PAL bets on massive refleeting

TOULOUSE, France – Philippine Airlines is accepting delivery today of a brand new Airbus A330 at the sprawling Airbus factory in this southern France metropolis. The aircraft is part of a $9.5 billion order for 65 aircraft, the largest such purchase in Philippine aviation history. There are  45 A321s and 20 A330-300, for delivery between 2013 and 2019. 

The A321s will enhance domestic and regional routes, while the A330-300s are to be flown on Australian, the Middle East and some European routes. PAL’s original fleet of eight A330s were transferred to PAL Express in response to Cebu Pacific announcing intentions to compete with PAL on mid-to-long-haul routes.

PAL is now taking delivery of its first aircraft under this order. Just last month, The airline took delivery of a new Boeing 777-300 and two A321s. We saw two Airbus planes painted in the airline’s colors as we landed in this city last Tuesday. PAL president Ramon Ang is banking on the refleeting program he had announced earlier to move the airline into the black.

The way Mr. Ang sees it, the fuel savings arising from the use of the new Airbuses and Boeings will give the airline its first taste of consistent profitability. That is not likely going to happen this year, but the new PAL management is already planning on new routes for the new fleet even now.

Most important in the new destinations are the Middle Eastern cities where there are a lot of OFWs. PAL abandoned those routes some years ago, unable to compete with the Middle Eastern airlines that enjoy subsidies on fuel among other expenses. Mr. Ang is banking on more efficient operations and a loyal market to overcome competitive challenges in the Middle East and Europe.  He also underscored to me in a previous conversation the national interest served by a Philippine flag carrier operating in a region with over a million OFWs at a time of political volatility that often requires evacuation.

PAL is reclaiming its Middle Eastern routes not a moment too soon. Arch rival, Cebu Pacific, is all set to introduce its budget fare model in the Middle East market. Cebu Pacific is also buying new aircraft from Airbus, the same A330s that PAL will deploy in the Middle East. It is notable that our local airlines are investing heavily on new aircraft, an eloquent voice of confidence on our economy’s vibrancy.

PAL has also announced the resumption of services to European cities, with London being the first on its list, this November. The London flight will land in Heathrow and will be the only direct flight to Europe from Manila. PAL has recently been allowed by the European aviation safety agency to fly again in Europe.

But PAL is eagerly awaiting the US FAA upgrade of the status of Philippine aviation to Category 1. That would enable PAL to start using its more fuel efficient Boeing 777 to service San Francisco and Los Angeles and expand to other US cities as well. This upgrade is key to the airline’s profitability dreams.

The current Category 2 status bans PAL from changing the model of the aircraft being used as well as from expanding to other cities. The old Boeing 747s now being used in the US routes are not as fuel efficient. With increasing fuel costs, the profitability of the routes are severely affected. They are however able to use newer versions of their reliable A340s.

The aggressive refleeting plan of Ramon S. Ang of the national flag carrier is taking the industry by storm. There are skeptics on the ability of its current management team to pull it off, given that most of the key executives are from San Miguel on loan to PAL. Industry observers point out the airline business is vastly different from the consumer products and services businesses of San Miguel. They worry about a stiff learning curve in such areas as revenue management. Full flights don’t always mean profitability, if something is wrong in revenue management.

But the gung ho attitude of Mr. Ang has inspired the airline’s staff in a way not seen in recent years. Already palpable is the improvement in cabin service and a more competitive stance in ticket prices. My wife was buying a ticket via the Internet to visit our son in Singapore last week and found PAL’s ticket price even better than budget carrier Cebu Pacific. This made me wonder how PAL will manage revenues in the light of its higher overhead costs compared to Cebu Pacific.

The San Miguel executives assigned to PAL and traveling with us to this city for the aircraft delivery are confident about their new and transparent all seasons pricing strategy. They hope to win customer loyalty with a system that tells the consumer the full price of a ticket with no hidden charges. They are also banking on a favorable response for their decision to price tickets with little regard to the usual seasonal variations.

And with more and more Filipinos traveling for work in the world today, PAL’s return to the Middle East and Europe will provide OFWs with a Filipino option. That will likely prove to be the key to the airline’s success in the long run. Our KLM flight to Europe early this week which wasted at least four hours with a Taipei stopover was full of Pinoy workers, most likely seamen going to Amsterdam to board their ships.

For business and leisure travelers, however, PAL needs to join an alliance for the loyalty miles that are a major attraction. PAL’s Mabuhay Miles are now only usable on the airline.

As for this new plane we will use to fly back to Manila after delivery ceremonies today, its commercial debut will be an inaugural flight to Dubai on Oct. 1. It can take in 414 passengers, configured into two classes, 39  premium economy seats and 375 economy seats. Premium economy provides more legroom at a cost lower than regular business class. 

The next few months will prove crucial to the airline’s drive to be competitive and profitable. It starts with the continuing delivery of its new aircraft and our much anticipated FAA upgrade. One thing is sure... Ramon S. Ang is one aggressive risk taker. I am sure every Filipino who proudly sees a Philippine Airlines plane in a foreign airport hopes he succeeds.

Erap joke

Someone posted this in one of my e-groups.

Jinggoy: Dad, double S ba sa dulo ng spelling ng success?

Erap: Tatluhin mo na para segurado.

Boo Chanco’s e-mail address is [email protected]. Follow him on Twitter @boochanco.