University of Eastern Pangasinan

1st Sem SY 20221-2022

Enterprise Analysis of PHILIPPINE AIRLINES

https://youtu.be/ViTshAAKnMQ

Strategic Business Analysis

Submitted by : 
Bermudez, Jelyn

Submitted to : 

Jeanlyn V. Domingo, CPA,DBA

 PHILIPPINE AIRLINES

History
Headquartered at the PNB Financial Center in Pasay, the airline was founded in 1941 and
is the first and oldest commercial airline in Asia operating under its original name.
Philippine Airlines only have one hub mainly in Ninoy Aquino International Airport,
Manila and two secondary hubs in Mactan–Cebu International Airport, Cebu and
Francisco Bangoy International Airport, Davao. Their subsidiary, PAL Express operates
only regional routes while PAL operates both domestic (Cebu, Davao, General Santos,
Kalibo, Manila and Zamboanga) and international routes. The airline operates both
narrow body and wide body fleets of Airbus aircraft and a wide body fleet of Boeing
aircraft. It's the only airline in the Philippines to operate Boeing aircraft, consisting of 10
Boeing 777-300ER. Formerly one of the largest Asian airlines, PAL was severely affected
by the 1997 Asian financial crisis. In one of the Philippines' biggest corporate failures, PAL
was forced to downsize its international operations by completely cutting flights to
Europe and Middle East, cutting virtually all domestic flights except routes operated from
Manila, reducing the size of its fleet, and laying off thousands of employees. The airline
was placed under receivership in 1998, and gradually restored operations to many
destinations. After PAL's exit from receivership in 2007, PAL embarked on a frequent
revamp of management. However, PAL's vision to re-establish itself as one of Asia's
premier carriers is still the matter of greatest importance.
Corporate management
Philippine Airlines is owned by PAL Holdings, a holding company responsible for the
airline's operations. PAL Holdings is in turn part of a group of companies owned by
business tycoon Lucio Tan. ANA Holdings, the holding company of All Nippon Airways, has
a 9.5% stake in PAL Holdings. PAL is the ninth-largest corporation in the Philippines in
terms of gross revenue, as stated in the Philippines' Top 1000 Largest Corporations of
2017. As of December 2018, PAL employs a total of 6,689 employees, which includes 999
pilots and 2,647 cabin crew. PAL is the sixty-first largest airline in the world in terms of
revenue passenger kilometers flown, with over 16 million flown for 21 million available
seat kilometers, an average load factor of 76 percent. PAL has flown approx. 12 million
passengers in 2014 and 16 million in 2016.
For the fiscal year ending on March 31, 2007, Philippine Airlines reported a net income of
US$140.3 million, the largest profit in its 76-year history. This allowed it to exit
receivership in October. PAL had forecast net profit to reach $32.32 million for the fiscal
year ending on March 31, 2008, $26.28 million in 2009 and $47.41 million in 2010, but
this proved difficult to achieve, with a large loss announced in early 2009 causing some
concern.
However, Philippine Airlines reported a total comprehensive income of $20.4 million for
2014, the company's first profit in four years. The company continued its financial
turnaround, reporting a net income growth of 4430.04% for the year 2015.[21] However,
PAL reported a loss in 2016, with a net income growth of -38.80%.
On November 15, 2018, the airline was named the "Most Improved Airline of 2019"
award from airlineratings.com.
Financial issues
PAL experienced huge financial losses in the late 2000s. On March 31, 2006, PAL's
consolidated total assets amounted to 100,984,477 PHP, an 11% decrease from March
31, 2005. On March 31, 2007, the company's consolidated assets continued to diminish
