PAL to seek relief from excessive insurance coverage

Present-day terrorist threats have prompted flag carrier, Philippine Airlines (PAL), to seek relief from excessive cost of insurance coverage via the imposition of insurance surcharge to its domestic and international passengers. PAL President Jaime J. Bautista said in a phone interview that PAL annual payments to insurance companies have scaled from $5 million before 2004 to about $30 million after two terrorist-piloted planes crashed into the World Trade Center in New York on Sept. 11, 2001. Mr. Bautista said that PAL opted to impose insurance surcharge to avert outright increase in local and international fares and thus improve volume and profits. He said that PAL collects insurance surcharge of P300 for flights within Luzon; P400 within Visayas; P600 within Mindanao; and about $6 for international flights. Insurance surcharge is a temporary fee that airlines around the world have decided to pass on to passengers to pay for the high premiums that insurance companies have demanded from them since the 9-11 attacks. -KERLYN G. BAUTISTA, Business World Reporter PERMANENT Insurance surcharge is not a permanent collection and thus can be adjusted downward or upward or deleted if the need for its imposition has dissipated. Other surcharge that PAL and other airlines around the world collect from passengers is the fuel surcharge, which is meant to cushion the impact of volatile aviation fuel prices on airlines’ operating expenses. Last week, PAL was placed in the spotlight after a lawmaker from Negros Oriental Rep. Herminio G. Teves questioned the legality of the insurance surcharge. Mr. Teves said that government loses substantial premium tax when airlines collect insurance surcharge without proper regulation from the government. The Civil Aeronautics Board (CAB), the lead regulatory agency of all airlines with operations in the Philippines, however, said that insurance surcharge is a "universal fee" that airlines have the option to collect from passengers provided that payment of premiums could result in severe losses for them. Carmelo L. Arcilla, acting executive director of CAB, said over the phone that the agency has approved the application of PAL and other airlines for insurance surcharge to help them carry the burden of high insurance costs. Mr. Arcilla noted that PAL and other local airlines pay for passenger insurance, aircraft insurance, and insurance for possible damages to the grounds -- all of which are incorporated into airlines’ operational expenses. Other airlines like Cebu Pacific and Air Philippines were sought for comments on insurance surcharge but their executives could not be reached as of press time. "Insurance surcharge is universal, by which I mean it is charged by all other airlines anywhere in the world. Airlines, when there was sudden instability in the market opted to charge this instead of increasing their fares, believing that safety and security will soon stabilize. But insurance surcharge has become a going-on rate because of persistent threats to safety anywhere in the world," Mr. Arcilla said. A report from the 2005 United States on terrorism show that absence of machine-readable travel documents has impeded anti-terrorism drive in the Philippines. In effect, the country suffered the most number of terrorist activities, having lost citizens and tourists to bombings. The US has also registered 11,000 terrorist attacks worldwide in 2005. "Any airports, here or overseas, require that airlines have full insurance coverage before they can land so it has become necessary for the airlines to collect insurance surcharge to help them raise insurance payment and therefore land in airports," Mr. Arcilla added. ...as it mulls more aircraft acquisitions Flag carrier Philippine Airlines (PAL) is mulling the acquisition of wide-body aircraft to service long haul flights. PAL President and chief executive officer Jaime Bautista told reporters Friday that the company will decide on the acquisition within the quarter. "We are in the process of finalizing this. We’re looking at four planes. This will be for long haul [flights]," he said. Among the considerations that need to be finalized, Mr. Bautista said, is the mode of acquiring the aircraft. "It can be dry leased, it can be owned. There are many ways of acquiring an airplane. You can lease it under an operating lease arrangement. You can buy it using your own money," he said. A wide-body aircraft has a fuselage diameter of 5 to 6 meters and twin aisles, with passengers are seated seven to 10 abreast. In contrast, a narrow-body aircraft has a diameter of 3 to 4 meters (10 to 13 ft), a single aisle, and seats arranged 2 to 6 abreast. Typical wide-body aircraft can accommodate between 200 and 600 passengers, while the largest narrow-bodies carry about 280. Freight or cargo wide-bodies also exist. The acquisition will be separate from the three aircraft that PAL is expecting to acquire from October to December this year. The three planes, Mr. Bautista said, will be under a lease arrangement. He noted that PAL’s flights to the United States are now 80% full, and are occasionally fully booked. PAL’s flights to the United States account for half of the company’s sales for international flights, which, in turn account for 70% of the airline’s total sales. The company increased its flights to Los Angeles to 10 times weekly from nine previously. It also increased the frequency of its flights to San Francisco by one more flight weekly to nine. PAL currently has a fleet of 32 airplanes that ply the domestic and international routes. -Jennee Grace U. Rubrico / Business World