I.

COMPANY PROFILE

Philippine Airlines, Inc. (PAL) has been the dominant air carrier in the Philippines since its

creation in 1941. Operating both internationally and within the 7,100 islands that make up the

country, PAL has been something of a curiosity and scandal among the world's major airlines,

for decades losing money while being traded among the handful of wealthy families in control of

the Philippine economy. After 14 years of ownership by the government of deposed President

Ferdinand E. Marcos, PAL was sold at the order of President Corazon Aquino in 1992 to a

consortium of companies under the leadership of the Soriano and Cojuangco (pronounced "koe-

HWAHNG-koe") families. Because Aquino's maiden name was Cojuangco, many believed this

"privatization" of PAL was not likely to break the pattern of corruption and inefficiency that has

marred the carrier's history since 1941. But events in the late 1990s would conspire to force

significant changes in the airline.

Founding in the 1940s

The firstPhilippine airtransport companies were created in the early 1930s, primarily as a means

of travel and freight delivery between the nation's scattered islands. One of these pioneering

companies was the Philippine Aerial Taxi Company (PATCO), which was granted a 25-year

charter by the Philippine legislature in 1931 for both domestic and international flights. At that

early date, when the country was still a possession of the United States, Pan American Airways

provided most of the Philippines' international air transportation. PATCO settled for short flights

among the major islands of Luzon, Cebu, Leyte, and Mindanao. On the less developed islands,

PATCO also provided intra-island flights between distant towns.

The 1941 transformation of PATCO into PAL involved an international cast of characters, most

notably General Douglas D. MacArthur, at that time in charge of theUnited States Armed

Forcesin the Philippines preparing for an expected Japanese invasion of the islands. General

MacArthur, whose father had served as the first military governor of the Philippine Islands

following the Spanish-American War of 1898, had served in the country in various capacities

throughout his career, including a four-year period before World War II when he was employed

by the Philippine government as its field marshal. (MacArthur was recommissioned by the U.S.

Army in 1941 and oversaw the eventual loss of the Philippines to the Japanese in 1942.)

The general employed as his aide-de-camp a wealthy Spaniard named Andres Soriano, who had

previously served as consul in Manila for the Spanish dictator Francisco Franco. Soriano

controlled the large San Miguel Breweries along with a number of other corporations, and had

powerful connections in the Philippine capital. In 1941 he put those connections to good use by

teaming with the National Development Company, a government agency, in forming Philippine

Airlines, Inc., which promptly absorbed PATCO, thereby becoming the nation's largest air

carrier.

As the creation of General MacArthur's aide de camp, PAL stood an excellent chance of winning

contracts from the United States Armed Forces for its transport needs in the coming war.

Unfortunately for Andres Soriano and his fellow investors, the invasion came early and ended

quickly, with the Japanese gaining control over the islands by the summer of 1942. It is not clear

what became of PAL during the Japanese occupation, but on December 8, 1941, the day after the

Japanese attack on Pearl Harbor, General MacArthur made Andres Soriano a colonel in the U.S.

Army, and an American citizen as well. It is safe to assume that Soriano returned to Manila with
MacArthur's liberating forces in 1944 and resumed control of his various business interests,

including PAL.

There is considerable evidence that MacArthur helped Soriano and PAL whenever he could. In

1946, MacArthur instructed the War Department to fly 20 tons of bottle caps to Soriano's San

Miguel Brewery to cover a shortage. In addition, the two men were both strongly anti-

Communist, and MacArthur's own extensive business holdings in the Philippines made his

relationship with Soriano more like one of business partners than military officers. Sterling Sea

grave commented on the chaotic postwar scene in his book The Marcos Dynasty, The $2 billion

aid package [from the United States to the Philippines] was fought over and devoured by

politicians, by rich MacArthur partisans, and by packs of bureaucrats."

Post World War II Activities

Helped by such massive infusions of American capital, the Philippine economy rebounded from

its wartime privations. PAL prospered so quickly that by 1948 it had already bought out two of

its largest competitors, Far Eastern Air Transport, Inc., and Commercial Air Lines, Inc. Within a

few years three other competing lines also threw in the towel, and PAL stood alone as the airline

of the Philippines. Its ownership was still split between the Philippine government and the

Soriano interests. The Sorianos were minority shareholders, but handled the day-to-day

management of the airline, which, if the later pattern of graft and kickbacks was already

established in the 1950s, was the more lucrative end of the business. Philippine magnate Enrique

Zobel once bluntly remarked in the media that "PAL is a milking cow," and most of the milk

seems to have been generated by what Far Eastern Economic Review described delicately as the

"company's operations, for instance by dictating its material requirements."

PAL's activities were described more directly in the New York Times, which quoted a 1989

World Bank study. The latter found that the airline was holding "millions of dollars of spare

parts for aircraft it no longer owns and ground equipment so badly maintained that it has little

value except as scrap." At one time PAL was even accused of carrying an "inexplicably large

inventory of 750,000 sanitary napkins," as reported in the Far Eastern Economic Review. Clearly

the finances were being toyed with to someone's advantage, which may help to explain how an

airline that so often reported a loss in its annual report could remain a financial plum much

sought after by Philippines business families.

Whatever the intrigue surrounding its operation, PAL expanded its route system and doubled

passenger miles between 1946 and 1950. The airline was serving 36 domestic airports by 1955

and owned a fleet of 35 planes, some of them DC 3/C47s and the restConvair240s. PAL's

primary business still lay in freight and communication services, such as the mail, since its ticket

prices were far beyond the means of the average Filipino. From the international airport in

Manila, PAL sent 33 flights weekly to Cebu City, the transport hub of the southern islands, and

offered regular service to all sections of the widely scattered nation, even the more remote

islands where passengers were few and the operation ran at a loss.

Indeed, the airline has repeatedly blamed its financial troubles on the large number of short,

unprofitable flights it must offer as the nation's only airline. In this regard, it was significant that

on the eve of its sale to private investors in 1991, PAL announced a dramatic cutback in the

number of its shorter domestic flights, encouraging the formation of new private companies to

take these on. PAL claimed in reports published as far apart as 1950 and 1989 that it enjoyed the

lowest cost of operation in the industry, so it would be hard to explain its frequent losses other
than by blaming the unprofitability of the line's short-haul domestic business. (Unless, as some

suspect, the airline's "loose accounting methods" have been to blame.)

PAL under the Marcos Regime

The Soriano family retained control of PAL until the late 1960s, the period of Ferdinand

Marcos's rise to power. Marcos was first elected president of the Philippines in 1965 and

remained the country's absolute ruler until his forced exile in 1985, when it was discovered that

he and his wife, Imelda, had systematically plundered their country for decades while amassing a

fortune estimated to be at least $1 billion. Marcos literally had a hand in every major Philippine

enterprise, including the nation's airline monopoly. As Imelda Marcos became a regular guest at

parties and government capitals around the world, she accrued a debt to PAL of nearly $6

million in the mid-1970s. The airline's owner, Benny Toda, offered to cut the bill in half if the

Marcoses would pay it; instead, Imelda Marcos demanded that he transfer his interests in the

airline to the government--which meant, in effect, to the Marcoses themselves. Afraid to refuse,

Toda settled on a price with Ferdinand Marcos and turned over his stock, for which he later said

he was never paid.

