Philippine Airlines Freezes Hiring, Cebu Pacific Begins Recruitment Campaign

While Cebu Pacific begins a campaign to hire an additional 700 staff in 2014, Philippine Airlines has decided to implement a hiring-freeze as the national carrier continues to restructure operations in an effort to restore profitability. 

Copyright Photo: Lester Tangco/PPSG

In a report filed at the Securities and Exchange Commission, Cebu Pacific indicated that it intends to finish 2014 with an increase in staff. "Cebu Pacific anticipates having approximately 3,995 employees by the end of 2014," the airline said in the report. That figure represents an increase over the 3,297 staff that were employed at the airline at the end of 2013.

Cebu Pacific is the only profitable airline in the Philippines

Although the Philippine aviation industry suffered from market saturation and stiff competition in 2013, Cebu Pacific still managed to post a P512 million profit. The result was a stark contrast to the P3.6 billion net income earned in 2012. However, much of the reduced profit was due to foreign exchange losses as the peso depreciated against the US dollar. Cebu Pacific was also the only Philippine carrier to record a profit in 2013. 

Meanwhile, Philippine Airlines issued its annual report for 2013 stating that it "does not have any plan of hiring additional employees within the ensuing 12 months" due to the on-going losses at the airline. PAL Holdings lost P9-billion in the last nine months of 2013. That is in addition to the P10.6 billion lost in the last two fiscal years. 

On the bright side, fuel prices declined slightly and the airline managed to cut P1.1 billion in general and administrative expenses as consultancy, legal, and professional services were drastically reduced. But much of those savings were undermined by the P5 billion impairment loss incurred by the grounding or retirement of aircraft including the four remaining Boeing 747-400 aircraft in the fleet. 

In spite of opening several new routes in 2013 including new service to Europe, Philippine Airlines reported lower aircraft and traffic servicing expenses as the airline operated fewer round-trip flights as a result of the airline cutting several unprofitable regional and domestic routes. But even with route rationalisation, Philippine Airlines recorded a dismal load factor of 69.93 percent in comparison to the 82 percent posted at Cebu Pacific, and well below the worldwide industry load factor of 79.5 percent. 

Debt Mounts at Philippine Airlines

In spite of the new management that Ramon Ang has brought to Philippine Airlines, the financial health of the nation's flag carrier has taken a turn for the worse as the airline continues fleet and route restructuring. The airline's debt-to-equity-ratio exploded to 19.33 by the end of 2013 compared to just 4.21 in March 2013. The statistic suggests an unsettling trend that Philippine Airlines is being financed more and more by creditors rather than capital infused by Lucio Tan or the San Miguel group. In the same span of 9 months, the interest rate coverage ratio, a measure of how easily Philippine Airlines can pay the interest on its outstanding debt, fell to negative 8.8 from negative 1.73 nine months earlier. The solvency ratio, which measures cash flow to satisfy debt and other obligations, turned from positive 0.05 to negative 0.12 within nine months. 

With the airline's capacity to remain afloat narrowing, creditors have taken steps to protect themselves with a number of banks taking aircraft as collateral including engines and future collections of passenger revenue in the United States through credit card companies. In addition, a number of Lucio Tan's real estate properties have been pledged. The loans were facilitated prior to the 2012 partnership with San Miguel Group and included covenants such as specific debt-to-earnings ratios and the maintenance of a certain ownership percentage by a specified stockholder. Although Lucio Tan has been trying to exit Philippine Airlines for several months now, the covenants attached to these creditor loans may be a reason why possible deals have failed to materialize.