Airlines in the Philippines
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I'm wondering why airlines around the world have a summer schedule and winter schedule? I mean their departure/arrival difference would only differ around 5-15mins? I could understand with the operating aircraft and increase in frequency. But why do airlines need to move the departure and arrival time 5-15mins early/later depending on the season?
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Its all about slot allocations.
Historically, there are more traffic movements in summer than in winter months and this brought chaos to major airports in North America and Europe that in 1947 airlines organized IATA for purposes of coordinating departure and arrival times. Take note that the luxuries airport enjoy now, i.e. ILS, runway lights, were non-existent 65 years ago to majority of the worlds busiest airport. More information can be found here IATA Scheduling Guidelines In the Philippines we do have a separate travel pattern oddly different from the world migration patterns and that is because of the very nature of our geographical location.
Making Sense
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In reply to this post by Arianespace
Clipping PAL's 'too many wings'
As Lucio Tan buys back PAL, Jaime Bautista returns to sort out the mess and make it soar again to profitable skies. The first order of business: reviewing the airline’s re-fleeting program. BACK AT THE HELM. Jaime Bautista, who assumed PAL’s presidency role from Ang in a board election held Thursday, October 23, 2014, says their return to the flag carrier means "more work." MANILA, Philippines – When San Miguel Corporation (SMC) acquired 49% ownership of Philippine Airlines (PAL) two years ago, the conglomerate committed to turn the national flag carrier into a profitable business. Part of returning the legacy carrier to black was to add passenger aircraft into its fleet. So in 2012, PAL ordered 44 units of Airbus A321, and 10 A330-300 twin-aisle jets. It intended to implement the re-fleeting plan to reduce fuel and operating costs, according to its former president, Ramon Ang. The 54 wide and narrow-bodied Airbus aircraft had a $7-billion price tag. Two years later and in a disclosure to the Philippine Stock Exchange (PSE), PAL’s parent firm PAL Holdings Inc. posted a net income of P1.49 billion ($33.24 million*) in the second quarter of 2014, an upturn of P1.08 million ($24,096.39) worth from the same quarter last year. From April to June this year, revenues jumped 47.4% to P27.3 billion ($608.75 million) compared to P18.52 billion ($412.98 million) in the same period last year as passenger revenues surged 51% while cargo revenues grew 33%. (READ: PAL is back in the black) “But that’s normal because it’s the (April-June) peak season,” said Jaime Bautista, who assumed PAL’s presidency role from Ang in a board election held Thursday, October 23. Tycoon Lucio Tan was also reelected as chairman of the board and chief executive officer. Ang resigned effective October 23. The ‘real’ figures Bautista said the first and third quarters of 2014, were “almost break even or a loss.” In the last two years, he said Philippine Airlines and budget carrier Air Philippines reported a loss of $500 million, the same amount San Miguel spent to buy minority shares of PAL in 2012. In an unaudited January to August 2014 financial statement of Philippine Airlines and Air Philippines (the latest financial statement has yet to be released) shown to Rappler, it revealed a combined earnings of $11 million from that period. In comparison, PAL Holdings reported earnings of P45.40 billion ($1,013 billion) from March to December 2013. However, another $13.75 million of “other income” has to be deducted from its $11-million January-August earnings because the amount accounted for the lease charges of the aircraft Ang acquired under the airline’s fleet renewal program. In that case, PAL had an excess of liabilities of more than $2 million. In 2013, the airline’s parent company, PAL Holdings Inc., reported a net loss of P11.85 billion ($264.24 million) ending December – over 4 times its P2.74 billion ($61.15 million*) net loss in the same period in 2012, while its comprehensive net losses was at P2.7 billion ($60.25 million). From April to December, passenger volume fell to 5 million, while total expense reached P61.5 billion ($1.37 billion). PAL Holdings Inc., the parent company of Philippine Airlines and Air Philippines Corporation (which operates PAL Express), currently finances for its leased aircraft with terms ranging from 6 to 12.3 years. A combination of low passenger demand during off-peak seasons, fuel price fluctuations, economic slowdown, competition, security and safety risks, plus the continuous expenses due to re-fleeting caused PAL’s break even or loss periods. Too many wings In an exclusive interview with Rappler, Bautista lamented that Ang had bought “too many” airplanes, adding capacity beyond what the airline needs. This has contributed to PAL’s losses, with the company’s total long-term obligations at P26.63 billion ($594.29 million) as