PAL losses $219 million to fuel hedges

$219 million reasons to defer new PAL widebody orders

February 20, 2009

MANILA - Flag carrier Philippine Airlines (PAL.PS) officially reported to the Philippine Securities and Exchange Commission (SEC) a total comprehensive losses of $219.86 million for the period ending December 2008.

In a financial statement submitted yesterday, the airline attributes its actual and mark-to-market losses from its fuel hedging contracts.

Philippine Airlines is the latest in a string of Asian airlines to disclose losses relating to fuel hedging at $ 219 million. Last week, Singapore Airlines revealed $225 million losses on hedging. Air China, China Eastern, Cathay Pacific, Shanghai Airlines and Thai Airways have all also flagged up mark to market losses. A Merrill Lynch report predicts nine Asian carriers will report $3.8 billion in estimated losses from contracts tied to fuel hedging in 2008.

The airline incurred a net loss of $113.8 million for the first half of its fiscal year which ended on Sept 30 as compared to its booked income of $22.7 million in the same period last year, and it went earning $30-million profit in 2007.

Other than massive losses on fuel hedge, all indicators point to a positive growth as it defied worldwide recession. PAL's operation remains the only bright spot in Asia Pacific as other legacy airlines registered declining traffic figures. The airline revenues for the third quarter increased by 15 percent to $405.90 million.

Passenger demand remained robust as PAL carried 2.34 million passengers during the same period - 24 percent higher than previous year’s figures.

Passenger load factor was also at 74 percent thanks to the continued patronage of overseas filipino workers and migrant filipino traffic.

For the first nine months of its fiscal year, PAL carried a total of 6.5 million passengers, a 16 percent jump over the same period the previous year.

Philippine Airlines is expected to post an income for the period January to March 2009, the last quarter of its current fiscal year which ends March 31.

PAL in a statement said that it expects better fourth quarter results as it takes advantage of lower fuel prices in the world market.

PAL’s total expenses for the quarter rose by 58 percent from last year to $586.96 million. Fuel continued to be the company’s top operating expense but PAL succeeded in controlling other expenses and keeping them in check. The company already delayed the delivery of its new Boeing 777-300ER aircraft to November this year and deferred the refurbishment program of its 4 Boeing 747-400 this year to save cost. It was originally scheduled to be done last year. The airbus 340 refurbishment program was also deferred for one year. It was supposed to be done this year. It is unlikely to announce new widebody orders until the end of the year.

The airline also announced that it has no plans of grounding their planes amidst the recession even if other airlines started doing so. Singapore Airlines and Qantas recently announced grounding their aircraft due to poor loads.

Philippine Airlines instead joins Emirates Airlines in expanding its capacity this year by adding frequency to its domestic and international network. In fact, the airline is scheduled to take delivery of additional aircraft as part of its refleeting program. It intends to fly double Daily to Los Angeles by November.

The airline expects a modest growth in 2009. Bautista added that they will be happy if they will be able to achieve the same number of eight million passengers carried in 2008.

The International Air Transport Association(IATA) estimated that airlines lost a total of $5 billion in 2008 brought about by both the slowing global economy and the unprecedented volatility of fuel prices. It also said that some carriers were unlikely to reap the full benefit of the drop in fuel prices until 2010.The airline industry may lose as much $2.5 billion this year as traffic declines, with carriers in the Asia-Pacific region accounting for almost half of the deficit.