Philippine Airlines to sell non-core business units

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Philippine Airlines (PAL) has defended plans to spin-off several business units, saying that they are necessary to ensure its "continued survival in a cut-throat airline industry".

The carrier has been in trouble for a while due to its high cost base, and growing competition from domestic carriers like Cebu Pacific that have used the low-cost model to increase their business at PAL's expense.

It lost $312 million over the last two years, says president and CEO Jaime Bautista. Its net profits fell 20% to 1.4 billion pesos ($31.9 million) in its first fiscal quarter, even though revenues rose 24% to 19.4 billion pesos. This came as other airlines in the region posted strong profits on growing passenger traffic.

PAL plans to spin off or sell three non-core units - in-flight catering, airport services and call centre reservations - and contract these to third party service providers. It estimates that 2,600 workers will be laid off as a result, resulting in protests from unions that took the matter up with the government.

The Philippines' Department of Labor and Employment (DOLE), however, upheld PAL's decision and Bautista says that PAL has no choice but to go ahead. This was necessary to restructure and reduce costs to be sustainably viable, he adds.

"PAL's position that the planned spin-off 'is a matter of sound business judgment in order to maintain the survival and sound financial health of the company in a globally competitive airline industry'," says Bautista.

The airline has not given details on when it plans to restructure its operations and sell off the business units.