Case Study: Pakistan International Airlines
One of the sectors that has benefited from Pakistan’s improving economics is transport.
One of the sectors that has benefited from Pakistans improving economics is transport. The aviation industry grew by about 20 percent in 2005 and, while growth has been more subdued in 2006, its still proving a good place to be.
Tariq Kirmani took over as chairman of Pakistan International Airlines in 2005 after having been managing director of Pakistan State Oil since 2001. He took on a carrier with a mixed reputation internationally, an aging fleet, in a country low on the world tourism agenda and with a rising fuel price.
The five year outlook is pretty good, he says. We have a fleet renewal program in place and an upgrade of the entire organization. What were trying to do is work with our customers, our passengers, which was missing in the past to some extent. PIA now hedges up to 25 percent of its fuel costs but has only recently developed this capacity, so was badly hit by the rise in the oil price to $78 a barrel. It represents almost half of the airlines operating costs.
The fleet renewal program is timely; days before Institutional Investors interview, the European Union banned four of the airlines Boeing 747s from flying there.
Basically its the age, Kirmani says: some of them are more than 25 years old. PIA will get nine new planes in the next six months, three of them Boeing 777s, and within five years he wants the average age of the fleet to be less than 10 years rather than 21 today.
PIA faces much more competition than it used to. Kirmani speaks of four competitors on the western border (Emirates, Qatar Airways, Etihad and Gulf Air) and four on its eastern side (Singapore Airlines, Cathay Pacific, Malaysian Airlines and Thai Airways), and in addition there are private sector competitors within Pakistan. In any industry I enjoy competition, Kirmani says. When you are competing you improve your operations and start giving better service. He says PIAs market share domestically has actually grown, from 66 to 69.3 percent in the last year, and that its share of international flights in and out of Pakistan has climbed from 48.5 to 50 percent.
But its a tough business. A lot of people who are interested in the airline business think there is a lot of glamour. When they open up the airline there is less glamour and lots of losing money.