Philippine Airlines has officially informed its employees that the management's retrenchment program will be implemented beginning November 15 affecting an estimated 2,000 workers coming from non-core services such as passenger handling, airline’s catering, ramp handling, and cargo handling operations. The numbers is equivalent to almost half the affected total workforce.
"We have no choice but to trim costs. We were really affected with the long haul, instead of the medium haul flights,” says Jaime Bautista, PAL CEO citing weak travel demands from areas where it matters most, the transpacific flight to where it derived majority of its profit to support the growing workforce. But with transpacific traffic down 7% and the same fixed cost from workers, something has to to be done in order to survive.
"We have decided to outsource the non-core business and transfer several operations to third parties to reduce costs and improve cash flow. Philippine Airlines employs 8,052 employees as of March 2009, almost half of them are ground employees. So we are currently reviewing its entire organizational set-up to make the workforce lean and mean" adds Bautista.
Last year the company earned P16 billion on gross sales for the same quarter period while it only earned P13 billion this year, a massive drop of P3 billion, which is a reflection on the current decline on its trans-pacific operations which comprises 32.6% in 2008 accounting to 47% decrease of its yields where international passenger traffic registered -1.5% slip as compared to a year earlier. The decline in passenger revenues was primarily brought about by lower net yield per Revenue Passenger Kilometer (RPK) as the airline scrambles to fill its seats.
PAL workers however are resisting the retrenchment plans because they believed that its main aim is to bust the union by outsourcing those work to companies that are also owned by Tan such as MacroAsia Corp., where workers are non-unionized, receive cheaper wages, less benefits, and without security of tenure.
“The outsourcing and spin-off is unacceptable to us. We are going to present [options] to the PAL management if it is really in a dire financial need” explained Edgardo C. Oredina, PAL Employees Association (Palea) president.
Mr. Oredina said PALEA members were open to pay cuts through job rotations to reduce working hours, but removing them altogether to be replaced by contractual isn't right as a justification to cut down on costs.
In 1998, PAL was leading to bankruptcy and forced go into receivership in the aftermath of the 1997 Asian Financial crisis. It returned to profit in 2000 and was out of receivership in 1997.
In 2008, the airline lost $301.4 million as a result of higher expenses brought about by last year’s record-high fuel prices and imprudent fuel-hedge deals which resulted to the sacking of its Chief Finance Officer. While revenues went up slightly to $1.6 billion it were not enough to cover operating expenses of $1.9 billion, up from $1.539 billion the previous year. Total liabilities also went up by almost a fifth to $869 million.Burdened with ballooning operating costs, the airline is now looking at various strategies to return back to profitability, including selling assets, reducing flight frequencies, and letting go of employees through rationalization.