tourism has grown to be an important industry with an impact on the growth of the
country’s economy. The main advantages of tourism are the generation of income and the creation
of jobs. It is the most important source of income for many regions and countries (Agaraj and
Murati, 2009). Tourism plays as a vital role to the country and to the people. The countries will be
able to benefit to this industry since it makes the economy grow. In the other hand, individuals
will get to have jobs such as public service with tourism, or the consumers will be able to travel
around the world because of it. However, it was greatly affected by the COVID-19 pandemic.
Due to the pandemic, countries started to implement travel ban to avoid the spread of the
virus. According to S. Lock (2021), as many countries executed curfews and travel restrictions to
prevent the spread of the virus, global travel decreased significantly in early 2020. The financial
consequences of the coronavirus have already begun to emerge in the tourism industry. Global
revenue from the travel and tourism industry is expected to fall from 711.94 billion US dollars in
2020 to 568.6 billion US dollars, a drop of more than 20%. In connection to this, the government
in the Philippines closed Luzon’s airports on March 20, 2020, as part of the island’s Enhanced
Community Quarantine (ECQ), which began on March 16, 2020. The tourism industry has already
felt the pandemic’s negative impact on its performance, which greatly affects the Cebu Pacific
Airlines in the Philippines.
Cebu Pacific Air, Inc., or known as Cebu Pacific is a Philippine low-cost airline that was
founded in 1988, and it was currently headed by Lance Gokongwei. It offers flights to both
domestic and international locations. According to the website of JG Summit CEB currently
operates one of the world's most modern aircraft, consisting of 44 Airbus (36 A320 and eight
A330) and 17 ATR (eight ATR 72-500 and nine ATR 72-600) aircraft. Cebu Pacific will receive
32 Airbus A321neos, seven Airbus A321 ceos, and seven ATR 72-600 aircraft between 2018 and
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2022. The airline continues to be a pioneer in innovative pricing strategies, offering the lowest
year-round fares on all of its flights. Moreover, Cebu Pacific is also the most popular air cargo
carrier in the Philippines, connecting island through the exchange of goods. It offers a competitive,
fast, flexible, and straightforward air cargo service to a large network of individual shippers and
cargo agents within the country and abroad.
Due to travel restrictions and small quantity of customers, Cebu Pacific was not able to
operate like they used to. During the early 2020, the company needs to refund the customers’ ticket
since they are not sure when will they work again, which results also to loss of employees. As
stated by G. Waldron (2021), Cebu Pacific Air’s second-quarter operating loss was reduced to
P5.8 billion, while revenue doubled to P3.2 billion from the previous year. On the other hand, its
expenses increased by 16% to P9 billion, owing to higher costs for repair and maintenance, as well
as flight operations. Cebu's cash position quadrupled in the first six months of 2021 as a result of
fund-raising measures such as the issuance of convertible preferred shares and convertible bonds.
Cash and cash equivalents stood at P16.3 billion as of 30 June, up from P4.3 billion at the end of
2020. However, the air transport industry remained stagnant, with cases fueled by the COVID-19
Delta variant increasing during the third quarter. Passenger segment revenue increased by P167
million to P1.3 billion, but the growth in the third quarter was 34% lower than from April to June.
Cebu Air stated in its financial statement that it “anticipates” the coronavirus pandemic will have
an additional impact on net sales, revenue, income from operations, and future performance (Rey,
2021).

III. Statement Of the Problem

Before and during the pandemic happened, there are many problems that Cebu Pacific Air
encountered.
1. How does Tourism affect the economy of the country?
2. What are the effects of the operations of Cebu Pacific Air to its passengers?
3. How did the pandemic affect the operation of Cebu Pacific Air?

IV. Significance of the Study

Economics is essential in people’s everyday life. This study will help Cebu Pacific Air Inc.,
to improve their socioeconomic status. Moreover, it will assist the company to know how they will
budget, prepare for another wave of the pandemic, and provide customer satisfaction. The study
will benefit economists, businesses, particularly in aviation industry, the customers, and to the
aspiring aircraft owners. This study will be significant and beneficial to the following:
Aviation Business. Business owners will know what they need to improve with their
service. Furthermore, it could help their company to have an efficient and effective management
and be more careful when it comes to allocation of funds. Lastly, it will help them to know how
they will give customer satisfaction.
Economists. With the idea of studying the socioeconomic status of an aviation company,
this will greatly help the economists to know how they will provide data and plan for the businesses
in making decisions.
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The customers. It could help the consumers to know the status of the company. In addition
to this, they will be able to know what service Cebu Pacific provides.
Aspiring aircraft owners. To those who are planning to start an aviation business, they
may use this study as a guide for their preparation. This study will benefit them since they will
be able to distinguish the pros and cons of starting a business. It will help them build a good
reputation in the aviation industry and will be able to have a successful launching.

