Soaring high

If you see Philippine Airlines (PAL) president Jimmy Bautista jollier than usual, well, he has a number of reasons to be so.

But more than his scoring a hole in one and taking home a Harley Davidson 750 cc at the recent Mercedes Benz golf tournament, Jimmy is proud of the fact the country’s flag carrier just last February was certified with the 4-Star airline quality ranking by Skytrax, the international air transport rating organization. According to Skytrax, the 4-Star Airline rating “is a mark of quality distinction that recognizes excellent standards of product and staff service across different assessment categories.” PAL achieved this after Skytrax conducted a rigorous audit across the airline’s inflight and ground service for both international and domestic flight.

Skytrax CEO Edward Plaisted noted the great improvements PAL has introduced over the last two years, both in terms of product change and development and enhancement of the front-line staff service, adding that new and retrofitted aircraft have played and important part in the quality improvement process.

Jimmy revealed that in terms of 5-Star rating, there are only 10 airline companies holding the distinction of having very high quality standards, namely Lufthansa, Etihad, Qatar Airways, Asiana Airlines, All Nippon Airways, Hainan Airlines, EVA Air, Cathay Pacific, Singapore Airlines, and Garuda Indonesia.

Meanwhile, there are currently only 41 with a 4-Star rating, delivering very good overall quality performance. And to think that there are more than 3,000 airlines worldwide.

Jimmy said their goal is to achieve 5-Star rating by the end of 2020. To to do this, he said they have to further improve their meals, wine selection, and install their aircraft with amenities that will delight the passengers.

This, of course, entails additional cost and PAL cannot just increase its fares or pass on the added cost to its customers due to stiff competition both locally and internationally. To achieve its 5-Star aspiration, PAL would have to find new and more ways to reduce its cost, he said.

********* From a fleet size of 86 planes, PAL will increase its fleet to 96 by the end of this year. By 2020, PAL will have 100 planes, he said.

Jimmy revealed PAL is acquiring 15 more aircraft this year, four of which would be Airbus 350 for long-haul flights, six would be Airbus 321neo for medium haul, and five Bombardier for medium haul or good for up to eight-hour flights. Five of the new planes would replace aircrafts to be retired.

The total acquisition cost of the new planes will probably be around $1 billion, PAL’s chief executive said. Based on Airbus’ posting of its aircraft average list prices as of 2017, an A321neo sells for about $127 million, an A350 between $275 million to $359 million depending on whether its an A350-800, 900, or 1000. Airbus says the price depends on design weights, engine choice, and level of customization.

How about new routes? Will this include Maldives, especially after an air services agreement was inked between Manila and Male for direct flights between the two countries and an initial 1,200 seats that can be flown weekly by designated airlines? That’s a possibility, Jimmy said.

********* Will PAL be able to turn things around financially this year?

Jimmy is confident that from a net loss of $120 million in 2017 and gross revenue of $2.7 billion, PAL will be profitable this year. He said the company has performed better during the first three months of 2018 and he expects this trend to continue for the rest of the year.

In 2014, 2015, and 2016, he said the airline company experienced impressive profit levels. Unfortunately, due to stiff market competition and increasing fuel prices, the company suffered a net loss last year.

But how about the rising cost of aviation fuel and expectations that the regime of high oil prices is going to continue, what with demand very strong and OPEC reportedly keeping barrels off the market to allow the price to reach the $100 per barrel level? How is this going to impact PAL moving forward?

According to the PAL president, they have already requested the Civil Aeronautics Board for a fuel surcharge. In 2015, government scrapped the fuel surcharge on domestic and international flights operating in the Philippines because of the decline in global crude oil prices. The surcharge then was about a few hundred pesos for domestic flights and several hundred dollars for longhaul international flights. There has been no surcharge since.

Just recently, I called the attention of Energy Secretary Alfredo Cusi to the fact that the pump prices of the next three biggest players, namely Unioil, Phoenix, and Seaoil, are now at par with those of the big three – Petron, Shell, and Caltex – just fairly recently. The fuel prices of the three smaller players used to be at least P2 per liter lower.

Last Monday, he texted me saying that per initial information from their Oil Industry Management Bureau, fuel pump prices of small players are now almost at par with the big players, first, due to the increase in the former’s operational cost as they are now improving their facilities, hiring more personnel, and upgrading the quality of their products and services; and second, because the market share of Unioil, Phoenix, and Seaoil are slowly increasing. Thus, they no longer need to sacrifice their profits to attract more customers, Cusi said.

But Cusi said they could validate why this is happening once the energy department has unbundled the rates. A circular on the unbundling will be subject to public consultation next month. Unbundling means the players would have to itemize what goes into their pump prices. Once the price details are reviewed, Cusi said the DOE would be able to determine how often the review would be conducted.

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