PIA: performance and growth strategy - By Nasir Jamal

[Abbas Ali]

SYNOPSIS

PIA performance review and growth strategy 2006-07

By Nasir Jamal

PIA during the last two years 2005-2006 has recorded revenue increase of Rs12.5 billion which translates into a growth of 22 per cent on 2004. Unfortunately, this impressive growth in overall business and revenue has been overtaken by the abnormal surge in fuel bill owing to 74 per cent rise in the fuel price in 2006.

During the period January - September, 2006 the Corporation's operating expenditure exceeded the revenue by Rs9,188 million, which primarily is attributable to increase in international fuel prices. The steep increase in fuel prices started from early 2005 and reached an unprecedented level of US$78 per barrel in September 2006. As a result PIA's fuel cost increased from Rs18 billion in 2004 to approximately Rs34 billion for the whole of 2006. With an additional financing cost on it, the total impact because of fuel touches Rs18 billion.

Revenue and passengers

In 2006 PIA carried a system total of 5.7 million passengers, achieving a growth of 5.1 per cent, while the total market had grown only by 3.6 per cent. Over all seat utilisation was 72 per cent. PIA carried 3.4 million international passengers, a growth of 5.5 per cent over last year, with a market share of 48 per cent. On the domestic front, PIA carried 2.3 million passengers, a growth of 5 per cent with a market share of 69.5 per cent despite the fact that total domestic passenger market declined by 2.7 per cent.

A review of PIA's performance during 2006 reveals that the airline's business continued to grow in 2006. System revenue reflects a healthy growth of 10 per cent that increased to Rs70 billion, from Rs64 billion in 2005; this included a passenger revenue of Rs55 billion, which increased by 11.8 per cent over last year, despite cut throat competition from the private domestic and foreign airlines.

Cargo operations

PIA's Cargo Division is functioning as a profit centre, with a net contribution of Rs3 billion to its operations after meeting operational and establishment costs, including the costs of freighter operation. Currently, PIA's market share out of Pakistan is 51 per cent despite competition with fifteen other carriers in Pakistan. PIA's market share to Pakistan has increased to 42 per cent and at present Cargo's contribution to PIA's over all revenue is 9 per cent. In 2006, Cargo traffic increased by 4.4 per cent whereas Cargo revenue increased by 11.4 per cent due to improved product through freighter operation resulting in a higher yield.

A Brand Division was created for the first time in PIA including a new Corporate Social Responsibility CSR Team. Marketing and Finance have been restructured. Emphasis on customer's comments and feedback has been placed.

Fuel equalisation fund

PIA's operational and financial restructuring plan includes, among other proposed remedial measures, creation of a Fuel Equalisation Fund to protect the airline from future fuel price hike.

Under this proposed plan Rs5 billion Fuel Equalisation Fund is to be administered by SBP. If crude oil prices go beyond US $ 60 per barrel, PIA will be able to draw money from the fund to meet the extra cost. Conversely, if the price of crude oil falls below US$ 50 per barrel, PIA will pay money into the fund. The money will not be treated as a subsidy. PIA will be able to draw on the fund for an initial period of one year. At the end of that period, the situation will be reviewed and the government may extend the facility for another year.

Financial restructuring plan

Ministry of Finance is in the process of recommending to GOP a financial restructuring package for PIA, which includes re-profiling of some of the existing debts/loan for which it will provide guarantees.

The plan proposes issuance of Term Finance Certificates (TFCs), equity injection by Government, sale of non-core assets besides some internal steps to improve the working of the airline.

The restructuring plan would start yielding results after its implementation in 2007 -2008. PIA would induct new planes in its fleet, thus reducing the average age from 21 years to less than 10 years

SAFA inspections

To maintain confidence in its systems, International Civil Aviation Organisation (ICAO) started its Universal Safety Oversight Audit Programme (USOAP). Safety Assessments of Foreign Aircraft (SAFA) programme complements the USOAP in Europe by concentrating on Physical Aircraft checks at European airports. The principles of the programme are simple, in each ECAC state foreign aircraft can be inspected.