V. Review of Related Literature

Tourism as a tool for economic growth
According to Y. Yehia (2019), tourism is crucial to the success of many economies
worldwide. It increases the economy’s revenue, creates thousands of jobs, develops a country’s
infrastructure, and fosters a sense of cultural exchange between foreigners and citizens. It also
provides a huge number of jobs in a variety of industries. These jobs may be in the tourism sector,
but they may also be in the agricultural sector, the communication sector, the health sector, or the
educational sector. In addition to his, tourism also provides an excellent opportunity for foreigners
to learn about a new culture, but it also offers various opportunities for local residents. It enables
young entrepreneurs to launch new products and services that would not be viable on the basis of
the local population alone. Furthermore, residents benefit from tourism that takes place in their
own country.
According to M. Rahman (2013), Many developing countries view tourism as a key
development tool for economic development and are incorporating it into their national economic
development plans. Tourism become important in both poor and rich countries due to its positive
effects on the economy, people’s livelihoods, and socio-cultural development.
As stated by S. Naseem (2021), tourism is critical to the success of many economies around
the globe, and it has been a subject of extensive research for many years. The findings indicate
that economic growth is on the rise. It has a long-term connection with tourism receipts, tourism
expenditures, and number of tourist arrivals; the number of tourist arrival is strongly related to
economic growth, when compared to other variables. It is proposed that policymakers make Saudi
Arabia to give consideration to the promotion of sustainable tourism in order to boost economic
growth. Furthermore, the government should pay close attention to domestic and international
tourism, as well as improve the infrastructure of various tourist destinations.
Tourism is now one of the largest industries in the world, as well as one of the fastest
growing economic sectors. Tourism is viewed as a key tool for regional development in many
countries because it stimulates new economic activities. It can have a positive economic impact
on the balance of payment, employment, gross income, and output; however, it can also have a
negative impact, particularly on the environment. Unplanned and uncontrolled tourism growth can
degrade the environment to the point where tourist growth compromised. Considering that the
environment is the major source of tourist product, it must be protected in order for tourism and
economic development to grow in the future (Creaco & Querini, 2003)
Cebu Pacific Air as a Corporation
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Cebu Pacific sets up a customer command center, 55 people are in charge of assisting
travelers with their concerns and inquiries. The command center, which is located at Cebu Pacific’s
headquarters in Pasay City, is equipped with social monitoring, publishing, and engagement tools.
In addition to Cebu Pacific’s Facebook and Twitter pages, the center handles schedule changes via
the hotline. The customer command center also collaborates with Cebu Pacific’s network control
center, especially during weather or other flight disruptions, to provide passengers with up-to-date
information and options. Cebu Pacific has been investing continuously to improve customer
satisfaction. Aside from the Customer command center, it recently allocated more than P100
million for 35 disabled passenger lifts to allow people with disabilities and limited mobility to
safely board and leave the aircraft (Desiderio, 2017).
According to The JG Summit Team (2019), Cebu Pacific was able to reach over 20 million
Filipinos on March 3, 2019, when it held its "3.3" seat sale—tripling the number of bookings from
its previous major seat sale. The "3.3" promotion was unique in that the nation's leading airline
offered a new destination every two hours. Cebu Pacific was able to create different versions of its
catchy seat sale video using digital advertising tools such as YouTube Director Mix and Google
Blast, and it matched these with user Google search activity. As a result, customers received a
video that appeared to be customized to their specific interests, maximizing the video's impact.
And, because the destinations on sale were rotated on a cyclical basis, effectively offering seats in
clusters, travel bookings were sustained throughout the day, resulting in better traffic management
on the CEB website and mobile app.
According to K. Visconti (2012), Cebu Pacific has a 3 approach to survive in the tough
business climate. At the COL Financial Group Inc. special customer briefing on October 22,
Sebastian enumerated the three: stockpile fuel, offer cheap, no-frills fares, and look for other
airlines to absorb the costs. Fuel is an airline's single largest operating cost, accounting for 40% to
50% of total costs. Global price fluctuations have the greatest impact on the bottom line. Cebu
attributed its overall 28.9 percent profit drop in the first six months of 2012 to high jet fuel prices,
despite revenue growth of 17.9 percent. The low-cost carrier (LCC) is able to offer tickets at a
lower price and appeal to the price-sensitive Philippine market by continuing their strategy of
"unbundled fares" and cutting out frills such as in-flight food service. Lastly, Cebu Pacific has
already expressed preliminary interest in Zest Airways, which is owned by Alfredo Yao of the
Zest-O drink fame.
According to R. Lee (2021), In March, the airline agreed to a 10-year term loan facility
worth 16 billion pesos with a syndicate of Philippine domestic banks. The funds will be used to
strengthen CEB's balance sheet and provide the airline with the "long runway" it requires for
gradual recovery, according to the airline's vice president of marketing and customer experience.
In addition, CEB is "executing a business transformation plan, which includes the acceleration of
various digital solutions" to ensure the airline emerges from Covid-19 in a stronger position. Plans
include rightsizing the network to capitalize on domestic-driven recovery, as well as optimizing
its fleet through the use of NEO aircraft with improved fuel efficiency and range capability. The
airline's cargo operations are also expanding, and existing aircraft will be used to meet the
increased demand.
Socioeconomic status of Cebu Pacific Air
According to PortCalls (2019), Cebu Pacific earned P7.139 billion in net income in the
first half of 2019, an increase of 115.7% from the P3.309 billion earned in the same period last
 5

