Abstract
This paper discusses the issues facing Philippine Airlines in its ever evolving and changing landscape in the domestic, regional and international markets. The Philippine aviation industry had its safety status downgraded to Category 2 for six years by the International Civil Aviation Organization and the US Federal Aviation Administration. This downgrading of the status severely limited Philippine Airlines from expanding internationally, but its reinstatement provides huge opportunities for the incumbent. However, in the domestic and regional markets it faces a threat from rapidly encroaching low-cost carriers. The Philippines has the highest domestic low-cost carrier penetration rate in the world, while the incumbent has rebranded its low-cost subsidiary, AirPhil, to a full-service carrier, PAL Express, which has impacted its ability to compete in short-haul markets. Philippine Airlines' new routes to the Middle East and Europe have the potential to be profitable, but their success is hampered by the lack of domestic connectivity and no feeder traffic from partner airlines.