High fuel, hedging costs take toll on PAL earnings

Philippine Star
By Zinnia B. Dela Peña Updated July 21, 2009 12:00 AM

MANILA, Philippines - Earnings of airline companies worldwide, including flag carrier Philippine Airlines (PAL), took a nosedive this year as rising fuel prices and weak demand created an unprecedented crisis for the industry.

In a filing with the Securities and Exchange Commission, PAL said it booked total comprehensive and mark-to-market losses of $301 million for its fiscal year ending March 2009, mainly due to high fuel and hedging costs.

In recent months, major airlines have also reported massive losses due to their fuel-hedging contracts mainly aimed at shielding them from volatile oil prices. Hong Kong-based Cathay Pacific reported record annual losses of $1.1 billion in 2008 while Japan Airlines posted a net loss of $673 million in 2008-2009. Thai Airways lost $628 million for 2008 and Korean Air a whopping $1.5 billion also last year.

In spite of these tough economic challenges, PAL managed to post a nine-percent rise in its revenues to $1.63 billion at the end of its fiscal year, driven by higher passenger revenues. Increased seat demand enabled PAL to carry 8.95 million passengers during the year – 17 percent higher than the previous level.

Passenger load factor was at 76 percent, with aircraft cabins filled up by Mabuhay Miles frequent flyers, overseas Filipino workers and balikbayan traffic.

Total expenses went up 23 percent to $1.93-billion, largely due to high fuel cost. PAL continues to keep operating expenses in check but fuel remains its most volatile expense.

In an effort to ride out the crisis, PAL has engaged in various product and service enhancements. It introduced “WAY TO GO” and “Seat All You Can” – two new low-fare promos aimed at boosting travel even during the lean months of the year.

PAL is also reconfiguring all its B747-400 aircraft under a $50-million refurbishment program to incorporate a bi-class cabin layout. The new design features lie-flat seats in business class and brand new ergonomically-designed seats all from Recaro of Germany. Passengers in both business and economy sections will likewise enjoy the new, state-of-the-art entertainment systems with individual LCD screens per passenger.

By November 2009 and January next year, PAL will take delivery of two new and more fuel-efficient B777-300ER aircraft.