Philippine Airlines (PAL) aspires to become an even “better airline”, following three consecutive years of profitability and as it awaits the delivery of new-generation aircraft.
The carrier has yet to release audited financials for 2016, but president and chief operating officer Jaime Bautista says it will report a profit, albeit one that is lower than 2015’s. This is despite the carrier operating more flights to more destinations and carrying more passengers.
“In terms of revenue, there wasn’t much growth because fares and yields went down,” the PAL veteran tells FlightGlobal in Manila. “This is an industry experience, and we saw fares in all regions going down… because of intense fare competition. But you can’t price yourself out of the market.”
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US AND MIDDLE EAST
The Philippine flag carrier has suffered on services to the US and the Middle East. Bautista says that many Asian carriers, particularly the Chinese airlines, are attracting Filipinos with “very cheap fares” on services to the US, with a transit in China.The Gulf carriers, with their extensive networks, have also been a challenge for PAL's sole European destination, London. The intense competition between Middle Eastern carriers, Cebu Pacific and PAL on services to the Middle East has also put a drag on its financials.
“We try to compete with these Middle Eastern carriers, and the yields are very low,” says Bautista. “We wanted to protect our market, but it resulted in some losses.”
The airline now flies to five points in the Middle East, and faces competitors in each.
PAL will, however, not pull out of the region, but instead restructure some of its services. An example is its Manila-Abu Dhabi-Doha route, which the carrier now plans to fly non-stop to Doha, while reducing the service frequency between Manila and Abu Dhabi.
Bautista says that despite competition from the Chinese carriers, its services to the US are still profitable. With Filipinos making up 90% of its passengers to the US, it wants to win over American passengers who now get to the Philippines via Hong Kong, Korea and Japan.
The airline is spending more on marketing to increase its brand presence in the US, and also in preparation of plans to launch nonstop services to New York when it starts taking delivery of its Airbus A350-900s in 2018. Discussions are also ongoing about possibly launching services to Chicago and Dallas after the A350s come on board.
PAL's network – February 2017
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DOMESTIC
On domestic services, Bautista says that, despite the strong competition from Cebu Pacific, PAL has continued to be profitable. A key challenge, however, is the congestion at its main hub at Manila’s Ninoy Aquino International airport, where it is near impossible to get new slots. Although the government has talked about building a second Manila airport for years, Bautista says plans have not been firmed up and he believes that this will take another 10 years to come to fruition.
PAL has therefore decided to build another hub at Clark International airport, about 100km from Metro Manila. Given the slot situation at NAIA, the carrier will launch more international services out of hubs such as Clark, Cebu and Davao.
This year, the carrier is scheduled to take delivery of seven new aircraft – five Bombardier Dash 8 Q400s and two A321neos. The turboprops will largely be used to launch services on thinner routes out of Cebu, competing with Cebu Pacific’s turboprop unit Cebgo.
STRATEGY
Looking at the broader strategy, PAL is seeking endorsement to join a global alliance, believing it will benefit from a shared frequent flyer programme, extended codeshares and joint purchasing.
Bautista disclosed that a carrier has indicated that it is “willing or interested” to endorse PAL in an alliance, and that the target is to pull this off in the next three to five years.
PAL is also seeking a strategic investor to help with its next stage of growth. He says that, while a number of potential airline partners are conducting due diligence audits on PAL, it usually takes time for such a deal to come through.
“I can’t divulge the identity of possible partners because we have confidentiality agreements in place. We are talking to a few potential partners and it may take some time… we understand the position of the possible investor, they have to study very carefully and do a proper evaluation.”
Meanwhile, parent company PAL Holdings is also considering a Re-IPO, to make the airline more attractive for potential investors. Bautista says the Lucio Tan Group owns 89% of PAL Holdings, and that only 11% of the company is listed.
“So maybe it’s a good idea to increase the float because the daily trading is very small and not that great. There’s no liquidity in terms of movement of shares,” he adds.
Bautista describes PAL as being at a stage of “becoming a better airline”. This includes raising service standards and becoming the airline of choice in the markets that it serves. To ensure that employees have the same vision, the carrier holds a weekly flag raising ceremony where the PAL prayer and promise is recited.
The airline chief is also optimistic about the airline’s outlook, considering the “robust” Philippine economy: “There’s a lot of new business opportunities… with a population of 105 million, less than 30% is flying. As the spending power of Filipinos improve we should be able to grow the business further.”
Source: Cirium Dashboard
