I had first intended to write one detailed post on PIA. But with so many considerations and areas to discuss I decided to split it up into different posts.
Forget the past
As a state owned and managed enterprise, PIA's fortunes have been dwindling for over a decade. Now saddled with massive amounts of debt and ever expanding losses PIA needs to change and change drastically.
However, reform in itself is very difficult. And we, as citizens and consumers of PIA dont help to make things any better. Too much national pride is invested in PIA. Open any article or editorial on PIA, and it starts off by listing down its achievements from 30 or so years ago.
The past was the past. The world was different then. Jet fuel was definitely much much cheaper. PIA faced much less competition abroad and a monopoly over domestic flights. Comparing PIA today with what it was is an unfair comparison and sets unrealistic expectations on whoever attempts to bring about change.
Pakistanis need to detach some national pride in relation to PIA and accept that its financial performance is more important than how it makes us feel about ourselves and Pakistan.
Once we have accepted that PIA's fairytale entry into the aviation market is behind us, we can perhaps move forward by setting realistic expectations of the airline.
Unrealistic expectations
Talking about realistic expectations, many of us have fallen into the trap of comparing PIA with Middle Eastern Airlines. Emirates, Qatar Airways, Etihad etc, are profitable (to an extent) and provide excellent service (depending on what your idea of excellent is). However, this comparison is unfair as all these airlines have tacit state backing, lower operating costs due to state backed infrastructure development, such as airports and support facilities, and relatively lower labour costs, especially amongst lower skilled airport, janitorial and support staff based on migrant labour. Given the dearth of rights, these labourers have no union to represent themselves in the Gulf. Not to mention their success at sucking away alot of PIA's experienced staff.
Further afield the airline market looks quite grim. Traditional European carriers are struggling and several budget airlines have shut-down. Cathay Pacific, Qantas, JAL, Singapore airlines, US airlines have all experienced persistent losses over the past decade for one reason or the other. Mainly, the impact of higher oil prices, coupled with increased competition and rising airport charges has shrunk profit margins across the globe. Airlines are making money (those that still do) on volume and attracting business and premium travellers. It is here where PIA struggles.
Challenging regional dominance?
Emirates has been profiled as an airline which will dominate the skies. It is expected to become the long haul equivalent of mass, budget airlines, an Easy Jet or Ryan air for the world. With an excellent airport in Dubai that subsidises its headquarters and acts as a global hub, purchase of high volume Airbus A380s have all helped to get bums on seats and increase marginal revenue per passenger, even whilst facing increasing competition from Qatar Airways and Etihad.
PIA then is poorly equipped to contest the dominance of Gulf Airlines. A major source of revenue is the Indian market and the massive economies of scales flights in and out of India enjoy. Problems with Indian airlines such as Kingfisher have helped nudge customers towards Gulf airlines, while opening up opportunities for other airlines. Lufthansa for example is bullish on its prospects in India. Its brand new Boeing 747-800 will be deployed on routes serving the Indian market.
Pakistan of course is excluded from the Indian market. Which is a shame, as PIA could have become the low cost alternative, bringing customers from Europe, transiting in Karachi for say onward flights to Mumbai. But that is still a pipe dream.
To sell and move on?
Privatization is consistently offered as a solution.
Then again, as a "strategic asset" its unlikely to be sold off completely. They are too many rent seekers attached to the organization to allow the gravy train to be privatised. There is the option of a partnership or a management buy out but that is unlikely to happen. In the region this has been tried before.
SriLankan airlines management was handed over the Emirates. The relationship remained rocky and came to a dead end when Emirates refused to disembark ticket paying passengers to accommodate government dignitaries. Emirates exited the partnership and Sri Lankan airlines is back in state hands.
Given the state of the global airline market PIA is unlikely to attract buyers. Pakistan itself is not an attractive market in terms of relocating overseas senior managers. Some say that PIA has many assets but the aeroplanes are old, depreciation has taken hold, so who is going to pay a "fair" price for it? Does the PIA brand have any value that could attract a potential buyer? Debatable. Who would want to buy into an organization with strong labour unions whose demands are unlikely to be met by the state and so will pass on to any potential private buyer. Who would buy into that?
What PIA does have is property holdings and more importantly sovereign landing rights as a flag carrier. The later is where PIA's strengths lie and who else but the state to leverage it?
Karachi as a "hub"
Now a year or so ago the Turkish dream filled the papers as a possible way to "save" PIA. Turkish Airlines, with which PIA already has a code sharing agreement, would have taken over some of PIA routes while PIA would have taken over some Eastbound Turkish Airline routes.
