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Causes of loss to PIA

Research Project on Determinants of Loss to PIA

Pakistan International Airlines Company

A Dissertation/Project to Fulfill the Requirements for Obtaining the Degree of


Master in Business Administration

DEPARTMENT OF BUSINESS ADMINISTRATION


G.C.UNIVERSITY, FAISALABAD

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Causes of loss to PIA

Research Project on Determinants of Losses to PIA

Pakistan International Airlines Company

SUBMITTED BY:

AHSEN ALI 509


ADNAN MEHMOOD 530
ABEERAH ZAIDI 540

SUBMITTED TO:

Mr. HAZOOR MOHAMMAD SABIR

DEPARTMENT OF BUSINESS ADMINISTRATION


G.C.UNIVERSITY, FAISALABAD

DEPARTMENT OF BUSINESS ADMINISTRATION


G.C.UNIVERSITY, FAISALABAD

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Dedicated
To
Our
parents
&
Teachers

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ACKNOWLEDGEMENT

When We start writing, We stop for while and think what to write? How to write? We
have no words to express our feelings. But We have to write to offer our humblebees
sense to “ALL MIGHTY ALLAH” The most beneficial, gracious and merciful who
enable us to perceive higher ideas of life and helped us through out our life especially
in writing this report and all blessing to His favorite PROPHET
MUHAMMAD(PBUH) who is the greatest personality of this universe.

After God we owe our heartiest gratitude to our parents and our family whose prayers
encouraged us to complete our task.

We are also extremely thankful to all of our teachers for their sympathetic treatment,
reward less help, precious suggestions, constant encouragement and personal interest
and kind guideline that enable to write our report.

At the end we shall like to thank all our class fellows who always helped us in our
studies when we needed
We are also thankful to Mr. Ashraf(air traffic controller) and Mr. M. Nasir(salary
Maintainer) For co-operating with us.

ABEERAH ZAIDI
AHSEN ALI
ADNAN MEHMOOD

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Contents

Serial No Topic Page No


1 Synopsis…………...………………………… 5

Executive summary ……………………….. 6

2 Introduction of organization……………....... 8

3 Departments……….…………...................... 23

4 Objectives……………………………………. 29

5 Method of investigation…………………….. 35

6 Data analysis………………………………... 38

7 Description of problem……......................... 17

8 Determinants………………........................ 18

9 Conclusion and recommendations…….. … 23

10 Implementation of programme…………….. 24

11 References…………….…………………... 24

13 Achievements and Recognitions…………. 25

14 SWOT Analysis…………………………….. 26

15 References………………………………... 27

Filled questionnaires……………………….

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Causes of loss to PIA

Synopsis
Topic
The topic of our research report is the causes of losses to Pakistan
International Airlines (PIA).
Purpose
The purpose of conducting the research is to find out the problem of
Pakistan international airlines and suggest remedies for the problems.
Scope
Pakistan International Airlines (also referred to as PIA), is the national flag
carrier of Pakistan and the national airline operating passenger and cargo services
around the world. It is now suffering losses but it has the capacity to earn profit and
contribute towards the GDP of country.
Method
We get the information from net by using several search engines such as
Google, yahoo, msn, answers etc. We construct two questionnaires. One of them is
filled from customers and other is filled from PIA’s employees at Faisalabad airport.
We also visit airport for getting information and interviews.
Source
We get the data from primary as well as secondary sources. In secondary
sources we get most of the data from internet and newspapers also providing
sufficient information about current situation of the organization.
Fact and figures
Major facts and figure that causing loss to Pakistan International airlines are
ageing fleets, Overage employees, high increase in fuel and insurance expenses, high
salary of staff, political element, overstaffing.

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Executive Summary:

Pakistan International Airlines is the national flag carrier and was established in 1955.
It not only provides transportation services, but its operations extend to providing
cargo services and courier services also. Pakistan International Airlines serves two
markets – Domestic and International. In the domestic sector, it has out performed
itself by stretching its networks to areas where other airlines do not fly to. In the
international market it faces severe competition, especially due to the fact that these
international organizations are providing fares much lower than Pakistan International
Airlines. Internationally also, Pakistan International Airlines is encountered with a
severe and strong challenge with many renowned international names. Pakistan
International Airlines faces competition with not only international airlines but also
with local airlines on the various routes to the Middle East and the Gulf.
Due to fierce competition and rising oil prices, international aviation industry
regulations and some internal factors such as human resource issues of over
recruitment, de-motivated employees, mismanagement of resources both in case of
manpower and other resources, aged fleet, corruption and lack of accountability PIA
is facing a deep financial crisis. It is losing its market share both in international
market and domestic circuit. The present report is written about the current situation
of PIA and future plan of action for PIA.
The report comprises of three sections. First section introduces the organization and
gives an overview of Pakistan aviation industry. The second section focuses on
determining the problems areas and describing it. The third part of the report calls for
the immediate changes that are required to make in PIA in order to take out some
better performance from the national flag carrier. It describes the department wise
strategies internally as well as strategies to face external threats such as rising oil
prices and providing better services in a competitive environment.

