PAL shows signs of progress – think tank

MANILA, Philippines — Philippine Airlines (PAL) is showing encouraging signs of progress following  back-to-back quarters of profitability, but the flag carrier is “far from out of the woods,” according to aviation think tank CAPA-Center for Aviation.

In a report, CAPA said that while the outlook is certainly improving for PAL, the airline continues to face short term and long term challenges. “It is far from out of the woods and many challenges remain,” it said.

‘Long term issues will no doubt resurface as demand returns. The need for airport development is a perennial concern for Manila, and PAL will face competitive pressure from its local rival as well as from overseas-based airlines as they rebuild services,” CAPA said.

CAPA, however, said PAL’s changes should mean it is in better condition to face these challenges.

“Turning a profit in the current conditions is undoubtedly a positive development. PAL should see demand – particularly in the international sector – continue to improve as more travel restrictions drop away in its key markets,” it said.

PAL has been ramping up its domestic and international capacity significantly with the reopening of borders, helping the company return to profitability in the past two quarters.

Also helping the airline’s financial performance is its recent restructuring, CAPA said.

“PAL was hit hard by the onset of the pandemic, and like many other Southeast Asian airlines, it had to undertake restructuring under the protection of bankruptcy court. But PAL’s pre-packaged restructuring was quicker and less painful than most, enabling it to emerge with a healthier cost structure and balance sheet,” it said.

The airline’s financial restructuring included a series of cross-border agreements with major aircraft and bank creditors, aviation manufacturers, and other stakeholders.

The deals, coupled with the infusion of $505 million in fresh capital from PAL’s shareholder family, enabled the flag carrier to rebound from the pandemic with reduced debt, additional liquidity, and better-positioned for long-term growth.

“Although market conditions are still far from normalized, the airline’s results and revised strategy are promising signs for its post-pandemic outlook,” CAPA said.

PAL’s domestic capacity has rebounded at a faster pace, similar with many other Asia-Pacific airlines with domestic markets.

For its international capacity, however, CAPA pointed out that not all markets are rising for PAL at the same speed.

The think tank said the US and Japan are still the flag carrier’s most important international markets, even as Japan has yet to ease its rules for inbound tourism significantly.

It said the biggest change is mainland China and Hong Kong, which were ranked fourth and fifth before the pandemic, but have now disappeared out of PAL’s top 10 international markets.

CAPA said while PAL also announced its intention to cut some of its longest and least financially viable routes as part of the company’s restructuring plan, some of these such as New York and Toronto are still operating at limited frequencies.

“Presumably, the airline will follow through with its plan to cancel Toronto and New York flights when more normal market conditions return. The airline has reduced its widebody fleet as part of its restructuring, so it would not be able to operate its full pre-pandemic network – even if it wanted to,” it said.

CAPA said that if PAL decides to ramp up its long haul services again, it seems likely that it would look to add back more A350s in its fleet.

The airline’s plan for restructuring also called for significant reduction in widebody aircraft, with the intent of returning all but two of its six Airbus A350s and cut four of its 10 Boeing 777s.

“Having a fleet of two is not very efficient, but does serve as a foundation to rebuild this fleet if necessary,” CAPA said.

Despite recent developments, the aviation think tank said one thing that has not changed is PAL’s major challenger remains to be the Gokongwei-led Cebu Pacific.

CAPA said PAL has retained a healthy lead in terms of seat share in the international market, but Cebu Pacific is comfortably ahead in the domestic market.