Graduate School of Business Management

CEBU PACIFIC AIR

A Corporate Strategic Plan Presented to the Faculty of the

Graduate School of Business and Management
Philippine Christian University

In Partial Fulfilment
of the Requirements for the Degree
Masters of Business Administration

by

ANDAYA, ZAYRA KHRISTEL M.

BAÑARIA, RONA CAMILLE S.
JAVIERTO, YLLEN F.
QUEVEDO, JAN MICKA J.
March 2024

PROFESSOR: BERNADETTE O. VILLALUZ, Ph.D.

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TABLE OF CONTENTS
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V. External Environment

Opportunities Threats

The significant safety concern of the Foreign Exchange Risk

International Civil Aviation Organization
has been lifted.

Government has lifted covid restrictions The Value of Philippine Peso diminishes
all over the country. against US Dollar.

Philippines' GDP is recovering post Covid Continuous increase in market share affects
the crew scheduling.

Contact less travel due to pandemic Sanctions against Russia have pushed up the
inflation rate in the Philippines

High growth rate for air cargo market Increased apprehension to fly post-pandemic

Philippine government legislation allows full

foreign ownership of airlines.

A. Industry Trends

The Philippines' leading airline, Cebu Pacific (CEB) entered the aviation industry in March 1996
and pioneered the "low fare, great value" strategy in the country.

The global aviation industry has finally shown signs of recovery after the disruptions caused by
the coronavirus (COVID-19) pandemic, which has led to dwindling passenger and cargo traffic.
In the Philippines, air passenger traffic recovered in 2022, although figures remain lower than
the pre-pandemic passenger volume. Recovery was dominated primarily by domestic travel,
which accounted for the majority of air passenger traffic in that year.

The aviation industry is a significant contributor to the Philippine economy, with air
transportation accounting for over 95% of tourist arrivals to the country in the years prior to
pandemic. In 2022, about 31 million passengers were recorded in the NAIA airport terminals,
the majority of whom were flying domestically.

The “low fare, great value” strategy of the Cebu Pacific contributed to its revenue increase
gaining the highest share of domestic passengers in the Philippines.
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Additional investments in the air transport sector in the Philippines and various joint-
agreements with our neighboring countries are expected to continue to drive the sector’s
growth in the coming years.

B. Competitive Environment

The major competitors of Cebu Pacific are Air Asia, Philippine Airlines, and Skyjet.

The country’s flagship airline, the Philippine Airlines, reported significant revenue growth in
2022, as it dominated international passenger traffic. Meanwhile, low-cost airline Cebu Pacific
served the highest share of domestic passengers in the Philippines in 2022, which contributed
to its revenue increase. Malaysian low-cost airline AirAsia also reported revenue growth in
2022, although it remains lower than its pre-pandemic performance.

C. Society Trends and Economic Environment

Following a slump in air travel demand in recent years, airlines in the Philippines have
bounced back after experiencing losses.

D. Technological Environment

The aviation industry has always been at the forefront of technological advancements, and
new technologies continue to shape its future. Here are some of the ways in which technology
is impacting the aviation industry:

Technology is set to play an increasingly important role in the future of the aviation industry,
with the potential to improve safety, efficiency, and the passenger experience while reducing
environmental impact. However, as with any new technology, there are also challenges and
risks that need to be carefully managed.

Cebu selected SmartKargo to provide the technology layer needed to fill the customer service
and efficiency gaps that existed in their legacy systems. Selecting the right cloud technology
platform was a critical decision—as it would be the backbone of their application. Cebu Pacific
wanted to ensure that the cloud platform they selected had global presence, high availability,
easy scalability, compliance to international standards, high levels of security, and much more.
Cebu’s decision to go with the SmartKargo Cloud, Software-as-a-service (SaaS) ERP solution,
meant that their clients would have the ease of use and mobility necessary to self-manage
their shipments end-to-end, in real-time.

Cebu Pacific has selected IBS Software for its crew scheduling processes to further improve
operational efficiency. As the airline ramps up its domestic and international networks, more
flights would entail better management of staff schedules.
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E. Legal and Political Environment

The stability of the government also permits organizations like Cebu Pacific to expand
regionally and internationally.

In terms of Tax Policy, Cebu Pacific will also be able to retain its competitiveness by reducing
its operating costs supported by government subsidies and favorable tax rates.

