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Air
Strike overview No
route to loss Monopolising
the pilgrims hegemony 'Privatisation
is the best solution' On
another plane
Pakistan's
premier national carrier since March 1955, PIA has long enjoyed its hegemony
(read monopoly) in the country. Not any more. In the very strong presence of
an entire fleet of private airlines such as Airblue, Shaheen, and Aero Asia,
the organisation has been reduced to a financial mess -- due also to the ever
increasing fuel prices in the international market and PIA's own inability to
cope with the situation. Last year, it suffered a loss of Rs 12.7 billion,
and the year so far has only burdened the airline with another Rs 10.7
billion. In addition, 2007 began with the European Union slapping the
ignominious ban that wasn't lifted -- for a good few weeks -- till the PIA
authorities could redeem themselves by giving assurances that their future
maintenance practices would be in keeping with the best global standards. On home
front, the organisation is plagued by a myriad of issues -- big and small --
all threatening the very existence of the airline. The massive, Nov-2 strike
by as many as 800 flight engineers in the name of 'sick leave' clearly
betokened the internal quagmire the organisation today finds itself in. It
brought more prominently to light the growing frustration of the technical
staff regarding the 'unfulfilled' promises made by the high-ups. The
engineers demanded an implementation of the Memorandum of Understanding (MoU)
that had been signed, back in 1989, to increase their salaries. For its
part, the management saw the MoU as translating into further losses. However,
it held out another bunch of reassurances, with the result that the strike
was called off in just a matter of a day. In an
exclusive interview for the Special Report this week, Chairman PIA, Zaffar A
Khan answers a volley of serious questions. He comes out stressing on the
need to "critically examine our current fleet deployment and the
economic viability of each route that we operate."
All the
airports of the country presented a deserted look when the national carrier
PIA grounded all its fleet on November 2, 2007. That day, around 90 domestic
and international flights of the airline were cancelled that led to the
unprecedented miseries for the masses. Things eased out for the lucky ones
when the Civil Aviation Authority (CAA) allowed a private domestic airline to
run extra flights to accommodate the stranded passengers. The main
reason that led to the situation was that more than 800 engineers of PIA had
collectively gone on sick leave following a protest campaign against the
administration's reluctance to increase their salaries. They had also asked
for improvement in workplace conditions, privileges such as flight allowance,
rest allowance, fulfillment of promises made by the PIA highups and the
abolition of a 'faulty' evaluation system. Despite
insistence of media personnel, the engineers were not ready to accept that
they had gone on strike. "We were on one-day sick leave, as all of us
had been under immense stress for days on end," says Syed Mashkoor Hasan,
General Secretary, Society of Aircraft Engineers of Pakistan (SAEP). The
engineers had been on a go-slow move for many days and in talks with the top
management. When their talks failed, all of them decided to go on medical
leave. The
situation improved the next day when the engineers returned to their duty,
reportedly on assurances from the management to keep the talks process
intact. The PIA chairman Zaffar Ahmed Khan also confirmed this in a statement
but expressed that the engineers' demand in salaries was hard to fulfill
considering the existing financial situation of the airline. He had
said: "The aircraft engineers are a very important part of the airline
and are expected to keep in mind their mandatory duties towards the
passengers' convenience Their demands are legitimate but they did not choose
the right way for this. But we are still in talks and hope to settle the
issue soon." The
engineers have, however, demanded that the PIA management should implement a
memorandum of understanding (MoU) signed in 1989 to increase their salaries.
