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CEO Interview - Equal Opportunities

CEO Philippine Airlines

Jaime Bautista, President and Chief Operating Officer at Philippine Airlines, says market distortions have made the battle for survival even harder

What is your view of the market in the wake of the economic crisis? Is the bounce back in Asia-Pacific sustainable?

The market has certainly improved. The worst of the crisis should be behind us—at least in Asia-Pacific. Medium and long-term prospects look good. Intra-Asia travel is now the largest aviation market, and the ASEAN economies are strong. That provides us with plenty of opportunity for growth.

Of course, China will be particularly important and Philippine Airlines (PAL) will certainly hope to increase its services. We actually had to cut routes to Chongqing and Chengdu in 2009 because of the Sichuan earthquake, but are now looking at the possibility of adding Hongqiao to our network.

There are two main areas for us; tourism and overseas Filipino worker traffic. Transporting Filipino expatriates will continue to be vital, and services such as the new Riyadh flight show our commitment to serving them. But we are also interested in growing tourism traffic. There is a lot of potential, both inbound and outbound.

In terms of specifics, aside from China, we are also exploring opportunities in India, Australia and New Zealand.

All in all, we are very confident about Asia-Pacific, and about the prospects for PAL. We will continue to be a strong player in the region.

 Cargo out of china is particularly strong. Can you do more in this area?

We certainly want to. At the moment, our regular schedule is with an A320 so we have very limited cargo capacity. But we occasionally use an A330, and we will upgrade to this aircraft whenever practical. That would give us a lot more opportunity and we would expect freight out of Xiamen and Shanghai in particular to make a solid contribution to our revenues.

How would you describe your business model? You operate a range of aircraft to short and long-haul destinations. The strategy looks quite diverse.

We simply look to be as efficient as possible in all our offerings. PAL is a legacy carrier, but we have worked very hard on controlling our costs. So we’ve taken delivery of two new Boeing 777s to serve Brisbane and Riyadh, but are equally comfortable with our A320 domestic services.

Cost control is absolutely vital during an economic recession, but it is no less important when the market picks up. It is a very competitive industry and we need to be able to offer our customers value for money. That means a quality product at a very competitive rate. That’s the essence of any business model.

What cost reductions remain for the industry? Are there still big savings to be achieved?

Through our own efforts and industry initiatives championed by IATA, we have achieved considerable cost savings already. But there is always more that can be done.

PAL is looking closely at outsourcing. We are studying the potential in freeing ourselves to concentrate on the core business. There is probably money to be saved there.

And then there is investment in new equipment and technology. This is always on the agenda. New hardware and software will always be more efficient than older models.

Do you support IATA's call for liberalization?

As an airline, you are always looking for ways to keep costs down and make your product more competitive. Partnering with other airlines in some form is one possible way forward. In that sense, liberalization is to be welcomed.

But any liberalization efforts must be based on a level playing field. There must be equal opportunities for all. I’m not sure that’s the case in Asia-Pacific right now.

Governments in the region have to cut off subsidies. Quite a few airlines received massive financial backing during the recession but PAL had to survive through its own efforts. We are one of the few airlines in the region not directly or indirectly owned by the government. Our government only has a small shareholding—less than 5%. So what we have achieved, we have achieved on our own.

I think that’s a good thing. If governments weren’t involved at all we would have a level playing field. But other airlines not only received financial backing, but strong political support. This can be equally important when tough decisions have to be made.

Let’s say we wanted to start flying from Bangkok on to India. We have to go to the government for help with the negotiations. But when they aren’t that involved in the airline, their interest isn’t quite the same. In contrast, an airline backed by a government can be very supportive indeed!

Surviving as an airline isn’t easy, and it becomes even harder when the market is distorted. These issues must be resolved as part of liberalization plans.

Can the industry achieve its environmental targets? What more can be done by airlines—and airline partners such as airports and air navigation service providers?

There is a lot more that can we do—airlines, airports and ANSPs. And we have to keep thinking like that if we are to achieve the environmental targets set by IATA and the industry.

We must be more proactive. To be honest, during the economic recession, most airlines have had to concentrate on the basic problem of survival. CO2 reductions come easily when fewer planes are flying. But once the industry “normalizes”, we have to focus on driving environmental initiatives forward.

A global, sectoral approach is correct. But governments accepting that is not the end of the argument. Any charges should be reasonable and commensurate with aviation’s role in climate change, and the charges incurred by other industries.

What more can be done to enhance safety?

Safety is always the top priority. We must not only continue to be safe, but also devise ways of becoming even safer. Data sharing is a good idea, and I don’t see any issues at all with confidential information. All airlines want to be safe.

IATA has played a crucial role with its Operational Safety Audit (IOSA). It has really driven attention to detail. We have to build on this and continually review operations and maintenance, repair and overhaul. We should never take anything for granted.

Whatever we do at an airline level must be mirrored at the oversight level. The relevant authorities also have to review processes constantly and enhance them wherever possible.

How important would harmonization of security procedures be to the passenger experience?

Security needs to follow a similar pattern to safety. It is already part of IOSA, but I’m sure more can be done to formalize industry requirements. IATA and the various agencies around the world must find ways to harmonize security requirements. It is essential for the passenger experience, and it is essential for airlines. It would simplify operations considerably.

At the same time, it is clear that security is a government responsibility. They should be paying for the majority of measures, especially at the airport. But airlines must show willingness too, and play their part. We can look again at security onboard the aircraft, for example.

What does the rise of self-service mean for the airline brand and customer service?

Self-service technology is great. It reduces costs and it puts control of the journey into the passenger’s hands. They feel more empowered. It saves them money and it saves them time.

PAL has either started, or plans to start, all of the self-service technologies available. Where we have started, we have seen an ever-increasing number of users, which shows that passengers want to use these channels.

So I don’t think it has any negative connotations for brand or customer service at all. Reliability is vital, however. Passengers must have confidence in the technology. As long as you get that right, it will promote both the brand and a positive passenger experience.

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