year. Cargo revenue increased 6.9% to P2.836 from P2.652 billion, results of an increase in both
volume and yield of cargo transported during the first half of 2019. The company's operating
expenses were P35.772 billion, an 8.2 percent increase over the P33.060-billion operating
expenses reported for the three months ended June 30, 2018. The increase was driven by the
airline's expanded operations, increased seat capacity as a result of the acquisition of new aircraft,
and the weakening of the Philippine peso against the US dollar.
According to R. Rivas (2021), as the Philippines failed to contain COVID-19 cases, the
operator of budget of Cebu Pacific, reported a net loss of P7.3 billion in the first quarter of 2021.
Cebu Pacific’s net loss is 516% greater than the P1.2 billion net loss it suffered during the same
period in 2020. The passage of the Corporate Recovery and Tax Incentives for Enterprises
(CREATE) law, which reduced corporate income tax to 25%, as the provision for income tax was
reduced to P149.4 million, which quite helped the company. The airline’s revenue fell by 83% to
P2.7 billion, with passenger revenue falling by 92%.
Cebu Pacific, the country’s largest budget carrier, suffered massive financial losses in 2020
due to a collapse in air travel demand and complicated government policies in the midst of the
COVID-19 pandemic. As a result of this, it was forced to lay off a third of its workforce, cut the
expenses, and send unused planes overseas for long-term storage. This resulted in a 73% drop in
revenue to P22.6 billion last year. Cargo revenues accounted for nearly a quarter of total revenue,
or P5.4 billion. In connection to this, the operating expenses fell by 40% to P43.4 billion as a result
of flight reductions and cost-cutting measures (Camus, 2021).
According to BusinessWorld (2019), Cebu Air, INC, reported a 50.6 percent drop in net
income to P3.9 billion in 2018, down from P7.9 billion the previous year, owing to a "challenging
macro environment." In a statement issued over the weekend, the operator of Cebu Pacific stated
that fuel prices, a volatile Philippine peso, rising interest rates, increased competition, a six-month
closure of Boracay, and operational limitations at key airports as factors affecting its bottom-line
last year.

