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econ

industry paper
by

airah burgos

on 4 October 2011

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Transcript of econ

Industry Analysis of Philippine Airlines Company History:

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. Company history:
Cebu Air, Inc., operating as Cebu Pacific Air, is Asia's third-largest low-cost airline based in Pasay City, Metro Manila, and the Philippines. It offers scheduled flights to both domestic and international destinations. Cebu Pacific Air is currently the country's leading domestic carrier, serving the most domestic destinations with the largest number flights and routes, and equipped with the youngest fleet. VISION MISSION OF PHILIPPINE AIRLINE
Philippine Airlines has long been noted for the outstanding quality of training provided to its employees. The professionalism of flight attendants; the masterful flying abilities of pilots; and the frontline skills of the ground staff are some of the concrete results of PAL’s training programs.
Cebu Pacific Brings people together through an affordable, reliable mode of travel—a fun-filled experience that's delivered with a true heart and soul for service.
We enhance the quality of life of the communities we serve and are an active partner in the nation's progress.
The market structure for airlines is an oligopoly. This means that there are only a handful of companies that compete in this industry.
Oligopolies are more competitive than monopolies, industries for which there is only one seller of the product, but are less competitive than industries that experience near perfect competition.
MARKET STRUCTURE

The market structure for airlines is an oligopoly. This means that there are only a handful of companies that compete in this industry.

Oligopolies are more competitive than monopolies, industries for which there is only one seller of the product, but are less competitive than industries that experience near perfect competition.

ELASTICITY

In general, transportation is highly inelastic because there is no close substitute for it. However, air transportation may be classified as elastic due to the fact that it is substitutable with land or water transportation. But what is the likelihood that someone will drive or take a train to his or her destination? For regional airlines, the threat might be a little higher than international carriers. However, when determining this, one should consider time, money, personal preference and convenience in the air travel industry. Merger Activity

Merger and consolidation have both positive and negative effects. On the positive side, efficiency is enhanced as it allows airlines to achieve economies of scale and scope by consolidating airline functions such as ground handling, repair and maintenance, marketing, and others. On the negative side, there is the fear that the end result will be a large airline becoming so dominant that it can exert considerable market power. Profitability

Philippine Airlines, for the years 2008 to 2010, has managed to retain their operating expenses below their revenues. However, year 2008 had been difficult for them due to the difference of their total revenue from their operating expense which shows a slight loss on the company. Problem Identification How service differentiation enables an airline such as PAL to stay ahead in the fight for market share?

Legacy airline - being the known flag carrier in the past, having carried past Presidents of the country, it augurs well to Filipinos abroad who are coming home for a visit or for good, after long absence.

Availability and accessibility
Comfort and style - Filipinos are very particular with “status symbol,” “comfort” and the perks that comes to with the “status.”
Mabuhay club members perks and benefits
2 classes: Mabuhay (business) and Fiesta (economy)
Does being first always translate into a successful marketing strategy?

“The re-fleeting program enabled PAL to be dubbed as the first airline in the world to
operate the full range of new-generation Airbus aircraft.”

PAL is an example of a company that have tried to be first in service and product innovation but failed due to many factors.

 One factor is acquiring too many aircrafts while matching them with unprofitable routes.
 Union activism and employees discontent aggravated this.
ANALYSIS

Aside from the news briefings, PAL has no aggressive marketing strategy to combat the negative issues besetting it:

• Labor unrest and its effects on its flight schedules, performance, and commitment;
• Affordability and accessibility of its flights;
• On time arrivals and safe travel;
• Positive image of its Chairman and CEO; and
• Corporate Social Responsibility.
CONCLUSION

As the experience of other countries has shown, convenient and efficient air services brought about by greater competition are critical to attracting foreign investment, trade and tourism. EO 219 is an important policy and thus, should be implemented quickly. Five years of waiting for its implementation is enough. The industry has already suffered much to the detriment of the entire economy. It is now time to regain the country’s lost ground in the international air transport industry. However, it should be emphasized that the implementation of EO 219 will not suffice. The government also needs to deepen its liberalization efforts by adopting a more flexible approach to its bilateral air agreements. Even if it has succeeded in privatizing PAL, privatization without regard for effective competition will only lead to the privatization of monopoly rents. Given the huge capital requirement of the industry, privatization could be considerably enhanced if existing restrictions on foreign ownership could be made less strict.
RECOMMENDATIONS

 Be involved in promoting the Philippines as a tourist destination
 Be involved in the efforts of the government to assist distressed OFWs and calamity-stricken countries
 Continue its CALL FOR EXCELLENCE campaign to serve its market better.
 Operational efficiency
The Herfindahl-Hirschman Index
(HHI), a measure of industry concentration,
sums the squared
market shares of each firm
in the industry (Carlton and
Perloff 1994). When the
domestic airline industry is
taken as a single market,
the HHI is basically stable
(see table 3).
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