CAA mulls restructuringAt this point, the real estate around Karachi, Lahore, and Islamabad is worth around US $ 240 million. If developed successfully, this land could be worth staggering US $ 1.50 to 2.00 billion.
BY AMRAIZ KHAN
LAHORE - A Dubai-based international foreign management consultancy firm has recommended in its comprehensive report to split the Civil Aviation Authority into three independent departments. However, the Authority is only considering to split the department into two entities, well placed sources in CAA confided to The Nation here on Saturday.
The reputed firm had recommended in its over 40 pages report to the Defemce Ministry that the CAA was currently fulfilling three functions: airport operations, regulation, and air traffic control. These functions may not be aligned on all issues. For instance, conflict may arise about granting additional routes. Whereas the airports would appreciate any additional connection, the regulator must consider a different set of factors and may be subject to interference by other conflicting interests of other countries and their airlines.
Further, no clear policy or direction has been given to the individual roles, making prioritisation between different objectives a complex matter for the management of the CAA. Hence, many decisions have to be taken at the Board level or even at the much higher level above.
The CAA has separated its core commercial functions (airport operations) from its other administrative functions (regulations) and runs the "airport operations" as a commercial corporation.
The CAA has so far focussed the international traffic increasingly on Karachi and Lahore, which have been positioned differently and in line with the cities' own positioning. Some unprofitable airports have been either closed down or are to be run with private partners that may help developing them for any further consideration or expansion.
The aviation sector has over the recent years been developed rapidly in co-operation with the airlines and Ministries of Commerce and Tourism, bilateral agreements with key ethnic traffic source countries have been vigorously renegotiated so as to allow more routes, and international long-haul connectivity has been increased through private Pakistani airlines and international carriers.
World-class retail and real estate development operations have been outsourced to an international, retail operator, and the CAA manages the contracts profiting from the operator's growth through revenue sharing mechanisms. Real estate development is driven by a separate property development subsidiary that creates joint ventures with international real estate developers.
In order to reverse the profit decline, core airport operations are being continuously improved so as to absorb the growth in aviation without additional labour.
In order to overcome this situation, it is being recommended to separate the airport operations from the regulatory function. In preparation of that envisaged change, three different missions for these three functions had been developed that could be adopted by the Board without changing the current ordinance.
Air traffic control should stay with the regulatory function for now in order to emphasise that it does not strive for profits. Both regulation and air traffic control should be placed under the Chief Executive like other regulators. The airport operations may stay with the government and consider partial or full privatisation at a later stage. By separating the roles, the airports should be developed into a commercial organisation.
As a first step, the functions are proposed to be clearly separated internally and a reorganisation team to be set up to prepare a full split to separate entities. By the end of 2005, the Board could then decide on the future organisation and a detailed reorganisation roadmap.
At this point, the CAA employs some management talent. However, real-life business experience was scarce and wages are not competitive in the commercial market place. If the CAA wants to develop a profitable airport business, new commercial talent is direly required. Even within the current organisational structure, only new commercial talent can help driving the required initiatives.
Key positions to be held by commercially experienced managers include the Deputy Director General, who can function as the commercial CEO at the side of the representative and politically appointed Director General, the Director of Finance, who must install the necessary management information systems for a commercial airport enterprise to succeed, and the Director of Commercial, who needs to establish contract management skills and key account strategies towards the airlines. The Director of Operations should be the second priority for outside commercial talent given the importance of getting the operating costs under control.
As a first step, clear and meaningful job descriptions are required to hire the commercial talent described. Based on these new job descriptions, the Board should engage a headhunter to identify and attract managers from the commercial markets. They should also be prepared to pay competitive remuneration in order to attract the right talent. Also, the other director posts should be established after matching capabilities and requirements.
After the new Directors have been appointed with commercially experienced managers, the CAA should begin to develop a new management information system and related performance management techniques It must be clear that the design of the management information system may take up to eight months with the first pilot data available only one year after the initial kick-off. However, it would be critical for the management information system to be tailored to the needs and abilities of the individual departments managers, the electronic infrastructure available at the individual airports, and the management rules established by the new managers.
As a first step, teams should be set up to revise and evaluate the small unprofitable airports and to develop the future positioning of Karachi and Lahore Based on the recommendations developed by these teams, strategies for closing unprofitable airports and for marketing Karachi and Lahore could be developed and implemented.
At this point, only a fraction of the ethnic (expatriate) international traffic could travel directly because of limitations in the bilateral agreements, and because of limited capacity of direct (PIA) flights. It seems, PIA uses this situation to earn monopoly rents on its direct connections. Given the high price elasticity of (ethnic) travel demand, this behavior may depress traffic. Furthermore, the major international airlines have stopped their operations to Pakistan because of the expected low yields of the market.
There are following three options to increase supply on international direct connections. However, the influence of the CAA on whether or not any of them will materialise is rather limited:
Increasing capacity of PIA's long-haul fleet/connections
May be thwarted by financing and management limitations.
Foreign international carriers are wary of the Gulf carriers and mostly depend on business travelers.
Private Pakistani airlines want to add longer-haul international routes.
In order to facilitate, the CAA should focus its marketing efforts on second-tier international and low-cost carriers to increase capacity for the lower-yield ethnic traffic. Also, they should allow the private airlines to add capacity on the international routes. Experience in Europe had shown that such an increase in capacity and increase traffic rather than take traffic from the existing national flag carriers. Altogether, our belief is that this would put pressure on
The Gulf airports, may create opportunities for (low-cost) transit traffic, and support the national economy.
As a first step, the CAA should grant outstanding requests by private airlines to open long-haul connections. As a next step, a cross-functional negotiation team should be set up to prepare for a re-negotiation of critical bilateral agreements and a key account management function should be established to attract international airlines and to develop traffic together with the airlines.
Presently, traffic is dominated by ethnic travel with very limited tourism and business travel. Since ethnic travel is low yield business and provides limited inflow of foreign reserves and investment, Pakistan as a whole needs to reconsider its tourism and economic growth strategy. However, the CAA can not drive these initiatives. At best, the CAA can trigger and support these efforts for mutual benefit.
At this point, the real estate around Karachi, Lahore, and Islamabad is worth around US $ 240 million. If developed successfully, this land could be worth staggering US $ 1.50 to 2.00 billion.
Source: The Nation