Philippine Airlines wary of martial law impact

MANILA, Philippines – Having endured a slow start to the year, Lucio Tan-led PAL Holdings Incorporated, the operator of flag carrier Philippine Airlines (PAL), is preparing for more turbulence ahead due to President Rodrigo Duterte's declaration of martial law in Mindanao.

"It will certainly affect our operations because as early as now there are already some cancellations in terms of bookings, but we hope this is just temporary. We don't know yet what will be the effect," PAL president and COO Jaime Bautista said on the sidelines of their annual stockholders' meeting on Thursday, May 25.

Bautista added that it was "too early to give an estimate on how much revenue would be lost or how many passengers will cancel but it may affect Q2 performance unless the situation is resolved immediately."

The PAL president noted that routes to Mindanao account for around 25% of their domestic revenue, which in turn accounts for 25% of the airline's total revenue.

The flag carrier, along with Cebu Pacific, announced last week that it would allow Mindanao-bound passengers to rebook their flights with no penalties.

So far, the situation in Mindanao has led PAL to cancel two flights – both on the Manila-Davao / Davao-Manila route on May 24 and 25 – with the affected passengers accommodated on the next flights.

PAL spokesperson Cielo Villaluna explained that the cancellation was due to initial confusion over the martial law declaration that was made on May 23.

"It was because there was a report that martial law would implement a 10 pm 'no-fly zone' [over Mindanao]. That turned out not to be true but we had already made the announcement to the passengers so it was too late to retract," she told Rappler on Wednesday, May 31.

Villaluna added that "PAL would only cancel flights if there is a security situation that arises that would necessitate or warrant a cancellation."

She also said "there have been passenger cancellations and rebookings mostly stemming from Manila as the point of origin but PAL does not have the numbers yet."

Bautista is hopeful the government would be able to resolve the threats in Mindanao. "We want to be optimistic about it. I want to think that this is a long-term solution to the [security] problem," he added.

Slow start, new planes expected

The first 3 months of the year have been challenging for the flag carrier, which recorded a net loss of P1.14 billion compared to a net income of P2.9 billion in Q1 2016 amid rising fuel prices and competition.

PAL saw revenue grow by 14.4% to P33.3 billion, slower than its expenses which grew by 32.4%, driven by an increase in average fuel price per barrel of $76.15 in 2017 compared to an average of $58.16 per barrel in 2016.

"We were able to attract more passengers but at lower fares. Our load factor went up, we increased the number of passengers and flights, but the revenue is almost flat," Bautista explained.

The airline is also expecting the delivery of 7 new aircraft within the 2nd half of the year: two new Boeing 777-300ERs in December and 5 next-generation Bombardier Q400s from July to November.

It has also ordered 6 Airbus A350-900s, which it noted is capable of flying nonstop from Manila to New York.

The planes are set for delivery from 2018 to 2019 with the option to purchase 6 more. –