PAL: Higher fuel cost threatens profitability

Despite a renewed demand for air travel, Philippine Airlines said Monday dark clouds are hovering over the industry brought about by higher fuel prices. The flag carrier, which is celebrating its 70th anniversary this year, said in a statement its profitability is now at risk with the steady rise in fuel prices. Jet fuel accounts for over a third of its operating expenses, the company said. “The flag carrier is bidding to replicate its past successes in the more demanding operating and competitive landscape of the future. It faces a slate of tough challenges in this quest," PAL president and chief operating officer Jaime Bautista said. PAL said it made a $15.1-million profit during its fiscal third quarter ending December 2010, as air travel recovered from sharp declines in the same 2009 period. “But the succeeding months, from January 2011 to the present, showed just how fragile the recovery was," Bautista said. The unrest sweeping the Middle East and North Africa since the beginning of the year sent jet fuel prices to $134.7 per barrel, up 53 percent from the period last year, according to PAL. Crude oil on the other hand is now around $113 per barrel, a significantly higher level than the industry's original outlook for crude at $84 per barrel for 2011. “This forced the global airline industry to flag a potential loss for carriers by the end of 2011," PAL said. The airline is now implementing several cost-cutting measures to help it recover from combined losses of over $300 million in 2008 and 2009, when world crude prices touched record highs. The company said it is also struggling to keep up with budget carriers that are attracting bigger market shares with their cheaper seats. Among its unpopular cost-cutting measures is the plan to outsource 2,600 non-core jobs in ticketing, ground operations and food catering. Malacañang and the Department of Labor and Employment are currently brokering talks between the airline’s union and management to ensure that flight operations are not affected by labor unrest. — VS, GMA News