Analysis Of The Airline Industry Of Pakistan

Analysis Of The Airline Industry Of Pakistan In 1955 Pakistan International Airline formed. It is the 16th largest airline in Asia, operating scheduled services to 73 destinations throughout Asia, the Middle East, Europe and North America, as well as an extensive domestic network linking 24 destinations. PIA is three stars International Airline. In our report we did SWOT analysis and PEST analysis on PIA, identify major strength we find as leading market position, brand recognition, superior operating structure, network presence, hub airport at Karachi, and effective use of technology. Formulation on GOVT rule, High dependencies on passenger revenues, high debt, and reliance on oil prices are major weakness, opportunities are like having MAX route and fleet, growth demand for low cost airline, customer loyalty, shifting customer needs and industry recovery, and major threats are high interest rates, accidents, strong competition by Air blue, interest and foreign currency exchange rates, and decline in industry. In PEST analysis we discover major Governments active role in increasing competition in the airline industry, inflation rate, turning of social environment of Pakistan liberal with the new regime. Innovation in technology, and its impact on distribution and cost synergies from industry consolidation. We recommend PIA for better service to decentralized its management system, develop SBUs, adopt transparent promotion polices, employee empowerment to increase the employee motivation and moral. Try to decrease its overhead cost, adopt effective marketing policy, two way communication and TQM. Upgrade its fleet; purchase new Airplane with twin engines these will reduce the operating cost of PIA. Improve control over fares. Hire the services of IT specialists; improve service standards focusing on quality. Pakistan International Airlines Introduction: When Pakistan was founded in 1947 it comprised two territories on either side of the expanse of India. It was in this unusual circumstance that Pakistan International was formed in 1955. Despite wars and economic trouble, the carrier survived to grow and prosper. Pakistan International Airlines is the flag carrier airline of Pakistan, based in Karachi. It is the 16th largest airline in Asia, operating scheduled services to 73 destinations throughout Asia, the Middle East, Europe and North America, as well as an extensive domestic network linking 24 destinations. Its main bases are Jinnah International Airport, Karachi, the Allama Iqbal International Airport, Lahore and the Islamabad International Airport, Islamabad/Rawalpindi. The airline also has secondary bases, including Peshawar International Airport, Faisalabad International Airport, Quetta International Airport and Multan International Airport, from which it connects the metropolitan cities with the main bases, the Middle East and the Far East. The airline is owned by the Government of Pakistan (87%) and other shareholders (13%). It has 19,263 employees (at March 2007). AIRLINE INDUSTRY IN PAKISTAN: There are 36 operational airports. Karachi is Pakistans main airport but significant levels of both domestic and international cargo are also handled at Islamabad and Lahore. Pakistan International Airlines (PIA), the public sector airline, though facing the competition from a few private airlines, carries approximately 70 percent of domestic passengers and almost equal domestic freight traffic. The transportation sector accounts for about 10.5 percent of the countrys GDP and 27.4 percent of Gross Fixed Capital Formation (GFCF) in FY06. It provides over 6 percent of employment in the country and receives 12 to 16 percent of the annual Federal Public Sector Development Program (PSDP). Government agencies dominate the sector. Hierarchy of PIA: This organization is divided into following departments: Human Resource and Administration, Marketing, Corporate Planning, Information Services, Finance, Flight Services, Flight Operation, Engineering, Procurement and Logistics, Customer Services, Training and Development, Quality Assurance. The organ gram of the organization follows, with the Chairman at the top and directors of departments reporting to him. The structure is centralized with the top-level management making the decisions. CORPORATE VISION OF PIA: To be a world class airline exceeding customer expectations through dedicated employees Committed to excellence. CORPORATE MISSION As a Symbol of National Pride, We Aspire to be a Choice Airline, Operating Profitably on Modern Commercial concepts and Capable of Competing with the Best in the International as well as Domestic markets. VALUES: 6.1). Customer Expectations: PIA is the most trusted name in the industry. The reason of its goodwill is according the expectation of their customers that PIA has fulfilled always. By providing competitive tariff, extensive care, and convenience to their valued and potential customers. 