Philippine Air May Miss Profit Goal as Pilots Resign

http://www.businessweek.com/news/2010-08-02/philippine-air-may-miss-profit-goal-as-pilots-resign.html
(Updates with union comment in third paragraph.)

Aug. 2 (Bloomberg) -- Philippine Airlines Inc., the nation’s largest carrier, said it may fail to return to profit this year after 25 pilots quit for better paying jobs overseas, forcing flight cancelations.

“The pilot resignations are a poaching issue,” President Jaime Bautista said today by phone. Parent PAL Holdings Inc. tumbled 8 percent in Manila trading after the airline canceled 22 flights in three days and the government called an emergency meeting with industry executives.

Most of the pilots will join Hong Kong Airlines Ltd. as they were offered higher wages and better conditions, according to Elmer Pena, president of the Airline Pilots Association of the Philippines. The Chinese-backed carrier began a recruitment drive in June as it adds new planes because of rising travel demand in the world’s most populous nation.

“We’ve been hiring pilots from all over the world,” Hong Kong Air President Yang Jian Hong said by phone today. He declined to comment on whether the carrier had hired the Philippine Air pilots.

Manila-based Philippine Air, which is controlled by billionaire Lucio Tan, will cut some domestic services following the resignations, spokesman Jonathan Gesmundo said by phone. The airline had expected to break even this fiscal year after posting a second straight loss in the 12 months ended March 31.

“We may have to revise this year’s targets,” Bautista said. The carrier has 473 pilots, including the 25 who quit, he said. The airline has ordered the pilots who resigned to return to work by Aug. 8.

Government ‘Hopeful’

The government is “very hopeful” that the dispute can be resolved, Transport Secretary Jose de Jesus said in a briefing in Manila after meeting executives from carriers including Philippine Air and Cebu Air Inc. Officials will meet some of the 25 pilots tomorrow, he said.

Airbus SAS A320 captains joining Hong Kong Air, which is backed by China’s Hainan province, will get as much as $17,000 a month on which they will pay 15 percent income tax, Pena said. Philippine Air pays about $7,000, Bautista said. Pilots would pay 32 percent tax, according to the local tax code.

About three pilots are also leaving Cebu Air for Hong Kong Airlines, Pena said. Cebu Air, which flies as Cebu Pacific, pays less than Philippines Air, he said.

Cebu Air President Lance Gokongwei declined to comment on departures. Transport Undersecretary Dante Velasco also said that the company may be losing pilots.

Hong Kong Air

Hong Kong Air is expanding its fleet and planning flights to cities including Istanbul, Tokyo and Paris as it challenges Cathay Pacific Airways Ltd. The carrier has ordered a total of 53 Airbus aircraft, according to data on the planemaker’s Website.

“We have new aircraft and we need more staff,” said Yang. “The airline industry is seeing a rebound in air travel and demand has been rising.”

Separately, Philippine Air’s cabin crew may also strike within two weeks because of a dispute about staffing levels, ABS-CBN said on its Web site, citing Bob Anduiza, president of the Flight Attendants’ and Stewards’ Association of the Philippines.

PAL Holdings fell 8 percent, the most in two weeks, to 4.00 pesos in Manila trading after dropping as much as 15 percent. Philippine Air canceled four flights today and 18 over the weekend.

The airline last month reported a net loss of $14.3 million for the year ending in March. Revenue fell to $1.4 billion from $1.6 billion. A 1998 pilots strike led the carrier to suspend debt payments until Tan added $200 million to his investment.

--With assistance from Joel Guinto in Manila and Wing-gar Cheng in Hong Kong. Editors: Neil Denslow, Anand Krishnamoorthy.