00:00I'm now joined by the Philippine Airlines president, Richard Nuttall. Richard, great to see you.
00:05Good to see you too, Denny.
00:07What is happening in terms of high oil prices on your business?
00:11Well, so obviously the first thing is that it's something that we have to manage.
00:16We're in an industry with margins in the low single digits.
00:20And so as soon as costs go up and fuel before this crisis was 30 percent of our costs,
00:25we have to find a way to defray that.
00:27So the first thing that happens is, unfortunately, prices go up, which is not good for consumers.
00:33We have some markets that find that OK to handle.
00:36And we have other markets like Philippines domestic, where GDP is not that high, where it's much more challenging.
00:42Having said that, we're also benefiting from traffic flows that can no longer go over the Middle East
00:46and looking for different ways to go.
00:49And that's augmenting our capacity.
00:51And so at the moment we're OK.
00:54If I think fuel prices stay where they are long term, it's not great, but it's manageable.
01:01Obviously, the greater concern is supply of fuel longer term.
01:05Yeah. So how much have you had to push up your airfares by?
01:09Right. So it varies by routes.
01:13I mean, you have to look at also what the route can can manage, what the competitors are doing.
01:17But probably the average is close to 30 percent.
01:20Yeah, that's going to be pretty tough for consumers to swallow.
01:24But do you see them being able to take that in the near term?
01:28Well, so I think that, you know, if you look after COVID, yields are much, much higher.
01:32So there are definitely people who can afford it and who want to travel.
01:38But, you know, yes, it's not clear longer term.
01:41My gut feel is that, you know, we have some markets who will be able to sustain it.
01:45And if the Gulf remains closed, then the extra traffic will help us get through this.
01:50There are others where it will be more challenging.
01:52So obviously, if this progresses, you know, we'll also have to make sure that we manage capacity as well.
01:57Yeah, we're also near the summer season, the critical summer season, which airlines, you know, generally do make a lot
02:03of money from.
02:04But I guess for passengers looking to book into the summer, it's the expectation that they will have to pay
02:09more for the foreseeable.
02:12So there's no doubt that fuel price, I mean, sorry, that airfares will be higher as long as the fuel
02:16price is where it is today.
02:18I mean, there's just there's no way around that.
02:21I think because of the summer demand that the summer will actually be OK, you know, we'll all get through
02:27the summer.
02:28I think the bit that we all worry about much more is once you start getting to the to the
02:33low months after the summer and fuel prices still need, sorry,
02:37airfares still need to be necessarily high if fuel prices are where they are today.
02:42Obviously, what we're all hoping is that this conflict comes to an end and fuel prices start to come down
02:46again.
02:47And if that happens, I think the world will return to to normal relatively quickly.
02:52And we heard from the Philippines president, President Marcos, speaking to our Hasselinder Armin about the worries he sees in
03:00in jet fuel availability and the risk of grounding planes.
03:03Was he referring to what is the situation?
03:05Can you spell out to us what your availability of jet fuel is like?
03:09So at the moment, we have jet fuel availability for domestic into mid to late June.
03:16And our understanding for international, which is supplied through the fuel companies, is that there is enough crude that will
03:23be refined so that we'll be OK through to the end of May as things stand today,
03:27which is actually pretty normal.
03:28I mean, that's that's pretty much what we what we carry.
03:31We've actually taken an extra domestic shipment for insurance.
03:36It makes absolute sense in the world today that the president is looking to how do we manage that beyond.
03:43Obviously, if the Straits of Hormuz remain closed, then while there may be enough jet fuel, I mean, sorry, enough
03:49crude in the world, it's going to have to change all the supply chains.
03:53And so we clearly need to get ahead of that.
03:55And that's the real concern for everybody.
03:57Now, are you able to manage some of these fuel concerns and the supply that you have by uplifting more
04:03fuel at places outside of the Philippines?
04:05What flexibility do you have?
04:07So I think if you look at where we are today, we've had a couple of countries that are starting
04:11to say, you know, we want to ration the uplift for other carriers out of our country.
04:16I think maybe we'll finish up having to do that in the Philippines on a reciprocal basis.
04:20And then it doesn't really make sense for carriers from both ends to tanker because we all finish up carrying
04:25more fuel.
04:25So then maybe there'll be some bilateral dialogue.