6.2). Service: PIA aims at providing valuable and unique services to its customers. They are more personalized and courteous to their customers. The services are valuable and rare; this is the reason why customers trust PIA. 28 Nov 2004, Pakistan International Airlines PIA passed the IATA Operational Safety Audit (IOSA) benchmark for global safety management The IATA Operational Safety Audit (IOSA) is the benchmark for global safety management in airlines KARACHI, 22 October 2007 Abacus Pakistan officially launched Abacus Travel Secure with AIG, providing local travel agents and travelers easy and convenient access to AIGs travel insurance policies. Available for the first time in Pakistan, Abacus Travel Secure brings real time and immediate activation of travel insurance policies to the Pakistan travel industry with a more streamlined and time saving application process for travel agents 6.3) Innovation: PIA currently has a number of 43 fleets and aims at increasing this numbers to 53 by the next few years.PIA is adoptive to changes and believe in innovation thats create new ideas and translating these ideas into action. 6.4) Reliability: PIA is the most experience airline with its service with more than 53 years. This has built in PIA has become the most reliable airline. PIA is known for its loyalty and consistency. 6.5) Safety: The most challenging responsibility of any organization is to provide complete satisfaction to its employees and customers together. This satisfaction rewards favorable and easy working conditions. The in-flight services are customers friendly and the organizational the organizational environment is also employees oriented. 6.6) Cohesiveness: PIA has 12 departments working in their own direction and also provides a number of services including speedex courier service, catering etc. The most impressive part is these all department and services are integrated in a cohesive way. Services PIA offers two types of services. Business Class Economy Class Business Class Its the only Business Class service that feels like First Class. A comfortable seat makes all the difference on a long flight. PIAs Business Class Seats elevate the concept of luxury to a new level, fully endorsing your decision to choose PIA Business Class Sit back and relax in our exclusive Business Class Lounges at the Karachi, Lahore, and Islamabad airports. Our hospitable staff will ensure that youre well looked after during your stay with us at the airport Business Class passengers arriving at Airport will receive a warm welcome from PIA. Our representatives will walk you right through all the arrival formalities so that you dont have to stand in line or worry about clearance. Economy Class: PIAs economy class is also comfortable for passenger as Business class. Economy Class offer seats with a 32-inch pitch, adjustable footrests and winglet headrests for improved neck comfort. The personal TV provides on-going entertainment including audio and video on-demand choices. Passengers enjoy the same caring service from our flight attendants, along with skillfully prepared meals and a wide range of in-flight entertainment options to choose from. Free newspapers are also provided to all Economy class passengers. The PIA in-flight magazine, Hamsafar, is provided to all passengers on all international flights. Humsafar was introduced on PIA flights in 1980 and it is published bi-monthly.PIA is providing its service in twenty-five cites of Pakistan domestically which are as follows: Giigit Chitral Skardu Saidu Sarif Islamabad Peshawar Sialkot D.I,Khan Lahore Faisalabad Multan Zhob D.G.Khan Quetta Bahawalpur Rahim Yar Khan Dalbandin Sukkar Panjgor Sukkar Jacoababad Turbat Moemjodaro Gwadar Pasni karachi Revenue Composition: According to the latest report of PIA, 87% of revenue generates from passengers, 8% of revenue generates from cargo and remaining 5% consists of others. Fleet Pakistan International Airlines fleet includes the following aircraft (as of May 2008) Major Competitors: PIA is holding the first position in market. It has 48% market share. Its major competitors are Airblue and Shaheen International Airline. Airblue has a market share of 35% while Shaheen International Airline has 17% market share. People feel prestigious to travel with PIA as compare to Airblue and others. Latest products by PIA nad qulaity achievements: Boeing-777 operating to middle east Flight Barcelona Linking Abu Dhabi and rahim yar khan Flights from D.I.Khan to Peshawar and Islamabad Early buy cheaper fly Bradford- Islamabad Nov stop! Pak Glasgow Flight from Multan and D.G khan to Dubai Lowest business class fare paksitan Dubai Connecting Multan and Quetta, Islamabad with Chitral and Nawabshah with Hyderabad. Promoting web ticketing and SMS booking, Ticketing delivery at Door step 9.1) IATA Operational Safety Audit (IOSA) benchmark: 28 Nov 2004, Pakistan International Airlines PIA passed the IATA Operational Safety Audit (IOSA) benchmark for global safety management The IATA Operational Safety Audit (IOSA) is the benchmark for global safety management in airlines. 