A case study on how to make and unmake an airline
Pakistan’s civil aviation history would make a great case study on how to make and unmake a national airline. It all started when Orient Airways was formed by the Isfahani family of Calcutta in 1946, acting upon a suggestion by Mr Jinnah. The war had ended and aeroplanes were freely available at throwaway prices. The Orient started with the venerable work horse, the DC3 which had been built in the tens of thousands during the war.
Orient merged with the proposed national airline in 1955 and PIA was born. The small, manageable entity that it was, PIA started on a very promising note. Lockheed Super Constellations were purchased as well as Vickers Viscounts. Both aircraft were operated successfully in a rapidly expanding international network. Air Marshal Nur Khan took over as MD in 1959 and in his inimitable style, brought PIA up to par with the world’s best airlines. PIA wet leased a Boeing 707 from Pan Am and started trans-Atlantic flights. Boeing 720s, a shortened version of the 707, were purchased as well as Fokker F27s which operated in the far flung Northern areas as well as short hop inter-city flights.
The PIA of today is a pale facsimile of what were its glory days. Where did it go wrong? The major obvious reason is that in the early years, the airline was being run as a corporation with a strong and enlightened leadership. As the years wore on, the operations became increasingly bureaucratic. Political governments succumbed to pressure and used the airline as an employment exchange. At the moment there are 500 employees per aircraft. Compare this to Lufthansa (127), British Airways (178), Singapore Airlines (140), United Airlines (119) and Air France (245).
In PIA’s defence, it has to operate many non-profit routes on the fringes of the country, like Gilgit, Skardu, Gwadar. These operations and the staff that runs them are a drain on the airline’s resources and account for a significant number of the 500 employees. And the employee salaries are a fraction of what are being paid on the European airlines so this can also not be blamed for the non-profitability.
The major reason for PIA’s ills is that it is not being run as a commercial entity but rather under the Ministry of Defence. Inevitably, this has led to bureaucratic tendencies. Retired defence services officers have found the CAA and PIA convenient post retirement employers with excellent perks. Most of them do not have the expertise that could contribute in any positive way. The political employees, incompetent to a fault, would gang up together to protect themselves. The end result is what we have today, an overweight, arthritic behemoth that is essentially on life support.
Another factor that, experts say, caused a severe downslide in the airlines fortunes was the Pakistan government’s decision to start an ‘Open Skies’ policy. Critics say that the decision by the Nawaz Sharif government at the time, was taken in haste and without proper thought. In essence, the ‘Open Skies’ policy gave foreign airlines a free access to Pakistan’s air traffic, not only to take passengers to their own home country, but also to connect them to their other international flights. This policy is rarely undertaken and even when it is, it is between airlines that are at a par with each other with regard to services, aircraft, connections etc. This decision is taken by aviation marketing experts after a careful study of the advantages and disadvantages to their own airline industry.
The airline industry is governed by what are known as ‘Freedoms’. The fifth and sixth Freedoms are the most relevant and they delineate the rights of airlines to take passengers from another country to their own and the right to take them further to another country. The sixth freedom is the right to carry passengers or cargo from a second country to a third country by stopping in one’s own country. It can also be characterized as a form of the fifth freedom with an intermediate stop in the operating airline’s home market. Most countries jealously guard their sixth Freedom Rights and to give free rein to foreign airlines to pick up and transport passengers anywhere in the world was a grievous blow to a struggling airline.
PIA’s main competitors in the region were the burgeoning Gulf airlines like Emirates, Qatar and Ittehad. These airlines had unlimited resources, new planes, European management and state of the art in-flight entertainment and service. They also had excellent Duty Free areas in their hub airports. Try as it might, the creaking, struggling PIA was thrown in at the deep end. It was basically sink or swim and PIA has been just keeping its nose above water ever since.
In 1997 when the policy was introduced PIA share of the market was 81.3 and others a mere 8.7 percent. By 2001, this had changed dramatically relegating PIA to only 41 percent share of the market. As a result, unable to compete with foreign airlines, PIA is demanding protectionist legislation to rescue the cash-strapped company.
The PIA fleet is cause for serious concern. Apart from the Boeing 777s, all other aircraft are old and in such a state of disrepair that they were banned from using European airspace for quite some time. PIA’s maintenance and engineering wings, once considered their pride, were in serious danger of losing their edge. With the Extended Twin Engine Operating Standards (ETOPS) coming into effect in the late 1980s, twin engine airliners could operate anywhere in the world as long as they were within 180 minutes from an alternate airport in case of one engine shutdown. This placed almost the entire planet in operating range of the twin engine airliners like the 777 or the A330s. This, along with rising fuel prices, put the Boeing 747s that PIA operates, unprofitable to operate. Most have been grounded and are only used for Hajj flights. The Boeing 777s are successful but were purchased through a financial deal that may not have been the best. Most airlines get discounts of 30 per cent or even more from the list price. It is not known whether PIA was in a position to get this discount through the finance company. All this can add to the all-important CASM (cost per air seat mile). An expensive plane will have a higher CASM and therefore less profitability. Moreover, at the time the 777s were purchased, there was a glut in the airliner market following the 9/11 tragedy. Plane prices had fallen steeply. Perhaps a boat was missed there. Recently a lease of six A320s was cancelled because the maintenance staff stated that they were more comfortable with the 737s and that the retooling for the maintenance of the A320s would be prohibitive. With the grounding of most of the Boeing 737s, only about 18 serviceable airliners are left. Compare this to some American privately run airlines that have almost a thousand aircraft.
Like every other inefficient organization, there is always room for the unscrupulous to make a fast buck here and there. There is a thriving business of excess baggage, especially from the Gulf countries where baggage is loaded for a consideration. Then there is the carry-on baggage which is often much more than allowed. The problem is that pilots need exact figures so that they can do load and weight and balance calculations. Most of them automatically add one ton into their calculations. Even then, they are not amused when they see a fast disappearing runway with the engines red lined.
There are stories of people storing vital engine parts in collusion with maintenance staff just so that when there is a requirement for it to keep the plane in the air, they can charge full market price and make a killing. This nickel and dime stuff would disappear with better management and a tight ship. In Jeddah, PIA lost its credit and had to pay cash. The management decided to add extra fuel from Pakistan even though hauling that extra fuel would cost a lot of money. It is these indicators that show a badly mismanaged organisation.
Unfortunately, there is no magic potion that could solve all of the ills of PIA. They need to get back to fundamentals. Improve their staff, cabin crew training. Maintain their planes so that they are in the air longer. They are useless sitting at the ramp. New planes need to be added. But the key is the management at the top level. The airline must be run as a business with the management having hire and fire powers. And above all, get a professional, with a track record to run it. No matter how much he costs the airline. As the Chinese proverb says, ‘The fish rots from the head’. If the head is good, the rest will follow.