PAL expects 18% revenue growth

Philippine Airlines (PAL) said it expects revenues for the current fiscal year ending March 31 next year to grow 18 percent to around P78.2 billion ($1.7 billion) from the previous year’s P64 billion largely due to a projected significant increase in passenger volume as well as a hike in fares.

PAL president Jaime Bautista, however, said net income for the current fiscal year may be lower than earlier anticipated largely due to the economic situation as well as the regime of high jet fuel prices which account for around 46 percent of operating cost.

“We will still be profitable but not as much. We see our net income for this fiscal year to be at a low double-digit figure,” he pointed out. 

From $30.6 million in net profit last year, PAL’s bottom line is expected to go down to $20 million this fiscal year.

The country’s flag carrier expects a large portion of the projected growth in both revenues and net profits to come from an 11 percent rise in passenger volume while the rest will be derived from the increases in fares.

Meanwhile, capital expenditure for the current fiscal year is estimated at around $500 million for the acquisition and lease of nine planes. Seven have already arrived while two more Airbus 320s are coming in October and December this year. From 45 planes consisting of five 747s, four 340s, eight 330s, 20 320s and eight Q300/400s, the arrival of the two additional aircraft will bring to 47 PAL’s fleet of planes.

Bautista also disclosed that they expect the July to September 2008 quarter to register a net loss due to the traditional lean demand season. The first half of the current fiscal year is expected to end with a net loss, despite growth in the first quarter.

However, the third quarter from October to December 2008 is anticipated to be good. “October will not be that good, November will be break-even while December will be good, continuing to January of next year,” he said.

As for the company’s debts, Bautista disclosed this has significantly gone down to $700 million, with $500 million scheduled to be retired in the next three to five years. “We do not foresee any problem as far as servicing financial obligations despite the financial crisis,” he stressed.

He also noted that their flights to regional destinations are registering a load factor of more than 70 percent which is still good although slightly lower by one to two percent compared to last year. Despite this, PAL expects to end the fiscal year with an 11 percent growth in passenger volume from last year’s 7.6 million passengers.

PAL’s recently created low fare unit PAL Express is expected to add a million passengers a year. “These are passengers who used to take boats to arrive at their destinations but are now flying. But PAL Express has also added new destinations,” Bautista pointed out.

Earlier, the company’s top officials said PAL faces a slew of tough challenges in its operating environment over the short term as the flag carrier continues its build-up after graduating from receivership a year ago.

“Once again, a pall of dark clouds hovers over our industry,” PAL chairman Lucio Tan and president Jaime Bautista warned in a joint letter read at the recent PAL stockholders meeting.

PAL had earlier announced a profit of $30.6 million for the fiscal year its fourth consecutive annual surplus and first since successfully exiting receivership in September 2007.

But the outlook for the next 12 months was anything but rosy. Like they were in recent months, “sharp oil price spikes” will be a recurring challenge in the short to medium term, Tan and Bautista said. Both executives recounted the swift reversal of fortunes for carriers worldwide on account of the record-high increases in oil prices earlier this year.

The implementation of an “open skies” regime among member states of the Association of Southeast Asian Nations in December 2008 is another looming challenge. ”This would lead to a “potential increase in the number of carriers plying our regional routes, further intensifying competition,” Tan and Bautista cautioned.

Also, the downgrade of the Philippine civil aviation system to Category 2 by the United States had “increased the severity of the hurdles we face,” they said. Under Category 2, Philippine carriers like PAL are barred from expanding services to the US, preventing the airline from deploying its soon-to-be-acquired long-range flagship, the Boeing 777-300ER on the vital trans-Pacific routes.

The first of six firm orders of the aircraft is due for delivery in September 2009. “We may be unable to use these new planes on our flights to the US, and the cost advantages offered by the aircraft may only be realized by implementing our alternative plan for deployment,” Tan and Bautista conceded.

The flag carrier has also launched some initiatives to counter the impact of volatile oil price movements. Among these are the creation of a fuel conservation watchdog within the company and the already-announced reduction of free baggage allowance on the trans-Pacific routes. PAL estimates these initiatives will generate benefits of up to $20 million a year at current fuel prices.