9.2) E-Ticketing: KARACHI, 22 October 2007 Abacus Pakistan officially launched Abacus Travel Secure with AIG, providing local travel agents and travelers easy and convenient access to AIGs travel insurance policies. Available for the first time in Pakistan, Abacus Travel Secure brings real time and immediate activation of travel insurance policies to the Pakistan travel industry with a more streamlined and time saving application process for travel agents. 9.3) 3Star Ranked airline : SKYTRAX introduced the World Airline Star Rating ® programme in 2000 the Quality Analysis system that ranks airline product and service standards, based on professional evaluation by airline audit specialists. To achieve SKYTRAX Approved Airlineà ¢Ã¢â‚¬Å¾Ã‚ ¢ status, airlines are subjected to a very detailed Quality evaluation across all areas of their front-line Product and Service standards by Skytrax covering all areas that passengers will typically experience during their trip. SKYTRAX Approved Airline evaluation covers over 750 aspects of product and service quality measurement, and is split across both airport and onboard environments airport services based around an airlines home base airport. QUALITY RANKING USED IN AIRLINE RATING SUMMARY BELOW = Excellent = Good = Fair = Poor = Very poor :: PIA PAKISTAN INTERNATIONAL :: a 3 Star Airline PIA Pakistan Intl Passenger Comments Home Base Airport Ranking = Karachi Airport SUMMARY RANKING Combined Quality of Product / Staff service in airport and onboard environments Business Class Premium Economy Class Economy Class Airport Services Check-In service Business Class Check-In service Economy Class Transfer Services Business Class Transfer Services Economy Class Arrival Services Business Class Lounge product facilities Business Class Lounge staff service Onboard Features Inflight entertainment may vary according to aircraft type Cabin Safety Procedures Inflight Entertainment Amenities, Blankets, Pillows, Towels etc Airline Magazine, Newspapers other mags Cabin Seat Comfort Seat Guide Seating may vary according to aircraft type Business Class long haul Business Class short haul Premium Economy Class long haul Economy Class long haul Economy Class short haul Onboard Catering Business Class long haul Business Class short haul Premium Economy Class long haul Economy Class long haul Economy Class short haul Cabin Staff Service Business Class service efficiency Business Class staff attitude friendliness Premium Economy Class service efficiency Premium Economy Class staff attitude friendliness Economy Class service efficiency Economy Class staff attitude friendliness Responding to Passenger requests Cabin presence through flights Assisting Parents with children Staff Language Skills SWOT ANALYSIS 10.1) STRENGTHS: . LEADING MARKET POSITION: PIA is one of Pakistans leading air carriers, with more than 800 daily flights. Around 150,000 passengers a month fly on PIA, making it one of the major operators in the domestic market in terms of passenger kilometers. PIAs international market share was 43.5%, In the Domestic market, its market share was 69.4%. On a system-wide basis, PIAs market share was 51.2% at the end of year 2007.Its strong market position is driven by consistently low fares as well as reliable service, frequent and convenient flights, use of new technologies like e-ticketing and self check-in terminals, comfortable cabins and superior customer service. BRAND RECOGNITION: PIA has high brand recall. It is recognized by travelers all over the country. PIA is a national airline, operating passenger and cargo services covering eighty-two domestic and foreign. PIA has earned the number one ranking in customer satisfaction. This strong market position gives the company a scale advantage and helps it strengthen its brand image. SUPERIOR OPERATING STRUCTURE: PIA has maintained its position as the low cost carrier. It has been first class Pakistani airline to use the latest technology. Factors contributing consists of different series of Boeing and Airbus and an efficient, high-utilization and point- to-point route structure. Flying one type of aircraft significantly simplifies scheduling, maintenance, flight operations, and training activities. PIA has continually achieved high asset utilization and employee efficiency. Superior operating structure serves as the primary competitive advantage of PIA. NETWORK PRESENCE: PIA enjoys a strong network in key domestic and international destinations. The companys network includes three the major airports in Pakistan, as well as major international airport such as Dubai International Airport. Having a strong network means that