Low fares may cut airline profits this year

Profit growth of local airlines may be tempered by the need to offer lower fares, the Civil Aeronautics Board (CAB) said. CAB Executive Director Carmelo L. Arcilla said in an interview last week that lower fares that airlines use to attract more passengers may be the cause of some losses. “There would be growth in profits for airlines, but there may be some losses due to the low fares," Arcilla said. Offering low-cost fares is part of the strategy of airlines to combat rising costs and declining markets, he said, but airlines are not expected to be profitable this year. He noted that low fares and budget airlines are part of a business model that is continuously evolving. Lucio C. Tan-led Philippine Airlines, the country’s largest carrier, earlier said it expects a loss for the 2009-2010 fiscal year. Arcilla noted that “legacy carriers" might expand their budget arms to take advantage of the niche market of budget airlines and offer more flight schedules to passengers. Arcilla said the 2010 outlook for air travel would continue to be dim, but still better than last year. But there are “signs of improvement with some losses already tapering off." International air travel data was not yet available from the CAB. Domestic travel rose by 29.5% from January to September in 2009 to 11 million passengers. Arcilla noted that domestic travel is only one component of the air travel business. — Emilia Narni J. David, BusinessWorld