PAL became one of the many baubles flaunted by Imelda Marcos, who by this time was one of

the richest women in the world. The First Lady of the Philippines traveled around the world in

her own PAL DC-8 jet equipped with beds, a built-in shower, and gold bathroom fixtures,

sometimes also commandeering a second jet to carry her personal luggage. The airline was

officially under the control of the Government Service Insurance System (GSIS), which

controlled the pension funds of all government employees in the country and was one of the

Philippines' largest financial institutions. GSIS was run by Roman A. Cruz, one of Imelda's
favorites, and it was Cruz and his family who ran PAL from its takeover to the election of

Corazon Aquino in 1986.

By that time the airline had racked up consistent losses for the better part of two decades. PAL

was at least able to enjoy the benefits of Manila's new international airport, completed in 1982 to

replace a network of runways dangerously in need of repair; but, in the words of theFar Eastern

Economic Review,"the airline [was] hobbled by ineffective management and corruption." It was

also plagued by employee defections to other airlines, which generally paid about four times as

much as PAL and were not "hobbled" by corruption in such gross forms. During the 1980s more

than 1,000 of PAL's licensed mechanics, its most valuable ground workers, were lured by

competing airlines, "exacerbating flight reliability problems," according to the industry

magazineAviation Week & Space Technology.PAL had become something of an embarrassment

to the international aviation industry.

New Leadership in the Mid-1980s

The rise of "People Power" in the mid-1980s, culminating in the election of Corazon Aquino and

the escape by the Marcoses to the United States in 1986, apparently offered a chance for

significant changes in the Philippine economy. Not dwelt upon in the international press,

however, was Aquino's membership in the Cojuangco family, probably the wealthiest of all

Philippine business clans and for many years crucial supporters of the Marcos regime. Observers

point out that the election of Aquino changed less in the Philippines than her less affluent

supporters had hoped, and the privatization of PAL in 1992 offered little evidence of any real

diminution of the powers of the elite families.

President Aquino originally ordered the sale of PAL along with hundreds of other government-

owned companies shortly after her election in 1986. Since the airline had been run at a loss for

many years, Aquino first hired a Philippine businessman named Dante Santos to make PAL

profitable prior to its sale. Under Santos, PAL did report two years of net income, but these were

widely assumed to be the result of creative accounting methods rather than of any substantive

changes in PAL's performance. Indeed, in late 1990, four years after the accession of Dante

Santos as president of the airline, no fewer than 22 of PAL's top executives were charged with

negligence, fraud, and/or mismanagement; ten of these officials were eventually fired, including

an executive vice-president, two senior vice-presidents, and four vice-presidents. They were

accused of precisely the sort of corrupt operational practices that had been a way of life at PAL

for decades, including theft of parts, over-purchasing, and kickbacks from travel agents. It was

hard to say, according to some critics, whether the firings were part of a genuine cleanup effort at

PAL or merely a means of clearing the decks before the company's sale, after which the buyer

might wish to install its own people in these lucrative positions.

The sale of PAL was carried out in a curious fashion. The government first paid approximately

$350,000 to the Asian Development Bank for recommendations on how best to proceed with the

privatization of the airline. The study concluded that a large infusion of foreign ownership and

management would be needed to turn around the airline's performance. For reasons of its own,

the government rejected this proposal and instead commissioned a second study, this one from a

branch of the World Bank. The second report also recommended that about one-third of the

airline be transferred to foreign hands, chiefly as a means of retiring some of PAL's $650 million

in foreign debt. This plan was also largely ignored, however, and in the months immediately

prior to the airline's sale, PAL officials admitted that they could not return the company to
profitability and were expecting a shortfall between its sale price and the amount of its debt. The

company itself valued the two-thirds of its assets up for sale at somewhere between P 6.35

billion and P 6.69 billion, while the World Bank study had pegged their worth between P 5.25

billion and P 7.51 billion. But when the written bids were opened in January 1992, two groups of

Philippine companies had bid over P 9 billion, with AB Capital & Investment Corporation the

winner at P 9.78 billion.

AB Capital represented a consortium of Philippine interests headed by the Soriano and

Cojuangco families, who had created the airline in 1941. Contrary to the recommendations of

both preliminary studies, none of the company was sold to foreign investors; instead, the

remaining 33 percent was kept by the Philippine government, specifically by GSIS, through

which the Marcoses had taken over PAL in 1978. In effect, PAL remained under the control of

the same few Philippine families, this time without the bothersome intrusions of foreign

investors, who might possibly insist on a more rigorous accounting of its daily operations.

Prospects for the 1990s and Beyond

Thus when president and COO Jose Antonio Garcia in early 1996 proclaimed that PAL would

"take on the world" once it had "a clean house," to many observers this sounded like a familiar

refrain built around false notes. According to Michael Mackey inAir Transport Worldin February

1996, the company had lost P 1.7 billion (US$61 million) in the fiscal year that ended March 31,

a figure that in subsequent reports would be raised to $70 million (Asian Business,April 1996)

and $93 million (Airfinance Journal,June 1996). Revenues had flattened, operating expenses had

risen, losses were spreading, and debt-equity ratios were moving in the wrong direction. The

causes of the airline's poor economic performance were likewise familiar. Mackey identified

three key factors: problems with the country's aviation infrastructure, growing competition for
the Philippine market, and "the huge, sprawling subject of PAL's relationship with the

government and role in development of the economy."

Inefficiency was as rampant as ever in the fields of technology, logistics, and operations. Of the

airline's 11 Boeing 747-200s, six had GE engines, and the rest Pratt & Whitney--thus creating a

less efficient maintenance situation than if all used the same type of engine. Worse, its fleet was

both small and old. The size meant limitations on the number of flights--just 14 a week to the

U.S., compared to twice that many for its American competitors--and the age of the aircraft

placed limits on nonstop distance. A trip from Manila to London was, as Mackey wrote in

October 1997, "a Homeric odyssey" that required travelers to stop in Bangkok, Abu Dhabi, and

Frankfurt. Not only did this create inconveniences for passengers, but PAL had to pay fees at

every airport, thus cutting into its profit margins.

Its people posed as much of a liability to PAL as its machines. Abby Tan inAsian Business(April

1996) recorded the following litany of larcenous acts against the airline by its own employees:

"In one recent incident, 13 employees were charged in a ticket refund scam in Iloilo City that

was estimated to be costing the company US$3,000 every month. PAL also loses around

US$15.2 million each year through theft of plane parts and other supplies. That figure doesn't

include items stolen from provincial stations centres where the airline's catering and ground-

handling facilities are located. In one case, security agents discovered a fuel line running directly

off company grounds."

As for the relationship with the Philippine government, Mackey observed that it "would seem to

be more in place in a soap opera than in real life." According to Garcia, PAL was "owned by two

entities ... at war with each other": the Philippine government, with its one-third share, and the

conglomerate PR Holdings. Even the nature of the ownership split was in dispute, since the
government owned one-fifth of PR Holdings--which in the view of some officials gave it more

than 51 percent ownership of PAL. To top it off, the CEO of PR Holdings' political position was

made more problematic by his close association with the Marcos regime on the one hand, and his

"frosty relationship" with President Fidel Ramos, Aquino's successor, on the other. "What the

dispute effectively does," one unnamed insider observed, "is make the raising of capital more

difficult."

In its domestic service, the company continued to be hampered by a government order forcing it

to fly some commercially undesirable routes, an order to which competitors were not subject.