PIA can generate traffic feed for both its domestic and international Flights. HUB AIRPORT AT KARACHI: PIA operates from its hub in Jinnah International Airport, Karachi. Jinnah International is one of the worlds busiest airports in terms of number of passengers carried. It is also one of the largest international gateways to Asia. It is also the leading international air passenger (and cargo) gateway to Pakistan. The companys strong presences in airports with heaviest traffic levels in Pakistan give it a competitive advantage. EFFECTIVE USE OF TECHNOLOGY: PIA has successfully incorporated latest technology in all its systems, giving it an edge over competitors. PIA takes credit for introducing most new technologies to the Pakistani market. It was the second carrier in Pakistan to incorporate the c-ticketing system and the second in South Asia to introduce self check in systems at the Jinnah International Airport, Karachi. 10.2) WEAKNESSES: FORMULATION OF GOVT. RULES: The Basic flaw of this organization is its consolidation that is centralized system. The key policies, strategies and set of laws are designed by the upper management. The centralized system is one of the biggest obstacles of long term success of PIA. PIA centralizes structure lead to barrel between different level of management, decreased motivation, hard access to information. HIGH DEPENDENCE ON PASSENGER REVENUES: Passenger revenues accounted for 87 percent of the PIAs total revenue in 2007. Cargo services allow airlines to generate additional revenues from existing passenger flights. In addition, cargo revenues are usually counter cyclical to passenger revenues and have lower demand elasticity than passenger business, which allows airlines to pass on fuel price hikes to customers. DEBT: PIA has a significant amount of 42 billion debts. Current and future debts could have important consequences for stakeholders of the company. For example, debt could impair PIA ability to make investments and obtain additional financing for working capital, capital expenditures, acquisitions or general corporate or other purposes. Debts could also put PIA at a competitive disadvantage to competitors that have lesser debt and could also increase the companys vulnerability to interest rate increases. RELIANCE ON OIL PRICES: PIAs sustainability, growth and revenues directly depend on oil prices. A steep rise in oil prices can seriously damage the long term viability of any airline. Recently many airlines around the world went bankrupt due to rising oil prices. Airlines need to hedge against this risk by taking proper measures. OPPORTUNITIES: . HAVING THE MAXIMUM ROUTE AND FLEET: PIA is having the maximum route and fleet domestic and international destinations network in Pakistan as compared to its Competitors. Route and fleet expansion will positively impact the companys operations by increasing revenues. GROWING DEMAND FOR LOW COST AIRLINES: The growing demand for air travel is driven by lower fares and consumer confidence. A survey by International Aviation Authority showed that ticket price is the number one criterion for passengers when selecting a flight, well ahead of the availability of a non-stop service. CUSTOMER LOYALTY: PIAs frequent flyer and loyalty programs can help it retain customers. PIAs Awards+plus (frequent flyer program) was established to develop passenger loyalty by offering awards and services to frequent travelers. Such schemes encourage repeat travel on PIA, as passengers seek to accrue the benefits given to regular travelers. This enables the airline to retain customers and reduce costs, as it does not have to spend money targeting new customers to replace those lost to other airlines. SHIFTING CUSTOMER NEEDS: The needs of air passengers are increasingly changing, as they are becoming more and more price sensitive. If PIA succeeds in making its prices more competitive, then the company will be able to gain significant market share. INDUSTRY RECOVERY: Market analysts believe that the global airline industry will experience an upturn in fortunes over the next few years. This represents an opportunity for PIA, as it could generate increased revenues and command market share if it capitalizes on increases in demand. . THREATS HIGH INTEREST RATES: The past few years have seen State Bank of Pakistan impose high as well as low interest rates to check inflation and the over heating of Pakistani economy. Inflation in Pakistan may see another raise in the short-term. ACCIDENTS: There had been five accidents with PIA listed as below: Pakistan International Airlines Flight PK 705 was a Boeing 720 040 B that crashed while descending to land on Runway 34 at Cairo International Airport on May 20, 1965 resulting in 119 fatalities. Pakistan International Airlines Flight PK740 was a Boeing 707-340C that crashed after takeoff from Jeddah International Airport on November 26, 1979. All 156 