Philippine Airlines (PAL) secured a stable outlook and its first-time “BB” credit rating from Fitch Ratings, indicating the flag carrier maintains enough financial flexibility to withstand severe global headwinds and capacity constraints

In a June 11 commentary, Fitch said the non-investment grade rating reflects PAL’s market-leading position as the sole full-service carrier in the country.

Fitch explained that while the rating points to an elevated vulnerability to default risk under harsh economic conditions, PAL’s extensive network, cost efficiency, and ongoing fleet expansion provide substantial structural cushion.

Fitch expects PAL’s market share to remain robust this year, especially as potential competitors are unable to expand their domestic reach due to capacity constraints and slot scarcity at airports in the country.

The airline’s earnings before interest, taxes, depreciation, amortization, and rent (EBITDAR) net leverage is expected to peak at 3.3 times this year, compared to 1.9 times last year, while continuing to generate positive free cash flow.

While its EBITDAR fixed-charge coverage ratio—which measures a company’s capacity to meet its fixed financial obligations—is expected to ease to 1.3 times from 1.6 times, Fitch said this should improve over the medium term.

PAL’s liquidity is expected to remain adequate, with readily available cash and committed facilities projected to average a mid-to-high teens percentage of revenue over the preceding 12 months from 2026 to 2029, providing a buffer against operating volatility.

Fitch expects PAL’s financial strength to counter temporary margin pressure this year stemming from higher fuel costs triggered by supply constraints in the Middle East.

“PAL can offset around 40 percent of fuel cost increases through fare hikes, supported by fortnightly regulated fuel surcharge adjustments by [its] regulator,” it said.

The credit watcher also anticipates slightly weaker demand due to disruptions on the carrier’s Middle East routes, which account for eight percent of its total revenue.

“We believe the prolonged conflict will temporarily weaken travel demand, particularly on more price-sensitive routes,” said Fitch.

In addition, PAL is expected to remain exposed to the depreciation of the Philippine peso, although the risk is mitigated by its practice of converting excess pesos into United States dollars.

Based on its financial report, PAL’s net income declined by one percent to ₱4.28 billion in the first quarter from ₱4.33 billion in the same period last year.

As the conflict in the Middle East drags on, Fitch said its impact on PAL’s profitability would likely weigh further in the coming months, although a brighter outlook is seen for next year.

“We expect profitability and traffic to recover once the conflict abates, with metrics normalising from 2027,” it said.

PAL currently operates 29 destinations across the Philippines and 40 international routes spanning Asia, North America, and Australia.