PAL says profit hinges on ‘survival plan,’ job cuts

Thursday, 04 November 2010 12:00 Chan Sue Ling / Bloomberg News
Business Mirror

PHILIPPINE Airlines Inc. (PAL) said attempts to make a first profit in three years hinge on a “survival plan” including 2,600 job cuts that have drawn opposition from unions.

“We will have a small profit this year only if we can outsource our ground-handling, catering and call-center services, and terminate 2,600 employees,” president Jaime Bautista said in a phone interview late yesterday. “I am hopeful that I may be able to do this before the end of December.”

Bautista needs to overcome protests from ground-handling workers to complete outsourcing plans, while also tackling a separate labor row with cabin crew. The carrier, Asia’s oldest, has posted losses of $312 million over the past two fiscal years because of wrong-way bets on fuel prices, the global recession and rising competition from Cebu Air Inc.

Bautista declined to say how much savings the survival plan will generate. The carrier’s net losses shrank to $14.3 million in the year ended in March, from $297.8 million a year earlier. Bautista said in August  the carrier may miss its profit target this year after 25 pilots quit for jobs elsewhere.

PAL’s ground-crew union said this week it will appeal a decision by the labor department allowing the carrier to terminate employees and outsource their jobs to service providers that would hire them. The government has intervened in the cabin-crew dispute, which centers on pay and benefits, to prevent a strike.

Operations at PAL’s low-fare affiliate, Air Philippines, are “starting to gain ground,” with around 80 percent of total available seats filled, Bautista said. The budget carrier, which operates four Airbus SAS A320s, will take delivery of two more by year-end. Next year, six more planes will join the fleet followed by another six in 2012, he said.

PAL’s long-haul plans have been disrupted by US Federal Aviation Administration restrictions that prevented it from adding flights and a European Union (EU) blacklisting of all Philippine carriers. The government has said it will take steps to improve standards.

The airline has postponed delivery of four twin-aisle Boeing Co. 777-300ERs to 2012 and 2013 because it would “lose money” operating those planes on regional routes, Bautista said. The carrier has a fleet of 39 planes currently, he said.

PAL, along with its discount unit, controls about 47 percent of the domestic market, Bautista said. Cebu Air, which has a fleet of 29 jets, has said its share of the domestic market is almost 50 percent.
The EU this year banned all airlines based in the Philippines from flying in the bloc, citing “serious safety deficiencies” in the regulation of carriers.  The US Federal Aviation Administration in 2008 lowered the country’s aviation safety rating to Category 2 from Category 1 “due to serious concerns” about local regulation of airlines.