Philippine Airlines Continues to Profit Under Lucio Tan Group

Following strong demand and a reduction in global fuel prices, Philippine Airlines reported a healthy net income of P5.8 billion in the first half of 2015. That represents an increase of nearly ten times the profit reported in the same period last year of just P560 million.

Copyright Photo: Angelo Agcamaran/PPSG
In a report filed at the Philippine Stock Exchange last week, PAL Holdings disclosed that its revenues increased to P55.9 billion versus P48.9 billion the previous year. Passenger revenues alone accounted for a 15 percent increase.

The healthy financial performance is expected to put Philippine Airlines back on the radar of investors as it continues to search for a strategic partner. For now, it seems that the plan of Lucio Tan Group, led by Philippine Airlines CEO Jaime Bautista, to stabilize Philippine Airlines and improve financial performance to enhance the attractiveness of the carrier to investors is working.

Philippine Airlines first returned to profitability in 2014 under the leadership of Ramon Ang of San Miguel Corporation. It was the first time the carrier had reported a profit in three years with a net income of P129.75 million. However, Ang's strategies were met with mixed reviews and largely viewed as risky and unstable.

Under Ang's leadership, Philippine Airlines aggressively pursued the expansion of its fleet and route network. The business plan envisioned by San Miguel executives included new destinations in continental Europe and the United States. Such an expansion plan using the carrier's aircraft was incredibly risky given the intensifying competition in the Philippines to Europe and Middle East markets. In addition, the one European route launched under Ang's tenure from Manila to London remained unprofitable more than one year after its launch.

Lucio Tan Group has taken a much more prudent and sensible approach to route expansion inking strategic partnerships with global carriers that can help to expand the carrier's route network through code-sharing. This helps Philippine Airlines to open new markets without the high financial risk of utilizing its own aircraft. It also leaves PAL to concentrate its fleet in markets that are more lucrative such as the United States.

In the past year, Philippine Airlines has inked deals with All Nippon Airways, Etihad, and WestJet Airlines. This is a stepping stone in deepening relationships with other carriers that may lead to an investment and strategic partner. As Philippine Airlines raises its profile in the international market, it will improve its attractiveness and usefulness to other carriers, which should make finding a strategic partner much easier.

The partnership with Etihad may help Philippine Airlines extend its network to destinations in Africa and Europe. Philippine Airlines currently doesn't have any existing relationships with European carriers. However, the arrival of Ethiopian Airways in Manila may lead to the possibility of a future partnership with an African carrier. Philippine Airlines has been interested in expanding its footprint on the African continent, particularly in South Africa. Meanwhile, Amsterdam, Frankfurt, Paris, and Rome remain on the list of future destinations in Europe for the national flag carrier. But it remains to be seen if these will be served by Philippine Airlines or through a code-share partnership.

Earlier this year, Philippine Airlines launched a new route from Manila to New York via Vancouver, Canada. The carrier recently announced that it will introduce non-stop service from Cebu to Los Angeles, which will bring the total number of weekly flights to the United States up to 38. Philippine Airlines continues to look for a replacement aircraft for the Airbus A340 as it seeks to expand.

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