04:27So I think you will go through this and it will settle down.
04:31I think one thing that the president expressed concern about was long haul because obviously long haul flights, you can't
04:37really tanker fuel.
04:38But the reality is that our long haul flights are mainly to the U.S. and Canada.
04:42And I don't think we see the U.S. and Canada running out of fuel.
04:45So we're not particularly worried about the long flights.
04:47Can you name any of the countries that are asking for a rationing of jet fuel?
04:52I'd probably rather not. I'm not sure how public it is at the moment.
04:56Well, overall, then, the kind of transformation you're taking the airline through, it's clearly going to have an impact because
05:03of the fuel crisis.
05:05Where do you stand on the airline's transformation and how do you kind of navigate that around this current fuel
05:11crisis?
05:11Well, so I think, you know, we've got a pretty good idea of what we're trying to do and what
05:15the plan is and, you know,
05:17what we're going to deliver and the strategy going forward over the next sort of five to ten years.
05:22In terms of the current crisis, we've sort of got various scenario plans and we've got a sort of phase
05:27one, a phase two, phase three.
05:30And moving between the phases really depends on availability of cash.
05:35And finally, obviously, if there are groundings or reduction in flights, that moves us to sort of phase three.
05:40At the moment, the cash situation is fine.
05:42I mean, if fuel stays where it is, our balance sheet is pretty healthy and we think we can keep
05:47going for really quite a long time.
05:48And we think if the fuel price stabilizes, wherever it is, to some level, traffic will stabilize around that and
05:56maybe there'll be some network adjustments.
05:59But we'll sort of get through.
06:02How far away are you from maybe having to cut back on flights and even ground planes?
06:10Well, so we've got a couple of aircraft that are effectively grounded because they can't fly to the Gulf.
06:15I think the only thing that really grounds planes at the moment is if there's no access to fuel.
06:21So I don't think that's going to happen for at least two months and hopefully we find other sources and
06:26we keep going.
06:28In terms of the routes that we fly, there might be a little bit of consolidation.
06:33But again, we've got some routes that are doing very well because passengers can't fly over the Middle East.
06:38So we've got passengers trying to find different directions and different ways of getting from A to B.
06:42Now, you spoke to Bloomberg recently about potentially raising liquidity to help fund your expansion.
06:47In the context of this war crisis, are you looking at raising more liquidity just to help yourself give yourself
06:54an additional buffer?
06:55Well, so I guess at this stage, the plans that we've got of raising liquidity, we're sort of putting on
07:03a temporary hold because obviously we go to the market today.
07:06The danger is that things are going to be up another basis point or so, which when you're talking large
07:11amounts of money over five years has a big net impact.
07:15The reality is we've got enough cash on hand to ride this out for quite a while.
07:20And we've got access from some banks for local credit lines.
07:24So in terms of the going out to capital markets for funding, they will probably put that idea on hold
07:29until we've got a bit more clarity.
07:32Now, in terms of the 2026 plan, do you still see yourself taking delivery of all your aircraft?
07:39Like how many aircraft do you expect still to take and like that expansion of the network overall?
07:44Yeah, so no, we still see ourselves doing that.
07:47I mean, obviously, if we get to a phase three and the world runs out of jet fuel, then that's
07:51different.
07:51But where we are today, we've got five 351,000s coming in and four 320s.
07:58But if you look at where we're looking to expand, if the current situation remains as it is,
08:04those are actually markets which really require alternative uplift because there's passengers who are going over the gulf.
08:10So, yeah, I think if things continue as they are today, we would still want those aircraft and we'd still
08:15be able to make use of them.
08:17Now, the Philippines has said rationing jet fuel or rationing fuel could be a possibility.
08:23What's your message to the broader government to make your case that airline industry needs to be prioritized?
08:31Well, so, you know, we're in a country of 7,000 islands and airlines are really important for movement of
08:39goods and people.
08:40There's overseas foreign workers.
08:42We carry business traffic.
08:43We carry freight.
08:44It's important, you know, to keep the wheels of industry going.
08:48I think we understand, like everybody, that, you know, if the country really does get to a stage where there
08:53isn't enough fuel,
08:54then we all have to make hard choices.
08:56But, you know, we would certainly need to make sure that you've got the core of the airline network going.
09:01Otherwise, it starts causing major damage to the economy.
09:04Amen.
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