of June 2014. “Before his entry to PAL, we only had around 40 airplanes. Now we have 60 airplanes. And then we’re taking another delivery of 32 airplanes in the next 3 to 4 years,” Bautista said. In its latest quarterly report though, PAL listed 85 aircraft in its fleet. Out of the 85, it owns 33 airplanes, while the rest of the 52 airplanes either under finance lease or operating lease. The re-fleeting program involved acquiring a mix of brand new A330s and second-hand A340s. It was meant to decrease cash flow for the airline. Instead of retaining old aircraft, operating newer airplanes would save PAL from spending more on maintenance. That, Bautista said, was Ang’s idea. The ambitious fleet renewal program aimed at increasing PAL’s fleet to 100 planes. In May, PAL completed an order for over 70 planes, even after booking multibillion net losses. In September last year, PAL negotiated with banks and export credit agencies to finance its $9.5-billion fleet modernization program. The airline’s financial consultant that time, Ian Reid, then declined to provide details of how much are being negotiated for the financing. TOO MANY WINGS. Bautista laments that Ang had bought “too many” airplanes, adding capacity beyond what the airline needs. File photo from Philippine Airlines TOO MANY WINGS. Bautista laments that Ang had bought “too many” airplanes, adding capacity beyond what the airline needs. File photo from Philippine Airlines The effects of such aircraft purchases are expected to take a toll on PAL’s income for the third quarter, where PAL is anticipating to report losses. PAL has not yet released its latest quarterly report yet. Lacking pilots Acquiring too many wings, however, won’t help PAL fly to profitability. Bautista explained that an airplane must have 6 sets of pilot comprised of a captain and a first officer, making it 12 pilots per aircraft. “They lack pilots when I asked how many do they have,” he said. Every month, a leasing company also charges PAL for the excess planes – which would not have been the case if the planes had been used in its operations, said Bautista. Financing on aircraft leases is the bulk of PAL’s capital spending, Bautista said. Lease rates are pegged at around 1%. Therefore, a $100-million aircraft’s lease rate is worth $1 million. Whether PAL uses the planes or not, leasing companies charge the airline for all leased aircraft in its fleet. As of June 30, PAL has 3 Boeing 777-300ER ($330 million) and Airbus 320-200 ($221.7 million) under finance lease. Its 3 Boeing 777-300ERs ($330 million); 10 Airbus 330-300s ($245.6); 7 Airbus 321-231s ($120.5 million); 18 Airbus 320-200s ($221.7); and an Airbus 319-100 ($94.4 million) are under operating lease. (The prices cited are based on Boeing’s and Airbus’ latest commercial pricing.) “If you don’t use it, you’re wasting millions. We wanted to use (them), but we can’t find destinations,” he said. Bautista described the re-fleeting lacking deliberation, costing the carrier money. Realizing it added too many wings for its fleet, the Ang-led management in March 2014 negotiated with Airbus to reduce its A330 order from 20 to 15. It compensated the cutback by ordering 8 additional A321 NEO aircraft, but it did not proceed with the transaction. The Airbuses were meant to be used for PAL’s long-haul flights. Also, part of the deal with Airbus was to purchase a $16-million Rolls Royce-made spare engine for every 5 airplanes, Bautista said, who credited Ang for sealing a deal with the airplane engine maker as Rolls Royce’s performance is said to be superior than other brands. PAL is also negotiating with Rolls Royce whether they could return the deposit of the excess spare engines, but Bautista said, since the transaction has been booked as a sale, Rolls Royce is reluctant to do a refund. PAL’s fleet utilization is also low. Their new aircraft has an average utilization of 4 hours per day, Bautista said, which is far lower than the ideal usage of 14-16 hours per day. Apart from the low usage, Manila’s congested runway has put a break on their ambition to mount additional destinations, on top of the fact that budget airlines such as Cebu Pacific, TigerAir, and AirAsia have already eaten up their share in the market. Because of the re-fleeting program, PAL’s liabilities have reached $1.5 billion, said Bautista. Botched deals On top of the aircraft buying spree, there are those unprofitable ventures that PAL got into. Ang, who is president and chief operating officer of San Miguel Corporation, hinted in 2012 that they were considering a deal with a regional airline. It would have been PAL’s first overseas venture since it commenced operations on March 15, 1941. Then in 2013, PAL struck a $10-million deal with Cambodia's hotel and telecommunications empire Royal Group to revive Cambodia Airlines, but it did not push through. According to Bautista, Ang’s interest was rooted in an intention to use some of PAL's aircraft for Cambodia Airlines. The revival of Cambodia Airlines was seen to compete against other domestic airlines in Cambodia. With the Royal Group of Cambodia, Cambodia Airlines would serve