High fuel cost turns PIA into red - SBP annual report

[Abbas Ali]

KARACHI: The good performance of Pakistan International Airlines (PIA), which raised record revenue of Rs 69.2 million during FY06, was overshadowed by high fuel price, State Bank of Pakistan (SBP) observed on Saturday.

In its annual report issued here, the central bank noted that exponential rise in global oil prices wiped out profits of the aviation industry even as PIA was able to generate more revenue with expansion in its business.

“Specifically, passenger revenue registered a 14.1 per cent rise for FY06 and remained well above the target set for the year.” This revenue increase came despite tight competitive environment, especially on domestic routes, which compelled the national airline to reduce traveling fares to retain its market share that has seen a drastic drop in previous years, the report adds.

During the period under review, fuel bill of the airline reached Rs 31.8 billion, above the Rs 22.3 billion target for the year. PIA’s other operating expenses registered marginal increase of 6.3 percent.

Source: The News

On the Net: State Bank of Pakistan

[BOEING777]

the central bank noted that exponential rise in global oil prices wiped out profits of the aviation industry even as PIA was able to generate more revenue with expansion in its business.

Lame excuse- even the likes of bankrupt/Chapter 11 Delta is making money. PIA is not the only airline in the world to suffer from high fuel costs.

As I mentioned in this thread:

viewtopic.php?t=7245

In reality, thats a pathetic excuse. PIA hasnt even got 50 planes- airlines like American have over 500- and even after the USA downturn after 9-11, its managed to ride out the crises with a 10 times bigger fleet and an even bigger fuel and wage bill- not to mention a route network that spans the Earth, whereas PK doesnt even serve 30 countries with decent frequencies.

Whether people like it or not, the way PIA is run is shockingly poor and pathetic- and the only reason it hasnt gone bust is because the Govt props it up.

[mohammad abdulaziz]

Not only that PIA is running in losses but its losses are substantial i.e. around 18% of the Revenue – which means PIA would break-even if it is able to increase its revenue by 18% without incurring any additional cost to generate these revenues. This loss of 18% of Revenue is despite that fact, as admitted by Tariq Kirmani, that PIA has already passed on the additional fuel cost to the extent it could to passengers. Additionally, PIA is in business to make reasonable profit which to the minimum should be 5% of the Revenue.

While taking a positive view of PIA management which claims that PIA would be a profitable company in 2007, I am not sure that PIA management is fully aware of the huge challenge of increasing its Revenue by 23% (Net) (additional Revenue minus additional cost), especially when PIA is not in a position to pass on additional fuel cost of its passengers and also in case of decrease in oil prices, PIA competitors would decrease the fares will it inevitable for PIA to make its fares competitive which will have negative impact on PIA’s financials.

PIA management has to be very thoughtful and need to diagnose the root cause that led to depressing state of affairs and need to focus of “practical” remedial measures, otherwise these claims will remain …………………………..

[FMC]

PIA will continue to be in red because Tariq Kirmani's bowlers are not bowling according to the field set by him. What PIA needs is an overhaul of it's SVPs' brotherhood.