Is Europe Overly Ambitious for Philippine Airlines?

A report recently released by the CAPA Center for Aviation suggests that Philippine Airlines faces many risks as it embarks on expanding its presence in Europe. Industry analysts have suggested that the rapid expansion into Europe may be overly ambitious.

pal flights to europe
Copyright Photo: Angelo Agcamaran/PPSG
Following the announcement by the European Union that Philippine Airlines would once again be permitted to serve European countries, the airline has rolled out an ambitious expansion with plans to serve up to five destinations in Western Europe by October. At a press conference on July 10, Ramon Ang, President of Philippine Airlines, indicated that the airline intends to serve London, Amsterdam, Rome, and Paris as its initial European destinations while Frankfurt and Madrid have also been mentioned.

However, attempting to develop a sustainable niche in the busy Southeast Asia-Europe corridor could prove to be a challenge as Philippine Airlines must overcome three major long established airlines of Southeast Asia in addition to Gulf carriers. Launching flights within a short time frame might just be a recipe for disaster given the lead time required to sell long-haul routes. Philippine Airlines launched its Toronto service under similar circumstances and the route never performed to the expectations of the airline. That is likely why it was an easy decision for the airline to drop the route in favour of reallocating the aircraft to upcoming European services.

Philippine Airlines is the Weakest of the Southeast Asian Airlines

Competing with the other six flag carriers of Southeast Asia will not be an easy task for Philippine Airlines. Of the six airlines, Philippine Airlines is the only carrier that has yet to join a global airline alliance. This puts the carrier at an immediate disadvantage. In spite of the country's reputation as one of Asia's fastest growing economies, the Philippine market is composed mostly of low-yield leisure and migrant worker traffic as opposed to high-yield business passengers. In addition, the airline's hub in Manila is not geographically positioned well to attract a significant amount of transit passengers. That is on top of the fact that airport infrastructure in Manila is at a severe disadvantage compared to its modern counterparts in neighbouring Southeast Asian countries like Singapore.

It won't be easy establishing a presence in Western Europe as Manila is already served by all of the major airlines from Asia and the Middle East enabling passengers from Western Europe to travel to the Philippines aboard one stop services via a variety of hubs with competing carriers. That does not work to PAL's advantage as the competitive environment is fierce. Past surveys have indicated that Philippine travellers prefer the cheapest available flight option and would even sacrifice comfort to attain it while others suggest that they would pay more to fly directly from Europe to the Philippines avoiding any connections.

Thai Airways International and Singapore International Airlines remain the leaders in the market offering the highest capacity between Western Europe and Southeast Asia. However, those carriers have recently experienced pressure from Gulf carriers like Emirates, recently named top airline in the world, that offers one stop flights via Dubai at extremely competitive rates.

Transit and Premium Passengers are key to Sustainability

While Philippine Airlines is counting heavily on the millions of overseas foreign workers living in Europe, it will need to rely more on transit traffic if its new European routes are to be viable. Transit traffic is a significant portion of business that is currently helping Thai, Singapore, and Malaysian Airlines to sustain its European routes amidst competition from Gulf and European carriers.

One area that does hold promise for Philippine Airlines is concentrating on traffic between Europe and Australia as Manila is well situated for connecting flights onwards to PAL's network of five destinations in Australia. However, historically, the Australia-Europe corridor has been one of the lowest yielding markets due to stiff competition. While Asian markets produce a higher yield, Manila is not situated well to attract such traffic.

The Philippines is already a feeder market for Singapore, Malaysia, and Thai flights to Europe along with the three Gulf carriers, Emirates, Etihad, and Qatar. In addition to having a well established presence in the Philippine market, these carriers offer the benefits associated with being members of airline alliances and a much larger network throughout Europe offering local Philippine passengers much more choice than what can be offered by Philippine Airlines. In addition to lacking an airline alliance, Philippine Airlines doesn't even have any established codeshare partnerships with any European carriers.

Philippine Airlines will even have a challenge attracting premium passengers from the Philippine market as PAL's products are generally inferior to what is currently offered by Singapore Airlines and Emirates. The airline faces an uphill battle and will need to work hard to improve its onboard product for business and premium passengers.

Philippine Airlines Faces an Uphill Battle

While the airline is counting on the development of Philippine tourism to fuel its growth, tourism is not a recession proof industry and it's a seasonal business originating in a number of European cities that PAL may not be able to access without feeder traffic from alliance or codeshare partners. It is unclear whether PAL would be able to sustain daily year round service based solely on leisure traffic from European travellers and overseas Filipino workers. PAL's competitors seem to be in a better position to serve such traffic given the much more developed European networks.

