Cebu Pacific’s Fuel Bill Delivers Another Hiccup for the Gokongwei Group

Passenger traffic and revenue increased, but not enough to absorb soaring fuel costs, a weaker peso and the financial burden of an expanding aircraft fleet.

Cebu Pacific Air spent the first half of 2026 selling more tickets and collecting more revenue. It still lost nearly ₱5.9 billion.

The reversal exposes a growing problem for the budget airline and its ultimate parent, the Gokongwei family’s JG Summit Holdings: Cebu Pacific’s low-fare model couldn’t raise enough revenue from each flight to keep pace with the sudden increase in the cost of flying it.

Revenue at Cebu Air Inc., which operates Cebu Pacific, rose 8.3% to ₱68.56 billion in the six months ended June. Passenger revenue climbed 6.8%, cargo revenue rose 13% and ancillary revenue increased 11.3%. Yet operating expenses surged 23.2% to ₱68.28 billion, consuming almost every peso of revenue and leaving just ₱288 million in operating income. A year earlier, the airline earned ₱7.92 billion at the operating level.

The result was a net loss of ₱5.87 billion, reversing a ₱8.97 billion profit in the first half of 2025. Some of that comparison is distorted by a ₱4.76 billion one-time gain recorded last year after Cebu Pacific received four engines free of charge as support for aircraft-on-ground problems. But the underlying deterioration remains hard to dismiss. Core pretax earnings swung to a ₱3.35 billion loss from a ₱4.66 billion profit.

The trouble was concentrated in the cost of keeping aircraft in the air.

Flying-operations expense jumped 50% to ₱30.88 billion. Aviation fuel accounted for ₱27.48 billion of that amount, up 61% from ₱17.05 billion a year earlier. Pilot-related costs were almost unchanged, insurance rose only modestly and miscellaneous flying costs declined. Fuel, in other words, accounted for more than the entire increase in flying-operations expense.

Fares Failed to Catch the Fuel Bill

Airlines can respond to higher fuel costs by raising fares, increasing passenger loads, selling more ancillary services or reducing capacity. Cebu Pacific’s first-half numbers suggest it couldn’t do enough of any of them to preserve its margin.

Passenger revenue increased by ₱3 billion, but the fuel bill alone increased by more than ₱10.4 billion. Even after adding the growth in cargo and ancillary revenue, total revenue rose by only ₱5.23 billion, about half the increase in fuel expense.

Cebu Pacific doesn’t disclose a simple average airfare in its interim report. The financial results nevertheless show that its combination of fares, passenger volume and add-on sales failed to recover the rise in operating costs.

Capacity utilization also weakened. The airline’s seat-load factor fell to 81.2% from 85.4%, while cost per available seat kilometer increased 20% to ₱3.69. EBITDA declined 40% to ₱10.46 billion, and the EBITDA margin compressed to 15.3% from 27.5%.

For a low-cost carrier, that combination is particularly uncomfortable. Adding seats can lower unit costs when aircraft are full. When load factors decline and fuel prices rise, the same expansion can spread expensive capacity across too few paying passengers.

The second quarter provides the clearest warning. Cebu Pacific generated ₱35.24 billion in revenue during the quarter, but flying-operations expense more than doubled to ₱20.25 billion. The company recorded a ₱2.73 billion operating loss and a ₱5.47 billion net loss in the quarter alone.

The Peso Adds Another Headwind

Fuel wasn’t the only external force working against the airline.

The Philippine peso weakened to ₱61.36 against the dollar at June 30 from ₱58.79 at the end of 2025. Cebu Pacific also carries obligations denominated in Japanese yen and Singapore dollars. The currency movements produced a net foreign-exchange loss of ₱2.46 billion, compared with a loss of only ₱107 million a year earlier.

The effect goes beyond the reported foreign-exchange line. Cebu Pacific estimates that between 60% and 70% of operating expenses are affected by movements in the dollar-peso exchange rate, including fuel, aircraft parts, maintenance, ground services and reservation systems.

A weaker peso therefore squeezes the airline from both sides. Most customers buy tickets in pesos, while many of the airline’s largest costs and financial obligations are tied to foreign currencies.

The company estimates that a ₱2 movement in the dollar-peso rate would affect six-month pretax income by approximately ₱4.74 billion through the revaluation of foreign-currency financial assets and liabilities. A $10-a-barrel movement in jet-fuel prices would affect six-month fuel costs by about ₱1.8 billion, assuming unchanged consumption.

A Thinner Equity Cushion

The loss didn’t merely reduce earnings. It significantly weakened the balance sheet.

