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Philippine Airlines' horror third quarter, -53% net margin

Philippine Airlines President and COO, Jaime Bautista
Philippine Airlines President and COO, Jaime Bautista

PAL Holdings, the parent of Philippine Airlines, had a disastrous quarter ended Dec-08, registering a net margin of -53% in the period - one of the worst results of airlines globally recorded to date by the Centre for that period. The massive USD215.9 million net loss included USD42.4 million in actual and mark-to-market losses from its fuel hedging contracts. The company reported a net loss of USD17 million in the same period last year (attributed to a USD26 million currency loss).

The Dec-2008 quarter losses came despite a 17% increase in revenue to USD409 million, helped by higher yields and rising passenger numbers. PAL carried 2.34 million passengers during the three-month period, up 24% year-on-year, with a passenger load factor of 74%. PAL cited the "continued patronage of overseas Filipino worker traffic" for the increase in demand. But traffic from this segment could be imperilled if job losses flow as a result of the global economic downturn.

Expenses rose 47% in the Dec-2008 quarter, mostly related to flying operations (+52%) where high fuel prices continued to affect PAL, maintenance (+9.1%), aircraft & traffic servicing (+15.8%), as well as higher passenger service, reservation/sales and general/administrative costs. "Other expenses" increased 4.2 times, relating to unrealised changes in the fair value of outstanding hedges. The airline had a USD9.9 million currency gain in the Dec-2008 quarter.

PAL Holdings incurred losses of USD287 million for the nine months to 31-Dec-08.

Better last quarter seen - it can't get much worse

In a statement, PAL said it expects better fourth quarter results as it takes advantage of lower fuel prices in the world market. The airline stated, "with the concerted efforts of management and employees to cut costs and improve operating margins, PAL expects to turn around its financial performance and post an income for the [three month] period to March 2009".

But the expected profit will not be enough to pull the full-year result into the black. On 11-Feb-09, PAL confirmed it expects to report a full-year loss, following last year's USD30 million profit.

Looking ahead, lower fuel prices will continue to help PAL. The may also be a surge of returning workers, as job conditions elsewhere deteriorate. But beyond that, an uncertain economy and stiff competition at home will present continuing challenges.

PAL will be able to draw on the fact it has done the hard yards in restructuring while times are good, so it faces the year ahead with at least that confidence.

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