And competition was growing, not only from international airlines but an upstart local carrier,

Grand Air. Nonetheless, PAL was still managing to maintain vestiges of its control over the

Philippine market, but by 1996 it was under pressure to relinquish its hold--and the pressure

came not from Quezon City, but from Washington.

For years, U.S. negotiators had been trying to get PAL to comply with an "open skies

agreement," signed in the early 1980s, whereby both U.S. and Philippine carriers would have

unlimited access to markets in each other's territory. PAL had gotten its compliance deadline

postponed four times. But by 1996 it had run out of largesse from the Philippine government,

which was concerned that limitations on passenger service could lead to a loss of tourism

income, a significant industry in that country. Thus it was confronted with a more or less final

deadline of 2003. "This," as Abby Tan wrote in Asian Business, gives PAL just seven years to

fix a host of problems that have dulled its competitive edge and sapped its profits."

In the mid-to-late 1990s, PAL began taking positive steps toward eliminating its problems, both

technical and human-related. In the technical realm, it began to update its aging fleet with an

enormous order for new planes. In December 1995 it placed on order 24 Airbus A340-300s (in
addition to four already on order), as well as 12 A320s and eight A330-300s. Financing of $1.1

billion worth of Airbus equipment came from a variety of Asian banks. PAL did not simply add

aircraft; it was "refleeting," creating an entirely new service fleet, and Mackey in late 1997

predicted that with the delivery of several new aircraft in the following year, "PAL will have one

of the most modern and youngest fleets in Asia."

PAL's operations would also be bolstered by a new computer system, including a $7 million

revenue accounting system that became operational in 1997, as well as two mainframes ordered

from a Danish company. Another "new" feature, one very familiar to most airlines but not PAL,

would be a direct linkage between travel agents and the company's reservation system. Also in

the realm of service, PAL began to explore the possibilities of the Chinese and Japanese markets.

It had no service to the former, and only a limited number of flights to Tokyo in the latter case.

By late 1997, it was "very close" to Shanghai service, as well as increased routes to Japan.

In a development that suggested increasing confidence within the community of airlines, it also

entered into discussion with several possible strategic partners. "In the past," Garcia told Air

Transport World, it was exceedingly difficult to even get people to talk to us. But times are

changing." As for its human resources, PAL slashed its roster of senior vice-presidents in half, to

15, and sought to train its 14,000 employees for greater efficiency. In line with its increased fleet

size, it would be hiring 1,800 cabin crew staffers, as well as 2,000 mechanics.

Perhaps most significant was the airline's move toward privatization. Once Tan emerged as

chairman of the company in March 1995, it appeared that PAL's future course was set: it might

not remain a property of Tan--one critic quoted in Air finance Journal claimed he was "trying to

make the airline look decent and then sell it"--but it was not going to remain a property of
Quezon City either. Thus in October 1997 Mackey, a critical observer, lauded the "end of

government involvement and [indications] that business people are back in control."

For the fiscal year that ended March 31, 1997, the company showed losses of P 2.5 billion

(US$83 million), and for the next fiscal year Garcia projected losses of P 2 billion (US$66

million). "And for the financial year ending March, 1999," he said, "if we do not break even, we

should be very close to it." PAL was negotiating, he told Mackey, with Lufthansa for the German

airline's catering services; with GE Engine Services for a maintenance deal; and with an

unnamed company for a joint venture involving maintenance and engineering. Corporate Finance

Vice-President Andy Hwang said, "To be Asia's best, we must align ourselves with the best."

This is one of many new slogans, Mackey wrote, employed by the carrier that now described

itself as "Asia's Sunniest Airline." By the late 1990s, for the first time in 50 years, such promises

began to seem like more than mere words.

II. SITUATIONAL ANALYSIS

The SWOT analysis is an extremely useful tool for understanding and decision-making for all

sorts of situations in business and organizations. SWOT is an acronym for Strengths,

Weaknesses, Opportunities, and Threats. SWOT analysis is perfect for business planning,

strategic planning, competitor evaluation, marketing, business and product development and

research reports. The SWOT analysis enables companies to identify the positive and negative

influencing factors inside and outside of a company or organization.

We cover over 40,000 companies and industries. This SWOT analysis for Philippine Airlines can

provide a competitive advantage.

Strengths

-barriers of market entry

-reduced labor costs

-skilled workforce

-domestic market

-high growth rate

-experienced business units

-monetary assistance provided

Weaknesses

-small business units

-future debt rating

-investments in research and development

Opportunities

-income level is at a constant increase

-new markets

Threats

-technological problems

-rising cost of raw materials

-growing competition and lower profitability

-increasing rates of interest

I. Executive Summary

Philippine Air Lines also known as PAL is the flag carrier and national airline of the Philippines,
headquartered in the Philippine National Bank Financial Center in Pasay City. Philippine
Airlines maintains aircraft with the highest degree of airworthiness, reliability and present ability
in the most cost-effective manner; and conduct and maintain safe, reliable and cost-effective
flight. It continues to achieve on-time performance on all flights it operates, as well as providing
safe, on time, quality and cost effective in flight service for total passenger satisfaction.

The Philippines Airlines offers services at reasonable, competitive prices, and at the highest level
of quality consistent with such prices. It meets the needs of the public for moving people, goods,
information, and in particular for safe and reliable travel, transport, communication, distribution,
and related services. The companys products and services is the core companys strength since
these are what they mainly offer and, in return, where the company generates its profit. On the
other hand, the decline in the number of the passengers carried placed the major weakness of
PAL since the passengers are relevant to the revenue the company could earn.

The Philippines has high levels of economic, political and financial system risk. This impressive
result continues the encouraging and positive trend reflects the Philippines Governments
impressive efforts on fiscal management. Also, the public and international confidence will
strengthen further and provide confidence to the international investors that there is no economic
risk of doing business in Philippines.

Philippine Airlines is performing well above average in the Philippine airline industry. It
significantly indicates that the company has a strong internal position. This means that PAL has
an above-average-ability to respond to external factors that could affect the operations of the
company. Also, PAL has a strong competitive position in the market with rapid growth thus; it
needs to use its internal strengths, take advantage of external opportunities, overcome internal
weaknesses, and avoid external threats to develop a market penetration and market development
strategy. This can include product development, integration with other companies, and
acquisition of competitors. On the other hand, PAL still has to improve itself with regards to the
critical success factors.

In order for the Philippine airlines to hold and maintain its position in the industry the company
should pursue strategies focused on increasing market penetration and product development. It
should also maximize revenue generation in passenger and cargo sales through increased yields
by diversifying market segments and efficient management of seat inventory and cargo space.

II. Introduction

Philippine Air Lines also known as PAL is the flag carrier and national airline of the Philippines.
Headquartered in the Philippine National Bank Financial Center in Pasay City, the airline was
founded in 1941 and is the oldest commercial airline in Asia operating under its original name.
Out of its hubs at Ninoy Aquino International Airport of Manila and Mactan-Cebu International
Airport of Cebu City, Philippine Airlines serves nineteen destinations in the Philippines and 24
destinations in Southeast Asia, Middle East, East Asia, Oceania and North America.

On March 1941, Philippine Airlines (PAL) began to soar in the Philippine sky with one noble
mission: to serve as a factor in building a better nation. With this in mind, notwithstanding the
threats of World War II, PAL took off and became Asias first airline. Since then, with its every
takeoff and touchdown, PAL carries with itself the making of a world-class legacy. With almost
70 years of service, PAL did not fail in becoming one of the worlds most respected airlines with
its young and modern fleet of aircraft and destinations that cover 31 foreign cities and 29
domestic points. Its excellent service and world-class accommodation help PAL win the hearts of
travelers worldwide and pierce those of its competitors.

