Sunday, April 13, 2014

Opinion: PAL Making Good on Launching More Flights To The US, Or Will They?

Within hours after the announcement of the US FAA reinstating Category 1 on the Philippines, Philippine Airlines (PAL) officials have once again expressed a renewed interest in not only redeploying their more fuel-efficient Boeing 777 fleet to existing mainland US routes, but also expanding to cities such as Chicago and New York. Such propositions have been characteristic of the flagship carrier’s desire to expand into new markets. Within a span of 12 months, PAL was already able to open new flights to Toronto and London-Heathrow, all using a 777 aircraft. Undoubtedly these are long flights, and it will take the allocated aircraft approximately one and a half days to complete their rounds, and return to Manila.

philippine airlines chicago
Copyright Photo: Diego Roxas/PPSG
Amidst the prospects that Category 1 brings to PAL, it leaves one to question whether the expansion plans are realistic? I personally believe that within the next year or two, they are not. The reason I believe so is that PAL does not have the physical and legal resources (e.g. regulatory approvals) to do so yet.

I am not going to discuss here whether flights will be sustainable or not (at least not at length); but rather, the prospects for why the mere launching of these flights looks more challenging than one thinks. Ramon Ang has planned to launch several new US destinations within a year but how easy that will be remains to be seen.

More regulatory approvals needed

As much as the reinstatement of Category 1 is a good thing, it is merely one veil that has been lifted with a series of others that have still yet to be lifted. Not the least of which is applications with the US Department of Transportation, and the existing air services agreement with the United States. Whilst the 1996 amendments to the US Air Services Agreement states that, in addition to Guam, Honolulu, Saipan, San Francisco and Los Angeles, Philippine carriers can mount flights to an additional four points, and connect to eight points from there, it is unclear how many flights a week they can mount. Even Cebu Pacific says that they need to apply to use the entitlements and clear regulatory hurdles. There is indeed bureaucracy in this sense with the point being that PAL just cannot expand at their own will even if Category 1 is reinstated.

A stopover base needed

Furthermore, it is not just the US government that PAL must seek a blessing from. Take note that their plans call for them to expand to Chicago and New York. By every count, these are ultra long-haul flights from the Philippines. History tells us that these are very costly to mount, even for a premium carrier. Singapore Airlines recently ended their ultra long-haul flights between Singapore and the US destinations of Los Angeles and Newark, while Malaysia Airlines terminated their flights from Kuala Lumpur to Newark (via Stockholm). These things should spring caution in the minds of PAL executives considering a long-haul flight. The point is, ultra long-haul flights, or more specifically, flights between Southeast Asia and central-to-eastern US cities are costly to undertake.

This also inevitably means that to cut fuel costs, PAL has to mount a stopover flight somewhere. Under current US regulations, they will be unable to do so via a US point (e.g. Manila-Los Angeles-New York). That is to say that PAL will not be able to carry passengers ticketed between two US cities as that would be cabotage.

I doubt the stopover will be done in Japan, lest they oversaturate the Philippine-Japan market, which has already seen a rapid growth in flights in this year alone.

This leaves Vancouver as the most logical stopover in terms of market viability and performance capabilities of existing and upcoming aircraft. It also provides an opportunity to transport additional revenue passengers who do not wish to fly to the Philippines, yet want to have a taste of Filipino hospitality. As I mentioned, PAL will be unable to do this between two US points.

Unfortunately, there is just one problem: PAL has used-up all of its entitlements to Canada. In fact, it is borrowing Air Canada’s entitlements to fly to Philippines. If PAL wants to use Canada as a base, it will have to negotiate with Air Canada and the Canadian government. It is of course not a simple matter, but given that the US doesn’t allow cabotage, PAL has no other viable choice.

Within the next two years, PAL may be able to fly to Chicago or New York using existing entitlements, but they need to axe the Toronto flights to achieve this. It is unclear how profitable Manila-Toronto flights have been, but sometime in July 2013, news came out that PAL was going to scrap the Toronto flights in September of the same year. However, they later changed their minds and decided to keep them. Nonetheless my suspicion is that flights to Chicago and New York have a better shot at working, provided they are not daily in the initial stages. Under a reasonable arrangement, the Vancouver-Toronto leg (flown by PR118/PR119, 3x per week) can be replaced by Vancouver-Chicago, whilst the remaining four flights to/from Vancouver (flown by PR116/PR117) can be extended to cover New York.

