PHILIPPINE Airlines (PAL) is creating a budget airline unit called PAL Express to serve a niche market distinct from its core business.

Slated to take off on May 5, PAL Express is expected to boost PAL profits by about P300 million each year once the low-fare unit goes full blast. PAL Express, which will operate a fleet of turbo-propeller aircraft, is also expected to carry 1 million passengers a year.

“At full operation, we project that profits will increase by around P300 million while revenues should be about P1 billion. That will be PAL Express’ contribution to PAL. Also, at full operation, PAL Express passenger traffic is expected at one million yearly,” said PAL president Jaime Bautista during a press conference Tuesday.

Full operation means all of PAL Express’ nine turbo props are plying their intended routes.

PAL Express will primarily fly intra-regional points in Visayas and Mindanao from Cebu, as well as secondary routes to smaller airports in island provinces that are not able to accommodate PAL’s regular jet aircraft.

Meanwhile, PAL recorded $1.4 billion in revenue for fiscal year ending March 31, 2008. Bautista said the figures compare with $1.2 billion a year earlier.

However, net income for the fiscal year was lower than the figures the year earlier. Bautista did not cite the numbers. “For the bottom line, it was lower than our last fiscal year due to increases in fuel prices,” added Bautista.

PAL has a budget airline, Air Philippines, which is owned 99 percent by the Lucio Tan Group. PAL, meanwhile is 95-percent owned by Tan.

“All the turboprop operation of Air Philippines will now be operated by PAL Express. PAL Express is a separate unit of PAL that will not directly compete with Air Phil because PAL Express will be mostly present in areas where Air Philippines is not,” Bautista said, adding that one of the reasons PAL Express was created was to “partly protect” its market share.

PAL said it carried a total of 7.5 million passengers from April 2007 to March 2008. Close to 4 million passengers flew PAL’s domestic points.

From April 2008 to March 2009, PAL sees an 8-percent increase in passenger traffic while load factor is expected to remain between 78 percent and 79 percent, added Bautista.

PAL will spend $150 million to finance the acquisition of three Bombardier Q300s and six Q400s and re-open its Cebu hub.

Bautista said financing will be a combination of internally generated cash and borrowings. “We are still in discussions with a syndicate of local banks. The amount will be in a magnitude of $100 million in terms of borrowings,” he said.

“This year, we will take delivery of six turboprops. We are looking at acquiring a total of nine units for the first year of PAL Express’ operation. We can probably increase the fleet by next year depending on the demand,” Bautista added.

JG Summit Holdings Inc. said Tuesday its net income in 2007 rose 32.3 percent to P8.6 billion from P6.5 billion a year earlier as its food and airline businesses delivered strong results.

PAL gets into low-fare business

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