Paul Lewis/MANILA
For many years Phillipine Airlines (PAL) had the reputation of being a carrier with a problem. A series of soap-opera-type shareholder battles for control, a geriatric fleet of aircraft, poor punctuality and a history of financial haemorrhaging have done little to dispel this image. With the recent delivery of a leased Airbus Industrie A340-300, PAL is hoping to signal that this will change.
Chairman and owner Lucio Tan has embarked on a $4 billion programme to turn around his ailing airline. Included in the plan is a complete fleet modernisation, route restructuring and expansion and retraining of PAL's 14,000-strong workforce. If successful, Tan hopes to transform the 55-year-old PAL from Asia's oldest airlines to Asia's best.
The revamp is possible, only because of an agreement with the Government, ending a three-year-long battle for control of the airline. Tan, in return for a 56% stake, has offset increased borrowing by injecting a further 5 billion pesos ($191 million) doubling the carrier's capitalisation.
Central to Tan's strategy for reversing an accumulated 10.7 billion peso loss for the last 12 years, is the acquisition of 36 new aircraft by December 1998. As a quick interim solution, PAL is leasing two A340-300s, along with two McDonnell Douglas (MDC) MD-11s. "Without a new fleet, PAL will die," says the airline's president Antonio Garcia.
PAL is hoping that, with the phasing out of its increasingly unreliable Boeing 747-200s and Airbus A300B4s, it will be able to improve on-time performance and cut costs. PAL is also looking to achieve a 30% rise in yields by replacing ten leased Fokker 50 turboprops with new regional jets on domestic routes (Flight International, 7-13 August)
Plans include a new non-stop A340 service from Manila to London, the start-up of A330 routes to Shanghai and between Cebu and Seoul, added frequencies to Australia, along with 747-400 services to Vancouver and, eventually, Newark on the US east coast. On the domestic front, PAL wants to increase frequencies with shuttle-type services from Manila to Cebu and other major cities.
PAL intends, in the longer term, to widen its 34-point overseas network through a strategic tie-up with a European and a US carrier, rumoured to be United Airlines. "Before we really get into this," warns Garcia, "we've got to prove to all our potential partners that we are serious, that we've got the fleet and that we'll be a major airline."
According to industry analysts, PAL's need for an alliance is likely to take on a higher priority as the process of domestic liberalisation is extended internationally.
Phillipine president, Fidel Ramos' Executive Order 219 in January 1995 scrapped single airline routes, and the number of start-up carriers has proliferated. PAL already faces competition from Grand Air on its Hong Kong and Taipei routes, while Cebu Pacific Air is also applying to go international.
At least two other domestic operators are waiting, Air Philippines and Asian Spirit, while a third, Asia Pacific Airlines, is hoping to come on line by the year's end.
In many cases, PAL's failure to use fully allocated frequencies has left the door open to competition. "EO 219 has allowed other airlines to be designated as official carriers for the Philippines. The purpose is to ensure that any unused frequencies are used," says transport undersecretary Primitivo Cal.
Grand Air director Leslie Espino claims that, at the time of the airline's start-up in early 1995, PAL was making use of no more than 55% of its total frequency entitlements. "There is certainly room for two carriers," Espino says adding: "PAL is objecting to all our applications for international services".
PAL, emboldened by its new fleet order, is quickly trying to fill in the gaps. It now wants to make fuller use of the 28 permissible weekly US frequencies by doubling its daily service to San Francisco. GrandAir and Cebu Pacific Air are also seeking Philippine Civil Aeronautic Board permission to serve the US west coast, as well as a range of additional Asian destinations, including Bangkok, Jakarta, Kuala Lumpur and Singapore.
Both carriers are already putting on additional capacity. GrandAir has just taken delivery of a fourth A300B4 and has set its sights on acquiring more 737-200s and a 747-200 by the end of the year. Cebu Pacific Air plans to supplement its four MDC DC-9-30s with two MD-82/83 and is looking at larger Airbus A300 and Boeing 767s and 747s, says company consultant Enrique Davila.
With the first leased A340 now in service and a backlog of $3.2 billion-worth of new aircraft on order, PAL is feeling more confident than ever that it will prevail. Garcia believes that, with a revamped fleet, the airline will be able to offer passengers more choice.
Source: Flight International