Today, PAL has led the trend in the aviation industry. Aside from its young and modern fleet of
aircraft and modern facilities, it has also one of the most extensive computer systems and radio
communications networks in the Philippines.

Also, PAL has been cited with several awards and recognition including being the only airline in
the Philippines to be accredited with the IOSA (IATA Operational Safety Audit) by the
International Air Transport Association and to receive a 3-star rating by Skytrax in terms of
cabin staff, airline, airline lounge, in-flight entertainment, on-board catering, and several other
elements of air travel. And just recently, PAL also emerged the most trusted airline brand for
Filipino consumers, according to an annual Asia-wide survey by the respected international
publication Readers Digest for 9 consecutive years since 2002.

Realizing how its loyal passengers contribute to its success, PAL continuously aims to excel to
serve its market better amidst the threats of economic crisis and fuel price inflation. However,
with proper planning and management, success for PAL would not be that impossible.

III. Internal Assessment

A. Mission Statement

Philippine Airlines maintains aircraft with the highest degree of airworthiness, reliability and
presentability in the most cost-effective manner; and conduct and maintain safe, reliable and
cost-effective flight. It continues to achieve on-time performance on all flights it operates, as
well as providing safe, on time, quality and cost effective in flight service for total passenger
satisfaction. It also maximizes revenue generation in passenger and cargo sales through increased
yields by diversifying market segments and efficient management of seat inventory and cargo
space.

B. Corporate Board of Directors & Officers

C. Organizational Chart
D. Corporate Objectives

To meet the needs of the public for moving people, goods, information, and in particular for
safe and reliable travel, transport, communication, distribution, and related services.

To offer such services at reasonable, competitive prices, and at the highest level of quality
consistent with such prices.

To provide a satisfying career to its employees.

To provide an adequate return to its stockholders; and

 To represent the best of the Philippines and the Filipino people to the world.

E. Services and Facilities

Services

i. Before Flight

Choice Seats passengers may now have the option to buy a Choice Seat assignment at least
48 hours before departure

Avian Flu PAL now address the growing consumer concern on the safety of poultry food
products to assure the cleanliness of the food they serve and also avoiding areas that has a high
alert level of Avian Influenza. And they already formulated a plan to handle the effects of the
Avian Flu situation

Medical Equipment for special medical requirements, PAL offers a wheelchair service at the
airport, as well as oxygen or stretcher equipment during flight. For passengers that need special
medical attention, we have the Medical Information Form (MEDIF) available for download

Medical Cards - Incapacitated passengers may avail of the FREMEC or Special Care card to
facilitate the processing of their flight requirements

Overbooking of Flights - Airline flights may be overbooked, and there is a slight chance that a
seat will not be available on a flight for which a person has a confirmed reservation. If the flight
is overbooked, no one will be denied a seat until airline personnel first ask for volunteers willing
to give up their reservation in exchange for compensation of the airlines choosing.

Special Handling - Philippine Airlines also offers special services to expectant mothers,
unaccompanied minors, and infants and passengers with Nut Allery. Know more about the
provisions regarding the Air Carrier Access Act (ACAA or CFR Part 382).

Special Meals - may be requested on all Philippine Airlines international flights to cater to the
various dietary requirements of passengers, for reasons of age, health or religion.

US Visit 10 Print Policy - US-VISIT is rolling out the new 10-print process port-by-port, and
expects to be fully deployed in all ports of entry by the 3rd quarter of 2008

ii. At the airport

Check in - Express check-in counters are now available for all Philippine Airlines flights from
Manila (NAIA2) and Mactan airports. Open to passengers without check-in baggage and to
senior citizens with up to two travelling companions.

Airport Lounges - Mabuhay (Business) Class passengers and Mabuhay Miles Million Miler,
Premium Elite and Elite members may relax in a warm and bright place while partaking of some
light refreshments before boarding their flight

Baggage Assistance if no claim for PR tagged on-hand baggage is made within five (5) days
after the baggage was found, PAL will turnover unclaimed baggage to Customs for disposal. If
the baggage is not found by the fifth day after the baggage was reported missing then the
baggage shall be considered lost and necessary claim shall be filed.

Connecting Flights - PAL offers a check-through amenity, a one-stop check-in for passengers
originating from any PAL station with connecting flight to any PAL destination

Storage Service - PAL has space for your baggage at the airport

iii. During flight

Cabin Interior - Philippine Airlines added two new B777-300ERs in its fleet. Highlights
include the installation of state-of-the-art in-flight entertainment systems, new business-class and
economy-class seats, and the infusion of a modern look that emulates the beautiful coastal areas
of the Philippines

Cabin Amenities - Philippine Airlines launched a new, fresh and refined design of its Amenity
Kits for Mabuhay (Business) Class on all its long-haul flights

Entertainment - A listing of movies, TV and radio programs for your entertainment pleasure.

Meals and Beverages - A wide range of inflight meals and beverages that we offer on
Mabuhay (Business) Class and Fiesta (Economy) Class.

Duty Free Sales - For last minute shopping, duty free items are available for sale onboard

Comfort and Safety - Safety information and in-flight well-being tips to help you travel the
healthy and relaxing way.

iv. Transfer Service

Between Centennial Terminal 2 and Terminal 3 - Passengers transferring via Manila with
confirmed connecting flight on Philippine Airlines and AirPhil Express shall be provided with
free airside shuttle service to and from Centennial Terminal 2 and Terminal 3.

Between NAIA1 ad Centennial Terminal 2 and new Terminal 3 - Passengers transferring via
Manila on Philippine Airlines and International Codeshare flights shall be provided with free
shuttle service to and from NAIA Terminal 1, Centennial Terminal 2 and Terminal 3. The
passenger is requested to proceed to the Transfer Desk Service at NAIA Terminal 1.

v. All about Baggage

Packing Guidelines - a must read for anyone travelling in air, and a packing guide for anyone
who wants to travel via air

Free baggage Allowance - Know the size, number of baggage and weight requirements you
can check-in and hand carried baggage you can bring into the cabin free of charge.

Excess Baggage Rates - Know PALs excess baggage rates for our domestic and international
destinations.

Restricted Items - Know about the guidelines in carrying restricted items into the cabin.

Special Baggage - Check on how to carry fragile items, musical instruments, pets, sports
equipment and other items into the flight.

Online Baggage tracing - As part of PALs service, PAL gives an online access to know the
status of your baggage. A reference number will be given to you by PAL station office once you
reported your missing or mishandled baggage. Input your reference number to access it now.

vi. Cargo

Express Services - All cargoes within the minimum weight requirement and brought in 2 hours
before the scheduled departure time gets the RHUSH special handling.

Cargo Classification

o Special Cargo

o Valuable Cargo

o Restricted Articles or Dangerous Goods

o Livestock, Live Animals and Plants

o General Cargo

Carriers Liability - The carrier, Philippine Airlines, is liable for damage, delay or loss arising
from/or in connection with the carriage of goods if such is found to have been caused by
negligence or willful fault of PAL and there has been no contributing negligence on the part of
the shipper, consignee or other claimants.

