PAL has been there, done that

An aviation industry official, I think he is from aircraft maker Boeing, was reported to have said that he wouldn't be surprised to see half of America's airline companies go under. This grim prediction was made even after the US Congress quickly passed a law that would give the American airline industry some $15 billion in bailout money and guarantees.

Amadeus, an international reservations firm in Spain, told Boston Globe that its flight bookings from Sept. 11 to Sept. 30 were down 28 percent from the same period a year earlier. In the United States, the decline was more precipitous, at 45 percent. People have suddenly developed a serious fear of flying. No wonder the aviation industry has announced more than 100,000 layoffs and furloughs and cut flight schedules by about 20 percent.

Here in Manila, the impact on our aviation industry, particularly PAL had been somewhat muted in comparison. Our flag carrier lost P350 million for the 4 1/2 days it was not allowed to mount its flights to San Francisco and Los Angeles. And there was a moment of anxiety when insurance companies unilaterally cut war-related insurance coverage and someone in government made a statement to the effect that the private sector airlines were on their own.

An emergency meeting clarified the insurance situation and assuaged the fears of aircraft lessors and foreign airports about PAL flying without adequate insurance coverage. Government issued a comfort letter saying it would help our local carriers find a solution and it was good enough for the moment. Given how the US and Swiss governments came to help their airlines in their financial emergencies, even our deficit plagued government can do no less.

PAL officials say it is difficult to say how badly the Sept. 11 tragedies and the American attack on Afghanistan will eventually impact on the carrier. For now, their load factor is typical of the low season. The test, I am told, will start in mid-November when Filipinos typically start going home for the holidays.

But if it is any measure of PAL's confidence in its future, the airline is pushing through this month its inaugural flight to Shanghai and the resumption of flights to Bangkok and Melbourne. Europe however, will have to wait a while longer. Middle East may be next but for now, code sharing with Middle Eastern airlines will be enough.

More important, PAL management has made a statement that they do not plan to lay off any more employees, something the rest of the international airline industry is doing now. PAL had right-sized its staff three years ago following the pilots‚ strike in 1998. In a way, PAL can tell the industry that it had been there and had done that.

On the other hand, the other Philippine flag carrier, Cebu Pacific is also all set to go international. The first two of its new planes, Boeing 757s, are set to arrive in the next month or so. They plan to fly to Hong Kong by the first week of November. Cebu Pacific had been profitable from the start. It is also a tightly run company, with none of the excess staff that airlines are notorious for. In the post Sept. 11 scenario, smaller is better in the airline industry.

In a sense, the niche market of PAL and Cebu Pacific – balikbayans and OFWs – will make it less vulnerable in this current crisis in the airline and travel industries. That, plus PAL's already downsized staff should enable it to survive and live up to the targets of its rehabilitation plan. It should also help that fuel costs are on a downtrend.

Less than two weeks before all hell broke loose in New York and the Pentagon, PAL reported to its shareholders that it was poised for sustained growth and profitability in the near term. PAL had been able to make scheduled principal and interest payments to creditors under their rehabilitation plan. PAL management made a warning about business conditions turning adverse but I guess no one imagined how adverse it would turn out to be after Sept. 11.

I guess PAL is lucky that they have been implementing management reforms – from rightsizing to limiting themselves to profitable routes –– that the rest of the industry will just do now. It now turns out that those striking PAL pilots, the same ones who stranded me in Los Angeles in 1998, actually did the airline a favor by forcing it to go on survival mode. What an ironic twist of fate!

Argentinian flu

Everybody's focused on the events of Sept. 11 and Dubya's war on terrorism. But for emerging economies like ours, the next big event with devastating consequences on our finances will probably happen in Latin America, to be more precise, in Argentina. The Americans working with the IMF have worked out a bailout package prior to Sept. 11, but Latin American economies have a way of acting like insatiable financial blackholes.

Abacus Securities in their latest advisory reported that "since 11 Sept. Argentine bond spreads have widened by as much as 400bps to 1,875bps partly attributable to the terrorist attacks but more so to an increasing chance of a debt default and the non-sustainability of the de facto currency peg. Without much notice as well, spreads on Philippine sovereigns have risen by 300bps to 690bps. Admittedly though, the risk of contagion can be much less than what it was in 1997. But the inevitables remain – further spread widening and tighter monetary policy."

Remember it is the flu season in the world economic arena. The Argentinian variant could prove devastating to already weakened economies everywhere.

Superkid

Dr. Ernie E sent this one about a newly born superkid.

A baby was born so advanced in development he could talk. He looked around the delivery room and saw the doctor. "Are you my doctor?" he asked.

"Why, yes, I am," said the doctor.

The baby said, "Thank you for taking such good care of me during the birth."

He looked at his mother and asked, "Are you my mother?"

"Yes, dear, I am," said the mother beaming.

"Thank you for taking such good care of me before I was born," he said.

He then looked at his father and asked, "Are you my father?"

"Yes, I am," his father proudly answered. The baby motioned him closer, then poked him repeatedly on the forehead with his index finger. "Hurts, doesn’t it!"

(Boo Chanco's e-mail address is [email protected])