This story is part of Forbes’ coverage of Philippines’ Richest 2020. See the full list here.
ance Gokongwei enters a spacious but bare 43rd-story conference room at JG Summit Holding’s headquarters, with downtown Manila stretched out below. Wearing a face mask, he offers an elbow bump in lieu of a handshake and then takes a seat behind a transparent acrylic barrier for extra safety. The 53-year-old CEO of JG Summit, the Philippines’ third-largest company by market cap, puts a positive spin on Covid-19 reality. “It opened my eyes to a new way of working,” he says, adding that he’s now a fan of virtual meetings. This July interview is the first he’s given since the death in November of his father, John Gokongwei Jr., the company’s founder.
That loss was followed by another blow a few months later, when the pandemic struck and forced him to navigate one of worst crises in the company’s 30-year history. In JG Summit’s first half results to June, released in mid-August, revenues fell 26% year-on-year to 117 billion pesos ($2.4 billion), leaving the company with a net loss of 720 million pesos, down from a profit of 17 billion pesos a year ago. Prospects are dismal for the rest of the year, with the economy of the Philippines, where JG Summit makes most of its profits, expected to shrink by up to 8% this year. Despite the turmoil, Lance and his five sisters still have a combined fortune of $4.1 billion, putting them as No. 4 on the Philippines’ 50 Richest list.
The losses at JG Summit, however, were selective. Of its five main businesses—an airline, financial services, food production, petrochemicals and property—three turned a half-year profit. But those gains weren’t enough to offset losses elsewhere—more than half came from Cebu Air, which flies the regional budget carrier Cebu Pacific. The airline lost 9 billion pesos in the first half versus a 7 billion net profit a year earlier.
“You just cannot operate in an environment where you have four months of zero revenue.”
Thus Lance’s main focus is to stop the bleeding at the airline, as the company’s financial future now rests on reversing losses there. It’s a daunting challenge. Following a three-month lockdown in parts of the country, Cebu Pacific remains almost completely grounded, operating at about 2% capacity versus a normal 75%. Cebu Air’s revenue in the first half of the year slumped 61% from a year ago to 17 billion pesos. “You just cannot operate in an environment where you have four months of zero revenue. And foreseeably for the next—we don’t know—four, six, eight months, one year, there [will be] no revenue,” Gokongwei says. “There is no economic model for that.”
Gokongwei’s rescue plan? So far, he has laid off about a quarter of the airline’s staff (about 1,000 employees) since mid-March, scaled down the airline’s operations and shelved expansion efforts. To save cash, which halved to 9.7 billion pesos on its books in the first half, Cebu Air will cut capital expenditure by more than 70%, to 8.3 billion pesos, this year. To further trim costs, it has sent 14 of its 77 planes for storage in Australia. “We’re preparing for a much smaller future,” says Gokongwei, projecting the airline will operate at half its previous capacity by mid-2021 and won’t recover completely until 2023 at the earliest. Meanwhile, the company is preparing to raise fresh funds, he says, but declined to disclose details.
Before the pandemic, Cebu Air was one of Asia’s most profitable budget airlines, earning 9 billion pesos for full-year 2019, a fat 11% margin on 85 billion pesos revenues. Its debt-to-equity ratio is a low 2.2 (AirAsia’s ratio is 6.4). These figures mean Cebu Air is better positioned to weather the pandemic than some of its Asian rivals, says analyst Brendan Sobie at Sobie Aviation in Singapore. “The bad news is every airline is extremely impacted right now. Even those airlines that have a good long-term growth story have short-term pressures,” he says.
Orchestrating an airline turnaround wasn’t on Gokongwei’s radar back in January—instead he says he had been working on a growth plan for JG Summit. Such ambition is typical for Gokongwei, the only son in a brood of six. His father groomed him for years for succession. He excelled in his studies, graduating summa cum laude from the University of Pennsylvania with a double degree in engineering and economics—finishing the program six months early. “He really struck me as someone who knew right away what was important in a particular subject,” says Dennis Mendiola, the former governor of the Philippine Red Cross who was a year behind Lance at the University of Pennsylvania. Gokongwei joined the family business in 1988 after graduating, working a variety of posts to learn about the company. He recalls driving around Manila in a delivery truck, followed closely by bodyguards in a separate against kidnapping. (His elder sister had been kidnapped years before and rescued by the police). “They’re trying to act inconspicuous behind you but it’s pretty obvious,” he says. After that, he worked mainly at the head office, “just shadowing” his father and uncle, James Go, the company’s long-time chairman.
In 1996, his father decided to launch an airline and asked Gokongwei, then 30, to head it. “He came to my office one day and said, ‘Hey Lance, I just bought four aircraft. Do you know anyone who can run an airline?’” Gokongwei recalls. The airline was his father’s big bet on public demand for cheap, no-frills flying in an archipelago nation. The strategy paid off. Cebu Air soon overtook full-fare flag carrier Philippine Airlines, and now holds over a 50% share for domestic passengers flown. Over the years, Cebu Air also added international destinations.
Though the airline is a major focus, Gokongwei is also trying to pandemic-proof the entire company by raising cash and accelerating digitalization efforts. In July, JG Summit went to the global bond market for the first time in seven years, raising $600 million through a 10-year fixed-rate note. For digitalization, Gokongwei actually started implementing a strategy two years ago, but the pandemic turbocharged this effort.
“Because of the [lockdown], both our drug store and supermarket [businesses] were able to launch their e-commerce sites within two months,” he says, explaining that with physical stores closed, the firms could focus on more quickly building the platforms. Over the past three years, JG Summit has also branched into investing in tech startups in the region, buying minority stakes in Singapore’s Sea Ltd. and Hong Kong-based fintech Oriente.
You have to work in a very agile way.
While Gokongwei is unsure when things will normalize—Covid-19 cases in the Philippines continue to rise—he’s confident in the country’s long-term prospects. He’s betting on a continual rise in local consumer spending. “We’re going to invest in areas which will benefit from the growing middle class in the Philippines, so basically consumer businesses [and] utility businesses that benefit from growing consumer purchasing power,” he says. JG Summit’s financial clout, diversified operations and scale will enable it to survive the pandemic and eventually thrive, says Niceto Poblador, a retired business professor from the Philippines.
Meanwhile, Gokongwei wants to get more Cebu Air’s planes flying, and has been enticing customers with discounts. But in early August, Manila’s main airport closed unexpectedly for two weeks—a disruption that Gokongwei shrugs off as the new normal. “You have to work in a very agile way,” he says.
Like many Chinese-Filipino tycoons who built their fortunes after World War II, John Gokongwei Jr. began with trading. He built a profitable business buying and selling goods during the war years, then spent the next decade making annual trips to the U.S. to buy secondhand clothes and other goods in demand back home.
He shifted to manufacturing in the mid-1950s with a factory to make cornstarch, an ingredient needed for beer, noodles, drugs and paper. In the 1960s, he diversified into food products, including coffee, flour, snack food, ice cream and candies, and became one of the country’s biggest food manufacturers with Universal Robina Corp (URC). The next decades marked his expansion into textiles, hotels, department stores and sugar refining.
His entrepreneurial drive didn’t wane even when he was in his late 60s and his various companies were known as the Gokongwei group. He launched Cebu Air when he was 70 and planning his retirement. At age 78, he initiated the launch of what became one of URC’s bestsellers, a bottled tea drink branded C2. His managers balked initially and argued the Philippines was not a nation of tea drinkers. Gokongwei prevailed. Until he died at age 93, he kept a connection to the company, with his long-held title of chairman emeritus. The younger Gokongwei sums up his father’s ethos: “You have to continue to be hungry.”