Executive Summary Hardly a century old, the aviation industry has made great strides towards achieving its

ultimate goal; providing efficient, comfortable, and affordable means of transport for leisure and commerce. Aviation or air travel as we more commonly call it has truly made this world a global village. In the recent years the extra-ordinary growth in the aviation industry and its related businesses (catering, ground services, hospitality and tourism, etc) has increased many-fold and has provided momentum to all segments of the industry from aircraft manufacture to the management of the increasing number of passengers and cargo, infrastructure, miscellaneous aviation activities, and ensuring safety on the ground and in the air. Statistically speaking, air travel is SAFEST way to travel today given the number of checks carried out before each flight (approximately 30,000, excluding the mandatory fuselage/engine check done manually) before each take-off and after each landing. The recent turn of political, economic, and social events has not spared the aviation industry, with record falls in profits, bankruptcy filings by some of the major airlines of the world, and a significant increase in fuel costs (more than 110% over the past 10 years) has hit the industry pretty hard. This analysis will review the civil aviation industry in Pakistan, analyze its status in relation to global developments and put forth a proposal through which our national airline industry can come out of the red. Global Industry Trends The International Air Transport Association (IATA) reviewed the aviation industry its key findings are given below: y y y y y y y Four million direct jobs and US$ 400 billion in output (annually) Twenty four million related jobs and US$ 1.4 trillion in related output or 4.5 % of the global GNP (2009 estimate) Annual increase of 4% in passenger traffic per year Played a vital role in GDP expansion of major economic powers up to threefold in the last 30 years Air transport grew seven times during the same period This trend will continue with 6% annual growth in the air transport business until 2015 with the major players coming out from the Middle-Eastern and Asian markets. In the last ten years it has rebounded from SARS, terrorism, war, and natural disasters

Local Industry Trends Pakistan is inadequately and poorly served by its national and foreign carriers both for passenger and cargo carriage. Lack of meaningful incentives to the industry does not allow quality carriers to develop in the country. Our government has yet to understand the importance of civil aviation as a driving force in the growth of a developing economy. This is despite several high profile examples within our region like the restructuring of Air India, Indian Airlines, Sri Lankan Airlines, Jet Airways, Kingfisher Airlines, etc.

No Pakistani carrier has made any significant contribution towards developing a decent cargo airline. for reasons explained earlier. some of which are not available to other airlines. None of our airports is capable of handling the new technology large aircraft such as the A-380. which was expected to start commercial flights to Karachi from Dubai by Emirates but was turned down buy our Civil Aviation Authority (CAA). lack of adequate support infrastructure.. image. foreign carriers are the major beneficiaries of this business. Apart from the questionable law and order situation. there is a long over-due requirement of upgrading technologies existing at these airports. and most importantly. None of our airports is worthy of being called a world-class facility. and the landing and parking spaces. inconvenience for the traveling public. hotels. have all to play a part in this important ongoing exercise. and transporters. are also inadequate. Some are more like crowded bus stations.5 million tons of cargo (setting a record for an MD-11F with a payload of 104 tons) in the summer of 2005. Additionally. pilots are forced to land without strobes/landing lights and window blinds are closed for fear of a ground attack. All this requires heavy expenditure. . and archaic laws. and tonnage of cargo. the last scheduled cargo operation year for the airline.Pakistan s tourism industry continues to remain under fire because of many reasons: this being so despite the existence of many attractions similar to those found in India. when landing in Peshawar. apart from blessing it with concessions. the personnel involved in public dealing within this industry. a serious safety concern for life and property. The government currently absorbs PIA s heavy losses on a regular basis. where the estimated number of tourists exceeded 10 million in 2010 alone. A vibrant airline industry plays a pivotal role in projecting a country. security. Lufthansa alone carried 2. Even security-related facilities at these airports are not quite in line with global standards. Hazards for arriving and departing aircraft are therefore on the rise. The airport infrastructure is inadequate to handle the growing number of travelers. The passenger handling facilities at terminals. leaving behind PIA by a mile for the peak summer export season. etc. Bird hits are a common phenomenon. several coming on repeat visits. All our civil airports are now in the middle of densely populated cities. New airports need to be built away from populated areas to service large passenger and cargo traffic in the coming years. expected to be processed through these airports in the next 5-10 years. its profitability. resulting in frequent disruption of operations. The national carrier has a long way to go in improving its service. airports. and most importantly. apart from the retail outlets. For example. and little else. or even bothered to undertake regular flights dedicated to carriage of ever-increasing exportable goods and reciprocal cargo. huge avoidable expenditures for the airlines. simply because little has been done to update or upgrade these important facilities and operational equipment on a regular basis. Recently a flight operating from Multan to Karachi was targeted by gunfire when on short-final (1 nautical mile from landing) at Karachi. restaurants. and improving its global market image. there is also a lack of confidence shown by our national and the international carriers in terms of value for money. our carriers. As a result. etc.