F. Summary of External Factors

The following are the key external factors that are likely to impact Cebu Pacific in the coming
years:

The improving gross domestic product of the Philippines

Increasing growth rate in air cargo market
Philippine government legislation allows full foreign ownership of airlines.
Strong market competition

VI. Internal Environment

Strengths Weaknesses

Low-cost carrier in the country among the Delay in engine repairs which leads to long
aviation industry. flight delays and cancellations.

Sound financial performance for the Limited international network of flights

second quarter of 2023. and destinations

Cebu Pacific Air prepares for an Limited airport capacity and infrastructure
aggressive hiring plan. in key cities.

Ongoing regional airport developments.

First in the country to incorporate the

use of Sustainable Aviation Fuel (SAF)
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A. Corporate Structure

President and CEO - The President/CEO is the essence of The Coordinating Center, liable for
the general administration and key preparation. Chosen by the Board of Directors the
President/CEO has the obligation to do the mission and is liable for the general administration
and activity of all parts of the association.

Chairman - Gives authority and administration of the Board to make the circumstances for
generally Board's and individual Director's adequacy, and guarantees that all key and fitting
issues are examined by the Board on time.

Directors – They are successfully the specialists of the organization, designated by the
investors to deal with its everyday undertakings. The essential decide is that the chiefs should
act all together yet ordinarily the board may likewise assign specific powers to individual chiefs
or to an advisory group of the board.

B. Corporate Culture

Equal Opportunities. The Cebu Pacific believes in providing equal opportunities regardless of
race, culture, age and gender. It aims to continuously create a psychologically-safe workplace
for everyJuan. This culture is evident in the company’s motto “We embrace diversity, equality
and inclusivity”.

Valued Stakeholders. “We put people at the heart of service - be it for our customers, clients,
and partners”. The Cebu Pacific aims to be the moment makers of its stakeholders through
continuous creativity and innovation.

Employees’ Wellness. The company ensure that the employees were equipped and
empowered to pursue excellence in their field. Through the CEB University programs and
employee engagement activities, learning become accessible, convenient, and dynamic.
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C. Corporate Resources

1. Marketing

Sales – Cebu Pacific has competitive sales unit which offers the airline’s services and
also creates new programs, services, and advertisements to attract potential
customers.

Distribution Channels – The company has wide distribution channels that particularly
Cebu Pacific website, mobile app, in-flight promotions, booking hotline, direct sale
through official ticketing offices, and accredited travel agencies.

Promotion – To attract and engage customers, Cebu Pacific employs various

promotional strategies. They run targeted promotions and discounts, offering
competitive prices to customers. Additionally, they actively engage with their
customer base through social media platforms, such as Facebook, Twitter, and
Instagram. By maintaining an active presence on social media, Cebu Pacific keeps
customers informed about promotions, new routes, and travel tips. This interactive
approach helps to build customer relationships and generate buzz around their brand.

Support - Cebu Pacific goes beyond providing a means of transportation by offering in-
flight promotions and gifts that aim to enhance the overall customer experience.
These initiatives include offering branded products, distributing travel kits, and
providing free spiels to passengers about their merchandise. By doing so, Cebu Pacific
engages customers and creates a memorable flying experience, fostering stronger
connections with their brand.

2. Management

Expertise – The management of Cebu Pacific is composed of seasoned entrepreneurs

that leads the implementation of the strategies of the company towards its success.

Systems – Cebu selected SmartKargo to provide the technology layer needed to fill the
customer service and efficiency gaps that existed in their legacy systems. Cebu Pacific
has selected IBS Software for its crew scheduling processes to further improve
operational efficiency.

Resources – The company has strong build-up capacity that can finance high quality
corporate resources.
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3. Operations and Logistics

Efficiency – The operations and logistics team of Cebu Pacific are well experienced and
has undergone various trainings overseas. They are knowledgeable of the company’s
supply chain and they play a significant role especially during and after the pandemic.

Capacity - Cebu Pacific operates a fleet of 53 Airbus aircraft: seven A321neos, seven
A321ceos, five A320neos, 26 A320s, seven A330s and one A330 freighter. It also flies
21 ATR turboprop aircraft including six ATR 72-500s, 13 ATR 72-600s and two ATR
freighters.

Process – The company has three main operational departments including, flight,
ground, and network. These departments that performs different functions at a
common goal of providing high value of service even at a lower cost.

4. Products/Services

Added Value - One of the key factors contributing to the success of Cebu Pacific’s
marketing strategy is their commitment to high service quality standards. They
prioritize customer satisfaction by delivering exceptional service throughout the entire
customer journey.

