Lance Gokongwei expects to lose up to P1B due to Boracay closure, P700M a month from FX, oil crisis
Business units of Gokongwei-led JG Summit Holdings, Inc. were hit hard by the shutdown of Boracay island and the implementation of Tax Reform for Acceleration and Inclusion (TRAIN) law this year, according to a report by top management.
During the firm’s annual stockholders’ meeting, JG Summit President and Chief Executive Officer Lance Gokongwei said its airline company Cebu Pacific is expected to lose about P500 million to P1 billion due to the government’s rehabilitation of Boracay, which expected to keep the popular tourist trap closed for 6 months.
Gokongwei mentioned that the Caticlan and Kalibo flights, which are the gateways to the island, account for 6 to 7 percent of Cebu Pacific’s domestic flights’ passengers.
“For the first six months, we anticipate there should be approximately P500 [million] to a billion peso reduction in revenues during that period. It takes time to transfer flights to other destinations,” said Gokongwei.
“But overall, we think that this is still a strong positive for the country as we expect that Boracay will return as even more popular destination after the rehabilitation,” he added.
On the sidelines of the event, Gokongwei said it was the unexpected spike in global oil prices coupled with a weaker peso that has really affected its airline business.
Additional operation cost for Cebu Pacific for every dollar increase in fuel prices is approximately at P20 million, while the peso depreciation costs P65 million for the company. “In aggregate, it’s costing us about P700 million more per month to fly to the same network,” he said.
Cebu Pacific is seeking the approval of the Civil Aeronautics Board for the airline to implement fare increase of P70 to P250 for its domestic flights, which will only recover half of the cost increase.
The TRAIN law has also affected JG Summit’s food and beverage unit Universal Robina Corp. (URC).
For its C2 products alone, the sugar-sweetened beverage tax reduced the tea product’s volume in first quarter of 2018 by 12 to 15 percent due to higher prices, according to Gokongwei.
“We put in an average price increase of about 22 to 23 percent. This effectively just recover the increase in sugar taxes,” he said.
JG Summit is spending P78.1 billion this year or nearly double from its P43.5 billion capital expenditure (capex) last year.
This year’s capex breakdown: Robinsons Land with P30 billion, JG Summit Petrochemical Group with P20 billion, Cebu Pacific with over P20 billion, URC with P8 billion, and the balance for the conglomerate’s smaller subsidiaries. (PNA)