The point here is that if PAL wishes to make good on its promise to launch new flights to Chicago and New York, then it will have to reconsider flying to Toronto because they don’t have any more Canadian entitlements to use or even ‘borrow’. This is without even discussing bringing back flights to Las Vegas, or even the more ambitious prospect of flying to the likes of San Diego or Florida (!?!).

More aircraft are needed

PAL has expressed interest in replacing its older aircraft with newer, more efficient aircraft. The 777s are supposed to fulfil this mandate. The problem is that at the moment, PAL only has six of them. As I mentioned earlier, the turnaround time, or the time it takes before the aircraft completes its rounds and makes its way back to Manila, on ultra long-haul flights is about one-and-a-half days before the aircraft makes its way back to Manila. Doing the math, it means that under current routings, most of the six 777s will busy doing their runs between Manila and London, as well as between Manila and Toronto, all at the same time.

PAL has already stated on its website that because of Category 1’s reinstatement, the 777s will be used on its existing flights to San Francisco and Los Angeles, which I believe are PAL’s flagship routes. It is indeed a long-overdue plan. I suppose that as a matter of pride and even profit, the newer birds will have to be allocated to the flagship routes. Since they fly daily, it means that four of them will have to grace the sky. This leaves only two of the newer birds, which I don’t think is enough for Manila-London or Manila-Vancouver-Toronto (or whatever city will replace Toronto). To put things in perspective, they already reallocated other aircraft to Manila-Tokyo and Manila-Sydney flights.

PAL can say that they still have A340s and 747s, but the fact is they are hoping to get rid of these as soon as possible now that Category 1 is here. They cannot deploy these old birds to London because they do not have the range to fly that far. Deploying them, particularly the A340 to either London or Toronto (or whatever city that replaces it) will enrage passengers who don’t want to be bored on a really long flight due to the aircraft's lack of personal in-flight entertainment. Operations-wise, it does not make sense for PAL to deploy the old birds to either route because it will add red ink to these routes which are already difficult to make money out of to begin with.

This now clearly puts PAL in a difficult position as to what to allocate for their prospective services to the East Coast. They have not specified which aircraft they will allocate but this business is all about cutting fuel and maintenance costs. Newer A330s intended for the premium markets that are scheduled to arrive this year may not have the range for Vancouver-Manila or Manila-London. Reports suggest that PAL is about to order new long-range aircraft but if that is true, we will need to wait for at least four more years before getting our hands on them. By that time, it may be possible that Category 1 may slip away from our hands yet again. Only time will tell whether we have retained what airline insiders and local regulators sweated for over six years to get back.

Conclusion

The point in all of this is that amidst all of the excitement and proclamations of PAL’s executives wanting to expand further into the US as soon as possible, it just isn't as simple as getting their planes to take off. There are several hurdles to overcome, factors to consider, and resources to reallocate--or even wait for.

In my opinion, the most realistic scenario would be that the Boeing 777 aircraft are likely to be reallocated to Manila-San Francisco and Manila-Los Angeles flights on a daily basis, whilst we see a reduction of service of some sort to either Manila-London and/or Manila-Vancouver-Toronto. But those are just my opinions and even if they happen, I have not even discussed here extensively whether they are sustainable or not.  For now, I will leave it up to you to discuss and debate whether it is.

-HybridAce101

WHAT IS YOUR OPINION ON THE PROSPECTS OF PHILIPPINE AIRLINES LAUNCHING NEW ROUTES TO THE US? DISCUSS YOUR THOUGHTS IN OUR FORUM, THE PFN LOUNGE!

Disclaimer: The views expressed in this article belong solely to the author and do not represent the opinions of Philippine Flight Network or Philippine Airlines.

18 comments :

  1. Lease 777s? That's the most logical thing that they can do to expand their fleet.

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    1. I agree on that.. they can lease 77Ws while waiting order on additional aircraft.. its quite a logical option, Thai Airways did the same strategy while waiting on additional aircraft.

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  2. I have interned in PAL and I must say that Ramon Ang knows what he is doing and saying. If he says that PAL will have a nonstop MNL- JFK flight, there will indeed be. He has planned everything since SMC has entered PAL. Super ahead of time thinking.

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    1. It is desirable to fly nonstop MNLNYC provided there is enough traffic to fill up the cabin and the belly. After all flying nonstop save the cost of an intermediate stop (the costliest part of flying is in the landing and the take-off) and the ground handling which could be expensive. If there is not enough traffic for the nonstop PAL might as well combine its LHR and NYC destinations to fill up the plane. It can also use its 5th freedom traffic rights with both the US and EU (5th freedom is the right to lift traffic bound between two foreign countries on a flight that originates and/or terminates in home country).

