The investment by All Nippon Airways (ANA) in Philippine Airlines (PAL) was long under way, but both parties benefit if the partnership is well executed.
PAL was clear about its intention to recruit a strategic investor for a long time, focusing not only on gaining access to finance, but also to tap a more experienced airline to help with the next phase of growth.
At the end of January, ANA Holdings signed a deal of $ 95 million to take a 9.5% stake in PAL. This may be a small change for the Japanese group, but a major victory for the Philippine airline, which is focused on international growth.
PAL has aggressively expanded its international operations over the past two years, particularly with services to North America, as Airbus A350-900 is being delivered. However, in 2017 it achieved a net loss of Ps7.3 billion ($ 140 million) and it seems likely to remain in the red in its previously unannounced 2018 results.
ANA says its investment in PAL reflects its "belief in the dynamism of the Asian region" and will help to start a new era of growth in Philippine society. The duo wants to expand code shares and at the same time explore the possibilities in catering and ground handling.
Their codeshares now connect 16 Japanese destinations and 11 in the Philippines. PAL operates 84 weekly flights to Japan, while ANA runs 14 weekly flights to the Philippines.
PAL chief executive Jaime Bautista believes the partnership can also help PAL flights from secondary Philippine cities such as Bohol and Davao to Tokyo Narita.
Philippine Airlines services to Japan – February 2019
PAL now flies from Manila to Fukuoka, Nagoya, Osaka, Sapporo and Tokyo and from Cebu to Nagoya, Osaka and Tokyo. ANA & # 39; s only route to the Philippines is Tokyo-Manila.
ANA president and chief executive Shinya Katanozaka says that more than 80% of traffic in the Philippines and Japan is leisure, but he believes that more business will be generated after the easing of Japanese visas in August 2018.
Flight Ascend Consultancy & # 39; s Chief Economist, Peter Morris, believes that ANA, in addition to both parties that can win on the sizable Japanese-Philippine market, with its experience and leading position will be able to handle many aspects of PAL & # 39; s improve activities and systems. PAL can, in turn, offer a low-cost source of qualified labor, such as cabin crew and engineers who can benefit from ANA.
In addition to the goal of becoming a "five star company", PAL is also seeking approval to join a global alliance – and Star Alliance member ANA can help her case. PAL believes it benefits from a shared frequent flyer program, extensive code share and joint purchasing.
With the more conservative Japanese airline involved, PAL can also be expected to improve profitability and slow down international expansion. It has expanded its presence in North America, Australasia and the Middle East, but at the expense of its finances.
However, a partnership is not always easy and ANA has experienced firsthand how challenging it can be to work with an incompatible partner through the failed joint venture AirAsia Japan.
However, the collaboration with PAL looks more promising, given the long history of collaborating with the duo, and taking into account in particular the fact that the Philippine airline wants to be led and open to change. ANA sends a director to PAL and a steering committee will also be set up to monitor the progress of the partnership every six months.
"PAL can change and the Japanese want to see change and send it now that it is a stakeholder. It can also be a harbinger of ANA that will increase its importance in the future", says Shukor Yusof, founder of aviation consultancy firm Endau Analytics.
PAL had previously said that it would offer a share of up to 40% to a strategic investor. ANA could increase its importance in the future, or PAL could look elsewhere for further capital injection. Analysts are of the opinion that it is unlikely that another airline will come on board, with ANA already involved.
Yusof adds that, while PAL sales are consistent with the goal of founder Lucio Tan to reduce the ownership of his family of the national airline, it also illustrates the smart investment strategy of ANA.
"ANA has interests in Vietnam Airlines and PAL, both in countries where Japan has strong roots and where tourism and business are growing rapidly," he says.
"It is known that middle-class Filipinos regularly travel to different Japanese cities, PAL receives a much-needed injection of a well-known and well-known brand and a possible increase in Japanese tourists."