But the management believes the airline will have to face an additional loss
of Rs 800 million to 1 billion if the demand of aircraft engineers is
approved. This is for the reason that the expenditure spent on employees
under the head of salary stands at 17 to 18 per cent of the overall budget. "The
engineers of PIA are overworked and underpaid. We work on our aircraft and at
the same time customer aircraft that include those owned by both the domestic
and international airlines. PIA charges the customers but does not compensate
the engineers," says Mashkoor. About
the disparity between the engineers and the pilots, he says that there is
simply no comparison. He
further says that the engineers do not have any grievances against the pilots
as it is the management not them that is responsible for this discrimination. Mashkoor
says that any pilot who thinks he has served more than the stipulated working
hours in a day simply leaves the cockpit and refuses to fly, but an engineer
cannot shun his duty. "Even then they are not compensated." A PIA
spokesman refutes this claim and tells TNS that the salaries of aircraft
engineers were revised by 35 during November 2006, followed by 10 per cent
merit increase in salaries allowed during January 2007. Again, in May 2007,
engineers were exempted from 5 per cent deduction on account of medical
facilities effective January 2007, he says. This clearly reflects the
management's welfare-based commitment to its employees but the engineers are
always yearning for more. Besides,
PIA chairman has repeatedly cited the burgeoning losses faced by the airline
and overemployment in it as major reasons for administration's reluctance in
accepting each and every demand of the protesting engineers. In a message to
the PIA staff he said that although the management was not mulling to
downsize the workforce, it was something that would be seriously considered
in years to come. Precisely,
he said, PIA has a ratio of 440 employees per aircraft against the
international average of 150 to 200 employees. In total, there are around
18,000 employees in the organisation. An
engineer who does not want to be named tells TNS that the PIA chairman's
statement does not describe the situation properly. He must tell as to how
much the employees are there in different departments -- engineering,
aviation, administration and so on. "I
can challenge that the number of engineers is much less than demand. That's
why they are hiring engineers on contract as well," he adds. The
engineer suggests that PIA should remove all the employees appointed in the
airline on political grounds and rationalise the exorbitant salary packages
of a selected few. "This way the salary bill will come down
automatically and there will be sufficient funds available with PIA to
accommodate engineers." He says
that out of the total expenditures of PIA, 40 to 45 per cent would be spent
on fuel, 30 to 40 per cent on the maintenance of aircraft and 15 to 25 per
cent on salaries. Now with oil prices touching US$97 per barrel the fuel cost
seems to have risen to around 60 per cent, he says. It is strange that PIA is
using 4-engine planes while many profitable airlines are using 2-engine
planes that consume less fuel. Similarly,
he says, the cost of maintenance has also risen by around 10 to 15 per cent
as it's expensive to maintain an ageing fleet. "My question is that why
does PIA want to decrease its losses at the cost of employees only whose
collective salary bill is hardly 16 to 17 per cent of the total PIA
expenditure," he adds. A PIA
spokesman tells TNS that the airline is well aware of the situation and is
taking measures to reduce losses/expenditures under every head. "That's
why we have secured huge loans from two foreign banks to buy latest
fuel-efficient fleet. Once we have it the fuel and maintenance costs will
come down automatically."
"PIA
is in a financial mess because, as a national flag carrier, it is forced by
the government to operate on those domestic routes that are not commercially
viable," a crew member who has spent over 30 years in PIA, told TNS. This
'national service' is being quoted as the single most reason for the
financial slide of the once However,
not a single official document including the financial reports, quote the PIA
subsidised operations on certain non-profit routes as the main cause of its
losses that are on the increase. There is also no official figure available
on the losses PIA has constantly incurred on these routes. The
often quoted reasons for the financial mess of Pakistan International