VI. Swot Analysis

A. Strength
a. Low-Cost Carrier in the Philippines
Cebu Pacific is one of the largest budget-friendly airlines in Asia. They offer cheap
flights around domestic and internationally. Having low fares helped Cebu Pacific
to continue to grow. Cebu Pacific’s trademark has always been affordability, and
the airline has always looked for ways to make flying more convenient and less
expensive.
b. Known for Quick and Fast Delivery
Cebu Pacific Air is well-known for its quick delivery. They provide shipment in 30
minutes, and if the client does not receive it within 30 minutes, they will provide
“complimentary corp.”. The company is determined to depart and arrive on time.
If there are any delays, it usually lasts only a few minutes.
c. Cebu Pacific has reliable suppliers
Cebu Pacific Air’s suppliers are dependable and trustworthy. Furthermore, they
deliver raw materials and ingredients on time, which enables easy management
process.
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d. Strong Marketing
The promotional advertisement of Cebu Pacific attracts many customers. They
have strong message ads that were spread in television, radio, or social media. The
company uses sales promotion, word of mouth, advertising, public relations, and
events and experiences.
e. Highly Skilled Employees
Cebu Pacific implemented training and development programs for its employees in
order to improve their skills. Because of its non-monetary and monetary benefits,
the airline managed to keep its employees motivated to their work. The learning
programs assist the organization in improving their service.
B. Weakness
a. Low number of outlets
Cebu Pacific Air A has a large number of franchisees for order taking, however
there are no proper Cebu Pacific Air A dine-in restaurants anywhere.
b. Franchise related issue
Because of the disloyalty of its franchise employees, Cebu Pacific Air A is having
challenges. Because there are so many franchises, it's difficult to keep track of each
employee that cheats.
c. Operational difficulties
Cebu Pacific Air finds it difficult to manage its operations because franchisees are
located around the city.
d. Net income
Cebu Pacific Air has determined that its net earnings do not correspond to its
financial forecasts and projections. To improve its net performance and earnings,
the company must work on its sales.
C. Opportunities
a. New environment policies
Cebu Pacific Air may benefit greatly from the new environmental policies, since
they will be able to reap greater benefits from innovation as a result of the smooth
implementation of these policies.
b. Low calorie menu
Customers will grow if Cebu Pacific Air adds low-calorie meals to its menu. To
make their products low-calorie meals, they can use low-fat items and less starch.
c. Population of Asian Countries
Countries such as India, Pakistan, and China have high expectations for Cebu
Pacific Air A, praising the quality of their cuisine and spices. They appreciated the
handcrafted nature of the business as well as the quality of the ingredients used,
such as cheese and meatballs.
D. Threats
a. High cost
Cebu Pacific Air's current operations and outputs entail a slew of expensive
functions. To avoid this threat, they can work on cost-cutting strategies.
b. Direct and Indirect competition
There are threats of competition for Cebu Pacific Air. Its direct competition consists
solely of companies in the manufacturing sector, although its indirect competition
consists of various fast-food chains.
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f. Upcoming Typhoons
Due to the typhoons, it may cause to delay the flight which may results to
dissatisfied customers.
VII. Discussion
Cebu Pacific Air believes that increased clarity about intercity travel amid the coronavirus
pandemic will boost domestic air traffic. Cebu Pacific has already seen an increase in forward
bookings. Still, there is no clear path forward: Manila is in the midst of a two-week lockdown, and
the vast country's vaccination drive is in its early stages (Waldron, 2021). According to R.
Royandoyan (2021), Cebu Air has been bleeding for more than a year since the pandemic
damaged the entire aviation industry, with net losses increasing 50.9 percent over the year to P13.8
billion in the first six months of 2021.
Travel is one of the world's most resilient industries, and while we don't know when travelers
will return, we can be certain that they will. However, in order to overcome the company’s struggle
such as net loss within their socio-economic status, Cebu pacific should prioritize their relationship
with the people, especially with their investors and to the travelers. They may impose their own
restrictions for the safety of their customers to develop its trust to them. Consumers are nervous
about traveling again and are looking to professional travel advisors for information on what is
safe, what is open, which hotels have implemented enhanced hygiene measures, and if something
goes wrong before, during, or after their trip. At the same time, travelers are eager to try new things
(World Travel & Tourism Council, 2020). Also, they may partner up with different travel agencies
for hotel and tour booking and charge planning fees to the customers to redeem their losses even
with cancellations. Moreover, marketing is very important for the business. Travel companies are
vital members of their communities; therefore, they should continue to look for ways to actively
participate in the COVID-19 response.
VIII. Conclusion
Tourism plays a vital role in the country. It helps the economy’s revenue further grow, since
there is effective promotion of what a country can offer, as a result, the country’s tourism will
boost as a lot of foreign and local people will be interested in experiencing different activities. It
also creates more employments, having a domino effect within the company’s growth and
employment, huge number of jobs will be open. Create or improves infrastructure, as the company
expand this will help the government to develop infrastructures from its shared taxes. Lastly, it
promotes cultural exchange between the locals and foreigners, there are foreign investors and
tourist that are visiting different countries to promote it from its origin.
Cebu Pacific is a well-known low-cost airline in Asia. They offer different destination around
the globe. Due to the pandemic, the airline suffered because of loss of income and higher expenses.
They are urged to reduce their employees and to stop operating because of the travel restrictions.
However, they managed to stay in track by investing on loans and suppliers that will help them to
be prepared on catastrophe. Furthermore, when the travel ban was lifted, Cebu Pacific didn’t
change their trademark, they still offer cheap fares for business and local travelers. Their
socioeconomic status gradually rises in the midst of pandemic since customers picked them as
their airline because of its low-cost flights.
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IX. Recommendations
As a recommendation, Cebu Pacific may take advantage of the situation by offering better
promos that will benefit the customer. This will aid them to gain more profit and customers. They
may also use partnerships with the government, as it will help them to get a promotion and be an
airline of choice for the locals. Moreover, the company may utilize brand partnerships such as
ookla, trivago, and other travel agencies to attract more customers. Lastly, they may partner up
with local LGU’s for travel accommodations, such as hotel reservations since customers prefer
low-cost but quality wise accommodations. It will also benefit them since partnering up with the
LGU’s are less expensive than the known brands. To recover faster, they may build up their brand
value by spreading awareness during the recession and market their company at the same time.
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