Encouraged with PIA's new fleet modernisation plan to bring down the average age of the fleet to respectable 10 years, Engineering management (in conjunction with CAA-Pak) have increased their technical surveillance.

Resources and assets

A new Human Resource Department has been created that is following the latest recruitment and placement procedures, and modern change management techniques are being applied. PIA employees are as old as the PIA aircraft and fresh inductions are required to bring new blood and younger, vibrant minds into the airline. This is being done in a logical manner to coincide with the attrition and superannuation rate of the airline. Nothing revolutionary is being done but everything evolutionary is being enacted. The aircraft to employee ratio in PIA is indeed very large, and this has affected PIA's efficiency greatly. For instance, the worldwide employee-to-aircraft ratio is 130 employees per aircraft, but PIA has a huge ratio of 410 people per aircraft.

By May 2007, it is hoped that the average life of PIA's fleet that currently stands at 21 years will be reduced to 10 years, with the induction of Eight brand new Boeing 777s and 7 new ATR airplanes to the fleet. PIA Engineering Department used to service, repair and overhaul aircraft of other carriers in its wide body hangars. PIA engineering department under the incumbent management is regrouping once again as a profit centre, and many programmes have been activated to make it self-sustainable and to generate revenue.

Services

(a) PIA has taken up E-ticketing as a project designed to achieve web based ticketing so as to propel its ticketing capability to keep pace with the competitors. Beyond our own ticket offices, it will enable our agents on Global as well as local Distribution System to avail this facility.

(b) PIA Awards Plus is an exclusive programme for customers who frequently travel with PIA. It allows members to earn points for travelling with PIA based on distance travelled, class of service purchased and membership tier status. These points can then be exchanged for free tickets, excess baggage vouchers, cabin upgrades and many other exciting rewards.

(c) By way of enhancing service level, mishandled baggage is being delivered at the residence of valued customers. Initially, this service is being provided at Karachi and Islamabad stations.

(d) PIA has exclusively established a separate business unit; group tours and charters, within the marketing department to cater for tourism facilities (inbound, outbound and domestic).

(e) PIA has introduced 50 per cent discounted Standby Fares.

(f) The Air Safety Committee of European Union visited Pakistan during 12-16 February 2007 and held professional-cum-technical consultations with various public and private sector airlines management. The consultation subject primarily concerned technical upkeep, airworthiness and well-kept interior of Asian countries aircrafts operating on European destinations. The committee expressed its satisfaction over PIA aircrafts all operational and professional issues. It was followed by another meeting in Brussels during 21-23 February, 2007.

(g) Miscellaneous information: PIA did not hedge fuel prices and consequently has, since the end of 2004, absorbed a huge 74 per cent increase in its fuel prices. Currently 49 per cent of PIA revenues are spent on fuel alone. As the fuel prices drop, from a peak of nearly USD 78 to the current nearly USD 58 per barrel, there are positive signs this year that a downward trend will continue. Seen together with the fact of PIA's introduction of E-ticketing, Web based bookings, and Revenue Management System that are expected to provide an incremental revenue increase of 2 per cent to 7 per cent during FY 2007, PIA is all set to bounce back into profitability.

PIA fleet comprises B747,A310, B737, ATR 42-500 and the B777, and these aircraft are maintained in accordance with the international standards. "Aircraft Manufacturer Service Bulletin and Regulatory Authority Airworthiness directives are complied on all aircraft to ensure reliability and utmost safety of our fleet.

Conclusion

Encouraged with the PIA new fleet modernisation plan to bring down the average age of the fleet to respectable 10 years, Engineering management have increased their technical surveillance. Engineers and staff are more vigilant, more time on ground is being given to aircrafts, recurrent trainings have been given to maintenance personnel and timely provision of spares and resources have been made a priority. PIA is well poised for a turnaround both from operational and financial standpoint during 2007.

Source: The News

[737NG]

no points for guessin whose gettin free tickets

[AN]

can you say.........NASIR

[Abbas Ali]

Mr. Nasir Jamal is General Manager, Public Affairs, PIA.