Track and Trace - As part of our service, we are providing you with an online facility to check
the status of your shipment.

vii. General Sales Agent (GSA) - Learn more on how to represent Philippine Airlines as a
General Sales Agent

viii. Charter Services - will include the required tickets, check-in formalities and in-flight
service. We guarantee that PAL will operate the charter flight, completely manned and equipped
for the performance of the journey.

Facilities

i. PAL Learning Center

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
Airlines corporate values

ii.NAIA Centennial Terminal 2

Located at the Old MIA Road and was finished in 1998 and began operations in 1999. It has
been named Centennial Terminal in commemoration of the centennial year of the declaration of
Philippine independence. The 75,000 square meter terminal was originally designed by
Aroports de Paris to be a domestic terminal, but the design was later modified to accommodate
international flights. It has a capacity of 2.5 million passengers per year in its international wing
and 5 million in its domestic wing, which later will expand to nine million passengers yearly.
Terminal 2 is the home of Philippine Airlines and is used for both its domestic and international
flights.

iii. PAL Aviation School

Started in the early sixties, the Philippine Airlines Aviation School takes pride in being the first
Aviation School in Asia. Through the years, PAL Aviation School carried on the tradition of
training excellence that made it the primary source of Philippine Airlines corps of prestigious,
professional and competent pilots.

The PAL Aviation School has a fleet of 10 CESSNA 172 aircraft. It also has one FRASCA 142
synthetic flight trainer. Ground school training is held at the PAL Learning Center, Manila while
flight training is held at Clark Field, Pampanga.

vi. Data Center Building

It is the core of one of the most extensive computer systems in the Philippines. It houses two (2)
Mainframe Computers, one hundred twenty (120) Unix systems, and PC servers. This equipment
runs the sophisticated systems like Reservations and Departure Control which are used in the
daily operation of the airline. The DCB is also the center of applications development and
maintenance, housing close to one hundred twenty (120) analysts and programmers. It is the hub
of PALs domestic network, connecting the various PAL ticket offices and airports. The DCB,
comprising 3,588.35 sq.m., is leased from the MIAA.

vii. Maintenance Base Complex (MBC)

It is composed of the North and South sectors which refer to the areas north and south of
Andrews Avenue, respectively. It covers an area of 104,531.87 sq.m. (open) and 1,768.01 sq.m.
(covered) land space leased from the MIAA. It also covers a Local Area Network (LAN) and
Wide Area Network (WAN) that links together all of PALs domestic on-line and office stations
as well as the other major offices in Metro Manila. MBC houses the Operations Group.

viii. Airlines head office

The office is located at the PNB Financial Center along President Macapagal Avenue, Pasay
City. It houses the Executive Offices, Commercial Group, Finance Group, Legal, Corporate
Secretarys Office, Human Resources, Corporate Audit, Corporate Communications,
Government Relations, and the Domestic and International Ticket Offices. It is being proposed
that the Data Center be transferred to the same location. Total area being leased from the PNB is
15,080.08 sq.meter PALs properties and equipment includes its aircraft fleet, various parcels of
land, and buildings.

F. Internal Factor Evaluation (IFE) Matrix

Analysis:

The internal factor evaluation matrix presents the strengths and weaknesses that PAL is currently
facing. These are the factors that PAL has in its internal position.

Based on the IFE Matrix, the companys products and services is still the core company strength
since these are what they mainly offer and, in return, where the company generates its profit.
Next are its people or their workforce. Since they belong in a service industry, the people play an
important role for their operations in rendering their service and for the success of the business.
Without the people, no one will accomplish the goals of the company and fulfill the needs of
their customers. But by the fact that there has been a labor dispute within the organization it can
also be their weakness.

As for its weaknesses, the decline in the number of the passengers carried placed the major
weakness of PAL since the passengers are relevant to the revenue that the company could earn.
Absence of vision statement of PAL placed as its second major weakness based on the matrix.
Because the vision statement answers the question, What is our business?, deficiency of this
statement could not be fully certain on the purpose of their business.

Based on the result in the IFE Matrix, which identifies its strengths and weaknesses and their
respective importance to the company, PAL got a score of 2.73 as against the Universal standard
of 2.5. This means that PAL is performing well above average in the Philippine airline industry.
It also signifies that the company has strong internal position.

III. External Assessment

A. Key External Factors

a. Economic Factors

The Philippines has high levels of economic, political and financial system risk. A.M. Best
considers the majority of countries in Southeast Asia to be categorized as CRT - 3 or CRT - 4.
The exceptions are Vietnam, the sole CRT - 5, and Singapore the sole CRT -1.

In 2007, Philippines achieved a GDP growth rate of 7.3 per cent, the highest for the country in
30 years. This was attributed to the positive growth in all sectors of the economy, especially
services and industries.

This impressive result continues the encouraging and positive trend of the past five years, and
reflects the Philippines Governments impressive efforts on fiscal management. It has maintained
fiscal discipline and recently increased spending in the social sector, agriculture and
infrastructure.

If Philippines can maintain the growth trend, public and international confidence will strengthen
further and provide confidence to the international investors that there is no economic risk of
doing business in Philippines.

Clearly the most significant challenge is to continue to strengthen the fundamentals of the
economy to ensure sustained high growth that will lead to a sustained decline in poverty.

However on the flip side, the economy faces challenges of implementing essential policy reforms
particularly in areas like tax administration, tax revenue collection, public expenditure
management, budget execution and transparency. The global meltdown would also pose a
challenge to Philippines economy.

On the expenditure side, the continued rise in prices resulted in lower consumer spending at 0.8
percent in 2009 from 5.1 percent a year ago.

b. Social Forces

The Philippine political system is an amalgam of 52 provinces headed by elective Governors

serving four-year terms of office, dozens of urban and semi-urban communities chartered into
cities by the national legislature and governed by City Mayors some of whom were presidential
appointees before the passage of an omnibus city law making all these offices elective, hundreds
of municipalities run by popularly elected Municipal Mayors, and thousands of rural villages
called barrios which are romanticized in Filipino political circles as the place of redemption for
those who have lost their souls. On top of these layers of political units is an omnipotent central
government headed by a President whose constitutional powers of general supervision over all
these local entities are exercised in the form of appointing city department heads such as police
chiefs and city attorneys and reviewing city and municipal budgets before they go into effect.
Another form in which these powers are exercised are the naming of barrios and city streets and
the changing of the names of these barrios and city streets the exercise of which is shared by a
bicameral legislature of more than 100 Congressmen and 24 Senators. Thus the polity that is the
Philippine national government today is virtually a prototype of its predecessors, the Spanish and
American colonial bureaucracies in the island, which charted the course of Filipino political
development in years gone by. The purpose of this article is to discuss the role social forces
played in the improvement of central-local relationships and evaluate the significance of these
improvements in the context of Filipino ideas of politics and in the framework of their
government.

c. Cultural Forces

The culture of the Philippines reflects the complexity of the history of the Philippines through
the blending of many diverse traditional Malay heritage mixed with Spanish, American and other
Asian cultures.

Pre-Hispanic, and non-Christian Philippine cultures are derived from many native traditions of
the Austronesian primitive tribes called Malayo-Polynesian or the Malay people. The prehistoric
Philippine Mythology and Philippine indigenous culture was later influenced by the Malay
cultures of Southeast Asia, accompanied by a mixture of Western-Christianity, Eastern-Islamic,
Hinduism and Buddhism tradition.

d. Environmental Factors

At least 4 people were killed and 14 were injured after an explosion inside a bus. The incident
occurred around 2PM today inside an air-conditioned bus travelling north on the EDSA-Buendia,
Makati City area. Initial unconfirmed reports points to an explosive placed in the vicinity of the
middle of the bus as the cause of the explosion. However, the nature of the explosive is yet to be
determined. Those injured were immediately sent to the nearby hospitals in Makati and Taguig
(Ospitalng Makati and St. Lukes Medical Center).

