PAL Holdings, Inc., the parent company of Philippine flag carrier Philippine Airlines (PAL), swung to an attributable net loss of P8.06 billion in the third quarter, reversing a year-earlier profit, as higher fuel costs and operating expenses outpaced revenue growth.

Third-Quarter Results

In a disclosure to the Philippine Stock Exchange on Wednesday, the company said its third-quarter attributable net loss compared with a P1.37-billion profit in the same period last year.

Gross revenue for the quarter rose 8.2% to P46.15 billion from P42.67 billion a year earlier, while gross expenses climbed 30.3% to P52.37 billion from P40.19 billion. The widening gap between the two lines reflects a structural feature of the airline business: fuel is typically one of a carrier's largest cost items, so a steep rise in jet fuel prices can swamp earnings even when travel demand and revenue keep growing.

"While the sharp increase in fuel prices has weighed significantly on profitability, demand for travel remains healthy and our revenue performance shows that our commercial strategy is gaining traction," PAL President Richard Nuttall said.

"We remain focused on protecting liquidity, strengthening the business and positioning PAL for a return to stronger profitability as operating conditions normalize," he added.

Nine-Month Performance

For the nine months ended September, PAL Holdings recorded an attributable net loss of P9.90 billion, reversing the P9.03-billion attributable net income reported in the comparable period last year.

Revenue for the period increased 10.3% to P149.96 billion from P136.01 billion, supported by higher passenger, cargo and ancillary revenues. Passenger revenue, which accounted for the bulk of total revenue, rose 7.9% to P125.83 billion from P116.56 billion. Cargo revenue reached P9.64 billion, while ancillary revenue stood at P14.25 billion.

Cost pressures, however, intensified. Gross expenses increased 23.5% to P154.18 billion from P124.84 billion, driven largely by higher flying operations costs, which surged 41.95% to P90.85 billion from P64 billion. Fuel and oil expenses jumped 49.8% to P62.04 billion from about P41.41 billion, according to the company's financial results. The increase was driven by higher jet fuel prices amid the conflict in the Middle East, illustrating how geopolitical shocks in global oil markets can feed directly into airline cost structures.

"Our nine-month results demonstrate the underlying resilience of Philippine Airlines in an operating environment marked by exceptionally high fuel costs and continuing geopolitical uncertainty. We have responded with disciplined capacity deployment, stronger revenue management, targeted commercial initiatives and tight control of controllable costs," Mr. Nuttall said.

"To manage the impact, PAL adjusted fares and fuel surcharges and reduced flights on some routes, while keeping its other costs in check," the company said, adding that PAL expects fuel prices to remain the main factor affecting its results for the rest of the year. Fuel surcharges are a common industry mechanism for recovering part of fuel costs from passengers, and with the carrier itself flagging fuel as the decisive variable, jet fuel price trends heading into its fourth-quarter disclosure will be the key factor to watch.

Other major nine-month expenses included maintenance costs of P21.11 billion, aircraft and traffic servicing expenses of P16.55 billion, passenger service costs of P10.92 billion, reservation and sales expenses of P10.28 billion, and general and administrative expenses of P4.46 billion.

Traffic and Fleet

PAL carried 11.6 million passengers during the nine-month period, down 6% from a year earlier. Its passenger load factor — the share of available seats filled by paying passengers — declined to 77.5% from approximately 79.4% in the comparable period last year.

Despite the decline in passenger traffic, the airline said it would continue investing in its fleet and partnerships as part of its expansion strategy. Its operating fleet stood at 86 aircraft as of the end of September, following the addition of new aircraft, including three Airbus A350-1000 jets intended for long-haul operations.

PAL Holdings shares rose 32 centavos, or 8.04%, to close at P4.30 apiece on the Philippine Stock Exchange on Wednesday.

— Ashley Erika O. Jose, BusinessWorld

Source: BusinessWorld Online