PAL sees sustained growth, to refleet with 8 wide-body planes

Flag carrier Philippine Airlines (PAL) expects to sustain its profitability this year confident it can achieve $100million in net income in the second half with plans to purchase or lease a fleet of eight wide body, twin-engine aircraft from either Boeing or Airbus to allow it to fly non-stop to more US and European destinations.

PAL President Jaime J. Bautista refused to identify a net income guidance for the entire 2015 but hinted that the firm could double the $138-million net income posted from January to July.

"We are expecting a profitable year because we have already reported $138 million net income," he told reporters after PAL's annual stockholders' meeting yesterday, admitting that $100 million is not far fetched. "I hope more," he added.

PAL's first half financial performance is virtually stellar compared to the same period in 2014.

"Net income for January to July of this year is much higher than the January of July last year because if you recall, we only reported a profit of $20 million for 2014. This is a big improvement from the 2014 performance and we

are expecting that we will sustain this profitability," he said.

Bautista said drivers include "growth in passenger volume, improvement in yield and cost control programs."

"Fuel, maintenance and efficient utilization of aircrafts are important factors in the profitability," he added.

However, Bautista admitted that PAL is expecting losses between August to November due to the lean season.

"Traditionally, airlines lose money during these months. Hopefully we can reduce the losses. What we will try to address is to minimize the loss for these lean months," he said.

In order to minimize losses, Bautista said "we will see to it that we will only mount flights that are needed so as to manage capacity. There are times when we have to reduce the flights to certain destinations so we can save cost of operations."

Refleeting PAL was also upbeat on its refleeting programs. Bautista said they will decide by the year-end which between Airbus A350 XWB or Boeing 787 Dreamliner to buy or lease. As of end-2014, PAL had 49 aircraft, 43 of which are Airbus planes and six are Boeing.

"We are looking at six units to replace our six Airbus 340 plus two more units. But delivery takes two to three years or between 2017 to 2018," he said.

The planned purchase or lease of the fuel-efficient Boeing 787 Dreamliner or Airbus A350 XWB aircraft was a result of a strategic review after Philippines' fourth richest man Lucio Tan took over the carrier last year.

The Philippine flag carrier’s subsidiary PAL Express is also mulling on replacing its fleet of nine turbopropeller aircrafts, which serve small domestic airports.

"We are considering same aircrafts, maybe Q300 or Q400 or even a smaller jet that can carry 50-70 passengers," he said. "But there is no definite plan yet. It is still being studied."

It is not immediately clear how much PAL has earmarked for this refleeting program.

"The budget depends if we will buy or lease. Most of the airlines balance the number of airplanes they purchase with those they lease," Bautista explained.

Potential losses

Bautista also cited the potential losses to PAL if the Philippine government will grant additional flight entitlements that will be given to airlines from the United Arab Emirates (UAE).

"The additional entitlements that will be given to the UAE will result to a dilution of our loads to Europe and the US because these airlines carry passengers to Dubai and Abu Dhabi who extend to Europe and the US," he pointed out.

PAL has already appealed to the Philippine panel for air talks to resist pressure to grant additional entitlements to UAE carriers and instead challenge them to mount direct flights to airports outside of Manila.

By opposing to the additional flight entitlements to UAE carriers, PAL External Affairs head Jose Perez de Tagle said they are not advocating for protectionism.

"We have appealed to government to hold the line. Unlike other countries that want to scale back the entitlements given to UAE, all we are saying is that let's not give any new entitlements to Manila for the airlines of the UAE," Perez de Tagle said.

"If we are going to give more flights to UAE, that will distort the competitive playing field. It's not protectionism, it is actually a blowing of horn for fair competition," he pointed out.

Shares in PAL Holdings closed 4.55 percent higher on Thursday, outpacing the benchmark index's 2.24 percent gain.