Airlines Corporation include its fuel-inefficient aging fleet, increased cost
of fuel, a low performing and overstaffed public sector corporation, cost of
buying new fleet, etc. Zaffar A
Khan, Chairman Pakistan International Corporation puts the daily loss of PIA
at over Rs 4 crores or Rs 18 lakhs every single hour of the day. It is the
federal government that is bailing out PIA from this mess by making for the
loss through tax payers' money. Operating
on the non-profitable routes -- also called socioeconomic routes -- is in
accord with the Aviation Policy of the country. Although
the prevailing Aviation Policy classifies eight routes as socio economic
routes, a new draft Aviation Policy has classified the domestic routes into
three Trunk routes explained as a city pair of Karachi, Lahore, Islamabad,
Peshawar and Quetta; the primary routes include the air link with Multan,
Faisalabad, Sukkur, Sialkot, D.G. Khan, Rahim Yar Khan, Bhawalpur, Nawabshah,
Gwadar, Pasni and Jacobabad; while the secondary routes pertain to having air
link with Skardu, Moenjodaro, Zhob, Saidu Sharif, Dalbadin, Bannu, Parachanar,
Sehwan Sharif, D.I. Khan, Hyderabad, Ormara, Khuzdar, Rawalakot, Muzaffarabad,
Chitral, Gilgit, Panjgur, Turbat and Jiwani. According
to the draft Aviation Policy, "Operations to at least one secondary
airport shall be mandatory for new airlines after a period of three
years." The
recommended incentives in the Policy outlines: "Public Service
Obligation requires that the government and the airlines work together in
establishing air link on secondary and primary routes. Hence there shall be
no government taxes on the purchase of air tickets for travel to or from
secondary airports, no government taxes on aviation fuel consumed for
operations to or from secondary destinations and there shall be no landing
and housing charges at secondary airports." Regarding
domestic operations, the present aviation policy has allowed PIA along with
other private sector airlines to operate on any domestic routes. Interestingly,
although the policy has classified eight destinations - Chitral, Gilgit,
Skardu, Gwadar, Panjgur, Turbat, Pasni and Jiwani -- as socioeconomic routes,
the policy has not fixed the fares; rather, it says that "the fares may
be de-regulated." The
policy further says that the private airlines must service a minimum of two
trunk routes one of which should include Peshawar, Quetta, Multan or
Faisalabad, and a minimum of two frequencies per week on one socioeconomic or
one tertiary route. In case
of the airliners' inability to service socioeconomic or tertiary routes, the
policy stipulates that the private airlines pay royalty to PIA of five lakh
rupees per month. So far
this policy could not motivate other private airliners to service the
socioeconomic routes. Either their activity on these routes is non-existent
or if it is there it is minimal. Being a
state-owned corporation, PIA has been operating on all socioeconomic routes
except Jiwani. However, whenever there is a tariff increase, the fares of
these destinations are also increased. For instance, in May this year, PIA
increased its domestic tariff by 10 per cent which also affected the
subsidised routes. However, the fact remains that the frequency of the
flights on these routes is not regular, mainly because of inclement weather.
For example, last year alone, 197 flights of PIA were cancelled for Northern
Areas because of bad weather. Similarly,
in February this year, PIA increased its Peshawar-to-Chitral fare by as much
as 80 per cent. The decision was made at a time when Lowari tunnel, providing
an easy route to Chitral, was not constructed. The increase made the air
travel on this route to the majority of the passengers unaffordable. Although
in the new draft Aviation Policy, the Civil Aviation Authority has outlined a
number of incentives in the form of tax holidays to the private airliners,
making it mandatory for them to service at least one secondary route. But, in
the light of the past experience, it seems not much would be changed and PIA
will continue to bear the burnt of operating on the socioeconomic routes.
Every
year, PIA schedules special flights on the Pakistan-Jeddah-Pakistan sector to
serve the pilgrims on their way to Saudi Arabia to perform Umrah. The airfare
set during the start of Umrah season starts escalating by the day and reaches
its peak in the last days of Ramzan. Many believe this is exploitation of the
intending pilgrims, but the airline authorities have their own story to tell.