aboard were killed. Pakistan International Airlines Flight 268 was an Airbus A300B4-203, registration AP-BCP, which crashed on approach to Kathmandus Tribhuvan International Airport on September 28, 1992. All 167 on board were killed. PIA Flight 554 is the flight number of a Pakistan International Airlines (PIA) Fokker F27 that was hijacked on May 25, 1998. The flight started its journey at Gwadar in Balochistan after originating in Turbat, and was flying to Pakistans southern port city of Karachi. The aircraft was carrying 24 passengers and 5 crew members. Pakistan International Airlines Flight 688 (PK688, PIA688) was scheduled to operate from Multan to Lahore and Islamabad at 12:05 pm on July 10, 2006. It crashed into a field after bursting into flames a few minutes after takeoff from Multan International Airport. All 41 passengers and four crewmembers on board were killed. PIA has to continuously ensure utmost safety and security of its passengers. Accidents can adversely affect customer confidence in PIA and result in declined revenues intensifying competition. STRONG COMPETITION BY AIRBLUE: PIA is now competing against carriers such as Airblue and Shaheen Airline. PIA remains Airblues strongest competitor because of the huge market it has gained over time, strong brand image and customer loyalty. PIA has started new low-fares subsidiary PIA Express to stop the Airblue market share growing to fast. Moreover, major legacy airlines have been focusing on restructuring costs, which has improved their competitiveness. With costs restructured, the legacy airlines are becoming more formidable competitors in terms of increasing capacity, matching prices and leveraging their frequent flier programs. Increasing competition could adversely affect the companys margins. INTEREST AND FOREIGN CURRENCY EXCHANGE RATES: Fluctuating foreign currency exchange rates can have a significant impact on PIAs earnings. For example, as PIA is providing its services to the UK. Negative or positive effects arise from exchange rate movements as change in expenses. Strengthening of foreign currencies against the British Pound will positively impact PIA and vice versa. DECLINE IN AIRLINE INDUSTRY: A number of factors have caused the current decline in the airline industry. For example, the threat of further terrorist attacks since September 11 and a fall in the number of business travelers have both caused passenger numbers to fall. These and other factors may continue to affect demand for air travel in the future, which will affect revenues of PIA. The threat of terrorism may discourage people from traveling by air and could especially reduce the number of passengers traveling on international flights. PEST ANALYSIS The macro-environment includes all factors influencing a company that are not within its control. These include political, social, economic and technological factors. These are known as PEST factors. A technique of analysis of the macro environment is PEST analysis. Environmental analysis should be continuous arid precede all aspects of planning. Since the airline industry is very much influenced by changes taking place in the environment and has undergone rapid and dramatic changes during the last decade, this analysis is especially important for PIA. POLITICAL FACTORS: Political factors always have a great influence on the way businesses operate in the airline industry and the spending power of customers. In recent years it has been observed that government played an active role in increasing competition in the airline industry. A number of new airlines such as AirBlue and JS Air have been awarded licenses to enter the domestic market. Pakistan has achieved some political stability in recent years. If the management of PIA believes that the present government will perform well (consistently), then there will be more investment in the form of purchase of new airplanes and latest technology. The over all industry will grow resulting in more luxurious and comfortable flights. With the military takeover government policies have become more liberal. ECONOMIC FACTORS: Currently, Airlines industry has three major players: Pakistan International Airlines, an Airblue, Aero Asia and Shaheen Airlines. Their target market includes domestic travelers as well as Pakistanis living abroad particularly in the UK and USA. These countries have strong economies coupled with high purchasing power. Customers purchase behavior depends very much on prices of the competing airlines as well as services offered. As inflation rate is unstable in Pakistan, spending power of consumers has effected in the long term. In fact growth in Pakistani economy has resulted in an increase in spending power and has positively impacted the airline industry. Economically, the new millennium has been highly volatile; the September 11 attacks revolutionized the whole world. Consequently, there was a global