regional destinations to become the fastest growing airline. The deal was supposed to make PAL a 49% shareholder of Cambodia Airlines. Royal Group would own the majority 51% shares. It was reported that PAL was bound to pay a $1-million down payment in July 2013. However, Bautista said the botched deal had already cost PAL $5 million. The Center for Asia-Pacific Aviation (CAPA) warned PAL in February 2013 against investing in Cambodia Air, describing the venture as “risky.” CAPA said, “the group is better off focusing on reducing expenditure and improving profitability of its Philippine operation.” Bautista said PAL has fixed expenses worth $5 million payable in the next 5 years. This is because a company that has been tapped to develop the reservation system for its Cambodia operations have been contracted despite securing an airline operator’s certificate before pushing for a joint venture agreement with the Royal Group of Cambodia. Thanks to long-haul ventures, PAL’s profit saw an upturn, except for the Manila-London service which was last serviced 15 years ago. The slot PAL got though as it started flying again in November 2013, required the airline to arrive in London at 3:30 pm. For passengers, it meant departing from NAIA Terminal 2 at 7 am, on top of a 3-hour wait or check-in time for international departures. “Is that a good timing for departure? It’s not,” Bautista said. CAPA had earlier warned PAL, including Garuda Indonesia, that they would face “intense competition” from Singapore Airlines, Thai Airways, Malaysia Airlines, Vietnam Airlines, and Royal Brunei Airlines. Apart from competing with large carriers, PAL is not a member of global airline alliance SkyTeam, which makes their European service inferior even when competing with Garuda, which joined the alliance in March this year. Manila’s under-maintained international airport, as well as its geographical location weakens the demand for such flight. Non-disclosure Apart from the airplane buying spree and the unprofitable ventures, there were also other transactions that apparently, Ang did not disclose to the Lucio Tan group, Bautista said. “In the beginning it was OK because Ang would always report to the board. After a few months when he started buying planes, he had many transactions not reported to the board,” Bautista said. For instance, Ang terminated PAL’s contract with a call center and procured a contract with a San Miguel Corporation subsidiary, San Miguel Information Technology Systems. In 2010, PAL outsourced its non-core airline functions such as call center reservations operations to a Philippine Long Distance Telephone Company subsidiary. “The San Miguel call center he put up is a little bit expensive, which he promised to be cheaper,” Bautista said. Future THE WORK AHEAD. “We need to see how we can reduce the impact of over purchasing airplanes. We have to do something about it,” PAL President Jaime Bautista says. Photo by Mick Basa / Rappler THE WORK AHEAD. “We need to see how we can reduce the impact of over purchasing airplanes. We have to do something about it,” PAL President Jaime Bautista says. Photo by Mick Basa / Rappler Bautista said their return “means more work.” “We need to see how we can reduce the impact of over purchasing airplanes. We have to do something about it,” Bautista said. To address the issues causing PAL to hemorrhage money over the expensive re-fleeting program, Bautista said an aircraft leasing company has been engaged to help sublease the excess jets. However, as potential buyers know why PAL is selling the unutilized Airbuses, Bautista said the airplanes would be subleased at a lower price. PAL has already subleased some of its airplanes to VietJet, he added. Another 10 units of Airbuses for PAL will arrive next year. Another 10 units will arrive in 2017, and another 8 units in 2018. For the hard-pressed airline, it means another chain of challenge. The Japan International Cooperation Agency (JICA) has showed the Philippines that it would need to pour P436 billion ($9.72 billion) to replace the old and congested Ninoy Aquino International Airport. A better airport, one that could accommodate more aircraft and passengers, is what the flag carrier is wishing for. “That’s the reason why we are not able to maximize utilization of airplanes because of the limited infrastructure facilities,” Bautista said. The ambitious re-fleeting program would have not jeopardized PAL’s business performance only if the volume of aircraft ordered per year harmonized with the rate of how the market grows annually. “It’s just [about] timing. The market grows an average of 6% to 7% a year. But the increase in our capacity is almost double in the last two years. So that’s the challenge,” Bautista said. The challenge to expand their market, however, will be a turbulent ride. One of its operations, the Cebu hub which served flights between Cebu and other destinations in Visayas, have been stopped because budget carriers that have turned into formidable rivals in the industry have eaten up PAL’s market share. “We have to stop it to reduce losses or else we continue to lose money. We have