Opinion: Factors to Consider for Philippine Airlines Fleet Renewal

After the United States’ Federal Aviation Administration reinstated a Category 1 safety rating on the Philippines, Philippine Airlines (PAL) wasted no time in rationalizing its mainland US routes. Less than a month after this upgrade, PAL started flying its newly-crowned flagship Boeing 777-300ER (77W*) aircraft to its originally intended destinations of Los Angeles and San Francisco. The 77W now serves Los Angeles daily and San Francisco twice a week. The deployment of this fuel-efficient aircraft to San Francisco is gradually expected to increase through September. 

Copyright Photo: Nico Reonisto/PPSG

However, PAL only has six 77W's in its fleet. Once San Francisco receives a full-time 77W service, it will have to come at the expense of Philippine Airlines' Canadian routes. All of the Canadian flights including those continuing to Toronto will be downgraded to the older Airbus A340-300 (A343). In addition, PAL is still ambitious about expanding to New York, Chicago, and possibly a city in Florida, as well as to Europe. These are ultra long-haul destinations from Manila. If PAL chooses to deploy the older A343, not only will passengers suffer from a lack of modern in-flight amenities, but PAL will also face a huge fuel and possibly maintenance bill. Such high costs may negate the potential costs saved by PAL deploying 77W's to the US. This is a stark reminder that Philippine Airlines needs to expand its fleet.

To be fair, PAL has reiterated its intentions to do so. In addition to its existing fleet expansion and renewal project that covers over 60 aircraft from Airbus, PAL is currently considering whether to order more 77W's, the new generation Boeing 777-X, or the Airbus A350.

Naturally, Philippine Airlines knows exactly what it needs to consider before making a multi-billion dollar commitment. But for the rest of us, here are some of the factors that PAL will need to consider before making a decision:

Fuel savings. It is no secret that fuel accounts for the biggest share of a carrier’s operating costs. For now, the 77W is considered fuel-efficient compared to the 747 and A340 -- twin-engines instead of four. However, as technology advances, it means more fuel-efficient aircraft will enter service in the future. This is where the 777-X and A350 may edge the 77W over the long run.

Timing & Delivery slots. This is another crucial factor for PAL. The airline is looking to open new routes as soon as possible. But more importantly, a country’s Category 1 status does not always last forever. As it currently stands, the waiting list for the Airbus A350 is approximately seven years as of November 2013. The Boeing 777-X is not expected to enter service until 2020. By this time, we cannot tell whether the Philippines will still be in Category 1. If we are not, then orders for a 777-X or an A350 will be rendered useless. The 77W on the other hand is already grandfathered so we can still use it on US flights in the event that Category 2 is imposed on the country again.

Fleet commonality. Fleet commonality reduces training costs and training duration for the new aircraft for both the flight and cabin crew. Airbus says that fleet commonality between their aircraft families is one of the key advantages over rival manufacturer Boeing. Given the highly common features between the A320, A330 and A340 family, crew that are certified to fly on one of these aircraft families can be certified to fly on another family with just a few days of training required before moving on. Airbus also boasts that the benefits of fleet commonality extend somewhat between its older generation aircraft (A320, A330, A340) and newer generation aircraft (A350, A380). For example, a pilot licensed to fly an A320 can be cross-qualified to fly the newer-generation A380 in just 13 working days, approximately half the time of a 24-working day full training course taken by those who have not flown any kind of Airbus aircraft. This may result in up to $300,000 (£180,000) of savings in payroll and training costs per Airbus aircraft added to the fleet. A similar scheme surely exists for those transitioning from the A330 to the A350 or vice versa. 

Image Source: PBS

Fleet commonality also helps to reduce maintenance costs, especially given the similar and interchangeable parts and practices involved between aircraft families.

Boeing also has room for fleet commonality, albeit in a more limited sense. It is still unclear what the extent of fleet commonality will be between the 77W and the 777-X, especially given that the entry-into-service of the 777-X is still several years away.

At the moment, all but eight (two 747-400 and 6 77Ws) of PAL’s aircraft are comprised of older generation Airbus aircraft, which means PAL largely enjoys the benefits of fleet commonality. If Philippine Airlines decides to go with the 777-X, it may necessitate a new training course before the pilots and cabin crew can be certified. As one can imagine, this would take a huge amount of time and cost a considerable amount of money. Should PAL wish to order additional 77W's instead, it does not pose an issue for fleet commonality since PAL already operates this type of aircraft.

Capacity and Route demand. Since 2006, PAL has prioritised high-capacity aircraft – the 777-300ER, A321, and A330-300. For wide bodies, they have not ordered the -200 variant, which usually has a smaller capacity but travels farther. A consequence of this is that it leaves PAL with limited leeway to make inroads on thinner but potentially profitable long-haul routes. Deploying aircraft with higher capacity are more difficult to fill and are consequently more vulnerable to low load factors on thin routes. In addition, empty aircraft still consume fuel, which makes the flight even costlier. The 77W has a large capacity, whereas the 777-X and A350 each have shorter and longer variants.

It is worth noting that although Philippine Airlines regularly schedules a high-capacity aircraft to a particular destination (e.g. 77W), it has the option to downgrade the scheduled aircraft to one with a lower capacity (e.g. A343) if the projected load factor isn’t high enough to justify the costs of operating the larger aircraft. This has implications if Category 2 is imposed again in the future. If PAL decides to retire the older A343's under these circumstances, the 77Ws would be the only aircraft left to serve PAL’s mainland US routes. This would force PAL to use them on flights with low load factors.

PAL currently uses its 77W on its London flights. Load factors have not always been very good on these flights, but the flag carrier is forced to use the 77W because it is currently the only aircraft in PAL’s fleet capable of flying non-stop to London under the currently permitted routings. If PAL decides to order lower-capacity versions of the A350 or 777-X, they can still cover a Manila-London flight non-stop but PAL won’t have to worry about filling a larger aircraft.

Initial Maintenance & Safety Issues. A new type of aircraft in the market does not necessarily mean a flawless one. If PAL decides to order the A350 or 777-X early, it becomes more vulnerable to the new aircraft type’s unresolved technical issues. Historically, the A380 and the Boeing 787 experienced a sizeable number of mechanical setbacks within two years of entering service. Early 2013 saw the 787 grounded from service around the world for some time after issues surrounding abnormal battery heating surfaced. This grounding cost All Nippon Airways and Japan Airlines US$110 million (£66 million) worth of combined profit. The point here is that early on in a new aircraft type’s life, it is possible that not all of its technical issues will have been sorted out. It will be costly if PAL has to take them out of service pending the results of relevant inspections. The 777 series on the other hand has been around for almost 20 years, and its design has stood the test of time.

Philippine Airlines Faces a Challenging Decision with No Clear Path

These are just some of the many issues PAL has to consider when deciding which aircraft to deal with. However, not one of the three aircraft may completely satisfy all the factors above. The 77W, 777-X and A350 each have their advantages and potential drawbacks. PAL will have to balance their short term and long term operating requirements, and come up with the appropriate mix of Boeing and Airbus aircraft to satisfy these operational needs. On one hand, PAL may want a new aircraft that will save fuel in the long run. But on the other hand, PAL also needs to expand its fleet quickly so that it can serve more destinations while providing passengers with modern amenities - all in time to be grandfathered just in case the dreaded Category 2 status gets imposed on the country once again.

-HybridAce101

*77W is the standard abbreviation used to refer to the Boeing 777-300ER.