Local carriers eye more cost cutting

MANILA, Philippines — Local carriers are expected to undertake more cost-cutting measures that may include workforce reduction should the travel ban on major markets persist amid the spreading coronavirus.

Air Carriers Association of the Philippines Inc. (ACAP) executive director and vice chairman Roberto Lim told The STAR that the local aviation industry is taking a massive hit with losses among local carriers already reaching billions.

“Definitely the losses are painful. It’s not only the Philippine carriers, but also worldwide,” Lim said.

“The government has to order a travel ban to protect the citizens. That has been hurtful to local carriers which fly to China, Taiwan, Hong Kong and lately South Korea. But of course we understand that the travel ban has to be done,” he said.

Lim said airlines worldwide, including the local carriers, could be at risk of collapsing, particularly those that are already financially troubled to begin with, if losses continue to pile up.

“I think for all carriers, when your sales goes down and you have to continue flying, obviously you will lose money and burn cash,” he said.

“If there is less travel by the public then there is less revenue. The problem for the airlines is they have to continue flying. When you continue flying with empty seats, you’re burning cash,” Lim said.

Lim cited Cathay Pacific as an example, which decided to ground 100 planes and told 27,000 of its staff to go on unpaid leave to preserve cash and protect its business .

“In other words, you really have to suspend some of your routes. Cost cutting is your first line of method because you cannot lift your revenues so you need to cut cost,” he said.

An aviation industry official, who declined to be named, said he would not be surprised to see drastic measures and more retrenchment in the coming months if the condition does not improve or if it worsens further. 

Flag carrier Philippine Airlines (PAL) last Friday announced the completion of a retrenchment process, resulting  in the separation of about 300 ground-based administrative and management personnel.

PAL said the move is part of a business restructuring initiative to increase revenue and reduce costs, as losses sustained by the company in 2019 are aggravated by the ongoing travel restrictions and flight suspensions to areas affected by COVID-19.

Cebu Pacific, for its part, earlier estimated a P3 billion to P4 billion swing on profit due to the travel ban brought about by the COVID-19 outbreak.

The country’s largest budget carrier said refunds alone due to canceled flights to China, Hong Kong and Macau have already reached over P2 billion.

The Civil Aeronautics Board has yet to come up with an actual amount of industry losses to date, but said  the local aviation industry is taking a massive hit.

The International Air Transport Association said the decline in passenger demand should translate into a $27.8 billion revenue loss in 2020 for airlines in Asia Pacific, the bulk of which would be borne by carriers registered in China.

“I think for all carriers that is the challenge. We just don’t know when this coronavirus will stabilize,” Lim said.