A PIA
spokesman tells TNS that the rise in Umrah fares is due to the increased
demand during this PIA is
entering into global alliances like the one in which it entered into code
share agreements with Thai Airways and China Southern Airlines. In
monopolies, entities work in isolation whereas such alliances prove that a
fair and free competition is in place, the spokesman adds. He says
that -- courtesy this alliance -- the passengers now have the option to
travel with greater flexibility of the itinerary. "Passengers will also
be free to travel on any route without the requirement of endorsement. For
example, a passenger holding a ticket on Karachi-Bangkok-Karachi route can
now travel on Karachi-Bangkok-Lahore or Karachi-Bangkok-Islamabad or
Islamabad-Bangkok-Islamabad by any of the two airlines." An
independent observer also finds the hegemony of PIA on the wane. The
introduction of Revenue Management System (RMS) by the airline shows that it
wants to ensure maximum seat occupancy in its aircraft by offering discounted
rates to the customers. There have been times when the passengers would be
dying to buy PIA tickets even at premium prices. RMS is a
computer-based module that links varying fare levels to the available seat
capacity of the aircraft in accordance with the assessed demand, mutually
benefiting the customer and PIA. Customers who would previously get only one
standard fare for a travelling class of their choice can now plan their
travel well in advance and purchase their tickets at greatly discounted
rates. The cheaper fares get taken up by those who book their seats early and
immediately purchase their tickets. -- Shahzada Irfan Ahmed
Besides
facing the financial crunch due to mismanagement and overstaffing, PIA is
also facing a tough competition from the private airlines. Although, Pakistan
International Airlines (PIA) still captures a lion's share in the market,
particularly due to its monopoly on Hajj and Umra routes, it has lost a big
chunk of its business on domestic and international destinations after the
emergence of the private airlines. PIA's
profitability has taken a strong beating, thanks to an increased penetration
of the private Pakistan's
aviation industry has witnessed a healthy competition after the entry of the
private airlines, breaking the virtual domination of PIA for decades. This
competition has given benefits to the passengers who have been enjoying
economical travels due to cut-throat competition among the airlines. PIA came
into being in March 1955, after the takeover of the country's first airline,
Orient Airways, which was in operation even before the Fall of Dhaka. It has
long enjoyed the monopoly in the aviation sector in Pakistan. In the
early '90s, Pakistan's aviation market was opened for the private sector
under the Open Sky Policy introduced by Nawaz Sharif's first government.
Because of this policy, four new private airlines -- Raji, Hajveri, Saf Air
and Bhoja -- started operating. Initially,
these airlines did fairly good business and gave a tough fight to PIA with
better service. Unfortunately, they could not sustain longer, particularly
after the imposition of the international sanctions followed by the 1998
nuclear tests by Pakistan. These fledgling private airlines had to pack up
their business after the economic sanctions imposed by the USA, Japan and
European countries. At least two of the private airlines -- Hajveri Airlines
and Bhoja Air -- had to file bankruptcy case to liquidate their assets. In the
meantime, two other major private airlines -- Aero Asia and Shaheen Air
International -- also entered into the market, they had also seen tough
times. Even the management of both Aero Asia and Shaheen Air have been
changed at least once. Aero Asia, which has been taken over by the UK-based
Regal Group from its original owners Tabani Group on June 12, 2006, seized to
operate in May 2007 when the Civil Aviation Authority (CAA) suspended its
flights due to issues related to the safety of operations and passengers'
convenience, after a number of drawbacks in the airline's flight safety
standards were revealed. Still, its operations have not been resumed. Similarly,
Shaheen Air, which was previously owned by the Shaheen Foundation of Pakistan
Air Force, went through a change in management. In July 2004, the airline was
sold to TAWA International Inc. of Canada because of a decline in its
productivity. Although this airline is still operating and providing travel
facilities on the domestic and international routes, it has faced tough
challenges in the past. For example, on May 22, 2006, all flights of Shaheen
Air were stopped due to the nonpayment of millions of rupees to the Civil
Aviation Authority (CAA). However, within three days, the airline resumed its
domestic and international operations after the payment was made. But PIA
has not learnt anything from the private sector. Being in the public sector,
it has always been supported by the government with injections of fresh
funds. PIA's
real test in competing with private sector airlines began after the entry of
Airblue in the market, in the year 2005. Comprising
mostly the old management staff of PIA, with Shahid Khaqan Abbasi as its
Chairman, Airblue started operating in domestic routes with its new aircraft.
Airblue
has put the national flag carrier into trouble with its innovative products
and aggressive marketing strategy. The airline introduced e-ticketing system
for the first time in the country, which was ultimately followed by other
airlines including PIA. Airblue
started its operations with three, leased Airbus A320-200 aircrafts on the
Karachi-Lahore and Karachi-Islamabad routes, and it has gradually increased
its fleets and extended its operations in international routes like Dubai. A host
of new airlines like Pearl Air, Deewan International Airlines and Safe Air
are also expected to start their operations in Pakistan as the private sector
airlines. However, there is no time schedule for these new airlines
particularly after the imposition of emergency in Pakistan.