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    2. I agree... Flying nonstop to JFK is a better option compared to having a stopover as this saves them fuel (takeoff consumes a lot of fuel) and landing fees (plus the ground handling). The stopover to LHR is a viable option but unless they can use the Russian airspace that wont be possible at the moment. SQ uses this route when they fly to JFK via LHR.

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  3. buy b777x and b787-9 and a350 to replace the b747-400 and the a340-300 and the older a330 to go america and save fuel

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    1. Acquiring three types of long haul aircraft is very expensive proposition. PAL must subscribe to the concept of commonality being practiced by low-cost carriers to save on operating cost. Just one type of long-haul aircraft will save PAL the cost of inventory of of spare parts for three types of aircraft. If one inventory costs $50 million that's a whopping $150 million sitting in warehouses not doing much revenue generation. With one type PAL saves $100 million. It does not have to train three sets of cockpit and cabin crew for three types of aircraft and lose flexibility in assigning them to flight. Pilots of one type of aircraft cannot fly another without costly upgrading. With just one type all crew members can be assigned to any flight. PAL suffered much before with six types of B747s pilot of one of which could not fly the others. About time learning some real commercial aviation lessons

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  4. They have no choice but to pull out the 777's and replace it with A340's on flights to YVR and YYZ.
    IMHO PAL will code share with AA to ORD and JFK and increase LAX to 2x daily during the peak season. SAN will be serve via YVR using A340 3x weekly.

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  5. Another 6 777-300ER and 14 777-X.....Hmmmnnn

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  6. PAL dont need a stopover base to fly between Manila and Chicago or New York. B777s can easily handle the non-stop route. London, Vancouver and Toronto on the other hand can be served by A340s or B747s and are well within its range. Thus making it easy for PAL to swap its fleet and allocate all 777s for its US operations. Profitability is not an issue as PAL can easily tap the large Filipino population in the US. A huge resource is needed for ultra-long haul operations as it is a costly business but investing in the PH-US market is the best move for PAL. PAL can actually dominate and excell in this market. Approvals wont take that much time or be that difficult to be granted given the current situation.

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  7. Increasing their existing flights and code share with AA or joining OneWorld Alliance is the safest and cheapest things to do this year. JFK and ORD can wait late 2014 or mid 2015.

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  8. I will not be surprise if PAL will get 2 747-8i while their 777-x or 787-900 orders to be deliver 3 or 4 years from now.

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  9. Ramon Ang could take care of it. He should know what will be his strategy.

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  10. I've flown MNL-LAX-MNL with PAL s many times since I was two and I must say that they are doing very well, even on lean season. Given that, a JFK flight could do well too. Plus, most JFK/EWR- MNL passengers still go to LAX just to ride a LAX-MNL flight. Giving them their own JFK-MNL-JFK flight could still be viable. The one competitive edge PAL could have over SQ, and MH- both of which has ended direct service to NYC (MH ending JFK and LAX), is that we have strong population there. SQ and MH usually really goes for the business trips while PAL could tap business travelers, tourists and balikbayans.

    To the one who said that PAL should just operate a single family for long- haul: Yes, it should be done. Not just for the said costs but for cabin efficiency as well. If I were RSA, I'd operate A321-200/NEO on short- haul and domestic, A330- Australia, Middle East, Asia, 777- Europe, North America. But, A330's should configured in PAL's standards, not PALex then B777 should feature better long- haul products.

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  11. Lease more B777w for the interim and place order for A350-900s and B777-9X to replace A340-300s and B77-400s.

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  12. If I remember the article either on here or the philippineairspace.blogspot.com that PAL is looking at the A359 for its pan european routes since it is the right capacity while the B789 is quite small for the said expansion. I suggest given the mean on both aircraft and as a factor to such operations would ask for an ULH aircraft considering they are not allowed airspace rights over Russia - the immediately availble aircraft would be the B77LR it is even ideal for YYZ NYC and ORD where the load factor is yet to be establish still. And it will be an ideal switch from time to time to europe with the B77W since BCY to London is most often than not full and ECY is at 65% LF. Definitely the A340 to date willaffect the current uptrend of PAL London

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  13. Tapos yung isa nilang Boeing 777-300ER ay nakasilid na lamang sa Clark International Airport.

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  14. With 8 of its wide bodies parked at Clark doing nothing but gathering dust and revenues falling, PAL had better get some sort of act together or it is going to sink!

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