Tony Concil asks Philippine Airlines President and Chief Operating Officer Jaime Bautista about infrastructure barriers and the airline’s importance to the nation

How has the airline performed in 2017 and how do you see it developing in the next 12 months?

This year has been quite challenging for Philippine Airlines (PAL). We flew to more destinations, we flew more passengers, and we took delivery of more aircraft. Capacity went up 16% and passenger numbers went up about the same amount.

But the problem is that revenues only grew about 6%. In terms of operations, revenue is going down. So, the challenge is profitability.

This represents a real increase in actual costs, and it is not just about the peso-dollar exchange rate.

We are looking at attracting a new strategic investor. But we need to spend some time improving profitability first

Fuel costs are going up, for example, and so are maintenance and engineering expenses; and, of course, the cost of providing excellent service to passengers. Basically, revenue is not growing as fast as the costs.

The hope is that next year will be a better one for the airline. There will certainly be better cost control measures that we will implement across the airline. And there will be more initiatives to improve revenue.

We are also looking at attracting a new strategic investor. But we need to spend some time improving profitability first so that we are a more attractive company to invest in.

It is true that the investor is likely to be another airline. That would help PAL in a number of ways.

Does a medium-sized carrier have a future in the modern air transport industry?

PAL will grow beyond mid-sized. The airline will have 86 aircraft by end 2017, and in 2018 four Airbus A350s, six A321neos and five Bombardier Q400s will be delivered. There will be huge growth next year in terms of seat capacity. And in 2019 there will be more A350s and A321s. By 2022, there will be 100 aircraft in the fleet.

We will expand our presence in the ASEAN region, but a key part of our strategy is expansion in North America.

PAL serves five major cities—New York, Los Angeles, San Francisco, Toronto, Vancouver—in North America and new destinations, such as Chicago and Seattle, are being explored.

Manila can be a hub for traffic to the U.S. from various places in the region, including Kuala Lumpur and India

There is a big Filipino community in these cities. Some 90% of our passengers are ethnic Filipinos.

But there is also an opportunity to attract a larger mainstream market by developing Manila as a connecting hub. We want to capture people going from, say, Seattle to Jakarta. They could use PAL and connect through Manila.

Manila can be a hub for traffic to the United States from various places in the region, including Kuala Lumpur and India.

There is already some business on the Australia-London route, so we know Manila and PAL have potential to be a solid hub if we get it right.

But can the infrastructure cope with such a strategy?

Airport infrastructure is limiting our ability to grow and this is our biggest problem. We want to fly more, but it is difficult to add even one flight during day time at Manila’s Ninoy Aquino International Airport (NAIA). 

We hope the government will resolve this issue and we are doing all we can to help. We are proposing to build a new terminal to help relieve congestion and improve the passenger experience at NAIA. It will serve 15 million passengers and accommodate 12 widebody aircraft.

The Philippine President has not always received a positive press, but he is doing a good job for the industry

We also have high hopes for the construction of a new airport to serve the Metro Manila area.

The Philippine President is determined to have this completed within his term of office. He has not always received a positive press, but he is doing a good job for the industry.

And the specifications for the airport are encouraging—starting with two runways and the possibility of expanding to three.

In the meantime, we will have to make some space at the current Manila airport by transferring some domestic flights. There will be more flights out of Clark, Sipu and Kalibo.

As mentioned, the long-term aim is to make Manila a great hub. A global carrier needs a great international terminal with easy transfers. We don’t have that right now at Manila. PAL operates out of three terminals simultaneously.

Terminal 1 serves international flights, Terminal 2 is a mix of domestic and international and Terminal 3 is domestic. For example, US flights arrive in T1 but depart from T2. It is confusing for passengers but necessary for various reasons, mainly capacity constraints.

If we can consolidate international operations in one terminal it would make a significant difference.

Is IATA delivering value to PAL?

PAL has been a member of IATA for more than 60 years. We are proud to be part of the association. The staff work closely with IATA. There are many initiatives under IATA’s umbrella and they all bring benefits.