The name of the bus line is Newman Goldliner with a plate number TXJ-710. The bus and the
surrounding areas are now fully secured as the authorities continue their investigations.
According to MMDA, EDSA north-bound lane will be closed indefinitely from Ayala to
Buendia. Affected vehicles may take McKinley or Buendia/o or C5 or SLEX.

e. Legal Forces
The Lucio Tan-led Philippine Airlines (PAL) has postponed a plan to outsource about 3,000 jobs
by the end of the month amid the governments moves to resolve issues between the company
and labor groups.

In an internal memorandum, PAL assistant vice-president for industrial relations Remegio

Siapno said that they have decided to wait for the Department of Labor and Employments
(DOLE) resolution of the dispute between the airline management and the PAL Employees
Association (PALEA).

We shall wait for the decision of the Secretary of Labor and Employment, PAL said.

Last month, the labor department assumed jurisdiction over the labor row, which has stemmed
from a plan by management to outsource non-core services such as in-flight catering and aircraft
maintenance to outside entities. The outsourcing, which would affect around 3,000 of the
airlines 7,500 employees, was supposed to take effect on June 1.

Please take note that the Dole Secretarys assumption of jurisdiction on the planned spin-
off/outsourcing suspends the effects of the termination pending resolution of the labor dispute by
the Dole, the inter-office document, obtained by the Inquirer, said. In other words, the planned
spin-off/outsource shall not take effect as scheduled on May 31, the memo said. In the
meantime, employees who have received the termination letters shall continue to report for work
and PAL shall continue to admit the workers, according to PAL.

f. Governmental and Political Factors

The European Chamber of Commerce of the Philippines (ECCP) welcomes the Open Skies
policy of the Aquino administration.

Tourism, being recognized in Arangkada as one of the sunrise industries, has the chance to
become one of the big contributors to foreign exchange earnings and employment. However, the
industrys success will not be delivered on a silver platter. The Open Skies policy which will
hopefully be confirmed in an Executive Order soon, will not succeed if the international aviation
industry will be burdened with excessive and unfair taxes. It has to be understood that the
international aviation industry is the most crucial partner of Philippine tourism, recognized as a
primary engine of socio-economic growth and development. It is undisputable that the success of
Philippine tourism will greatly depend on the countrys international connectivity which is, in
turn, a function of the state of international aviation industry in the Philippines. Unfortunately,
over the years, the number of international airlines doing business in the Philippines has
dwindled even while the international aviation business in our neighboring countries (the same
countries with which the Philippines needs to compete for international tourists) saw significant
growth.

The list includes Alitalia, Air France, British Airways, Egypt Air, Lufthansa, Swissair, United
and Vietnam Airlines. Some foreign carriers have significantly reduced capacity. Part of the
reason why the number of airlines operating in the Philippines has not increased and has in fact
declined over the years can be attributed to the unfriendly and grossly onerous tax regime for
international airlines in the Philippines. The current tax regime in place consists of common
carriers tax (CCT) of three percent of gross receipts and Gross Philippine Billings (GPB) tax of
2.50 percent of GPB or an aggregate taxation on their gross revenue of 5.50 percent.

These taxes and their pertinent regulations are not consistent with international standards and
practices, thus making the Philippines the most expensive investment destination for airlines in
the Association of Southeast Asian Nation (ASEAN) region. And Philippine international
carriers are not subject to these types of taxes in the routes where they compete with foreign
airlines. This discrimination contravenes the principles of the International Civil Aviation
Organization to which the Philippines is a signatory. The government earns P3.20 billion
(approximately $ 70 million) for charging the international airlines to the Philippines for the
CCT and GPB taxes but the continued erosion of foreign and perhaps Philippine carrier flights
that support Philippine trade and economic growth will benefit the other Asian economies in
terms of business and employment opportunities.

e. Technological Forces

The incident that happened a few days ago about the hostage taking drama at the Quirino grand
stand where several chinese people died was a very sad day for our country. A number of Hong
Kong and Chinese citizens were killed. This tragedy must be a wakeup call for them to upgrade
both their weapons and gadgets. Technology can be very helpful in fighting crime here in our
country. In other countries, all police cars have computers installed at their cars to make their
work easier and faster. A computer can be used to send the location, description and even
pictures of the suspect for them to be caught easily. It might also be possible to send video
footages of the suspect or even the footage of the crime itself. It can also be used to make reports
of incidents and it can be sent directly to their central database or to their post. This laptop
computer is very useful to response more quickly to calls and reports. This set up is very
effective and must also be acquired by our country. By this way, patrols will be more effective,
reports can be responded immediately and suspects can be easily identified.

We must admit that our forces lack technology especially with their gadgets; they must have
certain gadgets like night visions, masks, tasers, tranquilizers, explosives and even spy cameras.
Even our gears are not good enough especially for that kind of situations. Helmets and bullet
proof vest must always be present especially in this kind of situation. If the said gadgets were
present, there might be a big possibility that the hostage taker was taken out immediately before
the hostages were killed. We must also upgrade our weapons. The said incident was a disaster
and according to experts, it was not handled correctly by our SWAT team. SWAT means
SPECIAL WEAPONS AND TACTICS but after what happened, they werent able to show the
true meaning of SWAT. According to them, they lack gadgets to fight the hostage taker. This
might be true but with good tactics, anything is possible. It is a must for us to upgrade our
combat equipments. It might need a big budget but this is for the safety of our country and also
the safety of our tourists. We need to upgrade our technology but we must not rely on it. Our
forces must always improve their skills and tactics.

B. Porters Five Forces Model

Analysis:

Presented on the previous page is Porters five forces model which shows the 5 major threats that
the company faces. Composing the five forces are: 1) rivalry among competing firms 2)
bargaining power of suppliers 3) bargaining power of customers 4) threat of new entrants 5)
threats of substitutes. These five forces are pretty much relevant for the firms because if in
instance these forces are mismanaged or overlooked, it may hinder the growth of the company.
Or if management was able to bring out the most out of it, these forces will turn out to be their
strength.

We have included Cebu Pacific and SEA airlines as PALs major competitors because they have
existed in the market for quite a long time now. PAL has many suppliers, which includes
supplier for its jet parts, fuels and even the interior furnishings of the plane, but the major
suppliers of PAL will possibly be Airbus and Boeing. Along with the suppliers and competitors,
we should also consider the customers of PAL which is mostly composed of Overseas Filipino
Workers (OFW), business travelers and tourists, both native and foreign. The suppliers, PAL and
its customers make up what we call as the supply chain. Aside from its major competitors, one
should also consider the industrys new entrants and substitutes in order to prevent the shifting of
the customers demand. The new entrant in the Airline industry is the South Phoenix Airlines,
while the substitutes for the airline industry will have to be the shipping lines (Sulpicio, RORO,
Super Ferry) and the bus lines (Philippine Rabbit, Victory Liner, JAC Liner).

C. External Factor Evaluation (EFE) Matrix

Analysis:

The EFE matrix allows strategies to summarize and evaluate economic, social, cultural,
demographic, environmental, political, governmental, legal, technological, and competitive
information. These are the factors that PAL is facing in the external market or environment
within the industry that they are in.