by 8%, an amount equivalent to 92,837,849 PHP, as against to 2006 figures. The
declination of PAL's assets was primarily due to a net decrease in property and
equipment and advance payments to aircraft and engine manufacturers, current and
other noncurrent assets. As of March 31, 2007, other current and noncurrent assets fell
by 29% to 2,960.4 million PHP and by 20% to 2,941.7 million PHP "due to the effect of re-
measurement to the fair value of certain financial assets and derivative instruments".
After carrying 17% more passengers in 2009 due to acquisition of additional aircraft and
growth in the local market, PAL annual income report showed an increase in revenues of
US$1.634 billion from US$1.504 billion in 2008. In spite of this, PAL expenses escalated as
a result of more flight operations and higher maintenance costs aggravated by fuel prices
fluctuations; forty-four percent (44%) of PAL income operating expenditures is utilized for
fuel consumption.
Labor issues
PAL has a history of labor relations problems. On June 15, 1998, PAL retrenched 5,000 of
its employees, including more than 1,400 flight attendants and stewards to allegedly
reduce costs and alleviate the financial downturn in the airline industry as a consequence
of the Asian financial crisis. Represented by Flight Attendants and Stewards Association of
the Philippines (FASAP), the retrenched employees particularly the 1,400 cabin crews
seek remedy for their problem through the judicial process and filed a complaint on the
grounds of unfair labor practice and illegal retrenchme a decade before it was finally
settled. It passed the Labor Arbiter to the National Labor Relations Commission, then on
to the Court of Appeals and, finally, to the Supreme Court. The Philippine Highest
Tribunal favored the aggrieved party and on July 22, 2008, in its 32-page decision ordered
PAL to "reinstate the cabin crew personnel who were covered by the retrenchment of
and demotion scheme of June 15, 1998, made effective on July 15, 1998, without loss of
seniority right and other privileges, and to pay them full back wages, inclusive of
allowances and other monetary benefits computed from the time of their separation up
to the time of actual reinstatement, provided that with respect to those who have
received their respective separation pay, the amount of payments shall be deducted from
their back wages." The Supreme Court further explained that there was a failure on the
part of PAL to substantiate its claims of actual and imminent substantial losses. Although
the Asian financial fiasco severely affected the airline, PAL defense of bankruptcy and
rehabilitation are untenable; hence, the retrenchment policy is not justified.
However, on March 26, 2018, the Supreme Court en banc voted in favor of Philippine
Airlines, which affirms the 2006 Court of Appeals decision that says Philippine Airlines is
not required to consult FASAP for its criteria for its retrenchment program.
Competition
For more than 20 years, PAL monopolized the air transport industry in the Philippines.
This came to an end in 1995 through the passage of Executive Order No. 219 that permits
entry of new airlines in the industry. The liberalization and deregulation of Philippine
airline industry have brought competition in the domestic air transport industry resulting
in lower airfare, improvement in the quality of service, and efficiency in the industry in
general. At present, three airlines are competing in international and major domestic
routes: PAL, Cebu Pacific and PAL Express (formerly known as Air Philippines) and two
airlines are serving minor and short-distance routes: Philippines AirAsia, Cebgo (formerly
SEAIR and Tiger Airways) and other small airlines.

