PAL expects to post a profit in ’15 on refleeting, savings

Philippine Airlines is poised to return to profitability next year, president Ramon S. Ang said, as the flag carrier expands into more profitable routes and books savings from newer, more efficient planes.

Ang gave the guidance in a text message as Philippine Airlines’ parent firm PAL Holdings’ last week announced that losses ballooned to P11.85 billion in the nine months through December last year, up more than three times the P3.6-billion loss it booked in March 31 last year, its annual report showed.

PAL Holdings cited declining revenues on top of a non-recurring hit the airline took from grounding old planes last year as part of a massive $9.5-billion refleeting program.

PAL Holdings, a publicly listed company jointly owned by San Miguel Corp. and taipan Lucio Tan, said revenues during the period were down 24 percent to P55.98 billion.

Philippine Airlines carried five million passengers during the period, down 34 percent, as low-cost carriers like Cebu Pacific, which dominates the domestic market, and AirAsia of Malaysia lured fliers with lower ticket prices and promotions.

Its total operating expenses dipped almost 20 percent to P61.5 billion, still exceeding sales.

The refleeting also took its toll on the company’s bottom line, which suffered from a one-time charge of P5.09 billion, mainly due to the grounding of certain planes.

Ang said, however, that the refleeting would allow the airline to eventually book significant savings, given that the recent restoration of the Philippines’ category 1 rating allows both its expansion in the United States and the switching of aging Boeing 747s serving that market with newer Boeing 777s.

Ang estimated the savings at about $160 million annually.

“Yes, for sure,” Ang said in response to a query on whether Philippine Airlines expected to be profitable by next year.

He said gains would be supported by Philippine Airline’s “refleeting and lower cost of fuel and maintenance.”

Jose Mari Lacson, head of research at Campos Lanuza & Co., agreed that maximizing earnings would help Philippine Airlines’ operations but he noted that competition, and oil price volatility would still play a key role.

“The business model requires assets to be very efficient,” Lacson said, on the grounding of older aircraft to make way for newer planes.

“Whether this will make [PAL] profitable depends on the competitive environment,” he said, adding that competition right now was “too intense.”

Still, Lacson noted that the US Federal Aviation Administration upgrade to Category 1 was a “game changer” for Philippine Airlines. The route was considered lucrative given the large Filipino population in the US that is willing to pay non-budget fares.

Philippine Airlines had a total of 79 planes at the end of December.

It has announced plans to expand its presence in Europe, after launching flights to London last year, apart from key cities in the US like New York and Chicago as well as the Middle East while cutting back on some domestic routes.