Money Matters

Rescue operation

January 8, 2018
By Dr S Mir Mohammad Shah

Pakistan International Airlines (PIA) suspended its services to United States from October 30, 2017, a move towards further shrinking the network of the national flag carrier and surrendering well established strategic assets, routes and destinations.

AVIATION

Pakistan International Airlines (PIA) suspended its services to United States from October 30, 2017, a move towards further shrinking the network of the national flag carrier and surrendering well established strategic assets, routes and destinations.

In case PIA is not able to restore its operation within a couple of months, the airline will lose the facility of landing at one of the prime airports, New York’s JFK airport and will never be able to get this again. PIA is closing its operation at a time, when the marketplace is full of opportunities; neighbouring countries’ airlines, Emirates, Etihad, Qatar, Turkish, Kuwait and Saudi are progressively increasing their flights, they have now more than 200 weekly flights. Emirates has five flights, Turkish three, Etihad and Qatar have two flights per day from New York.

The action of discontinuation of operation has been taken in the middle of peak season, disturbing travel plans of about 3,500 passengers with conformed seats on PIA. For accommodating these passengers on other carriers, the airline will have to absorb cost of more than $1.7 million.

As the action of closure of services, a major policy decision was taken in haste even without approval of the board of directors, the airline is legally liable to make payments of about $3.3 million to several agencies, including airport authorities and several service providers. Furthermore, as per contractual obligations, PIA is liable to pay around $450,000 to hotels used for accommodation of crew and to those employees who had been laid off. All those cash guarantees of travel agents (about $300,000) must also be returned as well as credit line of bank amounting $1.5 million will have to be frozen. Besides this material loss, the decision of suspension of operation has severely damaged the image of the airline and the Pakistani flag will be removed from US airports.

PIA has one of the best bilateral service agreements with United States; the airline has an open permission to operate to any city of US with any number of frequencies. The airline started its operation about 58 years back in the year 1960.

The US is the largest and ever-increasing marketplace in the aviation industry, about 25.4 percent of tickets issued globally are sold here and the country generates around 35.5 percent of total worldwide revenue passenger kilometres (RPKS).

Pakistanis are the second fastest growing group of immigrants in US. At present there are more than 600,000 immigrants and cases of many Pakistanis are in the process. Besides, there are more than 275,000 Pakistani Americans living around New York / New Jersey. As per an estimate, around 28 percent of Pakistanis living in US travel to Pakistan each year. More than 100,000 Pakistanis come to US on non-immigrant visas every year. This means PIA has a potential of operating more than two flights per day from US to transport Pakistanis.

Share of PIA in transportation of the international traffic, the critical source of earning, from seventies has now reduced to only 25 percent. Instead of following universally accepted policy of reciprocity and bilateralism, “open sky policy” is being followed and flights are being allowed to foreign carriers. Instead of PIA, other airlines are now carrying Pakistani traffic to foreign countries through transiting in their countries. As per airline industry estimates, giving one flight to foreign airline costs more than 800 jobs.

Countries like US, the one which introduced the concept of Open Skies in the year 1992, have now realised that the policy was misconceived at the time of its introduction. Therefore, it is being pressurised to reopen air service agreements with different countries, especially those from the Gulf, and meanwhile to freeze new passenger services.

European Union is also against open sky policy and is considering measures to protect the interests of their carriers. Government of Canada has come out with a slogan: “Fair Skies rather than Open Skies”. Each agreement is finalised after evaluating risks and benefits.

One of the main causes of deterioration of PIA, the one which is hardly being highlighted in the debate of the national carrier’s performance, is the inappropriate use of information technology by the airline.

PIA used to be recognised as a leader in the field of computerisation of the airline systems. Indeed, during eighties and nineties, computer systems of PIA were superior to most of the airlines, including India, the country which is now claiming to be the “it super power” of the world.

PIA Information Technology staff was not only used to design, develop and operate computer systems for its own use, but the airline used to export software and services to several foreign airlines. Many computer experts trained by PIA are still working overseas on senior managerial positions, including in the United States. Unfortunately, due to wrong policies of rulers with suspicious motives, infrastructure of Information System Department of the airline has been uprooted and now there are hardly any software development skills available.

The problems of leakages of revenues and financial indiscipline in the airline have been progressively on the rise since the time PIA started using foreign computer systems. It replaced its own indigenous systems, designed and developed according to the specific environment of the airline. The airline is not only bearing the huge and avoidable unnecessary costs but since most of the computer systems have infected every organ of the airline, the method has given rise to corruption at various levels. Lack of inbuilt essential controls and absence of required features necessary for our environment, the systems are open to manipulations and have encouraged frauds and forgeries.

The airline products are being sold to designated markets/customers much below the market price, the seats are blocked and not offered for sales in the hope they will be used by the preferred customers. Instead of using automated computer systems for sale of seats and adjustment of the inventory in different classes based upon demand in the market dynamically, decisions are normally taken by a team in head office manually. Therefore, leaving aircrafts with empty seats is a common phenomenon. Available systems and procedure for post flight analyses are not used to reprimand staff and agents responsible for leakages of revenues.

Budget of PIA at a time when it was using its own systems used to be only a small portion of the total budget, now cost of operating foreign computer systems runs into millions of dollars. The contracts/agreements of several systems are structured in such a way that they only favour the vendors. There are cases where in just one year in 2010, cost was increased by 112 percent without PIA getting any additional advantage. An agreement was signed by PIA involving $64 million by top 12 executives of the airline on the same day without getting approval from the chairman/board of directors.

PIA is paying heavy costs towards distribution of its product. Instead of direct booking through own system (Website/APP), most of the sale of PIA is through third party. It costs around 20 times more to book through an intermediary. In the past, travel agents (at one time 550) used to be connected to PIA’s own system and therefore they used to sell on PIA’s system and there was no cost involved. Now all the travel agents of PIA are connected to a distribution company’s computer, where PIA is now paying more than $4.8 million each year.

It is therefore necessary to restore PIA’s operation to US with immediate effect. An in depth analysis of dimensions of the airline must be carried out by those who are experienced about the dynamics of commercial aviation and have knowledge about the culture of PIA.

There exists a possibility, with appropriate policies and proper controls, that efficiency can be restored and the airline can become a viable and healthy enterprise.

The writer is former managing director, PIA