Services - In addition to passenger service and airport-to-airport cargo services, the

Company also offers ancillary services, such as travel insurance, in-flight merchandise,
baggage, and travel-related products and services.

Quality - From check-in to in-flight experience and post-flight assistance, Cebu Pacific
ensures that their customers receive a high level of service and care. By consistently
providing a positive and enjoyable travel experience, they build trust and loyalty
among their customer base.

Pricing - One of the key pillars of Cebu Pacific’s marketing strategy is its low-price
approach. By offering affordable ticket prices, the airline appeals to a wide range of
budget-conscious customers. This strategy has allowed Cebu Pacific to tap into a larger
market segment and attract price-sensitive travelers. The airline’s commitment to
providing value for money has contributed significantly to its success and customer
loyalty.

Feature / benefits – For years, Cebu Pacific has brought flying closer to more Filipinos
as it offers various seat sale and go rewards.
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Range of offerings - It operates in two segments: the airline business and the line and
light maintenance business.

Competitiveness – Cebu Pacific is certified as a 3-Star Low-Cost Airline for the quality
of its airport and onboard product and staff service. Product rating includes cabin
comfort, baggage / seat charges, buy onboard food & beverages, cabin cleanliness,
and service rating is for cabin and ground staff.

5. Finances

Performance - Cebu Air Inc. (Cebu Pacific) has demonstrated its resilience and growth
potential with some very sound financial figures. The revenue generated by the
company is enough for the planned expansion.

Resources - The company has strong build-up capacity that can finance high quality
corporate resources.

Cost management – Cebu Pacific selected airRM to provide state of the art revenue
management, inventory control, and reporting tools that will enable the company to
identify sales opportunities, maximize passenger revenues and closely control pricing.

6. Research and Development –

Effort - CEB – which currently operates the greenest aircraft in the aviation industry,
the Airbus A330neo – is aligning its sustainability goals with the global aviation
sector’s pledge to achieve net zero carbon emissions by 2050.

The A330neo also uses 25% less fuel than previous generation aircraft, consuming as
little as 1.4 liters per seat per 100 kilometers. IMAGE Cebu Pacific

After participating early this year at the Singapore Airshow as Asia’s greenest airline,
CEB has established three major pillars on its sustainable journey: fleet modernization,
which aims, among others, to have an all-Airbus neo fleet; resource optimization,
which includes pushing for fuel efficiency best practices; and utilizing sustainable
aviation fuel (SAF) by launching green routes by 2025 and using SAF for its entire
network by 2030.

As a testament to CEB’s commitment to sustainability, the airline was the first in the
country to incorporate the use of SAF, a “drop-in” replacement for fossil fuels
produced from renewable resources, in its operations. The use of SAF can result in the
reduction of carbon emissions by up to 85% across the SAF lifecycle.
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D. Summary of Internal Factors

Cebu Pacific Air is the leading low-cost carrier in the Philippines, it pioneered the low fare,
great value strategy in the local aviation industry. Cebu pacific Air adopted the low-cost carrier
business model. The core element of the Low Cost-Carrier (LCC) strategy is to offer affordable
air service to passenger. The group operates with a fleet of 52 aircraft with extensive route
serving 59 domestic routes and 36 international routes. The Group has 3 principal distribution
channels: Online booking; direct sales through booking sales offices and call center and
government / corporate client’s accounts; and third-party sales outlets.

The company also encountered challenges such as delays in engine repairs, resulting in flight
delays and cancellations. Additionally, Cebu Pacific's limited international flight offerings may
also affect its revenue.
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VII. Analysis of Strategic Factors

A. Key Internal and External Strategic Factors (SWOT)

IFE Matrix (Internal Factor Evaluation)

Key Internal Factors Weight Rating Weighted

Score

Strengths

1. Low-cost carrier in the country 0.20 4 0.80

among the aviation industry.

2. Sound financial performance for the 0.12 3 0.36

second quarter of 2023.

3. Cebu Pacific Air prepares for an 0.05 1 0.05

aggressive hiring plan.

4. Ongoing regional airport 0.10 2 0.20

developments.

5. First in the country to incorporate 0.10 2 0.20

the use of Sustainable Aviation Fuel
(SAF)

Weakness

1. Delay in engine repairs which leads 0.18 4 0.72

to long flight delays and cancellations.

