Airlines’ perfect storm

The Marcos administration has consistently received the lowest approval ratings in managing inflation.

With inflation surging from 2.0 percent in January this year to 7.2 percent in September, and 8.2 percent seen for October, President Marcos is unlikely to get better marks in managing inflation all the way to year-end.

BBM is correct in pointing out that there’s not much he can do about the Middle East war, which has sent global fuel prices soaring, or the strengthening of the US dollar, which has weakened many currencies including the peso.

He can also do little at this point – except to initiate projects and programs that will bear fruit long after he’s no longer in power – to correct the weakness of the local manufacturing sector and export industries, or wean the economy from heavy reliance on imports and remittances from overseas Filipino workers.

Economists we have interviewed point to something BBM can do quickly to temper inflation: bring down the cost of logistics.

The Philippine Chamber of Commerce and Industry, the country’s largest business group, consisting mostly of the micro and small enterprises that account for the bulk of businesses, has suggested lifting, suspending or substantially cutting not only the fuel excise tax but also the larger 12-percent value-added tax. PCCI officials have said this will reduce logistics costs, which are passed on to consumers.

BBM, however, has rejected all such proposals, preferring instead targeted fuel subsidies, and suspending the excise tax only on kerosene and liquefied petroleum gas.

The fuel pain is felt across all modes of transportation, including air travel.

There’s a sentiment in the aviation industry, sometimes passed off as a joke, that if you have an enemy, punish him with an airline.

Richard Branson of Virgin Atlantic famously said, “If you want to be a millionaire, start with a billion dollars and launch a new airline.” Even investment guru Warren Buffett described the airline industry as a “death trap” and a “bottomless pit” for investments.

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This year, Philippine carriers are expecting to lose billions from a perfect storm of surging aviation fuel prices, a weakened peso, slowing demand and increases in airport fees.

Flag carrier Philippine Airlines prices its fares in US dollars, so it’s not as badly hit by the falling peso as carriers whose pricing is based on the local currency.

All domestic airlines, however, are affected not only by the perfect storm, but also regulations that prevent them from adjusting fares commensurate to the costs of their inputs.

Aviation fuel accounts for about 33 percent of operating expenses of a full-service airline like PAL, and nearly 40 percent for budget carriers.

Jet fuel used for international flights is fully exempt from value-added and excise taxes, with dedicated fuel tanks required for such purposes. But domestic flights are subject to regular fuel taxes: P4 per liter in excise tax and the standard 12 percent VAT.

Still, the price of jet fuel has jumped by a dizzying 121 percent, from $85 per barrel before the US and Israel attacked Iran on Feb. 28 to $188 as of mid-September, adding over P10 billion in the monthly fuel expenses of Philippine carriers.

While fuel surcharges have also increased for air travel, industry players say these allow the carriers to recover no more than 40 percent of the added fuel costs.

The economic downturn has also slowed travel. For this year’s Undas (Oct. 27 to Nov. 2), the number of travelers at the Ninoy Aquino International Airport was down by 11.55 percent to just over one million from over 1.2 million in 2025, according to data from the Manila International Airport Authority.

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With no immediate relief in sight, industry players say airlines may have to reduce flights and capacity, defer expansion and reassess investments.

This is according to a position paper prepared by the Air Carriers Association of the Philippines (ACAP), which is hoping to get some relief from the government.

Industry players acknowledge that it can be complicated to explain their losses to people who believe the carriers are earning billions. But ACAP, citing data from the International Air Transport Association (IATA), points out that Asia-Pacific carriers have been struggling even during recent good years.

Last year, for example, IATA noted that Asia-Pacific carriers made an average profit of only $1.80 per passenger – “less than the cost of a Starbucks latte,” the ACAP paper pointed out.

In the first half of 2026, ACAP reported that Philippine carriers lost P8-P12 billion, which could hit P25 billion for the entire year.

The fallout from the perfect storm, according to ACAP, “imperils the viability of Filipino airlines and affects national connectivity, tourism, trade, investment, employment and overall economic competitiveness.”

Their woes are apart from the long-term challenges of inadequate aviation infrastructure. The industry needs more airports, runways, terminals. Intermodal connection facilities and airways need improvement.

ACAP pointed out that the industry supports 1.9 million Filipino jobs and contributes $20.3 billion to Philippine gross domestic product.

In its position paper, ACAP says it welcomes “any economic relief that will lower costs and help airlines navigate this crisis.”