Philippine Airlines—controlled by billionaire Lucio Tan—expects to return to the black next year, after five years of consecutive losses, as the airline downsizes its fleet and cuts unprofitable routes.
“PAL plans to take a number of measures to optimize its network in connection with the restructuring support agreements and the plan,” the company said in bankruptcy documents recently filed in New York. “In particular, PAL will exit unprofitable markets and continue to fly only those routes that are, or can be made, profitable, while reintroducing capacity in line with evolving demand.”
Under the fleet restructuring plan, PAL will return 21 planes to lessors—reducing its fleet size by 23%—as it cancels unprofitable long-haul U.S. routes. It will consolidate U.S. flights to the West Coast gateways and cancel ultra long-haul routes, particularly in New York and Toronto.
While downsizing its U.S. operations, the airline also plans to expand capacity in short-haul Asian routes particularly in growth markets such as China. In the Philippines, PAL said it plans to consolidate its domestic flights in Manila and cancel flights from Clark, while tapping Cebu as a growth market.
“Overall, the plan will bring PAL into sustained profitability,” the company said. “By the end of 2022, PAL expects to exit its recovery phase as operating activities generate more consistent positive monthly cash flow.”
PAL expects to return to the black next year, with $145 million in net profit, which will increased to $312 million in 2023 and $379 million in 2024.
While the fleet reduction will help PAL generate savings of about $2.1 billion in payments to creditors and aircraft leasing companies, the company said financial support from lenders and shareholders is a crucial element in reviving the company. The company filed for bankruptcy protection in New York last month, paving the way for the restructuring of its debts.
Earlier this month, Philippine Airlines received U.S. court approval to access a $505 million debtor-in-possession financing. Separately, company chairman Lucio Tan injected fresh capital of 12.75 billion ($251 million) into the flag carrier. The airline also plans to raise an additional $150 million from outside investors.
Airlines are among the hardest hit by the pandemic as governments around the world imposed lockdowns and restricted cross-border travel to curb the further spread of the virus. The International Air Transport Association estimates airlines around the world will lose about $48 billion this year after incurring about $126 billion in losses last year.
PAL, which reported a record net loss of 73 billion pesos in 2020, continued to struggle this year, incurring a further net loss of 16.6 billion pesos in the first-half ended June 30.
Tan—who emerged as PAL’s controlling shareholder in 1995 when he was appointed chairman—regained control of PAL in in 2014 after buying San Miguel Corp.’s controlling interest in the airline. With a net worth of $1.9 billion, Tan, was ranked No. 12 on the list of the Philippines’s 50 Richest that was published earlier this month. His business empire spans tobacco, spirits, banking and property.