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Introduction of organization
Pakistan International Airlines (also referred to as PIA), is the national flag carrier of
Pakistan and the national airline operating passenger and cargo services around the
world. Its main hubs are Jinnah International Airport, Karachi, the Allama Iqbal
International Airport, Lahore and the Islamabad International Airport,
Islamabad/Rawalpindi.
It also serves regional airports, including Peshawar International Airport, Peshawar,
Faisalabad International Airport, Faisalabad and Multan International Airport, Multan
that connect to the main hubs and have flights to the Middle East.
Pakistan International Airlines PIA can trace its beginnings to the days when Pakistan
still was not a nation. In 1946, Muhammed Ali Jinnah, also known as Quaid-e-Azam,
realized the need for an airline network for the forming country. He called upon the
help of an experienced industrialist Mirza Ahmad Ispahani. Orient Airways,
registered in Calcutta, was formed on October 23 1946, In February 1947, three DC-3
airplanes were bought from a company in Texas, and in May of that year, the airline
was granted a license to fly. Services were started in June from Calcutta to Akyab and
Rangoon. This was the first post war airline flight by a South Asian registered airline
company.
Two months after this service began, Pakistan as a nation was formed. Orient Airways
began relief flights to the new nation, and soon after, it moved operations to Karachi,
where it began the important route from Karachi to Dhaka. In addition, their initial
domestic route in Pakistan was established, from Karachi to Lahore to Peshawar, and
from Karachi to Quetta to Lahore.
The government of Pakistan, realizing the operation was failing economically, asked
the airline to merge into a new national airline that the government was planning. On
March 11 of 1955, Orient Airways merged with the Government's proposed airline,
becoming Pakistan International Airlines Corporation. During the same year the
airline opened its first international service, under the PIA name, from Karachi to
London Heathrow Airport in London, United Kingdom, via Cairo International
Airport in Cairo, Egypt and Leonardo Da Vinci International Airport in Fiumicino,

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Italy using Lockheed Constellations. The DC-3s continued operating the domestic
services in Pakistan.

The most important element of any airline service is the aircraft itself. Currently PIA
has 43 aircraft in its fleet. These aircraft are:

Types of Aircraft In Service

Airbus A310-300 12

Airbus A321-200 -

ATR 42-500 7

Boeing 737-300 7

Boeing 747-200 2

Boeing 747-367 6

Boeing 777-240ER 4

Boeing 777-240LR 2

Boeing 777-340ER 3

Total 43

Pakistan Aviation Industry:

Air Transportation is a fast growing industry, highly capital intensive, highly sensitive
to business cycles, facing increasingly deregulated environment and hence highly
competitive background. The transportation sector holds a very important position in
the economy of Pakistan. Currently it contributes almost 10% in the GDP.
The aviation sector was deregulated just 11 years ago. This encouraged many airlines
that stopped their operation many years back due to Millions of Civil Aviation
Authority dues. Bhoja, Hajvery and Raji were closed down, but they have been
granted license again.

Air Blue and Royal airlines have initiated their operations also and they are the
second already operating in Karachi-Dubai cargo flights.
One market which is not served by the Private Airlines includes all flights to those
domestic which are not profitable. It is required by the government that PIA offers its
services in not so profitable areas, which is a liability of PIA being a semi private
organization. PIA calls it “loss making sector”.

Private airlines have stunned the aviation industry as they charge below cost fares. At
the moment when fuel prices are touching all-time high levels in the international

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market, cut-throat competition among private airlines has placed a million-dollar


question about the feasibility of these airlines.

PIA operates in two major markets; Domestic and International. Pakistan


International Airlines has the lion’s share in the domestic market. As it is the oldest
and the pioneers it has the better fleet as compared to its competitors who are
comparatively newer in this segment. Besides this, Pakistan International Airlines has
a huge network of flights through out the country. The number of flights remains the
same during on-season and off-season.

Internationally also, Pakistan International Airlines is encountered with a severe and


strong challenge with many renowned international names. Pakistan International
Airlines faces competition with not only international airlines but also with local
airlines on the various routes to the Middle East and the Gulf.

Current Airlines of Pakistan:

• Pakistan International Airlines


• Aero Asia
• Air Blue
• Shaheen Air International

Cargo Airlines of Pakistan:

• Pakistan International Cargo


• DHL Cargo Pakistan
• Royal Air Cargo
• Star Air
• TCS Couriers
MARKET SIZE AND MARKET GROWTH:

The total market size for the year 2006-2007 was 14.199 million passengers as
compared to 14.615 million passengers for the year 2005-2006, therefore resulting to
an in decrease.