and Askari Aviation. regional. as civil aviation standards and licenses are difficult to obtain. Bhoja Air. and Aero Asia. PIA had sole control over the above sectors and charged 25% more than their current prices (not inflation adjusted) till 2005. the airline will be broken into two separate divisions catering independently to the local. with ticket prices only 20% higher than railway. Bottom line is it is very difficult for new entrants to make room for themselves in the local aviation industry. have fought price wars over major traffic routes like the Karachi-Lahore-Karachi sector and the Karachi-Islamabad-Karachi sector. and a failing railway system has shifted people to opt for air travel.Porter s Five Forces Analysis Current Industry Structure The Pakistani aviation industry comprises of three main competitors. In the next 10 years. including the lower middle class. higher fuel costs. The Threat of New Entrants As far as commercial passenger operations are concerned. Bargaining Power of Buyers The people of Pakistan so far do not have a significant say over their choice of mode of transportation. bus. Pakistan International Airlines. Princely Jets. with very high entry barriers. . or even railways. there is an oligopoly. and international market. Up until 2004. As far as other medium of travel is concerned. the airline industry does not face any immediate threat of substitute services like traveling through car. people opt for a more efficient and time saving mode of travel. Exit barriers are low and non-performing firms easily exit the market. the most they can opt for is to choose between three airlines. Talks about the privatization of our flag carrier PIA have given air to rumors that within one year of privatization. with airblue giving their passengers a real-time fare based on how many days in advance you purchase a ticket with a bottom and ceiling cap. poor infrastructure of highways. Threat of Substitute Services Two of the major competitors in the local market. Royal Airlines. airblue. PIA and airblue. and Shaheen Air International. not to mention the air passage rights within and outside the country. high startup capital required. major private charters include. as we have seen in the past 15 years with the sharp rise and fall of private passenger carriers like Hajvairy Airlines. JS Air.

while Shaheen will keep on catering to the northern areas and the middle-eastern markets of Dubai. Forecasting through Porter s Five Forces Model 1. but airblue has an advantage through better web presence. Bahrain. overheads. Airblue has targeted its customers by giving them better facilities. Value divided among major competitors PIA takes the Lion s share with their government backing and high frequency of daily flights to major cities in the country. and a very friendly ground staff. and an added advantage of high level bureaucrats and other officials traveling through the flag carrier. like increased baggage allowance. etc. 3. better timings. PIA has been spending more on advertising than airblue. The Most Dominant of Them All Assuming that the government will cave in to the ever increasing pressure of privatizing PIA. the highly sensitive fuel market in Pakistan frequented with shortages in supply by major airline suppliers like PSO. instead they are offered snacks and beverages. airblue has given stiff competition to PIA on the above two sectors by improved yield per passenger. for international routes. options for online payment for international routes (which PIA still does not offer) selection of seat as per the passenger s choice. Abu Dhabi. 2. through reduced operating costs. but when it comes to . I don t see a substitute product in the next five to ten years. of Companies 5 years in the future I would say there will be two major competitors in the local market with PIA still leading the way and airblue in close lead on two major sectors. However. 4. and trained technical and operational staff is concerned. However. New Type of Competition Until the government can re-structure the railway system in the country. with PIA clearly having the upper hand as far as routes. in my opinion competitive rivalry will be the key factor in determining the market dynamics. but PIA has the upper hand with more daily flights. and Qatar from Peshawar/Islamabad. Competitive Rivalry On local sectors like Karachi-Lahore-Karachi and Karachi-Islamabad-Karachi there is a price war going on between PIA and airblue. global annual agreements are made between airlines and fuel suppliers with average fuel costs and uninterrupted supplies. The bargaining power of suppliers will also increase keeping in assumption that fuel prices will keep an upward trend in the next two to three years. Basis of Competition Competition will be price based with real-time pricing leading the way as inflation keeps rising and the purchasing power of the local population keeps on declining. and Caltex keep the bargaining chip in their own hand. No. reduced their ticket costs on flights of less than 3 hours by not offering them any full meals.Bargaining Power of Suppliers The highest operating cost for an airline in Pakistan is fuel. aircraft. extra baggage on paying a nominal fee. Shell.