'Privatisation
is the best solution' By
Aoun Sahi Zaffar
Ahmad Khan assumed responsibilities as the new Chairman PIA on April 09,
2007. Since then he has been faced with a myriad of problems on various
fronts, though he is trying to make things work. The recent strike by some
800 engineers disrupted the flight schedules of the national flag carrier for
almost one week. Now that the strike has been called off, there are several
other issues for him to attend to, the most important being the huge
financial loses that the airline has incurred. In an
exclusive interview with TNS, Zaffar Khan said, "The difficulty we are
facing is on several fronts. The financial health of the airline has
increasingly deteriorated, and today the situation has "PIA
suffered a loss of Rs 12.7 billion in 2006 and within nine months of the
current year, the airline lost another Rs 10.7 billion," he continued,
"The figure 'billion' sometimes just becomes an incomprehensible
statistic. It might register better if it is said that PIA is losing over Rs
4 crores every single day, or Rs 18 lakhs every single hour of the day."
According
to the chairman, the money that PIA's shareholders gave is all gone. "In
fact, the airline is living off bank borrowings. These losses are not
sustainable, and a normal company with such losses would have been declared
bankrupt and shut down." One of
the severest blows PIA recently got was "the imposition of operational
restrictions by the European Union (EU) on some of the PIA aircrafts in March
this year. The ban was of deep concern to the organisation. When I took over,
I tried my level best to negotiate the issue with the EU. "We
assured them that as matter of policy the airline gives top priority to the
safety of its passengers and wishes to follow maintenance practices
consistent with the best global standards." He added
that the lapses pointed out by the European Union Inspectors were a matter of
serious concern and had been addressed on the highest priority, leading to
the EU Air Safety Committee's notification on July 4, 2007, whereby "the
operational restriction already imposed on Pakistan International Airlines (PIA)
since March 2007 is modified in order to allow operations into the Community
with specific Boeing 747 and Airbus 310 aircraft in addition to its Boeing
777 fleet already authorised." The
chairman admitted that the airline, which was the pride of the nation till a
few decades ago, had come in for a considerable criticism and censure from
the general public as well as the stake-holders. He
further said, "The well wishers of the airline, especially its
employees, are extremely concerned about the damage PIA has suffered due to
its brand image. Airlines are a service industry and, in a fiercely
competitive market, the loss of brand image is a big setback. "Clearly,
we have to see the difficulties outlined as challenges -- and challenges
deserve a response." He ruled
out the impression that the management was considering downsizing. "This
is something that will have to be seriously considered in years to come. PIA
has a ratio of 440 employees per plane, as against the international average
of 150 to 250 employees." Privatisation
is the best way to pull PIA out of its quagmire, he declared. In
response to a query about the future of PIA, the chairman said, "One
thing is obvious that 'business as usual' is not an option for the future. We
will collectively need to take some bold measures. We will need to work on
several fronts and, so as not to dilute our efforts, we will also need to
prioritise our focus areas. "We
must strengthen our systems to overcome the issues that have surfaced,
related to flight safety and reliability." The
chairman said that revenue maximisation had to be pursued earnestly in order
to take the pressure off the financial bottomline. "We need to
critically examine our current fleet deployment and the economic viability of
each route that we operate. This review will also entail examining our
existing fare structure, competitive positioning, and plugging any revenue
leakage in the system." He added
that the other important area to work on was "cost management. The huge
growth in our expenditure, driven by the increase in fuel costs and other
inflationary increases, is simply not sustainable for the airline." Zaffar
Khan cited the rising fuel prices as another reason for the downfall of PIA.
