By Ashley Erika O. Jose, Reporter

Listed Philippine aviation companies are projected to deliver stronger financial results in the second half of 2026 as travel demand continues to improve, though analysts caution that renewed geopolitical tensions in the Middle East could jeopardize the sector's recovery by pushing jet fuel prices higher and compressing airline operating margins.

"The outlook for listed airlines and aviation companies during the second half of the year is cautiously optimistic, with the sector expected to perform better than in the first half, although results are likely to remain uneven across operators," said Toby Allan C. Arce, Head of Sales Trading at Globalinks Securities and Stocks, Inc., in a Viber message.

Paolo Miguel Manansala, Research Analyst at COL Financial Group, Inc., identified elevated oil prices combined with the persistent weakness of the Philippine peso as principal risks to the industry's forward outlook. The Philippines imports nearly all of its petroleum requirements, so a weaker peso amplifies the cost of dollar-denominated jet fuel.

"Jet fuel prices soared again in recent weeks given the re-escalation of the conflict in the Middle East. This places significant margin pressure on airline operators," Mr. Manansala said in a Viber message.

According to the latest monitoring data from the International Air Transport Association (IATA), jet fuel prices climbed 17.6% week on week to $149 per barrel. Fuel typically ranks among the largest single operating cost items for airlines, often representing 20–40% of total expenses, meaning even modest price shifts can materially affect profitability.

Margin Squeeze

The re-escalation of conflict in the Middle East prompted domestic fuel retailers to implement price increases of up to P3.65 per liter for gasoline, P10.68 per liter for diesel, and P11.77 per liter for kerosene, effective July 21.

These higher fuel costs follow a first quarter in which listed aviation companies reported weaker earnings, primarily driven by escalating operating expenses.

Cebu Air, Inc., the operator of Cebu Pacific, reported a net loss attributable to equity holders of the parent of P419.94 million, a reversal from the P465.90-million attributable net income recorded in the same period a year earlier, as operating expenses climbed.

PAL Holdings, Inc. posted an attributable net income of P4.28 billion, representing a 1.15% decline from P4.33 billion in the comparable prior-year period.

MacroAsia Corp. reported a 58.89% drop in attributable net income to P129.05 million, down from P313.91 million a year earlier, attributing the decline to lower equity earnings from associates and rental adjustment rates.

In a June 7 report, IATA noted that the Middle East conflict and elevated fuel costs continue to weigh on the airline industry's outlook, notwithstanding expectations of improving travel demand.

The Civil Aeronautics Board (CAB) recently reduced the passenger fuel surcharge to Level 8 for the July 16–31 period, marking the sixth consecutive reduction under its revised 15-day review cycle. The surcharge mechanism allows Philippine carriers to partially pass through fuel-cost movements to passengers, though adjustments trail real-time price changes and are capped at Level 20.

At the peak of the recent surge in jet fuel prices, CAB had raised the passenger fuel surcharge to Level 19 for the April 16–30 period — the highest level since 2022 and one notch below the maximum allowable rate. Jet fuel prices averaged $184.63 per barrel during that period.

Department of Energy data showed the country's average daily fuel demand at 78.08 million liters as of July 10, with average daily jet fuel demand reaching 5.65 million liters. The agency reported that available jet fuel supply is sufficient for 80 days.

Capacity Expansion

Despite the higher fuel cost environment, analysts anticipate the aviation sector will outperform in the second half as carriers continue rebuilding capacity to satisfy travel demand. The expansion comes as Philippine aviation continues recovering from pandemic-era capacity losses that grounded fleets and thinned route networks.

Mr. Arce noted that both Philippine Airlines (PAL) and Cebu Pacific are persistently expanding their fleets to broaden network coverage.

This week, PAL announced orders for nine Airbus A350-1000 aircraft and up to 20 Boeing 787-10 Dreamliners.

Budget carrier Cebu Pacific expects delivery of seven new aircraft in 2026, while AirAsia Philippines has announced plans to deploy Airbus A220 aircraft by 2028.

First-quarter air passenger volume rose 6.7% to 17.05 million, propelled by increased domestic passenger traffic, according to CAB data.

"Several risks could temper the sector's recovery during the second half. Fuel prices remain one of the largest variables affecting airline profitability, particularly given ongoing geopolitical tensions that could disrupt global energy markets," Mr. Arce said.

"Airlines that successfully improve operational efficiency while maintaining strong customer satisfaction are likely to outperform peers in an increasingly competitive environment," he added.

"Listed airlines and aviation companies [are expected] to deliver generally stronger results in the second half of the year than in the first half, although the pace of improvement is likely to moderate compared with the rapid post-pandemic recovery experienced over the past few years. The sector is transitioning from a recovery-driven growth story toward one that is increasingly defined by operational execution, disciplined capacity expansion, cost management, and capital allocation," Mr. Arce said.

Mr. Manansala indicated that the second half will remain challenging despite stronger seasonal demand.

"Given that the second quarter is historically strong in terms of demand and offsets the lean third quarter, I believe second half will likely remain tough for airline operators, with third quarter expected to show a combination of lean passenger demand along with heightened expenses," he said.