depression in the North America, South America, Australia and Europe. However, in Asia especially Pakistan the effect in the short term was otherwise. The economy began to boom because of greater remittances from abroad and whole sum immigration by expatriates. As a result, demand for air travel in South Asia rose. Economic conditions of Pakistan are however improving. PIA has cost a advantage over its competitors because of its newly acquired, improved, long distance aircrafts from Boeing which give longer range and better fuel economy than any other jet currently produced. This cost advantage is a barrier to entry for new firms. However, this cost advantage will not be significant on domestic routes. SOCIAL FACTORS: The social arid cultural influences on business vary from country to country. The social structure of Pakistan is closely tied. The trend is now changing as the general public is educated and is pursuing professional goals. Customers are more aware of market conditions and available options and want to get best value for their money. They spend considerable time and money on entertainment hence increasing the need of in-flight entertainment systems. Also, word of mouth has a significant impact in the use of airline services. Hajj attracts a huge number of customers. The social environment of Pakistan is turning liberal with the new regime. The initiative to automate check-in and ticket booking process might not be very popular with the general public (even educated population) is still technology averse. E-ticketing might also face significant challenges as consumers are generally reluctant to provide their credit cards information over the phone and the internet. The consumers, however, have a warm reaction to the prospect of less costly but quality service flights. vi) TECHNOLOGICAL FACTORS: Technology is vital for competitive advantage and is a major driver of the airlines industry. Major technological changes are taking place in the airlines industry with innovations in the reservations and booking systems. In-flight entertainment systems and auto check in counters are two examples of such innovations. Internet plays a key role in e-ticketing as consumer can easily reserve tickets or check the status of the flight. A key issue will be the extent, to which technological advancements (such as Internet) impact distribution and cost synergies from industry consolidation, can offset upward pressures on costs. PIA has always led the path of technological innovations by introducing new technologies ahead of its competitors such as its auto check-in counters which has helped it gain market share. It was the first airline in Pakistan to install Sabre system followed by the market leader. RECOMMENDATIONS FOR PAKISTAN INTERNATIONAL AIRLINES Decentralization: PIA should decentralize its structure that would lead to the easy management, increased motivation, easy access to information and resolution of the conflicts (as they would be resolved by the immediate manger time span would then reduced). Since employees issues regarding their behavior would lessen, so it would ultimately lead to more satisfied employees that would result in enhanced productivity of the organization. Strategic Business Unit: PIA should make its different departments into Strategic Business Unit. Every SBU should have a defined business strategy and a manager with sales and profit responsibility. As PIA is a large organization, so it must be convert into SBUs.Different factors should be determined for the success of SBUs which as follows. The degree of autonomy given to each SBU manager. The degree to which an SBU shares functional programs and facilities with other SBUs The manner in which the corporation evaluates and rewards the performance of its SBU managers Transparent policy adoption: PIA should adopt transparent policy that employees should be promoted on merit basis. And Chairman of PIA should be appointed from with in the organization. Union should support it, it will motivate the employees and PIA will grow in profit. PIA should not induct new employees till the time they are needed on the basis of my personal observation at Rawalpindi station I have seen that a task which can be performed by person PIA had 3 employees for that.PIA should give bonus to the industrious and competent employees. Employee Empowerment: PIA should make efforts towards empowering the employees that is going to lead to more employee participation in the decision making process and also result in more employee satisfaction and enhanced motivation. Apart from this, employees would feel more independent to discuss the issues explicitly without hesitation. This would also enhance team work process at PIA as quality team and cross-functional teams. The employees will work with more commitment and dedication and every employee would work to his/her fullest due to increased motivation. <