WESTMEAD INTERNATIONAL SCHOOL

School of Economics, Business, and Accountancy

COMPANY MARKET STRUCTURE ANALYSIS

Submitted to: Dr. Marites D. Manlongat

Submitted by:
ENCEPTO, ELIZA CZARINA
HIDAMA, KENN ADRIAN M.
RAMENTO, RANIA JANE A.

BS Accountancy 211

2025
 I.​ INTRODUCTION

Philippine Airlines, Inc. (PAL) has served as the country’s pioneering flag carrier for nearly eight
decades, keeping its original name and national colors since its founding. Its origins trace back to the
Philippine Aerial Taxi Company created by Andrés Soriano in 1931, which later evolved into Philippine
Air Lines in 1941. Despite the onset of war, PAL launched its first flight on March 15, 1941 from Makati
to Baguio. PAL shifted between government and private ownership through the years, eventually
returning to private hands in the early 1990s. Today, it remains the only privately owned major flag carrier
in Southeast Asia under the leadership of Dr. Lucio C. Tan.

Designated as the national flag carrier under R.A. 2232, PAL has played a key role in economic
growth and tourism development. It is now the Philippines’ largest international airline and the only
full-service Filipino carrier offering Business Class, Premium Economy, and Economy. With one of the
world’s youngest fleets—including Boeing 777s and Airbus A350s, A330s, A320s, and A321s—PAL
operates from hubs in Manila, Cebu, Clark, and Davao. Its network spans 25 domestic destinations and 28
international routes, and it remains the only Philippine airline offering direct flights to mainland U.S.A.,
Hawaii, Canada, New Zealand, Western Europe, Japan, and Australia.

The company belongs to the commercial passenger and cargo air transportation industry, a sector
responsible for providing scheduled air travel services for individuals and groups, as well as transporting
goods and freight across domestic and international routes. The industry operates under strict regulatory
oversight enforced by national and international bodies such as the Civil Aviation Authority of the
Philippines (CAAP) and the International Civil Aviation Organization (ICAO) which ensure dedication to
safety, security, and operational guidelines. Moreover, competition within this market is intense, as
airlines continuously upgrade services, expand networks, and adopt modern fleets to attract passengers
and meet the growing demands of global travel and cargo transport.​

II.​ MARKET STRUCTURE

​ The airline industry in the Philippines and the global commercial airline sector is best described
as an oligopoly because only a small number of major airlines dominate the market, each with significant
influence over pricing, routes, and service offerings. Philippine Airlines being the main airline for 54
years before the publishing of Executive Order 219 is considered a monopolistic structure. After the
establishing of Executive Order 219 on January 3, 1995, Cebu Pacific established its airline on March 8,
1996 transitioning the domestic air transport industry into oligopolistic structure.

In the Philippines, the commercial airline market is controlled mainly by Philippine Airlines,
Cebu Pacific, and AirAsia Philippines, creating a highly concentrated and competitive environment. This
classification fits PAL because the airline industry has high barriers to entry, including substantial capital
investment, strict government regulations, aircraft acquisition, technical expertise, and limited airport
slots, making it difficult for new companies to enter.

Furthermore, while airlines offer similar services like transporting passengers and cargo, PAL
differentiates itself as a full-service carrier, providing premium amenities, while others focus on low-cost
travel. These features show that Philippine Airlines belongs to a differentiated oligopoly, where a few
firms control the market but compete through service quality, pricing strategies, and brand positioning.

III.​ MARKET CHARACTERISTICS ANALYSIS

The Philippine airline industry is characterized by an oligopolistic market structure, with only a
few major competitors dominating both domestic and international routes. The primary players are
Philippine Airlines (PAL), Cebu Pacific, and AirAsia Philippines, which together account for the vast
majority of passenger traffic in the country. In terms of dominance, Cebu Pacific leads the domestic
market with its low-cost model, while Philippine Airlines maintains strength in premium services and
long-haul international routes. AirAsia Philippines competes aggressively in the budget segment,
particularly for regional flights.