2. Limited international network of 0.15 2 0.30

flights and destinations

3. Limited airport capacity and 0.10 2 0.20

infrastructure in key cities.

Total 1.00 2.83

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Key External Factors Weight Rating Weighted Score

Opportunities

1. The significant safety concern of the 0.13 3 0.39

International Civil Aviation Organization
have been lifted.

2. Government has lifted covid restrictions 0.15 4 0.60

all over the country.

3. Philippines' GDP is recovering post 0.10 2 0.20

Covid

4. Contact less travel due to pandemic. 0.05 2 0.10

5. High growth rate for air cargo market. 0.15 3 0.45

Threats

1. Foreign Exchange Risk 0.10 2 0.20

2. The Value of Philippine Peso diminishes 0.05 1 0.05

against US Dollar.

3. Continuous increase in market share 0.03 1 0.03

affects the crew scheduling.

4. Sanctions against Russia have pushed up 0.02 1 0.02

the inflation rate in the Philippines

5. Increased apprehension to fly post- 0.05 1 0.05

pandemic.

6. Philippine government legislation allows 0.05 1 0.05

full foreign ownership of airlines.

7. Ongoing global pilot shortage. 0.12 3 0.36

Total 1.00 2.50

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Key Strengths (Current)
1. Low-cost carrier in the country among
the aviation industry.
2. Sound financial performance for the
second quarter of 2023.
3. Cebu Pacific Air prepares for an
aggressive hiring plan.
4. Ongoing regional airport developments.
5. First in the country to incorporate the
use of Sustainable Aviation Fuel (SAF)
Key Weaknesses (Current)
1. Delay in engine repairs which leads to
long flight delays and cancellations.
2. Limited international network of
flights and destinations
3. Limited airport capacity and
infrastructure in key cities.
Key Strengths (Future)
1. Low-cost carrier in Asia among the
aviation industry.
2. Continuous recovery from pandemic in
terms of finances.
3. High employee retention
4. Innovation of existing services due to
expansion of resources.
5. Compliance to environmental policies
and strong CSR.
Key Weaknesses (Future)
1. Decrease in revenue due to low
customer satisfaction.
2. Incurrence of losses once Domestic
flights decrease or has problem
3. Limited product offerings and decrease
in revenue generated.
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Key Opportunities (Current)
1. The significant safety concerns of the
International Civil Aviation Organization
have been lifted.
2. Government has lifted covid restrictions
all over the country.
3. Philippines' GDP is recovering post Covid
4. Contact less travel due to pandemic.
5. High growth rate for air cargo market.
Key Threat (Current)
1. Foreign Exchange Risk
2. The Value of Philippine Peso diminishes
against the US Dollar.
3. Continuous increase in market share
affects the crew scheduling.
4. Sanctions against Russia have pushed up
the inflation rate in the Philippines
5. Increased apprehension to fly post-
pandemic.
6. Philippine government legislation allows
full foreign ownership of airlines.
Key Opportunities (Future)
1. Broaden Geographic reach.
2. Recovery of the global aviation industry
surpassing the pre-pandemic passenger
volume.
3. Increase in employment and spending
capacity.
4. Technological Development to minimize
cost.
5. Innovation of existing products.
Key Threat (Future)
1. Price volatility of products and services.
2. Increase in operational cost and decrease in
profit margin due to peso depreciation.
3. Issue in work schedule when Cebu Pacific
Air starts its operation in Europe and America.
4. Reduction in disposable income of people.
5. Increased apprehension to fly post-
pandemic.
6. Strong Market Competition.
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B. Review of Mission and Objectives

1. Proposed changes to vision

“To be the most successful low-cost airline carrier in the world that provides
comforting, happy, safe and fine ambiance journey to customers by 2070.”

For the Vision statement based on the evaluation, they must specify what they
must do or give in order to achieve their vision and when to attain that vision.

2. Proposed changes to mission

“The unceasing provider of safe, affordable, reliable and fun-filled air travel
services to our beloved loyal passengers and offer fair return on our
shareholders investments, by giving low cost and world class services
through our skilled, professional and accommodating employees, by being
committed to innovation and excellence in everything we do. Since we give
importance to the deep sense of family values and nation building, we
commit ourselves to enhance the quality of life of the communities we serve
and to be an active partner in our nation’s progress.”

For the Mission Statement based on the evaluation, not all the necessary
parameters have been included in the mission statement. The customers,
market, and concern for employees are not stated in their mission statement.
Thus, they need to consider them also and make their mission statement
more organized and specific.