old and faulty aircrafts.profitability PIA is taking a hit because of in-efficient operations. the airline was awarded the IATA Operational Safety Registration (IOSA) PIA was given the first place award for the biggest volume increase in 2006. 777-200LR and 777-300ER together (three of the five variants available on the market at the time. Major Achievements and recognitions of PIAC include: y y y y y First airline in the world to operate scheduled helicopter services. and operating on loss bearing sectors. The other two are the 777-200A and 777-300A models) In 2005. by Frankfurt Airport Authority First airline to take delivery of the Boeing 777 200 Longer Range Variant PIA was given three domestic awards in 2008: The "Brands of the Year" Award.[citation needed] First Asian airline to land in Norway First non-Communist airline to land in China First airline in Pakistan to operate a flight with an all female crew at command and in the cabin. high human resource and operating costs. First airline in the world to operate the Boeing 777-200ER. "Consumers Choice Award" and "One The Best Airlines Award (Cargo)" PIA was awarded a shield by Presidency of Civil Aviation in Saudi Arabia in recognition of distinguished Passenger Services compared to other airlines conducting Hajj operations 2009 2010 at Jeddah Airport Seat Factor exceeding 100 billion mark in 2010 y y y y y y . Orient Airways merged with the government's proposed airline. Competitor Analysis Profiles Pakistan International Airline Corporation (PIAC) On 11 March 1955. becoming 'Pakistan International Airlines Corporation'.

Karachi First private airline in Pakistan to initiate long-haul services on Islamabad-Manchester sector First private airline within Pakistan to place an order for new aircraft First airline in Pakistan to start e-ticketing Airblue makes a fuel stop at Trabzon in Turkey when flying to and from Manchester. which allowed the airline to compete directly with the flag carrier PIA and the two other private carriers (Aero Asia and Shaheen Air). During the first year the airline became very popular. Airblue launched its inaugural flight to Manchester using the Airbus A321. 2007. It is Pakistan's second largest airline with over 30% share of the domestic market. The airline was inaugurated by the then Prime Minister of Pakistan. On June 4. and the longest scheduled route operated by an Airbus narrow-body aircraft (excluding the Airbus A319LR) . This route is the longest route operated by an Airbus A321 aircraft in the world. Some of the airlines achievements and recognitions include: y y y y y First airline in Pakistan and the third carrier in the region behind Emirates and Royal Jordanian to introduce self-service check-in facilities at Jinnah International Airport. Quetta and Nawabshah. This allowed the airline to expand into more cities in Pakistan including Peshawar.Airblue The airline was established in 2003 and started operations on 18 June 2004 with 3 leased Airbus A320200 aircraft serving Karachi-Lahore and Karachi-Islamabad with three daily flights in each direction. On 14 August 2005 (Pakistan's 58th Independence Day) Airblue launched its first international flight from Karachi to Dubai.