SWOT ANALYSIS

Strengths

·         Service

o   The company provides a customer centered services with innovative facilities that
strengthen the company’s total image. It offers services towards global excellence and
provide safe, on time, quality and cost effective in-flight service for total passenger
satisfaction.

·         Workforce

o   The company’s human resources is hospitable, approachable, caring and friendly that
easily response to the needs of its customers. They are fully committed to the goals and
objectives of the company.

·         Network

o   Through diverse destinations the company continues to augment its market share on the
airline industry in the Philippines. It brings you the appropriate destinations that customers
want without sacrificing effort, time and money.

·         Competitive fare
o   The rates offered by the Philippine Airlines are considered competitive and attractive to its
target market. The fare is wise enough to correspond to the services and facilities that it
offers.

·         Excellent security records

o   The company continues to conduct & maintain safe and reliable flight operations.  The
welfare and protection of the passengers is one of its priorities that is why they maintain a
descent records with regard to the security of its passengers.

·         Modern Facilities

o   The facilities of the company are world class that easily response to the demand of its
passengers such as: PAL Inflight Center (IFC) and Data Center Building.

·         Strong Alliance with big International Airlines

o   The PAL alliances include Malaysian Airlines, Emirates Airlines, Cathay Pacific, Qatar
Airways, Royal Brunei Airlines, Gulf Air, Etihad Airways, and Vietnam Airways. The
following alliances are essential to strengthen their international destinations.

·         PAL  Learning Center

o   A modern training facility located in Ermita, Manila. The Center  aims to continue to
provide world-class training to every employee regardless of area of specialization, reinforce
the culture of service, and develop every employee into the total PAL professional committed
to the Airline’s corporate values

·         Maintains good relationship with employees

o   Since Airlines is a service oriented company it continues to maintain good relationship
with regards to its employees. The employees are considered by the airline as the primary
factor to the achievement of its goals and objectives.

Weaknesses

·         No Specific Vision Statement

o   The company doesn’t have a specific vision statement. The vision statement answers the
question, “What do we want to become?”. Without the vision statement the management and
employees may not know what the company wants. Thus it is considered a very essential
statement for the success of the company.

·         Not Organized Website

o   Philippine Airline’s website is not organized because the website can still have more
improvements

·         Higher Maintenance cost

o   The company acquires new aircraft and flights to meet the demands of its passengers that
is why it has higher maintenance cost compared to other domestic airlines.

·         Decline in the number of passenger carried

o   PAL’s current passenger load factor fell at an average of 76.2%, three points lower than
the previous year due to insufficient promotion and marketing efforts.

·         Absence of research and development department

o   The company lacks research and development department that is useful in conducting new
programs development and in monitoring the competition in the airline industry in the
Philippines.

Opportunities

·         Increase in International market

o   Since PAL offers international destination, an increase of international market will
probably increase its revenues.

·         New Destinations

o   PAL may increase its destinations domestically or internationally depending on the
existing demand of passengers available.

·         Research and Development

o   It has been a big trend for large companies to have a research and development
department. PAL airlines may have a R&D department that will develop new programs and
strategies for the company

·         Technological Advances

o   Due to advancement of the technology nowadays the company may utilize it as one of its
competitive advantage to other domestic airlines. Development of new technologies changes
the existing culture of the airline industry such as in booking, ticketing, and reservations.

·         Internet Advertising

o   People use internet worldwide and a great way of communicating is through the web,
utilizing the internet could expand the reach of PAL to its potential passengers. This could
help the company to attract new customers and update the current situation of the company.

·         Boom of Philippine Tourism

o   The continuing efforts of the Philippines towards tourism could possibly increase the
number of target passengers that will travel using Philippine Airline to visit the country’s top
tourist destinations.
·         Emerging trends among companies in building public image

o   A good public image results good profit. Building a good public image in the industry can
establish a competitive advantage that could be used as a instrument to lead the industry it
belongs.

·         Increasing number of Overseas Filipino Workers

o   There has been an increase in opportunities abroad and it brings a positive atmosphere for
airline industry since Overseas Filipino Workers board airplanes to go to other countries.

Threats

·         Global economic downturn

o   Global crisis has significant impact on the airline industry. Global economic downturn
means less demand for air travel that lead to a possible loss for the airline industry.

·         Strong Competition

o   There has been a stiff competition in the airline industry in the Philippines. Moreover,
threats also increase due to the emerging substitutes and new entrants.

·         Government Intervention

o   New regulations for the airline industry could possibly hamper its operations. Thus, these
may lead to a decrease in the industry’s revenue.

·         Airline security cost have increased

o   Due to security threats, governments have added rigorous security requirements and
procedures that airline companies should comply.

·         Hedging Currency risk

o   Due to price fluctuations in the market, airline companies are forced to enter into hedging
agreements which makes them vulnerable to losses.

·         Terrorism attacks

o   The possibility of terrorism attacks could lead to a conclusion that security procedures
implemented b y the company are not stringent enough which may lead to having a bad
public image.

·         Natural Calamities

o   Fortuitous events such as earthquakes, volcanic eruptions, weather disturbances,

epidemics and other diseases may impede the company’s operations.