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Things
in
Common
By Michael Alan Hamlin
April 02, 2001
What do such IT luminaries as Trade
& Industry secretary Manuel A. Roxas II, eAsean Task Force executive
director Dr. Emmanuel C. Lallana, BayanTrade CEO Carol E. Carreo,
MediaQuest president Antonio R. Samson, BOI managing head Vincent
Perez, and VenturePath president Abby Molano, among others too numerous
to mention, have in common? For one, they were all keynote speakers
at "Cebu is it," an IT summit organized last week by the
Cebu Investment Promotions Center (and managed by TeamAsia, my firm).
The other thing they have in common, aside from their
dedication to enhancing the competitiveness of the Philippines and
Cebu as IT centers, is that they were all late arriving in Cebu
because their Philippine Airlines (PAL) flights had been cancelled
or were late. And remember, this is just a representative list,
not a complete list (my flight was also cancelled, by the way).
Nor did they all (eventually) arrive on the same day let alone the
same flight. Instead, it was a series of flights that were cancelled
or delayed over a period from Sunday to Friday (the day this column
was filed) that was responsible.
Clearly, PAL does not have the same commitment to building
Philippine competitiveness that its passengers do (who paid their
own way, incidentally, in the interest of supporting the objectives
of the conference). Reliable transportation is a requisite for an
efficient economy to more its intellectual resources around. Indeed,
a number of those who arrived late for the summit were at the Millennium
Terminal at 5:00 am Thursday morning, including Mr. Roxas, to board
their flight to Cebu. And many as a result of the negative experience,
as well as PAL’s growing reputation for unreliability on domestic
routes, took PAL competitor Cebu Pacific back home.
Now, this column is not being written just to complain,
although I admit this gives me some degree of satisfaction. Since
my mandate is to write a business and management-oriented column,
let’s examine the impact on PAL’s business of these cancellations
and delays. To do that, we must first understand, or surmise, what
the airline is trying to accomplish in allowing this unfortunately
chronic circumstance.
Anecdotal evidence gathered by me during the two-day
conference from speakers and participants alike suggests that PAL
is "consolidating" flights to maximize profitability,
or to be more generous than likely appropriate, to avoid losing
money on flights that are not full. When a flight is not full, like
last Thursday’s first-flight out, PAL, it appears, cancels
the flight and tries to put passengers on a succeeding flight. For
very unlucky passengers, like Ms. Carreon, this means they not only
don’t leave on time, but may not leave at all since the subsequent
flight may be overbooked when passengers from two flights are consolidated.
Ms. Carreon did get bumped and therefore couldn’t arrive on
time for the afternoon sessions she was to moderate.
This was inconvenient for her and the organizers, and
a disappointment for the participants, who were looking forward
to hearing her views. Instead they had to listen to mine, as her
ill-prepared substitute.
But the business point of this backgrounder is that
massive numbers of passengers, seemingly every day during the period
under question, are being hugely inconvenience because PAL believes
maximizing profit is more important than the goodwill of thousands
of passengers, most of whom fly regularly between Cebu and Manila
and other destinations. That tradeoff appears to management to be
worth the increase in profitability of each flight the airline makes.
In the short term, that is of course correct. But it
will be a very short term, and I suspect that PAL is already finding
that it must consolidate more and more flights to maintain profitability
as passengers choose to go elsewhere. As one who did told me when
I asked why he was on time, "I always fly Cebu Pacific because
I want to arrive on time. PAL is always late."
Another reason for PAL’s chronic lateness may
be a lack of aircraft, or poor inefficiency in maintaining and turning
aircraft around. As a result of resource constraints, domestic flights
may be cancelled in order to keep to international flight commitments.
Again, in the short term this is a strategy that works, since international
revenues dwarf domestic revenues. But again short-term thinking
is short sighted, because so many international passengers are also
domestic passengers fed up with PAL. They will obviously at least
seriously consider alternatives.
The old, bitterly mocking joke about PAL actually standing
for Plane Always Late in recent years had pretty much disappeared,
especially after airline chairman Lucio Tan hired Lufthansa to manage
the airline (and I assume they are still there, but don’t know
for sure), as PAL’s on-time record improved. In my experience,
the current problems are mostly on domestic routes. I fly regularly
internationally, and haven’t experienced the same problem.
But the bottom line is that medium and long term, PAL
is losing in a number of ways. First, as we’ve seen, it’s
losing passengers, especially top revenue paying business-class
passengers who must get to meetings on time. At the same time, Cebu
Pacific, by all accounts I’m familiar with, has rapidly professionalized
using the highly profitable Southwest Airlines as a model. Many
of the folks I spoke with last week talked about the raffles the
airline conducts on board, and its other efforts to make flying
less painful (I’m not sure if the raffles are continuing, but
they sure stood out in the minds of people I talked to.). As a result,
Cebu Pacific is gaining from PAL’s policy of not keeping its
word when it comes to scheduled flights — lots of flights —
either not leaving or not leaving on time.
For the Philippines as a country, since PAL for reasons
I don’t understand remains the national flag carrier, the image
of a chronically undependable airline is a huge negative in a region
populated with some of the world’s best-run airlines. Believe
me, the international guests at the conference made this exceedingly
clear. For the Philippines to compete successfully in a crowded
field for direct investment, excellent transportation links are
a fundamental requirement.
For PAL, if it thinks screwing customers in an age
where customer intimacy and increasing share of customer (the level
of transactions with profitable customers), is the way to go, well,
you get my drift.
(Michael Alan Hamlin is the managing director of consultancy
TeamAsia, and the author of two books on Asian companies and economies.
His latest book is The New Asian Corporation: Managing for the Future
in Post-Crisis Asia. Feedback should be addressed to mahamlin@teamasia.com.ph.)
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