PAL hit hard by slowdown in international traffic

By Mary Ann LL. Reyes (The Philippine Star)
Updated October 01, 2009 12:00 AM

MANILA, Philippines - Philippine Airlines (PAL) is expected to suffer a loss for its fiscal year ending March 31, 2010 mainly due to a slowdown in international traffic that has affected not only local airlines but the entire world aviation industry as well.

At the sidelines of yesterday’s stockholders’ meeting of PAL parent PAL Holdings Inc., PAL president and CEO Jaime Bautista said that while they posted earnings during the first quarter of the current fiscal year (April to June), the second quarter covering the July to September 2009 period is expected to be a loss while the third and fourth quarters of the 2009-2010 fiscal year may be break even. With PAL accounting for almost 100 percent of PAL Holdings’ revenues, the financial picture of the two companies are almost the same.

Last fiscal year, PAL registered a $301- million loss, largely due to increased fuel cost and the economic slowdown. “This year, we expect the loss to be much lower than last year’s,” Bautista said.

Asked to describe the third quarter (July to September 2009) situation, PAL’s chief executive noted that traffic is still down considering the effects of the worldwide recession.

But while PAL’s international passenger traffic is down, its domestic passenger volume has increased. “Domestic traffic has not been very much affected and this we attribute to the efforts of the Tourism department to improve tourist arrivals to the country,” he pointed out. The international business accounts for about 70 percent of total revenues for PAL.

He said that while revenues are expected to be down for the current fiscal year and the company is projected to realize a loss, passenger traffic for the combined international and domestic businesses is expected to slightly increase from last year’s 8.95 million passengers to around nine million.

Bautista, who is also the president of PAL Holdings, however pointed out that the projected nine million passengers flown for the current fiscal year is still lower than expectations.

So far, PAL has reduced capacity by seven percent following expectations that the market will be down by about 10 percent.

And because of the reduction in capacity, Bautista said there is a need to reduce manpower. PAL has asked its employees’ unions to avail of the early retirement, after which rationalization of manpower will follow. “We are looking at a seven to 10 percent cutback in manpower,” he revealed.

Bautista told stockholders that the past fiscal year covering April 1, 2009 to March 31, 2009 has been a difficult year for the airline industry in general, mainly due to increased fuel cost and falling passenger demand.

He noted that there was a 38-percent increase in average fuel prices, from $89 in 2008 to $123 in 2009, coupled with higher fuel consumption and the depreciation of the peso against the dollar.

As a result, the company posted a P12.26 billion loss for the last fiscal year, an increase from the P528.5 million loss in the previous year.

Bautista said they expect the market to remain depressed in the months ahead and the situation to be extremely challenging.

“We are now on the second quarter of an extremely difficult fiscal year which is showing no signs of recovery. And so far, the April to June results have not been encouraging,” he stressed.

In order to boost the company’s financial condition, Bautista revealed that they are tapping new traffic streams, reducing flight frequencies in low-performing areas, redeploying capacity, deferring non-essential capital expenditure, and trimming route network and capacity in response to the changing demand condition.

“Our company will be severely tested by the current downturn. But we are working to succeed and return to profitability,” he said.

Meanwhile, PAL Holdings said it fully supports the cost-cutting measures being pursued by PAL to survive the crisis that continues to plague airlines worldwide.

Bautista also revealed that they are eyeing new destinations either through charters or regular scheduled operations. PAL is also expecting to take delivery of its brand new and fuel-efficient Boeing 77-300ERs and is in the final stages of its $50-million program of refurbishing the current fleet of B744s.