talk about killing the goose that lays the golden egg

A Philippine Airlines Boeing 747-400 taxiing a...

Image via Wikipedia

UPDATED – 17 February 2011

AVIATION SAFETY OVERSIGHT: The U.S. Federal Aviation Administration (FAA) has assessed the Government of the Philippines’ Civil Aviation Authority as not being in compliance with International Civil Aviation Organization (ICAO) aviation safety standards for the oversight of the Philippines’ air carrier operations.

MAKATI, Philippines – The finding above has been in place for quite some time now.  In view of this, the US FAA has been having discussions with the Civil Aviation Authority of the Philippines (CAAP).  Word out of Washington D.C. is that the FAA is poised to “recommend that the (US) Department of Transportation revoke or suspend its carriers economic operating authority.”

This spells catastrophe for Philippine Airlines, an economic blow for the country and political embarrassment for the PNoy.  It doesn’t help that the CAAP was essentially inutile for quite some time due to the intransigence of its previous director general.  The new director general will not likely get the chance to do anything about this.

This kicks up the problem to the Department of Foreign Affairs (DFA) which, itself, basically has had its hands full with diplomatic mishaps over the past year.  The “reluctant” ascension of Ambassador Albert del Rosario will hopefully get the DFA off and running.  The retention of Secretary Alberto Romulo has essentially been a period of “wait and see”.  Waiting as to who his eventual replacement would be.  In the meantime, nothing consequential has been done particularly with this FAA thing.

I just hope that the new Secretary will do better than his predecessor or else PNoy may be forced to look for another Albert/Alberto to fill the post.

MAKATI, Philippines – It is hard to empathize with either the management of Philippine Airlines or the flight attendants and stewards union of the airline who filed a notice of strike. Whatever the merits of the grievances of the cabin crew members, the sad reality is that PAL just cannot afford to give in to the demands of their employees.

Having said that, I have to say that it is just plain wrong for PAL to abandon their female flight attendants in one of their greatest times of need. Penalizing someone for giving birth (e.g. unpaid leave, reduction in service time) is just unconscionable.

This impasse has basically boiled down to one contentious point – the mandatory retirement age for cabin crew. It currently stands at 40 years old while the union wants it raised to 60. That is such a wide disparity that if each side weren’t so hard-headed, they could at least narrow down that 20-year gap. It would seem that industry developments appear to lean towards the union demand. Cathay Pacific raised the mandatory retirement age for cabin crew to 55 from 45. Singapore Airlines does not impose a strict age requirement though no employee can work as a flight attendant for 25 years.

Whatever the case may be, the reality is that PAL is in no position to grant any concessions with cost implications to its employee unions at this time. Raising the mandatory retirement age is one such concession. It’s simple math really. Older employees generally make more than younger employees. Raising the retirement age, means that PAL will not be able to replace older, more costly employees with younger, cheaper employees. It all boils down to economics.

Now before you all start complaining that it’s just about making more money, bear in mind that PAL hasn’t exactly been churning out the big bucks. Stripping out the accounting adjustments for the loss of value of some assets, PAL lost P148m in FY 2008 (their year ends in March), lost P12.8bn in FY2009 and eked out a P182m profit in FY 2010. Yes, P182m is a lot of money but this pales in comparison to the P7.3bn that they spent on crew and staff costs. So any concession that increases staff costs by 2.5% basically wipes out the miniscule profit.

It’s not about making more money, it’s really about survival for PAL. The way they do business right now has been proven not to work not just here but in the global airline industry. PAL has, in all likelihood, realized this as evidenced by their push to spin off their catering and non-core businesses. There are, however, things that act as a noose around PAL’s neck. The economic gains won by the unions over the years being one of them. Alam naman natin yung nangyari sa General Motors, Chrysler and Ford in the US. Unions essentially ran roughshod over management in labor negotiations eventually forcing their employers into actual bankruptcy or something close to it.

If anyone has been paying attention, Cebu Pacific has actually overtaken PAL as the country’s biggest airline in terms of passengers carried. In the first 6 months of the year Cebu Pacific transported 4.6 million passengers compared to PAL’s 4 million.

President Noy actually mentioned the dreaded “open-skies” option in the event of a PAL strike.

So PAL can’t afford to aggressively pursue a price war to win back passenger volume. It continues to face legal hurdles to shedding it’s non-core businesses. Its cost structure features punitive “legacy” costs. It loses pilots to better paying competitors. Should we be sounding the death knell?

The union has all the right in the world to seek redress for its grievances. The question is – how much does it really know about how far it can go?  Do they realize they may actually be killing the goose that’s laying their golden egg?


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s