Philippine Markets Newsletter

MONDAY MACRO: This industry continues to face turbulent skies as cases rise

January 10, 2022

COVID cases are rising once again, just as analysts expected would happen after the December holiday rush and gatherings. 

While the Philippines’ hardest-hit industry did get some respite in 2021 as people felt more comfortable traveling for leisure, this recent surge is likely to once again keep the industry in the red and bleeding cash. 

Philippine Markets Newsletter:
The Monday Macro Report
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Last week, we discussed one of the more resilient industries in the Philippines during the pandemic. As more people worked from home and entertained themselves at home, consumer demand for electricity grew. This led to higher electricity prices as supply was slow to catch up. 

At the other extreme, we have the airline industry. 

When the global lockdowns started in 2020, demand for commercial air travel fell as people became reluctant to travel and governments tightened restrictions.

Although the rollout of vaccines around the world led to an easing of travel restrictions, the emergence of new COVID variants forced governments to re-impose travel limitations, disrupting the industry’s recovery.

With yet another surge in COVID cases recently, the Bureau of Immigration has implemented new travel resolutions from the Inter-Agency Task Force for the Management of Emerging Infectious Diseases (IATF). 

Moreover, passengers that are either sick or under precautionary quarantines have to rebook or cancel their scheduled domestic and international trips. While the changes don’t yet seem impactful, it’s a signal the airline industry will continue to struggle.

There are three companies in this group listed in the Philippine Stock Exchange (PSE): two airline companies, Philippine Airlines (PAL:PHL) and Cebu Pacific (CEB:PHL), and one aviation-related support business, MacroAsia (MAC:PHL).

Since 2020, this group has been burning cash and generating negative profitability. 

Philippine Airlines even had to file for bankruptcy in the United States and conduct a financial restructuring. Meanwhile, Cebu Pacific needed to do a series of equity and debt financing to keep the business alive.

Looking at the aggregate performance of the three below, we see the industry generated positive Uniform ROAs when the Philippine economy was expanding, as passenger volumes are robust and airlines are able to charge higher prices for their fares.

Due to the pandemic, Aggregate Uniform ROA fell to all-time lows of -18% in 2020 and is estimated to remain near that level in 2021. Given the current start to 2022, there’s a likelihood that airlines will continue to burn cash.

To make matters worse, unlike other Asian airlines, PAL and Cebu Pacific have not received any industry-specific financial assistance from the Philippine government despite their significant role in terms of national security, tourism, and trade.

Given the lack of airline-specific assistance from the government and the continued weak demand in the industry, investors should remain cautious with the airline sector.

About the Philippine Markets Newsletter
“The Monday Macro Report”

When just about anyone can post just about anything online, it gets increasingly difficult for an individual investor to sift through the plethora of information available. 

Investors need a tool that will help them cut through any biased or misleading information and dive straight into reliable and useful data. 

Every Monday, we publish an interesting chart on the Philippine economy and stock market. We highlight data that investors would normally look at, but through the lens of Uniform Accounting, a powerful tool that gets investors closer to understanding the economic reality of firms. 

Understanding what kind of market we are in, what leading indicators we should be looking at, and what market expectations are, will make investing a less monumental task than finding a needle in a haystack.

Hope you’ve found this week’s macro chart interesting and insightful. 

Stay tuned for next week’s Monday Macro report! 


Angelica Lim
Research Director
Philippine Markets Newsletter
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