Lance's Dilemma

It's A daunting Challenge

22 September 2020 

Cebu Pacific (CEB) Chief Executive Officer Lance Gokongwei was interviewed by Forbes magazine released last week on how he manages Cebu Pacific and Covid 19 Pandemic. This is the excerpt of that story prepared by Sonny Thakur for Forbes Asia. 

The airline lost 9 billion pesos in the first half of the year versus 7 billion of net profit it booked earlier. To reverse the tide, the CEO made drastic move to cut losses.

"It’s a daunting challenge," said Lance Gokongwei. 

Following a three-month lockdown in parts of the country, Cebu Pacific remains almost completely grounded, operating at about 2% capacity versus a normal 75%. Cebu Air’s revenue in the first half of the year slumped 61% from a year ago to 17 billion pesos. 

“You just cannot operate in an environment where you have four months of zero revenue. And foreseeably for the next—we don’t know—four, six, eight months, one year, there [will be] no revenue,” Gokongwei says. “There is no economic model for that.” 

Gokongwei’s rescue plan? So far, he has laid off about a quarter of the airline’s staff (about 1,000 employees) since mid-March, scaled down the airline’s operations and shelved expansion efforts. 

To save cash, which halved to 9.7 billion pesos on its books in the first half, Cebu Air will cut capital expenditure by more than 70%, to 8.3 billion pesos, this year. 

To further trim costs, it has sent 14 of its 77 planes for storage in Australia. “We’re preparing for a much smaller future,” says Gokongwei, projecting the airline will operate at half its previous capacity by mid-2021 and won’t recover completely until 2023 at the earliest. 

The company is also preparing to raise fresh funds, he says, but declined to disclose details. 

Meanwhile, Gokongwei wants to get more Cebu Air’s planes flying, and has been enticing customers with discounts. 

But in early August, Manila’s main airport closed unexpectedly for two weeks—a disruption that Gokongwei shrugs off as the new normal. 

“You have to work in a very agile way,” he says.