INFLATION, TELCOS AND AIRLINES

The Philippine Star
08/25/08

It's interesting to note how inflation, now hovering at a 17-year high, is affecting two local industries, particularly telecommunications and airlines. It would surely impact on Filipino consumers who have grown a fondness for SMS (or “texting”) and budget airfares.

The price of rice and other food items have more than doubled from a year ago, causing consumer wallets and corporate margins across all sectors to shrink. Philippine companies are reporting either lower earnings or slower growth in the first half of the year as Filipinos continue to slash their spending to the barest.

These, plus the likelihood of prolonged inflation, have prompted the government's economic planners to lower growth projection this year for a second time to a range of 5.5 percent to 6.4 percent from a scale of 5.7 percent to 6.6 percent.

Bucking the trend so far has been the country's most profitable, Philippine Long Distance Telephone Co., which posted a 13 percent growth in net income during the first six months. During this same period, inflation had risen steadily, reaching a 14-year high of 11.6 percent in June and accelerated further to 12.2 percent last month.

Texting revenues keep flowing

PLDT's steady earnings suggest that Filipinos, while rationalizing spending on other items including food, aren't watching their budget when it comes to text messaging.

It helps that the cost of texting, already among the lowest in the world here, continues to drop largely due to competition and, not surprising, also due to political pressures.

Telecommunication companies are in a better position to battle inflation considering they're less susceptible to skyrocketing oil prices. This partly explains why it was easy for them to give in to demands to further lower charges.

With growth in PLDT's mobile users this year exceeding the record 5.8 million net additions in 2007, Filipinos may expect to continue enjoying the benefits of cheap text messaging even in the midst galloping inflation.

Broadband on the rise

Consumers may also look forward to enjoying the benefits of the Internet despite the generally bleak economic horizon. PLDT continues to pile up subscribers in its broadband business, supported by Filipinos seemingly voracious appetite of late for the Internet.

It's a good thing too that manufacturers and distributors of gadgets including personal computers and laptops try to outdo one another by offering cheaper alternatives with easy financing terms.

Factors that would lead to the Internet revolution in the country seems already at hand – falling PC prices, a competitive environment that's dragging service costs down and a promising base of potential subscribers who are looking forward to chatting, blogging and downloading music and videos.

Just when cellular phone penetration, already at more than 60 percent of the population, seems just about ready to dry out in a couple of years, the Internet business appears to be all ready to pick up the slack.

Air travel problems

Other sectors, like the airlines for instance, aren't as lucky as the telecommunication companies though.

PAL and Cebu Pacific are experiencing flight disturbances as the price of jet fuel, which make up about 40 percent of cost, hit all-time highs. The two carriers, never mind their different business models, are trying to cope in ways other than the usual higher fuel surcharges and strategic price increases.

PAL, for example, has reduced the free baggage allowance and Cebu Pacific is cutting flights to some destination aside from introducing radical fuel-saving measures such as controlling the speed of its planes while in transit.

One upside for consumers arising from the slackened demand is that competing airline firms may aggressively offer promotional fares. The idea is to get enough revenues to cover operations until the dark period passes over.

The International Air Transport Association said global carriers may lose $6.1 billion this year because of sky-high fuel costs and weak demand. In fact, air travel on the global scale is growing at its slowest pace in five years.

As the central bank had recently announced, local inflation will probably worsen in the coming months. So while companies slug it out trying to stay alive, Juan dela Cruz can rest easy in the knowledge that his daily quota of text messaging will suffer no price increase. Let’s hope airline budget promos stay.

Erratum – Oil Pricing

I would like to correct a word in the sixth paragraph of my last column “On Scams, Oil Prices and ATM Fraud.” It should have read: Paging Petron, Shell, Chevron, et. al. Would you please spare our suffering countrymen some comfort by lowering prices in bigger increments and shorter intervals?

Anyway, we should thank the oil companies for the P1/liter reduction given us to enjoy for this long week-end.

Collegiate Champions League update

The following are the leading contenders for qualifying slots in the regional championship of the SMART-Champions League 2008 Philippine Collegiate Championship games:

Region 1 – University of Northern Phils. and Mariano Marcos State University; Region 3 – University of Nueva Caceres Greyhounds, Ateneo de Naga Golden Knights and Aemillianum College (Sorsogon); Region 6 – Western Leyte Colleges Mustangs and AMA Computers Titans; Region 7 – Capitol University Stallions and Xavier University Crusaders; Region 8 – Emar College Red Horse and Agro-Industrial College Stallions; and Region 9 – Universidad de Zamboanga-Ipil, Kabansalan Technical Institute, Computer Tech Knights and Western Mindanao State University Fighting Crimsons.

There are 212 teams from nine regional areas nationwide that are participating in the search for the best collegiate teams in the country. These teams are playing in 27 “mother leagues” that include the major leagues in Metro Manila, the UAAP, NCAA, NAASCU, CUSA, and the CESAFI of Cebu City.

For more details about the biggest collegiate basketball event for the year sponsored by SMART, visit www.CollegiateChampionsLeague.net

Should you wish to share any insights, write me at Link Edge, 25th Floor, 139 Corporate Center, Valero Street, SalcedoVillage, 1227 MakatiCity. Or e-mail me at reydgamboa@yahoo.com. For a compilation of previous articles, visit www.BizlinksPhilippines.net.