3. Proposed changes to values

Cebu Pacific has the following existing values:

CARE. We will treat every customer as our partner who we would like to care
for and build relationships with, for the long term.

ANTICIPATE. We will anticipate the needs of our customers and follow-

through on our promises.

UNDERSTAND. We will listen carefully to understand our customers’ needs in

order to better respond and serve.

DELIGHT. We will seek opportunities to delight customers in every interaction.

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RESOLVE. We will resolve the customer’s concern at first contact.

Cebu Pacific must provide their services aligned to all the existing values. The
management must strictly ensure that the customers were satisfied on their
experience with the services provided.

Additionally, Cebu Pacific must include the following on its core values:

SAFETY. We ensure safe travel experience to build passenger confidence.

INNOVATION. We are passionate about continuous improvement.

4. Proposed changes to objectives

The strategic objective of Cebu Pacific Airline is to be able to grow and sustain
profitability even if it offers low-cost fares, since the vision tells that by 2070,
it should be the most successful low-cost carrier. It is now known to be the
low-cost carrier in the Philippines, but to be successful, knowing that it has
negative working capital and incurred losses, it should have ways to increase
return on investment.

The company may provide other income, may do related or unrelated

diversifications to increase revenue. The company couldn’t modify its product
prices at ease since it needs to comply and maintain being the low-cost
carrier. Likewise, better ways would be reducing expenses. Cebu Pacific should
also prove that being low cost doesn’t mean a low-quality service. Often poor
inflight staffing, cancellation, delays and refunding needs to be lessened or
actually avoided if possible.

Customer notice of cancellation should be provided, proper time booking to

prevent delays and refunding should be in line as what is stated in Customer
Service Plan which is a maximum of 30 working days. Loss of customers is a big
deal since CEB does have lower fares. Knowing that the company is in a good
strategic position to respond to the internal environment and has an above
average rating externally, making improvements may still be inevitable to
extend services to a spectacular one, and continue its mission of being an
unceasing provider of safe, affordable, reliable and fun-filled air travel
services.
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A. Case Analysis

1. Time Context -2023

2. Viewpoint - CEO
3. Central Problem
A strategy to rebuild its pre-pandemic operations and expand market share in
international flights.

4. Support evidence of the problem

Aftermath of the COVID-19 Pandemic - The pandemic was among the greatest challenges the
aviation companies ever faced, with its impacts continuing even after travel restrictions are
lifted in many parts of the world. According to the IATA report, the pandemic erased
essentially 20 years of gains in passenger traffic in one sudden blow. The report forecasts that
by 2040, air traffic would still be 6% below IATA’s pre-pandemic forecast, highlighting the long-
lasting effect of the COVID-19 crisis.

Low number of passenger traffic - Low-cost carrier Cebu Pacific (CEB) announced that
passenger traffic in the second quarter has increased year-over-year but is 8 percent lower
than the pre-pandemic levels. The Gokongwei-led airline ferried 5.46 million passengers, 29
percent higher compared to the same period on 2022. Total flights flown during the second
quarter of 2023 was 36,300, or 22 percent higher than the previous year. Average load factor,
on the other hand, is 4 percent short of the 90 percent load factor pre-pandemic. The average
seat load factor reached 86 percent compared to 77 percent in the same period last year.
Total revenue for the second quarter of 2023 is PHP22.7 billion, 62 percent higher year-over-
year but 4 percent below pre-pandemic.

Fuel Cost and Efficiency - Operating expenses, meanwhile, totaled PHP20.2 billion, or 20
percent up year-over-year and 9 percent higher than 2019. These were driven by the increase
in fuel prices, aircraft maintenance, and other fleet-related costs, CEB said. Operating income
for the second quarter was over PHP2.5 billion, a reversal from last year’s loss of over PHP2.8
billion, and a 50 percent recovery of operating income for the same period in 2019.

Russia-Ukraine conflict - The conflict between Russia and Ukraine has brought along the
imposition of various sanctions and the creation of a few no-fly zones, which has created
challenges for the aviation sector. The impact of the conflict is especially felt by specific
trading partners and across key markets. The start of the Russia-Ukraine war in 2022
prompted a surge in global oil prices, with Brent crude oil trading at $120/b in June 2022.
Though, the opportunity to find alternative sources of fuel and destination markets will help to
offset some of these potential impacts over the next few years.
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COMPANY BACKGROUND
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Chapter 2

RELATED STUDIES
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