PAL filing new petition on reimposition of surcharge

Flag carrier Philippine Airlines (PAL) said ticket prices were likely to increase given the rising cost of oil coupled with the weakening peso.

PAL president Jaime Bautista said the airline would file a new petition to bring back the fuel surcharge, a mechanism that allows airlines to offset oil expenses.
The surcharge, which was removed in 2015 after the price of oil plummeted, forms part of the ticket price and varies by route.

Bautista said PAL filed an initial petition with the Civil Aeronautics Board (CAB) last December to impose a fuel surcharge of P51 to P207 for local flights and $5 to $21 for international flights.

While the CAB has yet to approve the surcharge, Bautista said PAL would file a new petition to reflect further fuel prices increases since the start of the year.

“We have to update the numbers,” Bautista said in a briefing after the company’s annual meeting yesterday.

He explained that the price of oil, an airline’s largest operating expense, had gone up about 17 percent since January. He expected that PAL would spend an additional $143 million in fuel costs to operate in 2018.

The weaker peso also hurts PAL’s bottom line to the tune of $3 million for every P1 depreciation against the US dollar, Bautista said. From P49.93 in December last year, the peso has weakened to over 52 to $1.

Given such conditions, PAL posted a net loss of $129 million last year, reversing an $86-million profit in 2016.

Rival Cebu Pacific Air, which increased average fares by 10 percent in the first quarter of 2018, is also seeking the CAB’s approval to impose fuel surcharge.

Bautista said PAL was mitigating the impact of higher fuel costs by, among others, suspending unprofitable routes, such as Kuwait. It is also taking delivery this year of 15 new planes, valued at about $1 billion. These include Airbus A321neos and A350s, which burn 20 percent less fuel.

During the briefing, Bautista said PAL remained in talks with unnamed foreign strategic groups seeking to acquire up to 40 percent of PAL’s listed operator, PAL Holdings Inc. He said discussions were progressing and that an agreement was “very close” to being reached.

He also expressed concerns about the potential loss of incentives under the proposed package two of the Tax Reform Acceleration and Inclusion law.

“It will really affect the operations of airlines considering that we are competing with international carriers, [some] with incentives from their governments,” Bautista said.