"It was because of this that the airline suffered a loss of Rs 12.7
billion in 2006, and a further loss of Rs 10.7 billion in the next
months." The
chairman revealed that a business plan for the year 2007 had been approved by
the Board of Directors (BOD) wherein the Sales Department was given the
revenue target of PKR 74.1 billion which is a 32% increase over last year's
sales. Accordingly, the department has made a region-wise analysis of the
strategy and expansion required in each of the respective areas which would
enable the achievement of the target. In order
to offset the accumulated financial losses, principally occurring out of the
unprecedented rise in fuel prices in the international market during 2006-07,
"fuel hedging arrangements have been finalised with two international
banks. PIA is now ready to undertake fuel hedging as soon as a sensible price
opportunity presents itself," he said. "We're
also considering shutting down routes resulting in losses, an enhancement of
air fares and the curtailment of operating costs."
Where
Pakistan's national flag carrier is still mired in mounting losses and
mismanagement, its Indian counterparts are in the throes of a merger. Indian
Airlines is mainly a domestic body while Air India is exclusively operating
in international airspace. Plans of merging the former with the latter are on
the verge of being finalised, citing declining market share in the face of an
active competition from private airlines. Ironically,
it was with the nationalisation of the aviation sector way back in 1953 that
Indian Airlines and Air India came into being. Nine airline companies were
taken over by Indian government to create both a domestic as well as an
international carrier. However, since the reopening of the Interestingly,
looking closely at the rosy picture, certain regions of pixelation start to
appear. Of all the approximately 26 airlines, namely Air India, Air Sahara
and Jet Airways have been allowed by the Indian government to operate in
international air routes. Furthermore, licenses to new airlines have been
denied due to the lack of modern infrastructure. Even though India has over a
hundred domestic and international airports, only two of them, namely Delhi
and Mumbai handle over 70% of the passenger traffic. Rising
Aviation Turbine Fuel (ATF) costs are another major concern of private
airlines, especially to low-cost carriers. With the ATF being up to 60%
higher than elsewhere, the airlines have to resort to compromising quality of
service to keep their fares affordable. Poor government regulatory controls
and unnecessary taxes are being blamed for this and other hurdles in the way
first-rate aviation infrastructure. Some in the industry blame that the
privatisation of Air India/Indian Airlines and its subsidiaries Air India
Express and Alliance Air have been delayed due to the opposition from the
Left parties. The workers of the Left Union fear that they will lose their
jobs under the private owners. Only a couple of months back in June, around
12,000 ground staff of Indian airlines went on strike with demands of higher
wages as well as due to concerns of the merger. The government declared the
strike illegal and jailed around two dozen in order to resume operations.
Furthermore, the state-owned aviation entities are also charging up to five
times as fare on domestic flights as low-cost ones. Consumers availing their
international flights such as those to the Gulf have called for a boycott due
to their allegations of sub-standard service. Nonetheless,
the private airlines are aggressively pursuing expansion plans and are
willing to invest in developing new airports. They are emerging as one of the
largest order placers at events such as the Paris Air show. Only two years
running, Kingfisher Airlines has ordered five of the latest Airbus A380s, the
largest passenger liner in the world. Such aircraft will fly daily to
destinations such as New York and back. Such packages will directly cater to
the influx of visitors with regards to the booming tourism and foreign
investment opportunities. And just like Superman of DC comics fame, the
upcoming superpower will be soon be 'up, up and away!' ` |
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leading airline of the world, by many of its
employees struggling for higher salaries. 
time of the year. "It's not only PIA that raises its
fare, but its competitor Saudi Airline also does so. It's a market phenomenon
that losses incurred in off-season are compensated during the peak
seasons." 
sector airlines. Presently, two private sector airline
companies -- Airblue and Shaheen Air -- are in operation, and a couple of
others are due soon. 
reached alarming
proportions. 
Indian Aviation to
the private sector in early 1990s, several airlines have taken to the skies
to challenge the monopoly of the state-owned airlines. With the
liberalisation of Indian aviation around four years ago, many low-cost
carriers have emerged such as GoAir, SpiceJet and IndiGo. With only a handful
of aircraft, they are running flights to and fro over a dozen destinations
within India at rock-bottom fares ranging from just a couple of hundred
rupees to a few thousand. The private airlines have also resulted in an
annual growth rate of over 25% for the Indian aviation industry.