Promoting Islamic values through free distribution of elegant literature to the valued customers.2 Critical Success Weight Factors Service Quality Pricing Advertising Operational Reliability Routes Frequency Customer Service Total 0. Al-Ain.3 0.9 0. Sialkot and International Operations to Dubai. safety and human resources. Establishment of its own high quality flight kitchen. Peshawar. Sharjah.15 0.3 0. y y y y y y y y y y y Competitor Profile Matrix PIA Rating Weighted Score 2 2 4 2 4 4 3 0.6 2.1 0.8 3. it caught the eye of the government which accorded it the status of the Second National Carrier on October 23. SAI commenced its business modestly on December 10.2 0.15 0. However before long. 1993 with a single domestic sector of Karachi-Islamabad-Karachi with two wet leased Boeing 737-200 aircraft. Ensuring high quality maintenance service. capacity and creating attractive and advanced business environment for further growth. Abu-Dhabi. Doha.Shaheen Air As a start up airline. Since then it has not looked back and has grown tremendously while bravely facing the vicissitudes of volatile fuel market with untold resilience. Mashhad (Iran) and Dammam (Saudi Arabia) Inter-line agreements with 25 foreign Carriers. Lahore.6 0.3 0. tasteful livery of the aircraft and graceful uniform of the cabin crew.35 Shaheen Air Rating Weighted Score 1 3 1 1 3 3 2 0.1 0.3 0. These include the following: y y Having experimented with Airbus and Russian aircraft SAI is presently operating self owned 12 Boeing 737-200 work horse aircraft.2 0. SAI has constantly reviewed its strategic plans and is continuously focusing on improving its service.3 0. Increasing flight frequencies.1 0.cargo service to secure regional and international market. Providing better service to passengers and achieving an average of 83% seat factor.4 0. Electronic reservation and departure system.05 0.45 1.2 0.3 0.4 0. 1994.2 0.1 0.0 . Islamabad. Re-branding the airline. its logo. Kuwait.1 0.2 1. Provision of in-house Cabin Crew training facility and personalized in flight service. Enhancing . Enhancement of security.7 Airblue Rating Weighted Score 3 4 2 3 3 2 4 0. Muscat.05 0. Expansion of Domestic operations to Karachi.4 2.

scheduled to maximize aircraft utilization Maximizing revenue through competitive and innovative pricing schemes to attract and maintain a customer base is critical for success. Where to fly and how often are factors that must be matched to customer demand. representing all revenues minus all costs divided by the total seats flown. especially on international routes. The actual product aircraft seating space. An airline's route system is perhaps the most consistent success factor. It should consist of representatives from the airline industry (PIA and private carriers) and representatives from the tourism industry that can bring the country s airlines out of the red and help promote inbound and outbound tourism and increase profitability A National Aviation Policy should be created and implemented by the CAA with flexible and progressive goals that can help the economy of this country to become sustainable The government should stop bailing-out the national carrier. aircraft type. PIA should be encouraged to run on professional and commercial lines.Key Success Factors of the Industry Given the dire situation of the aviation industry of Pakistan. this rate is at a steady increase and our carriers should focus on getting the Lion s share of this growth. and at the same time. and other management tools to improve its efficiency Pakistan has an average growth rate in passenger traffic of 10 percent. Promotions. through proper operations execution and route management. Just as important is cost management. Successful management of this key indicator enables airlines to tap investment for growth Taxes should be revised and if need be voided to promote the use of our airlines Open Skies policy should be reviewed to help the country s ailing industry y y y y y y y y y y . and ease of booking a flight must be competitive for success. airlines need to focus on the following factors to achieve success: y A professional high level national committee on civil aviation should be setup. and it should be expected to embrace competitiveness by using modern technology. Training programs focusing on front-line communicative skills with customers and internal employee-management problem solving with customer-focused continuous-improvement objectives are essential ingredients. create loyalty and repeat business. particularly those targeted to frequent high-revenue travelers. notably fuel procurement and price hedging during volatile periods Net-unit revenue is the measure of profitability. class of service offerings.