Among the opportunities identified in the EFE Matrix, Increase in international markets gained
the highest weighted score, because of the open sky policy of the Aquino administration as
President Aquino said, By promoting an open competitive international aviation sector that
enables Philippines and foreign carriers to expand their operations, maintain a strong Philippine-
based aviation industry, and ensure international connectivity in order to allow Philippine and
foreign air carriers to plan and make long-term investments in the Philippine market. Next in
line is the technological advances, This means that there are still improvements that can be
implemented to the airline industry or in the plane itself.

In terms of threats that PAL is currently facing, fuel price fluctuations is the biggest threat in the
airline industry since fuel cost comprise a large part in the operating expenses. Global economic
downturn comes as the second biggest threat in the airline industry because of the fact that when
there is an economic crisis, less opportunity will be given to people to work abroad. Also, this
makes foreigners hesitant to spend their resources for their luxuries.

In the EFE Matrix, as shown above, it visualizes and prioritizes the opportunities and threats that
a business is facing, PAL got a score of 2.88. This means that PAL has an above average ability
to respond to external factors that affects the operations of the company.

D. Competitive Profile Matrix (CPM)

Analysis:

CPM is used to compare the competitors with your company. It shows where you stand
as compared to your direct competitors.

As shown in the matrix the company has two major competitors: Cebu Pacific and
SEAIR. These competitors have shown a great deal of competencies in the airline industry in the
Philippines. They have been the closest rivals of PAL in different terms.

The critical success factors are extracted after deep analysis of external and internal environment
of the firm. Obviously there are some good and some bad points for the company in the external
environment and the internal environment. The higher rating shows that firm strategy is doing
well to support this critical success factors and lower rating means that firm strategy is lacking to
support the factor. The factors are advertising, service quality, price competitiveness,
management, financial position, customer loyalty, global expansion, market share, organizational
structure, fleet capacity, and e-commerce.

With these, the managers had rated the different airlines as to their response in the factors
enumerated. They had been weighted according to the weight of the aviation industry in the
Philippines. The highest weight was given to the product quality since the product itself is the
main factor that affects companies to be successful. With these, we come up with the weighted
score and then sum it up to get the total weighted score.

The result of the CPM analysis show that Cebu Pacific got the highest total weighted score
having 3.73 next to this is PAL which has 3.44 and the third is SEAIR having 2.75. PAL has
shown that it has a good product quality, management customer loyalty, global expansion and
fleet capacity. Cebu Pacific has advertising, product quality, price competitiveness, management,
customer loyalty, market share and e-commerce as its best factors. SEAIR has only management
as its best factor.

With this analysis PAL has a great product that it offers in the aviation industry as well as
its management since it provides wonderful services to its regular and potential customers. PAL
also has customer loyalty since it has been tagged by the readers digest as the most trusted
airlines in the industry. It has also a good fleet capacity since it has good and big planes. The
matrix also shows lack of advertisement and a good financial position to beat Cebu Pacific in the
market. The Company should be aggressive with the critical success factors to be successful in
the airline industry.

IV. Strategy Formulation

SWOT
Strengths

Service

o The company provides a customer centered services with innovative facilities that strengthen
the companys 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 companys 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
Airlines 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.

Long Existence in the Philippine Airline Industry

o PAL will be 70 years in existence in February 2011, it is considered to be one of the oldest
domestic airlines in the country and is named as the National Airlines in the Philippines. Being
in existence for so many years the company has positioned itself as one of the leading airlines in
the Philippines.

Weaknesses

Not Specific Vision Statement

o The company doesnt 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 Airlines 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.

Inadequate Corporate Social Responsibility

o PAL Medical Travel Grants are PALFs only program for humanitarian and social
development assistance. These enable indigent Filipinos to go for medical treatment as charity or
service patients for serious health conditions. It lacks CSR on environment as well as on
education.

Decline in the number of passenger carried

o PALs 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.

Insufficient promotion and marketing efforts

o The company lacks innovative promotion and marketing efforts that could maintain and
attract new passengers. Compared to other leading domestic airlines, PALs promotion and
marketing effort is considered weak.

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 countrys 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.

Increasing environmental awareness

o Environmental awareness has increased due to the effects of the Global warming that threaten
the lives of many people. The Airline industry could innovate planes that are environment
friendly to respond the need for environment preservation.

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 industrys revenue.

Airline security cost have increased

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

Fuel price fluctuations

o Unstable fuel price in the world market leaves airline companies susceptible to operating
losses.

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 companys operations.

Global Warming

o Increasing problems due to global warming can lead to a decrease in travel operations.

A. SPACE Matrix
Analysis:

Using the SPACE (Strategic Position and Action Evaluation) matrix assessment, PAL has
positioned itself in the aggressive quadrant.

Being so, this means that the company is in an excellent position to apply its internal
strengths to take advantage of external opportunities, overcome internal weaknesses, and avoid
external threats.

Furthermore, its directional vector describes itself as a financially strong firm that has
achieved major competing advantages in a growing and stable industry.

B. Boston Consulting Group Matrix

Analysis:

Provided in the above Boston Consulting Group (BCG) Matrix are the major division of
Philippine Airlines namely, the Transpacific routed destinations, flights to Asia and Australia,
and flights to domestic destinations. Revenues generated from such includes revenues from both
passenger and cargo shipments. The following are classified according to how these divisions
perform in comparison with their competitors from the Philippines, the market share and
potential market growth being taken into consideration.

Classified in the STAR category are the flights to Asia and Australia and flights along the
transpacific route. The following divisions generated the biggest portion of PALs revenue in the
current year, roughly amounting to 77.8% of PALs revenue (32.6% being from the transpacific
routes and 45.2% from the flights to and from Asia and Australia). Compared to their
competitors, PAL has the largest number of international destinations making their market share
for the said division relatively high. Also, with growing number of Filipinos who seek
employment abroad, along with the booming Philippine tourism, the said division possesses a
high potential for market growth which can be realized thru market penetration.

Classified in the CASH COW category are the Domestic flights Division. The said Division
operates along 29 cities and towns in the Philippines and such operation generated about 22.2%
of PALs total revenue for the year. In terms of the Philippine Market, PAL held 45.2% in the
domestic market along with its competitors: Cebu Pacific, SEAIR, Zest Airways, etc. which
greatly proves their huge share in the said market. In terms of its potential market growth, the
domestic division of PAL and even its competitors are all eyeing a small opportunity to expand
their domestic operations.
C. Internal-External (IE) Matrix

Analysis:

On the x-axis of the IE matrix, PAL has an IFE weighted factor of the 2.73 which falls on the
average internal position having a range of 2.0 to 2.99. On the y-axis, PAL has an EFE total
weighted score of 2.88 that falls on the medium part which ranges from 2.0 to 2.99. Philippine
Airlines falls on region 5. This means that they should either hold on to their current position or
grasp an opportunity to grow. The most effective way to do such is though market penetration
and product development strategies. Specific product development action that could be done by
PAL may include service quality development and including more amenities such as freebies
that will be given to the passengers. On the other hand, market penetration can be done thru
stringent and effective marketing efforts which may include sponsorships, event organization and
different forms of advertisement in different media such as televisions, radios and print ads.

D. Grand Strategy Matrix

Analysis:

In this matrix, PAL is located in Quadrant I which means that the company is experiencing a
rapid market growth and strong competitive position. This indicates that the company is in an
excellent strategic position.

