Philippine Airlines and Cebu Pacific Hit the Same Fuel Shock. Their Balance Sheets Tell Different Stories.

Cebu Air’s larger loss consumed nearly a third of its equity, while PAL Holdings’ stronger cash generation and capital cushion limited the damage.

Philippine Airlines and Cebu Pacific Air flew into the same fuel-price shock during the first half of 2026. The damage showed up very differently on their balance sheets.

Cebu Air Inc., the operator of Cebu Pacific, ended June with ₱13.05 billion of shareholders’ equity, down 31% in six months. Its ₱5.87 billion net loss consumed nearly a third of the capital it had at the start of the year, magnifying the burden of almost ₱195 billion in borrowings, convertible bonds and lease liabilities.

PAL Holdings Inc., the parent of Philippine Airlines, reported a smaller ₱1.58 billion loss. It finished the period with approximately ₱46 billion of equity and ₱28.68 billion of cash, giving the flag carrier a substantially thicker cushion against its own growing debt and lease obligations.

Both airlines were hit by sharply higher jet-fuel prices. Both saw operating costs rise much faster than revenue. And both failed to generate enough operating profit to cover financing costs.

But below operating income, Cebu Air suffered the bigger hit.

The low-cost carrier entered the lower half of its income statement with only ₱288 million of operating profit. It then faced approximately ₱4 billion of financing costs and a ₱2.46 billion foreign-exchange loss as the Philippine peso weakened against currencies in which many of its aircraft and financing obligations are denominated.

PAL entered that part of the income statement with ₱2.01 billion of operating profit. It incurred a similar amount of financing costs, but its foreign-exchange loss was much smaller. Its stronger operating cash generation also helped contain the financial damage.

The result was an uneven landing from a common fuel shock. PAL emerged with more debt, but also with a sizable capital base and greater liquidity. Cebu Air emerged with less cash, sharply reduced equity, and a balance sheet carrying considerably less room for another earnings setback.

Rising Fuel Costs Overwhelm Revenue Growth

Neither airline’s problem began with weak sales.

PAL Holdings’ first-half revenue increased 11% to ₱103.81 billion, supported by higher passenger yields, fuel surcharges, ancillary sales and cargo revenue. Cebu Air’s revenue rose 8% to ₱68.56 billion as passenger, cargo and ancillary revenues increased.

Those gains were overwhelmed by fuel.

PAL’s fuel and oil expense surged to ₱40.65 billion from ₱26 billion a year earlier, an increase of about 56%. Fuel accounted for roughly 40% of operating expenses, compared with about 31% in the previous year.

Cebu Air’s aviation-fuel expense climbed even faster, rising about 61% to ₱27.48 billion from ₱17.05 billion. Total operating expenses increased 23%, nearly three times the pace of revenue growth.

PAL responded partly through higher fares and fuel surcharges. Passenger yields improved even as passenger volume and load factor declined. That helped the airline preserve ₱2.01 billion of operating income, equal to roughly 1.9% of revenue.

Cebu Air increased traffic, but the additional volume didn’t provide enough margin to absorb the rise in fuel and other operating costs. Its operating income narrowed to ₱288 million, or just 0.4% of revenue.

The carriers remained profitable before depreciation, interest, and taxes. Cebu Air reported ₱10.46 billion of earnings before interest, taxes, depreciation and amortization, while PAL generated approximately ₱13.5 billion.

For airlines, however, EBITDA can obscure the cost of maintaining and financing aircraft. Depreciation, lease interest and debt service aren’t incidental expenses. They are recurring consequences of operating a capital-intensive fleet.

Once those costs were considered, Cebu Air’s apparent operating resilience largely disappeared.

Below Operating Income, Cebu Air Suffered the Bigger Hit

Both airline groups incurred about ₱4 billion in financing costs during the first half. The same-sized charge had very different consequences because Cebu Air had much less operating income available to absorb it.

PAL generated about 57 centavos of operating profit for every peso of financing cost. Cebu Air generated only about seven centavos.

Neither carrier fully covered its financing costs from operating income, but Cebu Air’s shortfall was considerably wider.

Currency movements added another layer of pressure. Cebu Air recorded a ₱2.46 billion foreign-exchange loss as the peso weakened against the U.S. dollar, Japanese yen, and Singapore dollar. PAL’s net foreign-exchange loss was approximately ₱278 million.

Cebu Air’s year-over-year comparison was also affected by the disappearance of a ₱4.76 billion benefit recorded in the first half of 2025. That gain represented the value of four engines received without charge as support for aircraft-on-ground problems.

PAL also lost the benefit of prior-year manufacturer support credits, but the amount was smaller at approximately ₱1.51 billion.

Cebu Air consequently moved from a narrow operating profit to a ₱5.58 billion pretax loss. Its net loss reached ₱5.87 billion.