to be very careful in mounting more flights,” he said. PAL’s long-haul service will also experience a slight shrink, as Bautista said the incoming management is not keen on expanding in Europe. This time, PAL wants to make its presence strongly felt in the US and the Middle East. Now 57, Bautista, a certified public accountant who started his career with the country’s largest auditing firm Sycip Gorres Velayo & Co., and helped Tan in many of his major business deals, is looking to improve the airline’s cash flow. “How can we operate without acquiring more equity from the owners or borrowing money from the banks? How can we have a positive cash flow? We have to be very creative in thinking of plans to generate cash,” he said. Despite what happened with the San Miguel group, Bautista thinks a partnership is still an option. “I personally think there’s a need for PAL to look a strategic partner. And we will recommend to the owners that we should go toward that direction of getting a strategic partner,” he said. A strategic partner could be a carrier anywhere in the world as long as it “should have airline operations,” Bautista said. The aviation business in general is a difficult one, especially for Asia’s oldest commercial carrier which history included the Asian financial crisis, its $2-billion debt that led to its closure in 1998, and the rehabilitation plan it sought for in 1999. In 2000, PAL made a drastic turnaround from an unfortunate streak of 6-year loss. But a year later, the September 11 attacks happened and demand for flights dropped. Few years later, it went through turbulence again, including the global recession in 2009, which spiked jet fuel prices, hurting its operations. In 2010, PAL announced it would let go of its non-core airline services, which earned ire among its more than 3,000 affected employees. “This year should be a good year only if we’re not burdened by the overcapacity of our planes. That’s the problem that we [are dealing with],” said Bautista. Analysts have continued to point out that PAL would still be a risky venture: it’s capital-intensive, with jet fuel prices and competition among budget airlines already a serious trouble. Ramon Ang’s exit was a right move, they said, and many have wondered: why, despite previous pronouncements that Tan would leave its airline business, would it want to have a troubled airline back? “Mr. Tan thinks PAL is a very important asset of the country …. And it will take a guy like Mr. Lucio Tan, who is willing to risk a big amount of his fortune [to make it work],” said Bautista. – with reports from Mick Basa and Lynda C. Corpuz/Rappler.com |
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The question is actually simple.
If it is truly bleeding money, WHY buy it back in the first place?  Second question could be a bit of a challenge. If it can't find a destination, why is it so easy for CEB to find one?  Of course we know all the answers to these. But for the majority of the readers, they may have to go figure.
Making Sense
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Or they could have just simply asked RSA and his management team, where they intended to fly all these planes... for sure they had a comprehensive plan that's why they bought all these planes... |
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PAL under RSA had a long term goal in mind. Really makes me wonder why:
1. RSA was able to make YYZ, LHR, AUH, DXB, DMM, RUH, BNE, and DRW work whereas under JJB, PAL withdrew from RUH and they even never considered flying to YYZ while under cat 2. 2. PAL's expansion was quick within a 2 year period during RSA's time whereas JJB seemed to conservative that 5J merely took advantage of their inaggressiveness. Now, the challenge is on JJB. If they think they are better than RSA's group, then lets see how they will fair up. |
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Interesting piece from CAPA
PAL ordered too many A330s I think this is not what SMC had in mind. If I remember correctly, the 10 monoclass A330's were really meant to serve mostly the middle east as RSA would like it. Dubai -1 Abu Dhabi -1 Riyadh -1 Dammam -1 Jeddah -1 Doha -1 Bahrain -1 Muscat/Kuwait -1 Domestic -1 Domestic -1 Another set of bi-class A330's were meant to replace the old product as mentioned in the article with two new additions, basically to serve Australia and Honululu markets. What made the turnaround is the LT Group themselves not approving the next set of expansion due to the impending repurchase. To their credit they did approve New York and Jeddah, but shutdown Australia's expansion by operating the 757. I would truly agree with them for doing that. Middle East however is a different matter. Cathay benefited from inadequacy of flights in Manila and to some extent Singapore airlines. They were the ones who cried when our airline finally flew. JJB once said that what made them lose in the gulf (at that time they were flying Riyadh) is the inadequate aircraft they have. Now they have more aircraft and he is still complaining. Meanwhile, they dont want to give to 5J what they don't intend to fly.
