PAL posts Q2 income; Fuel hike, bird flu scare threaten gains

In a filing with the Securities and Exchange Commission (SEC), PAL reported revenues of US$399.5 million for the second quarter of fiscal year 2010-11, up by 33% from the same period total of US$299.7 million in 2009.

Despite positive numbers in the last two quarters, PAL President Jaime J. Bautista said he remains cautiously optimistic about the airline's growth prospects.

"The global airline industry remains vulnerable to volatile market conditions. Take fuel, for example. If the upward trend continues, it could wipe out all our recent gains," Bautista said.

He explained that while there was a huge reduction in maintenance expenses by 36% as a result of the company's cost savings initiatives, fuel costs have gone up as a result of higher jet fuel prices from an average of US$79.06 per barrel for the quarter ended September 2009 to an average of US$97.73 per barrel for the same quarter period in 2010. Fuel comprises approximately 40% of PAL's total expenses.

PAL is also closely watching the recent re-emergence of the AH1N1 virus in Hong Kong. The avian flu can dampen demand at a time when the Philippines has yet to fully recover from the stigma of the recent hostage crisis involving Hong Kong nationals and the negative travel advisory against the Philippines.

In the same SEC report, PAL reported increases in both passenger (26%) and cargo (57%) revenues from its international operations, with an improvement as well in the yields generated from passenger seat offerings.

Total expenses for the same quarter period amounted to US$371.2 million, a 7% increase from the same period total of US$346.0 million last year.

To remain viable, Bautista said the flag carrier will focus on continuing its cost control initiatives as the passenger and cargo markets as well as fuel and maintenance costs remain very volatile.