Pakistani passengers would then transfer at Istanbul and Eastbound passengers at Karachi. Now setting aside all the claims and counter claims regarding back handed deals etc, lets look into whether Karachi has the potential to be a major hub, attracting Eastbound travellers to opt for PIA-Turkish Airlines over someone else?
One of the big advantages that hubs like Dubai have is that the have transformed transiting through the airport as an experience in itself. There is something for everyone and most importantly, people are willing to spend money while they wait to change flights. People fly Emirates because their prices are competitive, they have a wide network, a reputation for good service and the attraction of slotting in a stopover or transit through Dubai. Doha in its new airport set to open later this year is trying to do the same and Qatar Airways has started to encourage stopovers in Doha, ditto for Etihad and Abu Dhabi.
Karachi does not offer any of this. The only way the Turkish Airlines-PIA alliance could have worked to increase passenger numbers would have been to cut prices and by becoming a lost cost option. However, Kuwait Airways has been trying to do just that, yet it remains loss making.
The confidence with which the MD of PIA at the time spoke glowingly about how new traffic was going to be generated by gaining Eastbound passengers was extremely optimistic. If you are on holiday, would you really want to transit through Karachi if given the choice?
And lets not forget about the all important First and Business class travellers. Now its here where airlines make their money. Are they proper lounges available which would compete with facilities offered at other airports in the region? Is PIA part of an airline alliance which is all important for business travellers? Now one potential benefit that was not really elaborated on when the Turkish Airlines-PIA partnership was announced, was whether this would perhaps help PIA gain entry into Star Alliance, which Turkish Airlines is part off. Perhaps this partnership would have helped to improve standards of customer service at Karachi Airport. However, attracting business travellers at a hub which struggles to keep the internet going is far too optimistic.
Alcohol, a variety of dinning options, recreational areas, lounges etc, all add to the experience of flying through an airport. Why people in PIA assumed that customers would consider transferring via Jinnah Terminal Karachi is beyond me.
(The following piece in the Economist about the fate of Eastern European airlines is quite analogous to the situation PIA faces: http://www.economist.com/blogs/gulliver/2012/02/eastern-europe)
Forget the past
As a state owned and managed enterprise, PIA's fortunes have been dwindling for over a decade. Now saddled with massive amounts of debt and ever expanding losses PIA needs to change and change drastically.
However, reform in itself is very difficult. And we, as citizens and consumers of PIA dont help to make things any better. Too much national pride is invested in PIA. Open any article or editorial on PIA, and it starts off by listing down its achievements from 30 or so years ago.
The past was the past. The world was different then. Jet fuel was definitely much much cheaper. PIA faced much less competition abroad and a monopoly over domestic flights. Comparing PIA today with what it was is an unfair comparison and sets unrealistic expectations on whoever attempts to bring about change.
 |
| Feels good, but the past is the past |
Pakistanis need to detach some national pride in relation to PIA and accept that its financial performance is more important than how it makes us feel about ourselves and Pakistan.
Once we have accepted that PIA's fairytale entry into the aviation market is behind us, we can perhaps move forward by setting realistic expectations of the airline.
Unrealistic expectations
Talking about realistic expectations, many of us have fallen into the trap of comparing PIA with Middle Eastern Airlines. Emirates, Qatar Airways, Etihad etc, are profitable (to an extent) and provide excellent service (depending on what your idea of excellent is). However, this comparison is unfair as all these airlines have tacit state backing, lower operating costs due to state backed infrastructure development, such as airports and support facilities, and relatively lower labour costs, especially amongst lower skilled airport, janitorial and support staff based on migrant labour. Given the dearth of rights, these labourers have no union to represent themselves in the Gulf. Not to mention their success at sucking away alot of PIA's experienced staff.
Further afield the airline market looks quite grim. Traditional European carriers are struggling and several budget airlines have shut-down. Cathay Pacific, Qantas, JAL, Singapore airlines, US airlines have all experienced persistent losses over the past decade for one reason or the other. Mainly, the impact of higher oil prices, coupled with increased competition and rising airport charges has shrunk profit margins across the globe. Airlines are making money (those that still do) on volume and attracting business and premium travellers. It is here where PIA struggles.
Challenging regional dominance?