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Defining the Problem


Problem is the PIA is getting losses for many years. No serious effort is done to get
out it from losses. During the last year Pakistan International Airlines (PIA) has
stained a loss of PKR13.4 billion ($207.5 million). Operationally, it was also
blacklisted by the European Union during the year, which hit its bottom line along
with its prestige.
Losses for the year have widened slightly from a loss of PKR12.76 billion recorded in
2006.
A fall of 0.2% in full-year revenue, to PKR70.48 billion, was mitigated by a fall in
expenses by 5.2% to PKR66.22 billion. However, non-operating costs, related to
increased borrowing, went up nearly 50%. Operating loss also came down to
PKR5.94 billion from PKR8.45 billion in 2006. Pakistan International Airline is
currently ranked amongst the top 20 airlines of Asia. It has the capacity of becoming
on top of the list. But due to certain reasons its market share has been decreasing both
in the domestic as well as in the international market. Although it is still occupying a
strong position in the domestic circuit being the national flag carrier but the current
position is threatening for the national flag carrier. During the last four years the
company has beard the accumulated loss in excess of 30 billion rupees, while its total
debt is almost reaching 1 billion $. The expenses of the company are increasing but
the profits are decreasing. All the shareholders’ money is gone and the company is
facing the worst financial situation. PIA has lost its market share in domestic airline
market, which has dropped to 69 % in the FY 2007/08. Things on international front
were also not so different for PIA, as national airline’s market share in the
international market dropped from 48 to 43 %. Profitability of PIA is decreasing. The
share price of PIA closed at Rs 5.25 on June 14, 2008, exhibiting capital loss of
approximately 14% since last month. On May 2, 2008 the price per share for the
company was Rs 6.03. The company beard the lost of 13.39 billion Rs. In 2007, about
12 billion Rs. in 2006 and 4 billion Rs. in 2005. Pakistan International Airlines is
currently facing a loss of approximately 40 million Rs. per day.

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Method of Investigation
We get the data from primary and secondary sources. Secondary data is collected
from research on internet by various search engines such as Google, yahoo, msn,
answers etc. We also get information from the PIA’swebsite.for the purpose of getting
the primary data we develop questionnaires ad visit of the organization. Where we
take the personal interviews of employees of different level. We construct two
questionnaires. These questionnaires are designed according to the needs of the
research. One questionnaire is filled from the customers and another is filled from the
employees of the organization. For the purpose filling the questionnaire the customer
are select randomly.

Problem Description:
According to our research the company is having the problem in the following areas.
The problems for Pakistan International Airlines include:
• Over recruitment:
Pakistan International Airlines is a large organization with 18,043 employees. Its
fleet comprises of 43 planes. It operating planes are just 33. It means round about
525 employees per plane. The industry average is being between 150-250 people.
This describes the position of the company clearly. This drives the cost of the
company further.
• De-motivated employees:
Pakistan International Airlines is a company which is constantly going in loss.
Higher number of employees and the company already going in loss de-motivates
the employees. The employees do not feel secure themselves in the company and
try to move to other successful organizations. Also certain issues such as
centralized decision making and salary issues also de-motivate the employees
taking their attention away from their job.
• Nepotism and Political involvement during recruitment and selection:
Pakistan International Airlines being the government organization has the strong
influence of the politicians and government officials. Reports say that Mr. Tariq
Kirmani was appointed chairmen PIA due to being a friend of Prime minister.
Similarly Mr. Kirmani appointed his own friend Director MIS at a heavy salary.
Selection and recruitment is not done on merit. Current deputy managing director

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is another example of this who was a pilot by profession and now deputy
managing director still flies some hours a week to keep his license on.
• Lack of experience relating to aviation industry for the top management:
Look at the background of former three chairmen of PIA. Mr. Tariq Kirmani was
from PSO, Mr. Zafar Khan was from PTCL and Mr. Ahmad Saeed was from
Service industry having no experience of aviation industry. What could they
contribute to the organization with no such knowledge?
• Lapses in the management:
The PIA’s management is ineffective to resolve and plan at the right time. Planes
with damaged Nose Randome are grounded for consistent 9 days. For an Airline
with cargo aircraft and a frequency of eight weekly flights to USA, such an
inordinate delay in procuring Nose Radome is amazing to say the least. New
flights to America are thought to start but with American aviation industry there is
no talk. Strikes by engineers happen due to the mismanagement and cause a great
loss to the company. Million of rupees worth cargo off loading from A VVIP
flight is another example of this.

