MANILA, Philippines--Flag carrier Philippine Airlines (PAL) expects to report "significantly lower" earnings for the year as soaring fuel costs eat into its margins, the company's top official said.

PAL president Jaime J. Bautista declined to give a more precise forecast, however, saying only that the impact of the higher petroleum prices would run into the "millions of dollars" for its 2008 fiscal year.

Speaking to reporters on the sidelines of the Macroasia Corp. annual stockholders' meeting, the PAL chief said the country's biggest airline has already implemented several cost-cutting measures meant to help keep rising operating expenses in check.

All told, the cost-cutting measures of the airline--owned by tobacco and beer magnate Lucio Tan--would save it as much as $15 million a year, Bautista said.

"We have met all our performance targets for the first quarter from growth in revenues, to the increase in [the number of] passengers and flights," he explained. "The real challenge is in the bottom line."

PAL had earlier set an income target of $30 million for its 2008 fiscal year, on what Bautista hopes would eventually turn out to be a revenue growth of 8 to 10 percent for the period.

However, the recent surge in crude oil prices has put PAL's original income target out of reach.

Bautista explained that the company's earnings target--set last year--assumes that the benchmark oil price would not exceed $110 a barrel.

"We set that target last year, when oil prices stood at $90 a barrel," he said. "We even gave some allowance for increases but that level has now been exceeded."

Crude oil prices hit historic highs above $140 a barrel a few weeks ago. They are currently hovering above $130 a barrel.

To help mitigate the shrinking margins, PAL has imposed a number of measures, which include reducing the free baggage allowance on international flights to 50 pounds a piece from 70 lbs. A passenger on a long-haul flight is allowed two pieces of free checked-in luggage.

Other fuel-saving measures include the "one-engine taxi" policy, where aircraft use only one engine to move between the runway and the terminal. PAL also now uses fuel-saving, ground-based power units for running systems like air-conditioning while the aircraft is parked, instead of using the on-board auxiliary power unit.

PAL has also imposed a hiring freeze on new personnel, although it has not yet implemented any staff cuts, Bautista said.