PAL sees tough year ahead

Philippine Airlines chairman Lucio Tan today said the flag carrier faced daunting financial and operational targets in its new fiscal year, but expressed confidence that PAL would hurdle these challenges and consolidate the gains of its fledgling turnaround.

Reporting to the airline's stockholders gathered for their annual meeting in Manila, Tan warned against complacency as PAL basked in the glow of its dramatic return to profitability after years of mammoth losses and operational decline.

Tan reported an adjusted net income of P45.8 million - P1.6 million higher than earlier declared - for the 1999-2000 fiscal year ending March 31, PAL's first year under rehabilitation.

He also announced an unaudited net income of P793 million for the first quarter (April-June) of the current 2000-2001 fiscal year, as PAL sustained its better-than-projected performance into a second year.

"PAL cannot rest on these achievements," Tan said. "Our industry is constantly evolving and innovating as airlines search for ways to improve operational efficiencies and attract passengers. Our achievements, while remarkable, are not enough to see us through the future."

Tan said the major challenges for PAL over the short term were soaring operational costs, particularly fuel and maintenance bills; larger cash flow requirements to cover obligations falling due; and potential operational worries associated with the addition of new aircraft and routes.

There is also concern over the volatility of the Philippine economy, as highlighted by the continuing depreciation of the peso - a trend that directly impacts on the air travel market.

For jet fuel and maintenance alone, PAL expects to spend an incremental P5.5 billion over last year's outlay, said Tan. The price of jet fuel in the world market is currently about $40.70 per barrel while PAL's rehab plan assumes a price of $18.10 for this year.

PAL also faces a $261.4-million total financial bill this year, consisting of $118.7 million in principal payments, $119.8 million in debt service and $22.9 million in lease charges.

To generate sufficient revenue to match these obligations and meet the rehab plan's yearend profit target of $64.7 million, Tan said PAL will pursue a more aggressive sales and marketing tack, focusing on its core markets of trans-Pacific, North Asia and Southeast Asia.

"We are adding two routes before the end of 2000 - a new Cebu-Seoul service on October 1 and the resumption of regular service to Jakarta," he said.

PAL will also gradually restructure its fleet and reconfigure its widebody aircraft to augment capacity and match demand in key international markets, which has rebounded from a slump.

The PAL fleet has now expanded to 31 aircraft after creditors agreed to return two Airbus 340-300s previously earmarked for disposal. The fleet also includes three leased Boeing 747-200s.

PAL will soon replace three of its aging, 148-seater Boeing 737-300 jets used in the domestic services with the newer, larger B737-400 variant, which seats 168 passengers.

Finally, the flag carrier is reconfiguring its eight Airbus 330-300s and four Boeing 747-400s used on regional and trans-Pacific routes, respectively, to add more seats and enhance inflight amenities.

"These improvements should hopefully translate to better, more reliable and efficient service for our passengers, and thereby reinforce their loyalty to PAL," said Tan.

"Indeed, in our quest to surmount formidable challenges in our rehabilitation process, we must not lose sight of the fact that it all starts with the passenger, and therefore all our efforts revolve around him."