Concentration indicators such as the market share distribution confirm that the industry is highly
concentrated, with the top three airlines controlling more than 90% of the market, specifically, Cebu
Pacific held about 61% of the domestic market, Philippine Airlines about 29%, and AirAsia Philippines
about 9%, confirming that the industry is dominated by a few firms. This only means a few big airlines
control most of the market, they are the ones who set ticket prices, decide which routes to offer, and
introduce new services. This shows that the Philippine airline industry works like an oligopoly, where a
small number of companies have the power to shape the whole business.
 The product of Philippine Airlines (PAL) is considered differentiated because, while it provides
the same basic service of air travel as other carriers, it distinguishes itself by being the country’s only
full-service network airline, offering multiple cabin classes such as Business, Premium Economy, and
Economy, along with inflight meals, entertainment, Wi-Fi, and lounge access, plus long-haul international
routes that budget airlines like Cebu Pacific and AirAsia Philippines do not provide, at the same time,
PAL emphasizes Filipino hospitality as part of its brand identity, giving its service a cultural distinction,
though it is not entirely unique since other global full-service airlines also deliver similar premium
offerings. In terms of barriers, the Philippine airline industry has high barriers to entry and exit, making it
difficult for new companies to join and costly for existing ones to leave. Entry is restricted by the huge
capital needed for aircraft and infrastructure, strict government regulations and safety approvals, limited
airport slots at major hubs, strong brand loyalty enjoyed by established carriers, and economies of scale
that favor large airlines. Exit is hindered by sunk costs in planes and facilities, long-term lease and debt
obligations, employee contracts and unionized labor, and government or reputational pressures tied to
tourism and national connectivity, all of which reinforce the oligopoly structure dominated by Philippine
Airlines, Cebu Pacific, and AirAsia Philippines.

Philippine Airlines has some power to influence prices, especially on long-haul and premium
routes where it faces limited direct competition, but overall pricing in the industry is shaped by a mix of
market forces and strategic coordination among dominant carriers while budget airlines like Cebu Pacific
and AirAsia compete aggressively on price, PAL differentiates through service quality and brand
positioning, allowing it to set higher fares in certain segments, yet it must still respond to broader market
trends, fuel costs, and regulatory factors that affect the entire industry. The level of competition in the
Philippine airline industry is high, with dominant players like Cebu Pacific, Philippine Airlines, and
AirAsia Philippines actively competing for market share through aggressive pricing, frequent promotions,
and route expansions these airlines engage in strategic behaviors such as advertising campaigns, loyalty
programs, digital innovation, and partnerships with travel platforms to attract and retain passengers, while
smaller carriers struggle to compete due to limited resources and access to prime airport slots, reinforcing
the intense rivalry and dynamic nature of the market.

IV.​ COMPANY POSITION IN THE MARKET

In the Philippines, the airline industry is highly competitive with only a few players such as Cebu
Pacific and Philippine Airlines. PAL has long been the market leader of the industry. However, it has lost
its leadership in the domestic market by Cebu Pacific because of its low-cost price, since the deregulation
of the industry. But, it has maintained its leadership in international flights.

Despite high competition and a strong rivalry from full legacy carriers and the increasing number
of low-cost carriers (LCCs) in the Asia Pacific Region, the Philippine Airlines maintain to have a strong
market share in its international routes. In the 2024 data provided by Civil Aeronautics Board (CAB),
PAL held 22% of market share in the international market and 29% market share in the Philippine
domestic market. This, however, varies significantly across different regions influencing the airline's
strategies and major operational decisions.

​ Furthermore, being one of the top airlines in the Philippines, among its key competitive
advantages in the US and Canada is the offering of non-stop flights to New York, Los Angeles, San
Francisco, Vancouver, Toronto, Honolulu and Guam. Also, its financial growth and sustainability has
become one of its advantages to competitors in the industry. As reported by the International Air
Transport Association (IATA), PAL achieved a 5% net margin which is higher from the average of 3% in
the global airline industry. This is a major proof that reflects their disciplined cost management, sustained
passenger demand, and strategic network expansion - making a name in the industry as one of the region's
most resilient full-service use carriers.

Additionally, one of PAL's prominent advantages is its status as the flag carrier and Buong
Pusong Alaga (wholehearted care) service. In the survey conducted by Marketing Communications firms
Campaign360 and Milieu Insight, PAL is one of the top 50 trusted consumer brands in the country.
Placing tenth in the Philippines and is the sole travel brand in the top 10 with a high score for its
high-quality services, buying experience, and customer trustworthiness.

Over the past years, PAL has implemented several strategic initiatives that may enhance its brand
value. Upgrading its fleet with more fuel-efficient aircraft, international routes network expansion, and
investing digital innovation to improve customer experience. These strategies have not only helped their
operational efficiency but also kept customer satisfaction.

Moreover, PAL has modernized its operations by working with local and international tech firms.
Digital transformation is considered as the key strategy of the company for personalized customer
experience. Some of the highlights were the implementation of SalesForce Customer Relationship
Management (CRM), PAL Holidays (powered by Expedia), and launch of Group Sales Optimizer (GSO),
in order to build better engagements, support flight and tour packages, and fully automated group
processes, respectively. In addition, the company also aims to increase operational productivity, efficient
and timely records of transactions, and to enhance data-based decision making.

