Philippine Airlines has announced plans to order at least 100 new aircraft and resume flights to Europe and increase services to the USA.
The carrier’s two main owners will provide $1bn to help fund fleet expansion, Ramon Ang, president of the airline and of San Miguel, stated yesterday that San Miguel will inject $750 million in PAL and affiliate Air Philippines Corp., including a $500 million stake purchase, while billionaire Lucio Tan will deliver the rest, he said. “PAL will institute more improvement, offer a better service and fly newer planes,” said Ang.
It was also made clear in the interview that the airline is looking to join one of the three alliances to “spread its international reach and to help compete with Singapore Airlines Ltd. and Emirates Airline on long-haul routes”. Interestingly, San Miguel may also build an airport near Manila to help the airline improve services and to extend its own push away from a traditional focus on food and beverages, Ang stated.
Now this is of interest to investors….. New APAC airports being built with good links to a major city and with a link to a new town built as part of the airport development are what investors are really looking hard to get into at this time. By mentioning building an airport from scratch, Ang is sure to get good attention going forward.
The 100 new aircraft will include narrow and wide body types and will be divided across PAL and Air Philippines. Interestingly Ang stated that the airline “will be doing far more business with Boeing than before”.
Philippine airlines are still blacklisted by the European Union and have a Category 2 rating from the FAA, meaning they do not meet international regulations. Ang confirmed that PAL will “immediately” resume flights to Europe once Philippine carriers are allowed in, listing Paris, London and Spain as possible destinations. In the US, the carrier is looking at New York, Chicago and Florida, he said. It already flies to San Francisco, Los Angeles, Las Vegas and Vancouver in North America. Watch this space……………
Meanwhile in China: High fuel prices and a drop in foreign exchange gains weighed heavily on first quarter earnings at both Air China and China Southern Airlines. But as has been the case across the airline sector revenue is up: Air China saw its net profit for calendar Q1 plunge 85.7% to 239m yuan (around $40m). Operating revenue increased 6% to 16.12bn yuan (US$2.7bn), while operating costs jumped 13.4% to 13.95 billion yuan (US$2.3bn) at China's largest carrier.
Net exchange gains for Air China fell by 586 million yuan (US$93.1), while fair value gains of jet fuel hedging contracts fell by 99.53% as oil caught-up with the impressive deal struck some time ago.
At China Southern meanwhile, net profit fell by 74.19% in the first quarter to 319 million yuan (US$50.7m). Operating profit was down by 80% to 324 million yuan (US$51.5m), due, again, to increases in jet fuel costs and lower net exchange gains.
Operating expenses during the quarter increase by some 196% from 263 yuan to 778.48m (US$123.7m).
China Southern shares increased on the news by over 5% while Air China saw its shares suspended from trading. The Chinese government’s efforts to control their economy have taken a heavy toll on these airlines when the figures are reviewed on a like for like basis against the same quarter last year. And it is worth noting the effect on the airlines as the pain they have suffered due to exchange rates could well be in store for airlines in the EU and the US when interest rates start to increase once again.
JetBlue also posted its results today with fuel hedging and increased revenue helping the airline to profit in the first quarter (see Americas news section below). Fuel hedging can be a risk certainly but it is a risk worth taking – a fact not acknowledged by many Chinese airlines to their detriment.