Remarkable turnaround: PAL declares P44-M annual profit - its first in 7 years

Philippine Airlines capped a remarkable comeback from near-bankruptcy just 12 months earlier by reporting an unaudited net income of P44.2 million for the fiscal year ended March 31, 2000.

Concluding its first year under rehabilitation with a flourish, PAL was able to generate more revenues, hold the line on expenses and post productivity gains versus targets set by its rehabilitation plan, the document that serves as the blueprint for the airline's recovery.

As a result, the resurgent flag carrier vastly improved on the bottom-line projections of both the rehab plan, which had forecast a net loss of $16.4 million (P650.6 million), and its more conservative internal budget estimates, which anticipated a loss of P351.6 million, for the 1999-2000 fiscal year.

The profit figure was PAL's first positive annual financial result since fiscal 1992-93, when it booked a profit of P1.025 billion. That ushered in a period of six straight years of net losses during which the airline lost a combined P25.614 billion.

It was also a dramatic single-year turnaround for PAL, which in fiscal 1998-99 lost a staggering P10.181 billion.

"As corporate profits go, P44 million is really nothing to crow about," said PAL chairman and chief executive officer Lucio Tan. "But considering where we came from, it is a signal achievement. The credit goes to the men and women of PAL, whose hard work and dedication to duty were the major factors that turned this company around."

"The support of PAL's creditors, lessors and suppliers, along with the patronage of the over five million passengers who flew with us last year, were also significant, for without these we could not have achieved this result."

Tan's sentiments were shared by airline president and chief operating officer Avelino L. Zapanta: "That we were able to resuscitate PAL, with the magnitude of its problems, in just one year is a feat unprecedented in Philippine business."

"PAL was able to attain and, in many cases, surpass its goals for the year by adhering to the guidelines of its rehab plan."

"The challenge for us now is to build on these gains and ensure that PAL remains firmly on track to sustained profitability," Zapanta added. "PAL has crossed its first hurdle and there are many more to come, but if our performance last year is any indication, we are more than ready to take on the challenge."

Key strategies included a focus on core markets, fleet realignment, improving yield management, strengthening the organization, improving productivity, forging marketing alliances and the disposal of non-core assets.

Operating revenues for the year reached P27.27 billion, exceeding the budget target by P640 million. Passenger revenue led the way with P21.93 billion, P304.3 million higher than expected, as PAL carried over 5.05 million passengers on 18,201 round-trip flights.

Cargo operations yielded P3.47 billion in revenue, P205.7 million over target, as PAL transported nearly 113 million kilograms of freight during the year.

Other transport activities, consisting of mail, excess baggage and charters, contributed P1.22 billion in revenue, bettering its target by P141.7 million.

The increases in the three main revenue categories were more than enough to offset the weakness in non-transport activities, such as catering, ground handling and maintenance, which earned P644.8 million, P12 million below projections.

On the other side of the ledger, PAL was able to control its costs. Total expenses for the year came up to P21.41 billion, a miniscule 0.5% over budget as management implemented tight fiscal discipline.

The major cost item was aviation fuel as PAL's fuel expenditures ballooned by P262.5 million over budget. This was brought about by the continuous escalation in the price of jet fuel throughout the year.

From about 49 cents per U.S. gallon in April 1999, the cost of jet fuel jumped to 71 cents in September 1999 and then to 80 cents in January 2000. The average fuel price for the year was 70 cents per gallon - well above the 41 cents per gallon projected by the rehab plan.

The resulting income from operations for the year of P5.86 billion was higher by a significant P531.7 million against target, reflecting PAL's strong operational performance in its maiden year under rehabilitation.

However, financing costs reduced PAL's operational gains for the year. Interest charges of P4.62 billion and other charges of P1.19 billion were both marginally higher than planned, producing a net income of P44.2 million.

PAL started paying interest on its obligations during the year. It also settled several debts owed to trade creditors, including its interline partners in the International Air Transport Association (IATA). PAL is current on all its repayment commitments under the rehab plan.

On the commercial front, PAL's new-found muscle was apparent in a series of indices that measured the airline's performance during the year against rehab-plan benchmarks.

Systemwide passenger load factor, which measures occupied versus available seats on PAL flights, was 66.1% - higher than the projection of 61%.

More importantly, revenue passenger kilometers (RPK), which tracks the volume of passenger traffic that actually earned money, reached 10.37 billion - overshooting the target by 874 million RPKs.

In the course of the year, PAL also took strides to transform itself into a leaner, more efficient organization. Revenue per employee, a key gauge of productivity, was P3.35 million, based on a manpower count of 8,145 employees and a fleet of 27 aircraft.

This was a marked improvement from the P2.78 million revenue per employee registered in 1997-98, when PAL had 13,052 employees and a fleet of 59 aircraft, indicating a more efficient use of corporate assets.

Average aircraft utilization was 9.6 hours per day, just slightly off the rehab-plan target of 9.8 hours, as PAL maximized the deployment of its young fleet.