PAL moved from ₱2.01 billion of operating income to a ₱1.72 billion pretax loss and a ₱1.58 billion net loss.

Fuel started the earnings decline at both airlines. Financing costs, currency losses and the absence of previous supplier support made Cebu Air’s fall much steeper.

Cebu Air’s Loss Cuts Into Capital

The clearest measure of the damage wasn’t on the income statement. It was in shareholders’ equity.

Cebu Air began 2026 with ₱19.02 billion of equity. By June 30, the amount had fallen to ₱13.05 billion, a decrease of ₱5.97 billion.

Its first-half loss was equivalent to approximately 31% of beginning equity. Retained earnings dropped to ₱8.97 billion from ₱14.88 billion.

That decline matters because equity is the portion of the balance sheet available to absorb losses before creditors bear the financial consequences. A thinner equity base also makes every peso of outstanding debt appear heavier.

PAL’s loss had a much smaller effect. Its ₱1.58 billion deficit was equivalent to about 3.5% of beginning equity.

PAL’s retained earnings declined, but total equity edged higher to approximately ₱46 billion because a foreign-currency translation gain recorded in other comprehensive income offset the net loss.

That gain was noncash and provided no additional money for debt service. It nevertheless prevented the accounting loss from reducing PAL’s reported equity in the way Cebu Air’s loss reduced its capital base.

For every ₱100 of equity Cebu Air had at the start of the year, approximately ₱31 was consumed by the first-half loss. PAL lost the equivalent of about ₱3.50 for every ₱100 of opening equity.

Two Different Paths to Higher Leverage

PAL and Cebu Air both finished the period with more financial pressure, but they got there in different ways.

PAL had approximately ₱137.21 billion of interest-bearing debt and lease obligations at the end of June. Against ₱46 billion of equity, that produced a debt-to-equity ratio of about 2.98 times, up from 2.18 times at year-end.

Much of the increase resulted from aircraft additions, lease extensions and property arrangements. PAL’s lease liabilities rose to ₱116.54 billion from ₱80.31 billion.

Its leverage therefore increased mostly because the airline expanded its asset and liability base, not because its loss destroyed a significant portion of shareholders’ capital.

Cebu Air carried about ₱194.89 billion of financing obligations, consisting of ₱59.81 billion of long-term debt, ₱15.22 billion of convertible bonds and ₱119.87 billion of lease liabilities.

Measured against ₱13.05 billion of equity, those obligations were nearly 15 times shareholders’ capital. Total liabilities were roughly 18.5 times equity.

Cebu Air’s leverage deteriorated from both sides. Borrowings remained elevated while peso depreciation increased the reported value of some foreign-currency obligations. At the same time, the loss sharply reduced the equity supporting those liabilities.

PAL’s leverage rose because its balance sheet expanded. Cebu Air’s leverage intensified because its capital base contracted.

Cash Creates Another Divide

PAL generated ₱14.44 billion of operating cash flow during the first half despite reporting a net loss. Cash and cash equivalents increased to ₱28.68 billion from ₱25.97 billion at the end of 2025.

Cebu Air also remained cash-generative at the operating level, but its ₱3.97 billion of operating cash flow was significantly below the ₱13.24 billion generated a year earlier. Its cash balance fell 31% to ₱14.87 billion.

Short-term liquidity remained tight for both carriers.

PAL had 59 centavos of current assets for every peso of current liabilities. Cebu Air had only 39 centavos, down from 59 centavos at year-end.

Cebu Air’s current liabilities included ₱15.22 billion of convertible bonds due in May 2027. The bonds’ reclassification as current liabilities didn’t create a new obligation, but it made the approaching repayment or refinancing requirement more visible.

PAL also had substantial near-term obligations. Its larger cash balance and stronger operating cash flow, however, gave it more capacity to meet those commitments.

Less Room for Error

The first-half results don’t suggest that either airline has lost its ability to generate operating cash. Both remained EBITDA-positive, and both continued to benefit from growing travel demand.

They do show that the financial consequences of expensive fuel depend heavily on the balance sheet absorbing the shock.

PAL has to restore margins while managing higher lease liabilities and bringing debt relative to EBITDA back within its target. Its interest coverage remains below one times, meaning operating income doesn’t fully cover financing costs.

Cebu Air faces the more immediate balance-sheet challenge. It must rebuild earnings and capital while managing substantial lease obligations, foreign-currency exposure and the approaching maturity of its convertible bonds.

A recovery in fuel prices, fares or the peso could improve results quickly. Another period of elevated fuel costs could work in the opposite direction.

The same fuel shock pushed both Philippine airline groups into the red. At Cebu Air, however, the loss traveled farther, cutting through earnings and cash before removing nearly a third of shareholders’ equity and leaving leverage substantially higher.

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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.