Emirates has been profiled as an airline which will dominate the skies. It is expected to become the long haul equivalent of mass, budget airlines, an Easy Jet or Ryan air for the world. With an excellent airport in Dubai that subsidises its headquarters and acts as a global hub, purchase of high volume Airbus A380s have all helped to get bums on seats and increase marginal revenue per passenger, even whilst facing increasing competition from Qatar Airways and Etihad.
PIA then is poorly equipped to contest the dominance of Gulf Airlines. A major source of revenue is the Indian market and the massive economies of scales flights in and out of India enjoy. Problems with Indian airlines such as Kingfisher have helped nudge customers towards Gulf airlines, while opening up opportunities for other airlines. Lufthansa for example is bullish on its prospects in India. Its brand new Boeing 747-800 will be deployed on routes serving the Indian market.
Pakistan of course is excluded from the Indian market. Which is a shame, as PIA could have become the low cost alternative, bringing customers from Europe, transiting in Karachi for say onward flights to Mumbai. But that is still a pipe dream.
To sell and move on?
Privatization is consistently offered as a solution.
Then again, as a "strategic asset" its unlikely to be sold off completely. They are too many rent seekers attached to the organization to allow the gravy train to be privatised. There is the option of a partnership or a management buy out but that is unlikely to happen. In the region this has been tried before.
SriLankan airlines management was handed over the Emirates. The relationship remained rocky and came to a dead end when Emirates refused to disembark ticket paying passengers to accommodate government dignitaries. Emirates exited the partnership and Sri Lankan airlines is back in state hands.
Given the state of the global airline market PIA is unlikely to attract buyers. Pakistan itself is not an attractive market in terms of relocating overseas senior managers. Some say that PIA has many assets but the aeroplanes are old, depreciation has taken hold, so who is going to pay a "fair" price for it? Does the PIA brand have any value that could attract a potential buyer? Debatable. Who would want to buy into an organization with strong labour unions whose demands are unlikely to be met by the state and so will pass on to any potential private buyer. Who would buy into that?
What PIA does have is property holdings and more importantly sovereign landing rights as a flag carrier. The later is where PIA's strengths lie and who else but the state to leverage it?
Karachi as a "hub"
Now a year or so ago the Turkish dream filled the papers as a possible way to "save" PIA. Turkish Airlines, with which PIA already has a code sharing agreement, would have taken over some of PIA routes while PIA would have taken over some Eastbound Turkish Airline routes.
Pakistani passengers would then transfer at Istanbul and Eastbound passengers at Karachi. Now setting aside all the claims and counter claims regarding back handed deals etc, lets look into whether Karachi has the potential to be a major hub, attracting Eastbound travellers to opt for PIA-Turkish Airlines over someone else?
One of the big advantages that hubs like Dubai have is that the have transformed transiting through the airport as an experience in itself. There is something for everyone and most importantly, people are willing to spend money while they wait to change flights. People fly Emirates because their prices are competitive, they have a wide network, a reputation for good service and the attraction of slotting in a stopover or transit through Dubai. Doha in its new airport set to open later this year is trying to do the same and Qatar Airways has started to encourage stopovers in Doha, ditto for Etihad and Abu Dhabi.
Karachi does not offer any of this. The only way the Turkish Airlines-PIA alliance could have worked to increase passenger numbers would have been to cut prices and by becoming a lost cost option. However, Kuwait Airways has been trying to do just that, yet it remains loss making.
The confidence with which the MD of PIA at the time spoke glowingly about how new traffic was going to be generated by gaining Eastbound passengers was extremely optimistic. If you are on holiday, would you really want to transit through Karachi if given the choice?
And lets not forget about the all important First and Business class travellers. Now its here where airlines make their money. Are they proper lounges available which would compete with facilities offered at other airports in the region? Is PIA part of an airline alliance which is all important for business travellers? Now one potential benefit that was not really elaborated on when the Turkish Airlines-PIA partnership was announced, was whether this would perhaps help PIA gain entry into Star Alliance, which Turkish Airlines is part off. Perhaps this partnership would have helped to improve standards of customer service at Karachi Airport. However, attracting business travellers at a hub which struggles to keep the internet going is far too optimistic.
Alcohol, a variety of dinning options, recreational areas, lounges etc, all add to the experience of flying through an airport. Why people in PIA assumed that customers would consider transferring via Jinnah Terminal Karachi is beyond me.
(The following piece in the Economist about the fate of Eastern European airlines is quite analogous to the situation PIA faces: http://www.economist.com/blogs/gulliver/2012/02/eastern-europe)