Total equity fell 31% to ₱13.05 billion from ₱19.02 billion at the end of December. Retained earnings declined by ₱5.91 billion to ₱8.97 billion, while book value per common share fell to ₱15.13 from ₱25.45. Liabilities represented roughly 95% of Cebu Pacific’s ₱254.97 billion in assets. Its asset-to-equity ratio increased to 19.54 times from 13.91 times.

That leaves substantially less capital to absorb another fuel shock, currency loss or weak travel season. A further half-year loss of similar magnitude would erase close to half the airline’s remaining equity.

The quality of the first-half operating result also deserves scrutiny. Cebu Pacific increased the assumed residual values of its narrow-body and ATR aircraft, reducing first-half depreciation by about ₱600 million. Without that accounting-estimate change, the already narrow ₱288 million operating profit would have become a loss.

The airline still has a large aircraft asset base, but much of it isn’t readily available to meet short-term obligations. Right-of-use assets relate to aircraft owned by lessors, while 29 owned aircraft with a carrying value of ₱56.8 billion secure commercial loans. Those assets support creditors, but they aren’t substitutes for cash.

Liquidity Becomes the Immediate Concern

Cash and cash equivalents declined 31% to ₱14.87 billion. Current assets fell to ₱29.62 billion, while current liabilities climbed to ₱76.29 billion. The current ratio deteriorated to 0.39 from 0.59, and the quick ratio fell to 0.25 from 0.38.

Airline balance sheets require some interpretation. Cebu Pacific’s current liabilities include ₱19.88 billion of unearned transportation revenue, largely tickets already purchased by passengers. That obligation is generally settled by operating flights rather than handing the cash back.

The more pressing items are the obligations that do require cash. These include ₱5.31 billion of current bank debt, ₱15.08 billion of current lease liabilities and ₱15.22 billion of convertible bonds. Together, those financial obligations total around ₱35.61 billion, more than twice the airline’s cash balance.

Operating cash flow remained positive at ₱3.97 billion, but it was down from ₱13.24 billion a year earlier. Cebu Pacific paid ₱2.59 billion of loan principal and ₱10.07 billion of lease liabilities during the half. Operating cash flow covered only about 31% of those combined payments. The airline also spent ₱15.70 billion acquiring property and equipment and raised ₱9.56 billion of new long-term debt.

That pattern reveals the central financial problem: Cebu Pacific is still generating cash from operations, but not enough to fund aircraft investment and service all debt and lease obligations without fresh financing.

A May 2027 Test

The largest near-term event is Cebu Pacific’s $250 million convertible bond, issued in 2021 and due May 10, 2027.

The bond had a carrying value of ₱15.22 billion at the end of June and bears interest of 4.5%. It can convert into Cebu Pacific shares at ₱38 apiece, subject to the bond’s adjustment provisions. But the filing used a June 30 share price of ₱29.40, leaving the conversion option out of the money at that date. No bondholder had exercised the option as reported in the filing.

Unless the stock recovers sufficiently to encourage conversion, Cebu Pacific will need to repay, refinance or restructure the obligation. Its existing cash balance is already below the bond’s carrying value and must also support fuel purchases, maintenance, payroll, leases and normal operations.

That makes the May 2027 maturity less a question of whether the airline possesses valuable aircraft and more a test of whether lenders and capital markets remain willing to finance its expansion.

Interest Coverage Nearly Disappears

Cebu Pacific recorded almost ₱4 billion in financing costs and other charges during the first half, up 7% as new aircraft and engines entered the fleet. Operating income of ₱288 million covered only 7% of those financing costs. The company’s reported interest-coverage ratio collapsed to 0.07 times from 2.38 times.

EBITDA still covered financing costs by roughly 2.6 times, providing some comfort. But EBITDA excludes depreciation in a business whose aircraft must eventually be replaced, and it doesn’t capture the full cash burden of lease-principal payments and fleet investment.

Cebu Pacific reported no covenant breach or event triggering the acceleration of an obligation. Management also said cash balances and projected cash flows should be sufficient to support operations and capital commitments for at least 12 months.

That is different, however, from saying the airline is comfortably self-funding.

For the Gokongwei group, Cebu Pacific’s first-half loss is another reminder of the hazards of a business built around costs it can’t fully control. The airline can manage schedules, capacity, overhead and ticket prices. It can hedge some fuel and currency exposure. It can’t dictate the price of jet fuel, the value of the peso or how much passengers will tolerate in higher fares.

Cebu Pacific remains a functioning airline with positive EBITDA, positive operating cash flow and continued access to borrowing. But after the first half of 2026, it is operating with less equity, less cash and substantially less room for error.

The next challenge won’t simply be filling more seats. It will be filling them at fares high enough to pay for the fuel, the aircraft and the money borrowed to finance both.

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Disclaimer: This is for informational purposes and is not investment advice. Figures come from company disclosures and exchange data; valuation ratios reflect the author’s calculations based on cited inputs.