By Ashley Erika O. Jose, Reporter
LISTED aviation corporations are expected to post stronger leads to the second half as travel demand improves, but analysts warned that renewed tensions within the Middle East could derail the recovery by driving jet fuel prices higher and squeezing airline margins.
“The outlook for listed airlines and aviation corporations throughout the second half of the 12 months is cautiously optimistic, with the sector expected to perform higher than in the primary half, although results are prone to remain uneven across operators,” Globalinks Securities and Stocks, Inc. Head of Sales Trading Toby Allan C. Arce said in a Viber message.
COL Financial Group, Inc. Research Analyst Paolo Miguel Manansala said higher oil prices, coupled with the continued weakness of the peso, remain key risks to the industry’s outlook.
“Jet fuel prices soared again in recent weeks given the re-escalation of the conflict within the Middle East. This places significant margin pressure on airline operators,” Mr. Manansala said in a Viber message.
In accordance with the newest monitoring by the International Air Transport Association (IATA), jet fuel prices rose 17.6% week on week to $149 per barrel.
MARGIN SQUEEZE
The renewed conflict within the Middle East prompted local fuel retailers to lift gasoline prices by as much as P3.65 per liter, diesel by P10.68 per liter, and kerosene by P11.77 per liter starting July 21.
The upper fuel costs come after listed aviation corporations posted weaker first-quarter earnings, largely resulting from rising operating expenses.
Cebu Air, Inc., operator of Cebu Pacific, reported a net loss attributable to equity holders of the parent of P419.94 million, reversing the P465.90-million attributable net income recorded a 12 months earlier as operating expenses increased.
PAL Holdings, Inc. posted an attributable net income of P4.28 billion, down 1.15% from P4.33 billion in the identical period last 12 months.
MacroAsia Corp. saw attributable net income decline 58.89% to P129.05 million from P313.91 million a 12 months earlier, citing lower equity earnings from associates and rental adjustment rates.
In a June 7 report, IATA said the conflict within the Middle East and better fuel costs proceed to weigh on the airline industry’s outlook despite expectations of improving travel demand.
The Civil Aeronautics Board (CAB) recently lowered the passenger fuel surcharge to Level 8 for the July 16-31 period, marking the sixth consecutive reduction under its revised 15-day review cycle.
At the peak of the recent surge in jet fuel prices, CAB raised the passenger fuel surcharge to Level 19 for April 16-30, the best level since 2022 and one step below the utmost allowable rate. Jet fuel prices averaged $184.63 per barrel throughout the period.
Data from the Department of Energy showed the country’s average day by day fuel demand stood at 78.08 million liters as of July 10, while average day by day jet fuel demand reached 5.65 million liters. The agency said available jet fuel supply is sufficient for 80 days.
CAPACITY EXPANSION
Despite higher fuel costs, analysts expect the aviation sector to perform higher within the second half as airlines proceed rebuilding capability to satisfy travel demand.
Mr. Arce said each Philippine Airlines (PAL) and Cebu Pacific proceed to expand their fleets to strengthen their network reach.
This week, PAL announced orders for nine Airbus A350-1000 aircraft and as much as 20 Boeing 787-10 Dreamliners.
Budget carrier Cebu Pacific expects to receive seven latest aircraft in 2026, while AirAsia Philippines has said it plans to deploy Airbus A220 aircraft by 2028.
For the primary quarter, air passenger volume rose 6.7% to 17.05 million, driven by higher domestic passenger traffic, based on CAB data.
“Several risks could temper the sector’s recovery throughout the second half. Fuel prices remain one in every of the most important variables affecting airline profitability, particularly given ongoing geopolitical tensions that would disrupt global energy markets,” Mr. Arce said.
“Airlines that successfully improve operational efficiency while maintaining strong customer satisfaction are prone to outperform peers in an increasingly competitive environment,” he added.
“Listed airlines and aviation corporations [are expected] to deliver generally stronger leads to the second half of the 12 months than in the primary half, although the pace of improvement is prone to moderate compared with the rapid post-pandemic recovery experienced over the past few years. The sector is transitioning from a recovery-driven growth story toward one which is increasingly defined by operational execution, disciplined capability expansion, cost management, and capital allocation,” Mr. Arce said.
Mr. Manansala said the second half would remain difficult despite stronger seasonal demand.
“On condition that the second quarter is historically strong when it comes to demand and offsets the lean third quarter, I consider second half will likely remain tough for airline operators, with third quarter expected to indicate a mix of lean passenger demand together with heightened expenses,” he said.