Pass-on fuel surcharge to dictate PAL’s growth track

Flag carrier Philippine Airlines (PAL) is targeting to attain a “modest profit” in 2018, after posting heavy losses last year as margins shrank due to the combined high cost of oil and increasing competition.

PAL president Jaime Bautista said the goal to post a profit this year was hinged on the approval by the Civil Aeronautics Board to allow it to impose a fuel surcharge on domestic and international flights.

PAL announced it posted a comprehensive net loss of $129 million last year, reversing an $86-million profit in 2016.

Bautista said the expected higher load factor this year, despite an increase in capacity, would help drive earnings for 2018. Load factor, which measures seat occupancy versus available capacity, could hit around 80 percent this year, Bautista said.

PAL is also targeting to carry around 17 million passengers in 2018, up from 14.5 million in 2017.

Bautista said PAL was set to file a new petition to bring back the fuel surcharge, which would be passed on to flyers.

The practice was scrapped in 2015 as oil prices fell. That trend has since reversed and airlines, which typically consider fuel as their biggest operating expense, have seen margins decline.

“Actually, we have reduced our projected profit [for 2018] because the price of fuel has gone up,” Bautista said, pointing to the 17-percent increase in oil prices thus far this year. PAL’s jet fuel costs surged higher by 44 percent in 2017.

“If it continues to go up and we are not able to pass on the additional cost to passengers, we may again report a loss,” he added.

PAL could hit its volume target as local carriers benefited from strong demand in recent years, according to consultancy firm CAPA-Center for Aviation.

“A surging economy and the Philippines emergence as a popular tourist destination have driven rapid growth over the last three years. Visitor numbers to the Philippines have increased by 11 percent for three consecutive years,” the think tank said in a recent report.

It flagged risks in the long-haul business, where PAL faces plenty of competition.

“PAL’s domestic operation remained profitable in 2017 but its international operation was loss-making. Almost all its medium and long haul routes were unprofitable, but regional international operations were generally profitable,” CAPA noted.

PAL is expecting the delivery of 15 new aircraft this year. These are six Airbus A321neos, the first of which arrived last week, four A350s and five Bombardier Q400 turboprop planes. The flag carrier earlier announced it wanted to have 96 aircraft by 2021 after acquiring new planes and phasing out older, less efficient models.