The Billing and Settlement plan (BSP), for example, has really helped the airline financially, in terms of collection. IATA’s statements calling on governments to improve infrastructure or consumer protection also help our cause.

Right now, there is close cooperation on the Carbon Offset Reduction Scheme for International Aviation (CORSIA). This is a new focus for the airline and the country.

One airline official has been dedicated to work on this, and the Philippine Department of Transportation is also designating someone to handle CORSIA affairs. It is a priority to ensure CORSIA and its implications are well understood.

Is competition growing, especially from low-cost carriers?

In the domestic market, it is a very challenging situation. LCCs have the majority of the market. The Filipino passenger is very cost conscious. For a few hundred pesos difference, some will forego all the services we offer and choose to fly on an LCC.

But PAL has its niche and, actually, our market is growing. We also have PAL Express, our affiliate carrier operating many domestic routes, which is low cost in terms of operations but which offers a full service product with free meals and baggage allowance. We are introducing new products as well. PAL passengers can get a lower price if they don’t take baggage but still want a meal, for example. But we are not going to create a low-cost brand. That is not part of our strategy.

Would membership of an alliance help?

PAL is not a member of an alliance currently, but there may be some movement in the near future. Some airlines have indicated that they would support PAL’s membership in an alliance. 

Being a member would certainly help. It would help us generate more passengers through greater connectivity. And it would also attract customers through features like wider access to lounge facilities.

We have lounges in the main airports we serve but the cost would clearly be reduced if we tie up with alliance partners. Generally, there is more efficiency and synergy throughout a global operation if an airline is a member of an alliance.

How are you supporting tourism to the Philippines?

It is important the airline contributes to the economy. We are the national flag carrier.

We fly 15 million passengers in and out of the Philippines every year and are responsible for one-third of tourist arrivals to the country. Every year we carry more tourists from Korea, China, and Japan. Chinese tourist numbers especially are growing.

There is close cooperation with the Department of Tourism to attract more passengers from destinations where PAL operates

In 2017, some 600,000 Chinese tourists are expected to have visited the Philippines, with one million predicted to visit in 2018.

PAL is contributing to this growth through increased flights and intensive promotions from various Chinese cities, such as Beijing, Shanghai, Guangzhou, Xiamen, Quanzhou/Jinjiang, Chengdu, Hangzhou, and Nanjing.

These flights are not just to Manila but also to Kalibo, Cebu and other destinations.

There is close cooperation with the Department of Tourism to attract more passengers from destinations where PAL operates. Part of PAL’s strategy is developing new tourist markets.

We are the only airline offering direct flights between the Philippines and Canada, New Zealand, the US East Coast, Hawaii, the United Kingdom, and certain key cities in Japan and Australia. We are the only airline to link Korea with the popular island destination of Bohol. 

So, does the government understand and appreciate the benefits of aviation? 

The Secretary of Transportation understands. He came from the industry.

So, he really understands the importance of aviation and is fully supportive of IATA initiatives. The Philippine government may take action in areas like consumer protection, which can be a concern if these initiatives go for political popularity rather than sensible regulation.

But I’m confident that the industry’s arguments on this and other regulatory issues will be understood and considered.

Aviation is playing an important part in supporting economic growth. Philippine GDP is growing at more than 6% in 2017 and will be comparable in 2018.

How would you describe your approach as CEO?

I hope that I am a person that anybody can talk to at any time. And a person that will listen.

PAL should be a five-star carrier and offer a passenger experience that is truly representative of the Philippines

The aim is to be approachable and open to new ideas. I am happy to embrace change and willing to work with anyone.

The best thing about being an airline chief executive, though, is making passengers happy. 

PAL should be a five-star carrier and offer a great passenger experience that is truly representative of the Philippines. Of course, the airline must be profitable, but it also has to be a source of pride.

So, we want passengers to enjoy the service we give them, but, equally, the airline must be a satisfying career for employees.