MANILA, Philippines -- National flag-carrier Philippine Airlines (PAL) said Tuesday it will likely see a sharp drop in net profit in the fiscal year to March 2009 due to the rise in oil prices.

PAL president Jaime Bautista said the firm had originally forecast a net profit of $20 million but "we will have to change our forecast due to the volatile price of fuel."

Speaking on the sidelines of the PAL Holdings Inc. stockholders' meeting, Bautista said the old target was set on the assumption that oil would average at $100 a barrel but it had since exceeded that.

He said they would no longer give a new target due to the difficulty in foreseeing the price of oil.

The country's main airline had a net profit of $30.6 million in the past financial year ending March 31, 2008, down from $130.5 million the previous year.

Bautista told reporters that PAL had likely made a profit from April to June, but that a net profit was "questionable" from July to September.

He expressed optimism the airline would recoup any loss during the peak season of December to January.

Fuel had become PAL's main cost, taking up about $30 billion a year, he said.

PAL has gone on a tough cost-cutting drive including reducing the baggage passengers could take on board.

Bautista also expressed hope that the Philippines would reverse the US Federal Aviation Administration's downgrading of the country's rating to Category 2 from Category 1 in its international air safety assessment.

A Category 2 rating prohibits PAL from increasing its 33 flights a week to the US and US territories and from changing the type or increasing the number of aircraft used on these routes, the airline added.

Bautista said PAL hopes the Category 1 rating can be restored before PAL takes delivery of two fuel-efficient Airbus 777-300 planes by September 2009 so these planes can serve the US routes.

He said government sources are optimistic Category 1 status can be restored by July, 2009 following the implementation of aviation sector reforms.

If Category 1 status is restored, PAL may consider expanding its services to San Diego and New York, Bautista added. The airline already flies to Los Angeles, San Francisco, Las Vegas and Honolulu.