For instance, the airline offers multiple service classes: Business Class, Economy, and Premium
Economy, allowing them to gain more customers as it attracts both budget-conscious travelers and those
who are looking for premium and enhanced comfort and services. By using a more fuel-efficient aircraft,
PAL was able to compete with pricing with low-cost carriers. Still, Cebu Pacific maintains its lead for
budget carriers, being recognized as Asia’s Low-cost Airline of the Year in the 2025 Centre for Aviation
(CAPA) Awards for Excellence. But what makes the PAL stand out is the offering of other services such
as complimentary meals and in-flight entertainment which are hallmarks of a differentiated service
offering.

V.​ MARKET OUTCOMES

The industry has made strong progress in efficiency and innovation, especially after the
pandemic. Airlines have upgraded digital booking systems, expanded fleets, and improved customer
service. Cebu Pacific and AirAsia Philippines lead in cost efficiency through their low-cost models, while
Philippine Airlines focuses on premium service and long-haul routes. However, because only a few
airlines dominate the market, consumer choices are limited, and price competition is strongest in the
budget segment. Full-service options are available but come at higher prices, which may not be accessible
to all travelers.

Innovation is visible in mobile apps, loyalty programs, and route expansion, especially to
underserved domestic areas. Yet, smaller carriers struggle to compete due to high operating costs and
limited access to airport slots. This means that consumer welfare benefits mostly from promotions and
competitive pricing among budget airlines, while premium travelers enjoy differentiated services from
PAL. Overall, the market structure favors large firms, which helps them maintain stable performance but
can reduce pressure to innovate aggressively or lower prices across the board.

The oligopoly market structure of the Philippine airline industry strongly shapes Philippine
Airlines’ performance because only a few carriers dominate the market, giving PAL both opportunities
and challenges. On one hand, limited competition in premium and long-haul routes allows PAL to
maintain higher fares, protect its brand as the country’s only full-service airline, and secure loyal
customers who value comfort and international connectivity. On the other hand, the presence of
aggressive low-cost rivals like Cebu Pacific and AirAsia forces PAL to balance its premium positioning
with competitive pricing and promotions, especially in the domestic market. The high barriers to entry
also protect PAL from new competitors, but the same structure pressures it to continually invest in service
quality, fleet modernization, and digital innovation to defend its market share. Overall, the oligopoly
structure enables PAL to remain a dominant player, but it also requires constant strategic adjustments to
sustain profitability and relevance in a highly concentrated industry.

VI.​ CONCLUSION

Within the context of the Philippine airline industry, the analysis reveals that Philippine Airlines
belongs to the oligopolistic market structure where only a few major players (Cebu Pacific, Philippine
Airlines, and AirAsia Philippines) dominate both domestic and international markets. Despite the intense
rivalry, PAL maintains its position that lies in its status as the Philippine flag carrier, the sole airline to
offer full-service, expanded international routes, premium service, Filipino hospitality, customer
satisfaction and trustworthiness, and its multiple cabin class offerings. Cebu Pacific may have the biggest
market share in the domestic market, PAL remains as the preferred choice when it comes to premium and
long-haul travel; maintaining a significant market share both in domestic and international market that is
stemmed from the airline's disciplined cost management, strategic fleet, and network upgrades.

The high barriers to entry such as huge capital investments, strict government regulations, and
limited airport slots - further strengthens PAL’s competitive standing, protecting the top major players
from the new entrants and preserving its market structure. In addition, the airline’s continuous efforts to
retain customer loyalty by investing in digital transformation, customer comfort and experience, and
operational modernization shows that it aims to adapt to the evolving dynamic of the industry brought
about by new technological advancements and customer expectations. Moreover, its 2024 net margin
which is above the global airline industry benchmark, allows it to sustain its financial stability despite the
price pressure from the low-cost carriers. This shows that PAL’s business strategy like Buong Pusong
Alaga (wholehearted care) and differentiated services is effective to retain customers that highly
contributed to the airline's financial stability and financial growth. These efforts further indicate that the
airline is righteous to be on top 50 trusted consumer brands while being the only airline to be on the top
with high scores in its high-quality services and customer trustworthiness.

Overall, the airline operates in an environment that presents both opportunities and constraints.
Yet, it continues to improve in the post-pandemic despite the increasing customer expectations and
demand for affordable and premium travel options - Philippine Airlines demonstrates a strong capability
to cope with the growing market challenges by strengthening its brand legacy, innovation efforts, and
differentiated services offered. This allows PAL to be an influential player in shaping the Philippine
airline industry. For instance, its market structure as an oligopoly allows PAL to remain stablee by
limiting the number of players involved and protecting established carriers through high barriers to entry.
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