More headaches loom for PAL post-bankruptcy

Richmond Mercurio - The Philippine Star

MANILA, Philippines — Philippine Airlines’ turbulent ride is expected to continue even if it emerges from bankruptcy, aviation think tank CAPA-Center for Aviation said.

CAPA in its latest analysis said some of PAL’s pre-COVID headaches would remain despite streamlining.

PAL filed for a pre-arranged restructuring under the US Chapter 11 process in the Southern District of New York last Sept. 3 as it seeks to recover from the blow brought by the pandemic on its operations.

“The airline was facing some serious challenges before the pandemic, particularly from strong LCC (low-cost carriers) competitors in its domestic and international markets. It was already planning a turnaround initiative, but like many other airlines in the region it has been forced to take more drastic action,” CAPA said.

“Its post-bankruptcy headaches will include an uncertain demand recovery timeline and undiminished pressure from LCCs,” it said.

CAPA said PAL had to  contend with strong competition from LCC on short haul routes before the pandemic arrived.

Data from CAPA showed that Cebu Pacific had a dominant share of domestic capacity in January 2020 at 43.4 percent. PAL came second with a market share of 28.8 percent, followed by AirAsia Philippines with 19.3 percent.

On the international market, PAL was the leading player pre-pandemic with 25.1 percent.

Cebu Pacific’s international market share in January 2020 stood at 18.6 percent, while that of AirAsia Philippines was at 7.6 percent.

On top of strong competition from LCCs, CAPA said building up to a revised network plan would still take time, as a large part of PAL’s network remains suspended due to COVID-19 travel restrictions.

The airline earlier said it was only operating 21 percent of its pre-pandemic flights.

CAPA said PAL would axe its three longest routes to London, New York and Toronto, which were served by the A350s before the pandemic.

It said some cuts would be made to medium haul routes, while there would be relatively few reductions to short haul and domestic services, which are aligned with expectations that short haul markets will recover fastest and long haul will be slowest to recover.

“Gaining agreement from its creditors and presumably a smooth passage through bankruptcy court will be major steps for PAL. But it is far from out of the woods yet, and it still has some tough months ahead of it before any meaningful recovery takes hold,” CAPA said.

“But there is no question that a streamlined PAL will be better placed to respond to what could be a protracted recovery in international markets. It will also have options to expand its widebody fleet again and perhaps resume some of its cancelled routes when demand does eventually come back,” it said.

The airline was able to secure the approval of the US bankruptcy court for all of its “first day” motions on an interim or final basis, marking an important step forward in its recovery plan.

PAL targets to exit from the Chapter 11 process before the year ends.

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