Making Sense
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JED is currently listed on the online booking destination however, JED is not listed on the winter schedule of PR.
When PR and 5J introduced DXB on their routes, CX immediately adjusted their DXB and BAH flights; or was it DXB and AUH flights. It clearly shows the big impact on CX. |
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In reply to this post by Arianespace
The real reason? ‘PAL short on cash for expansion’
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Administrator
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YAY!
 Going back to this over capacity declaration by JJB, here is what he said in 2007 when he doesn't have the planes yet, Orient Aviation Magazine And this is what he said about the middle east in 2011. Fast forward 2014 It's just right to stop blaming SMC about the corporate decision they jointly made. It takes two to tango. I believe JJB has gone overboard this time. He should not have discussed the decision of the previous board, who were owners of PAL then. In so doing he is shooting himself on the foot.
Making Sense
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Hehehe, it just goes to show that LTG bought back 100% of PAL due to pure ego. Why by a business they know they don't hav the money to support its expansion?
That statement from SMC was an "in your face" thing. But it is said and done. All we have to do is to watch a budget carrier take over in being the national flag carrier, in the name of Cebu Pacific. RSA is a strategist. We may not see his reasons right away for doing things but then we realize, he was correct. Now, I wonder who will partner with the LTG after what they did to SMC. |
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What will PAL do now... I remember a decade ago, they really dragged their feet in updating the cabin of the 747s. I remember they were supposed to update the A340 cabins, too, but... nothing. Then they really dragged their feet on expansion once their finances were settled and they got out of receivership. Had they just bought the A346, they would've gotten those planes delivered before Cat II was imposed. Or at the very least, they should've fought for earlier T7 delivery slots. The conservative attitude post-1998 was wise at the time. But businesses have cycles, and in this current cycle, Cebu Pacific has it figured out. Fearless forecast: Cebu Pacific will develop a full-service carrier subsidiary. They have the money for it. Their long-haul ops can easily be fed by Cebu Pacific's superior short-haul network. |
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I remember JJB just about a week or so ago that LHR is barely making money... change of tone now? or is it just because of the Christmas season?
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Boeing will give available slots for the Philippines in 2016
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In reply to this post by chowpau
Slot allocation would probably mean for the 77W if PAL will order it now. Their bookings are full until that time.
As to how they are faring poorly in the Philippines is a matter of economics. While the current Boeing 737 is a bit efficient plane (1-2% advantage, based on industry expert estimates) than Airbus 320s, that efficiency gain is completely wiped out by the volume discount Airbus gives to airlines. The bigger the order, the bigger the discount. Couple this with fact that Asia is a cost conscious market where bulk of its passengers are cost conscious people. This big order-discount strategy was also implemented by Boeing with disastrous results to the manufacturer and the biggest gain to a single airline, Ryan air. I very much doubt if they implement the same strategy in Asia where Airbus does it better.
Making Sense
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This post was updated on .
I think most of us here have read the articles online (one from JJB and another from RSA).
I was quite surprised to read that PAL had plans to set-up HND as a hub? Isn't it slot restricted? What were the chances that the JP gov't would approve PAL setting up there? |
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I would like to believe that is a misquote.
No such right exists at Haneda. The right however existed for Narita and Seoul. I did mention that right in the erstwile thread in the other forum a long time ago. It is a dormant right. PAL used to use that right before but was not successful doing it.
Making Sense
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Awful journalism!
So it should have been Narita! ---------- On another note, got this excerpt from rappler PAL will now focus its European operations on its newly-opened London route and add more flights to Honolulu, while scaling down Middle East operations due to lower-than-projected demand, Bautista said. Its new fuel-efficient Airbus jets will allow PAL to compete better when Southeast Asian nations ease air traffic restrictions next year, he added. The company will also be "more aggressive" domestically and may reopen its hub in Cebu, the commercial capital of the central Philippines, said Bautista. – Rappler.com And I thought ME was a success? So what is what now? Blaming game again? |
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London and Honululu expansion were already announced in this forum.
The much anticipated middle east expansion is I think shelved from that announcement. As a consequence of that decision, two monoclass A330 will be left without destination to fly to. And that is where JJB declaration applies. They have no route to fly the A330. Naturally because they won't be expanding anymore.
Making Sense
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Administrator
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Care to comment on this statement by JJB
Does this mean that he won't fly JED because 5J got some of the slots? Is that it? C'mon JJB you should be better than this! Lance should be smiling by now.
Making Sense
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