Turbulence hits PAL

Reeling from losses, cuts flights, personnel

by Lenie Lectura
August 27, 2009

Philippine Airlines is taking drastic steps, such as laying off employees and reducing international flights to save on costs following the huge losses posted in fiscal year ending March and the lower earnings in the first quarter.

“Extraordinary times call for extraordinary measures,” said PAL president and chief operating officer Jaime J. Bautista in a statement.

When pressed for details, Bautista told the BusinessMirror in a phone interview, there will be a reduction in the airline’s flights to the US, Canada and Australia as well as seat capacity to Japan and Hong Kong destinations.

“We normally have a full-year lineup for our flights. Starting August up to March 2010, we will reduce the capacity by 7 percent. Our international destinations are not doing well. The fares are going down. We still fly even if the aircraft is not full. But our domestic routes will not be affected,” said Bautista.

Also, PAL’s union was already informed about the planned layoffs. Bautista said he could not yet say how many will be affected. “This is part of our rationalization program. We just talked to our people [on Wednesday]. For now, I still don’t have a target number of affected employees but we will have something in a few weeks,” added Bautista.

PAL also plans to outsource some of its operations including ground-handling services. “The union was also informed about this as well. Our arrangement with them is that we will be transparent. It is a bitter pill but all of these [efforts] will save PAL,” he said.

Early retirement packages for PAL employees are also being offered not only to reduce costs but to enhance productivity. “We are currently reviewing our entire organizational setup. We want to make PAL lean and mean so it will be agile and flexible enough to adapt to the new economic climate. Clearly, the crisis has changed the face of the airline industry which is among the sectors hardest hit by the recession,” Bautista said.

PAL shareholders approved a quasire organization plan, reducing the par value of PAL shares to P0.20 from P0.80 per share. It will also increase its authorized capital stock from P16 billion to P20 billion divided into 100 billion shares at P0.20 per share.

Bautista said the airline relies on the strength and backing of its principal shareholders, unlike state-owned airlines which enjoy support from their respective governments in times of crisis. “PAL must not always rely on its stockholders; it must do its part and look internally to overcome this new challenge,” he added.

PAL also reported paying $165.4 million in principal and interest to creditors, bringing to $2.4 billion the total paid from March 1999 to March 2009. Total assets decreased by $60.6 million to $1.971 billion, while total liabilities rose by $239.5 million.

Bautista said PAL will continue to realign capacity to match demand especially in the domestic front due to increasing traffic. However, this is tempered by the weakness in PAL’s long-haul sector particularly the US market where the sub-prime crisis began.

When the global crisis led to a travel slump in the latter part of last year, PAL’s passenger load factor fell to an average of 76.2 percent, three points lower than the previous year. The airline posted a $301.4-million loss for its fiscal year ended March 31. This prompted PAL to take decisive steps like rationalizing its workforce, realigning operations to match demand, among others.