As an appropriate strategy, PAL can continue its concentration on its current market by
penetrating and developing it as well as through product development. It is not ideal for the
company to shift while having its established competitive advantage. Also, excessive resources
should also be utilized using backward, forward, or horizontal integration as effective strategies.
It also suggests that PAL has the ability to take advantage of external opportunities and can take
risks aggressively whenever necessary.

E. Quantitative Strategic Planning Matrix (QSPM)

Analysis:

Based on the result, among the three strategies Market Penetration is the most attractive
strategy followed by Product Development and Market Development respectively.

PAL should concentrate penetrating the market which has a Total Attractiveness Score
(TAS) of 3.34. It is recommended that they continue with their present strategies and should
intensify promotional efforts, since the company is behind as compared to its primary
competitor, CEBU Pacific. Product Development should also be considered which has a score of
2.99. This may be done by acquisition of new fleet or by continuously enhancing and
refurbishing the current fleet and facilities.

V. Objectives

A. Annual Objectives

1. To create a department preferably a Research and Development Department that would be

responsible for generating innovative concepts and ideas.

2. To improve the companys effectiveness in promotions and efforts.

3. To be involved in the activities of the society that would contribute for a better society and
environment.

4. To reward employees every year for their efforts to motivate and enhance productivity.

5. To regain the customers trust.

B. Long-term Objectives

1. To accommodate the needs of the people for better transportation, security and other
related services.

2. To offer high quality service at a reasonable price.

3. To offer careers for employee contentment.

4. To boost the image of the Philippines and its citizens.

5. To contribute to the advancement and wellness of the society.

VI. Recommended Strategies

A. Proposed Vision Statement

Philippine Airlines Strives to be the best airline in South East Asia by providing genuine and
high quality transportation services with a priority not only to be an excellent company, but also
to have a strong sense of responsibility towards the citizens of the world by enhancing their lives
and strongly committing itself to the wellness of the people it fosters through their rights,
standard of works, safety and security and preservation for future purposes.

B. Services
 Organizing the website

One of the most important sources of information is in the internet and if it is not organized then
customers would probably have a really hard time gathering information and they would really
have a hard time knowing whats happening with the company, so we recommend a more
organized and user friendly website.

Text Center for reservations only

Due to the advancement of technology many discoveries and inventions has been contributed to
the world to meet the wants of many people. One of the technology output is through the
invention of mobile phones and other communication devices. The company could use a Text
center for reservations onlythat provides a 24/7 services via SMS/call to continously serve its
customers by answering their queries and questions.

Provide a PAL SHUTTLE BUS

To enhance convenience and customer service, PAL may provide a shuttle bus that will bring
passengers from the airport to their chosen hotels within Pasay, Makati and Manila areas for a
fixed price per person. This is available to all PAL passengers who will stay at hotels after their
flights.

C. Promotions

Billboards

As a way of advertising products the company could put up billboards along places that are
centrally located at the metropolis like in Luzon, specifically Pasay and Makati, Cebu City for
Visayas and Davao City for Mindanao.

More Advertisements

PAL could use the Radio or even sponsorship for an event like UAAP for advertisements, for the
exposure of their promos or events.

D. People

Recognition of Outstanding Employees

As a way of giving back to the companys employees for their hard, excellent and dedicated
work, PAL should bestow incentives to the appropriate individuals who deserve this type of
recognition. This can boost the employees morale and encourage them to have better
performance. The company shall give out four awards namely:

(1) Employee of the Year to those individuals who have shown remarkable effort in his work
and in the field to which he is assigned to, by rendering his service well to both his colleagues
and their customers.

(2) Best Steward/Stewardess to those stewards or stewardesses who can immediately sense the
needs of the customers and respond the best way by applying the standards of the company.

(3) Loyalty Award this will be awarded to the employees who have been with the company for
at least 10 years and still continued to be true to their promise of serving the company and its
customers with utmost distinction.

(4) Model Employee of the Year like the qualifications of the employee of the month but this
award is for each organization in PAL.

E. Positioning

With us, You are No. 1

This tagline emphasizes that customers are assured of world class services that will satisfy them.
The company will be sensitive to the needs of the customers and respond to those needs with
accuracy and brilliance. As the most trusted aviation company, PAL continues to maintain safe,
reliable and cost-effective flights.

VII. Strategy Implementation

VIII. Conclusion

Based on the study conducted by the researchers, the following conclusions have been made:

1. In the IFE Matrix, which identifies its strengths and weaknesses and their respective
importance to the company, PAL got a score of 2.73. This means that PAL is performing well
above average in the Philippine airline industry. It significantly indicates that the company has a
strong internal position.

2. In the EFE Matrix, which visualizes and prioritizes the opportunities and threats that a
business is facing, PAL got a score of 2.88. This means that PAL has an above-average-ability to
respond to external factors that could affect the operations of the company.

3. According to the CPM of different companies within the Philippine airline industry, PAL
got a score of 3.44, which is slightly behind Cebu Pacific and way above SEAIR. This means
that PAL has a strong position within the industry considering that it got a score above the
average weighted score. On the other hand, PAL still has to improve itself with regards to the
critical success factors listed because it only ranked second in the industry with Cebu Pacific as
the first based on the total weighted scores taken.

4. In the SPACE Matrix, which determines what type of a strategy a company should
undertake, PAL got an ES Average of-2.20, IS Average of 4.60, CA Average of -2.40 and FS
Average of 4.00which lead to Directional Vector Coordinates of +2.20 in the x-axis and +0.55 in
the y-axis. After plotting the values in the matrix, it was concluded that PAL positioned itself in
Quadrant I which suggests that the company should pursue an Aggressive Strategy. This means
that PAL has a strong competitive position in the market with rapid growth thus, it needs to use
its internal strengths, take advantage of external opportunities, overcome internal weaknesses,
and avoid external threats to develop a market penetration and market development
strategy. This can include product development, integration with other companies, and
acquisition of competitors.

5. In the BCG Matrix, which determines what priorities should be given in the product
portfolio of a business unit, it appeared that the Domestic Destination unit of PAL is a cash cow
business unit. It suggests that this unit has a low market growth but with high market share. As a
result, this unit can be used to support other business units so the company should make
strategies to defend & maintain it. It needs to be managed for continued profit - so that it could
continue to generate the strong cash flows that the company needs for its Stars which are in
PALs case, the Transpacific Routes.

6. In the IE Matrix, which analyzes working conditions and strategic position of a business,
PAL landed on region 5 which is included in the so-called group 2 of the matrix. This tells us
that PAL should hold and maintain its position in the industry. The company should pursue
strategies focused on increasing market penetration and product development.

7. Based on the results reflected on the different matrices mentioned, the researchers
concluded that PAL could formulate its strategies by comparing 3 alternative actions namely
market development, product development and market penetration. The QSPM, in turn, will
provide an analytical method for comparing these feasible alternative actions for the company
since it is used to determine the relative attractiveness of various strategies based on the extent to
which key external and internal critical success factors are capitalized upon or improved. And
based on the results of QSPM, market development strategy got a score of 2.53, product
development strategy got 2.99 and market penetration strategy got 3.34. This lead to the
conclusion that the company should develop market penetration strategies as it yield the highest
score among the 3 strategies presented. PAL may also use product development strategies since
it got the second highest score and it is way above the average score.