Currently, Philippine Airlines is relatively unknown in the European market. It is possible that a large network may help to establish the brand but operating several long range routes to Europe in a price sensitive market with little chance of attracting premium passengers could prove to be a risky venture. Long range flights are incredibly expensive to operate as Philippine Airlines discovered on its non-stop foray into Toronto. It wasn't long before the airline cancelled all of its non-stop flights to Toronto and routed all services via Vancouver. Philippine Airlines may face the same challenges in Europe and might need to pursue alternative options to sustain its presence in the market. The airline could very well struggle to achieve any of the yields necessary to make its European routes viable given that it will need to price competitively against superior one-stop products. It is possible that it won't be long before we might see PAL European services making a stop in the Middle East once again like they did so many years ago when Philippine Airlines last served Europe.

Meanwhile, KLM remains the only European airline serving Manila. It dropped its non-stop service last year and now only serves the Philippine capital via Taipei. Its decision to not relaunch a non-stop flight in the face of improving tourism and economic conditions may be a hint that the Western Europe to Philippines sector is weak. Philippine Airlines may be biting off more than it can chew and its plan might just be too ambitious. Other carriers in Southeast Asia have learned the hard way and have pulled back to focus on the Asia-Pacific market as a much more profitable option.

But in the face of such adversity, Ramon Ang's dream to make Philippine Airlines a global airline for Filipinos is still very much alive. Time will only tell how this story will unfold. 

To read the complete report and analysis from the Centre for Aviation, please click on this link.


12 comments:

  1. Very well said. I like this author. However, Philippine airlines needs to start somewhere, and prove that PAL is really the first airline in Asia. It was so frustraining that that title didn't reflect to PAL. They need to earn trust and reputation as well. Removing from the EU blacklist will really help them to be back on track again. But they really need to work hard with the PH government to finally lift the FAA category II. When this happens, this is going to be a huge milestone for them to join with aliance partner. Passengers always looking for this, as most of the airlines that are member of world airlines partner have good reputation in all aspects, which will help them to attrack more passengers.

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  2. Transit passengers is the key. One such example would be the Kangaroo Route (UK to Australia) service. If PAL can improve their transit service, they can compete more with the other airlines.

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  3. This article is credible and factual. But personally speaking, Ive been reading more negative than positive. Yes it is risky, yes it is ambitious, and yes some may say it'll inevitably end up like the toroto scheme. But it's time to be supportive, it's time to boost the morale of PAL and the Philippines, finally EU ban is lifted, Pal gets to fly to Europe and soon will be the other local carriers, it may be difficult to penetrate the market but it's not impossible. I am proud Philippine airlines get to fly to Eu, and maybe soon will the other local carriers. Let's be proud, let's support all the way through and let's look at the positive side. Let's all have faith the Philippine airlines and so would be the other local carriers and especially the Philippines would be successful in this endeavor.

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  4. I think London and Paris (or Rome) will be good initially.

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  5. I think the main advantage of flying with PAL to Europe would be the decreased travel time. We recently have flown to Europe via Singapore. The biggest complaint of my parents was that the flight time and transit time were horrendously long! I think PAL is trying to serve the OFW market in Europe. That's probably their main target. That's probably why they're focusing on cities with high concentrations of OFWs unlike for example, flying to Zurich. The OFW presence in Europe is not unknown though. An immigration officer we met in the Amsterdam airport could speak Filipino (though with a Dutch accent). I just have this feeling that Europe just might work for PAL.

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  6. Yes PAL seems like it will be moving mountains w/ its upcoming European route/s. But to cut the story short, Philippine Airlines is Asia's First Airline, it needs to prove that it deserves this distinction in any way possible. PAL is one of the pioneers of Asian commercial aviation. Best of luck to our Flag carrier. Walang imposible. Very happy to see PAL fly once again in European skies.

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  7. theres is a lot of us brits go there and there are lots of philippiens here would love to have one flight there and back and it be a great stop of for on wead frights , i been to manila 3 times in past 18 months with people and we all heat the chang , bring it on very best of luck to philppiens airways

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  8. You can compare the flights deals to any or all places accessible so attempt to visit that place that suits your budget to book cheapest airfares tickets sale.

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  9. It would be nice with a direct flight from Europe to Philippines. All the other ones have a landing in either a Arabic country or another city in Asia = shorter flight time

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  11. I live in UK, and this is great news for me, as i have been in a relationship with a girl from the Philippines for 6 months now, and this will make it so much easier to see each other. Wish me luck, and i wish PAL all the success it deserves for this venture.

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