PAL’s sunny prospects

Talk is rife about a forthcoming image engineering for Philippine Airlines that includes a new logo, as the nation’s flag carrier, which has run into air turbulence that meant losing almost P13 billion in 2013, comes soaring high with modest profits. Credit for the turn-around was due to the big drop in oil prices, which constitute about 40 percent of direct operating costs. 

This is the reason for the return to profitability of PAL, although industry pundits say that that posting of a big surge in its income—$138 million for the first seven months—could not have come were it not for the ditching of the company’s ambitious refleeting program. That program was conceptualized under the management of San Miguel Corp. top honcho Ramon Ang, who earlier wrested management control from taipan Lucio Tan.

The influential Center for Aviation (CAPA) pointed out that PAL’s sunnier prospects came about due to what it termed as a new and more disciplined approach to capacity in the Philippines airline sector.

While CAPA did not touch on the specifics of the outlook it saw for PAL, it pointed out, however, that the flag carrier was about to slam into overcapacity with its refleeting program.

That was supposed to be the crown jewel of Ang’s positioning in making PAL profitable.

CAPA was reported to have cited the fact that the new PAL group also has made strategic and capacity adjustments since Lucio Tan took back control of PAL and sister regional carrier PAL Express in late October 2014. CAPA had noted that Lucio Tan has slowed PAL’s fleet and network expansion.

That expansion plan was what divided the pro-Tan and pro-Ang groups as discussions zeroed in on who was right and who was wrong.

Bautista, on assumption of the PAL helm, concentrated his eyes on trimming costs and what he did was to delay the refleeting program, although from the looks of it, the purchase of new planes may have been deferred for good and in its place, fuel-efficient planes are to be ordered but later, not sooner.

Thus, according to CAPA, five of the 10 A320 deliveries that were initially slated for 2015 have been deferred, enabling PAL to avert a potential return of overcapacity in the domestic and regional international markets in the second half of 2015. Overcapacity is when there are more seats available than what the market could absorb, leading to potential losses as some airplanes would not fly in a cloud of red ink.

A number cruncher, Bautista tried to deflect the capacity overhang, which could have hit hardest just as the airline tries to recover from its missteps. This is the reason for the reduction of PAL’s flights to Los Angeles, which was reduced from 11 to nine or even 10 a week due to the lean season. Anyway, the airline could just as easily revert to its original flights once the market rebounds.

And so Bautista has every reason to smile often now as he sees a possible net income of $100 million due to the lower fuel prices and what CAPA has cited as the reduction in overcapacity. Meanwhile, Bautista is taking a second hard look at PAL’s own refleeting program with a contemplated review that would mean replacement of its six Airbus 340s with a Boeing 787-900 or the Airbus A 359.

The PAL CEO has nevertheless looked at flying to new destinations as he surveys the PAL destinations. By October this year, the airline is slated to fly to Papua New Guinea and two months later would have flights to Australia and New Zealand. The new destinations are aimed at taking advantage of the surge in tourist arrivals as the Department of Tourism levels up its marketing gizmo.

Thus, with PAL’s new–found optimism comes its image engineering.