Philippine Airlines struggles to regain share

MANILA--Flagship carrier Philippine Airlines (PAL) has been struggling ever since it was pulled from the brink of collapse 12 years ago.

A raging dogfight with a rival local budget carrier — Cebu Pacific — over market share, labor disputes and a downgrade to the country's air safety ratings have buffeted Asia's oldest national airline.

What's more, the government's efforts to introduce “open skies” for foreign carriers to airports outside Manila — a move aimed at boosting tourism — will be a future challenge for PAL, if it takes off.

PAL, privately owned since local taipan Lucio Tan bought it from the government in 1993, is now going through its biggest restructuring in over a decade. Starting this month, it is outsourcing its airport services, catering and call center operations. This comes at the cost of 2,400 jobs, or a third of the work force. PAL executives say the cuts were a matter of life and death for the carrier.

Analysts say the outsourcing will take a weight off PAL. The legacy airline, noted CLSA Philippines senior research analyst Leo Venezuela, is “saddled with a high cost base.”

Deep cuts were made during the Asian financial crisis in the late 1990s, when a debt-laden PAL laid off a third of its 14,000 staff, ditched routes, and sold off part of its fleet to avoid going under. PAL was then placed under receivership until 2007.

But the latest cutbacks alone are unlikely to revive PAL. For that to happen, say industry watchers, it needs to better compete with low-cost carriers at home, and get more out of its global routes.

After losses totaling US$312 million in 2008 and 2009, PAL turned a profit of US$72.5 million last year. But it was in the red again in the first quarter of its current financial year because of high fuel prices and competition from budget carriers.

“We are challenged by them,” said spokesman Cielo Villaluna. “But we have our niche as the only full-service, legacy carrier and we're dealing with the competition.”

Main rival Cebu Pacific, a budget airline controlled by the Gokongwei family, unseated PAL as No. 1 carrier on domestic flights early last year. By the second quarter of this year, Cebu Pacific had a 44.6 percent share of the domestic market while PAL had 23.7 percent, according to independent data.

In a move Mr. Venezuela called a “good strategy,” PAL indicated last week it may focus on full-service international flights, and let its own low-cost carrier, Airphil Express, take on more domestic routes to boost its current 18.6 percent share of that market.

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