• Low scale advertisements and awareness:


A common Pakistani may even not know about Pakistan International Airlines.
No advertisements and awareness to the organization’s brands in such a modern
era of marketing. Cricket stars and sportsmen are hired on heavy salaries but with
no profit to the organization. Pakistan International already being an ethnic airline
is just confining itself to its own country. No such efforts to enhance the brighter
and soft image of the nation as well as airline are made.
• Government’s and Civil Aviation authority’ policies:
Pakistan International Airlines has to pay a big amount as an expense on its
borrowings from banks. Already being in such a big crisis, the company is getting
no support in this regard like WAPDA is getting. Also civil aviation authority of
Pakistan’ policies are hampering PIA a great deal. Pakistan International Airlines
being a national carrier has to go to those routes which are going in loss. Routes
such as, Swat, Bahawalpur, Dalbandin etc are called socioeconomic routes and
PIA has to get to those routes despite of great loss. On these airports, airport staff

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is greater numbers as compared to passengers. The money which is received as for


providing services to passengers is taxed by the government at a very high rate.
• Rising fuel prices in the World:
There is been consistent rise in fuel prices in the international market. Fuel prices
have impacted on almost every airline in the world. This has affected Pakistan
international Airlines more than any other airline due to its aged fleet. New planes
are fuel efficient as compared to old ones. In an airline normally 30-35% of
expenses account for fuel expenses but in Pakistan International Airlines this
number goes to 45-50%. Due to these factors PIA has to charge more fare to
customers that’s dissatisfies the customers.
• Global impact of 9/11 on aviation industry:
After the 9/11 attacks air traffic has been decreased all over the world. It has
affected Pakistan international Airlines also. Passengers are more inclined towards
traveling to other countries such as European countries. Air traffic in Asia,
especially in south Asia has decreased.
• Aged fleet:
Pakistan International Airlines fleet has total 43 planes. Out of those 43, only 33
are operating at the moment. The average age of the fleet is 13 years which has
become 13 years with the induction of 4 new planes. Previously it was 14. Due to
aged fleet the fuel is consumed more and maintenance expenses are increase. Thus
theses factors result in increment in expenses. Due to the aged fleet and
maintenance problem PIA has to pay higher amount in terms of insurance cost.
• Maintenance problems:
Beside having a large number of engineers, there is always been a question mark
on PIA’s fleet maintenance. Last year European Union banned 20 out of 42 planes
were banned from operating in Europe. This results a 4 billion Rs. loss to the
company just from Europe’s segment to the company. This ban was imposed just
due to the lack of proper maintenance.
• Corruption at its peak:
Corruption is a sin that has hollowed Pakistani society bases. Like all other
departments of our country corruption is at its peak in Pakistan International
Airlines. Sale of Roosevelt hotel in Dubai is a clear example of it. The hotel was
valued about 1 billion but it was sold only in 40 millions. The sale of PIA’s

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kitchen centre in Karachi is another example of this. There a profit making unit of
the company was sold. It was generating great revenues for the company but was
sold confidentially.
• Less technology advanced as compared to its competitors:
PIA is competing with the airlines from all over the country especially with the
Middle East airlines which are coming in with heavy investment. Its competitors
such as Emirates and Qatar airways have great capital. Theses Middle East
organizations are putting in newer and newer technology and acquiring greater
manpower. PIA being already in a financial crunch faces a tough task.
• Poor image:
With already going in financial loss, 9/11 impact on the industry and above all
incapability of Pakistan International Airlines’ management has badly damaged the
image of the Airline. Due to all such problems the fares of PIA are higher but service
is not up to that class. This also gives a bad image to the passengers.

• Lack of training facilities:


Although PIA is running a training and development department in Karachi but it is in
sufficient to feed such a big organization with almost 18000 employees. Special skills
such as engineering, technicians are lacking. If they are there, they are not delivering.

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Data analysis
We filled the questionnaire from low level of management of PIA. Through this
questionnaire following facts and figures are disclosed to us. 60% of low level
management think that they are not part of decision making. The second question
shows that only 20% employees are not happy with the salary package. Response of
question six indicates that 60% employees are satisfied and 40% are partly satisfied
with the facilities provide in the department. Majority of the employees are satisfied
with quality of training program. Repair cost is the major cause of loss to PIA in the
opinion of employees. 80% employees are satisfied with code of conduct.60%
employees admit the political influence on working of PIA. Majority of employee
suggest that proper training is needed to make the organization successful. 60% of the
employees are not happy with high transfer rate.
On the other hand data collecting from customers reveal the following facts. 50% of
customers are not happy with the services of PIA. Non punctuality of departure and
arrival of flights also displeased the customers. Many customers angry with ticket
getting process.
By taking a view of profit and loss account of PIA that indicate many of the expenses
increases at a very high rate which causes loss to PIA. These expenses are fuel cost
that increases due to rapid rise in oil prices in recent years. Repairing expenses also
becoming the major of cost that is very as compared to others companies of same
business. Due to war against terrorism in Afghanistan is also badly affected the
revenue of PIA. Due to this war the insurance expenses also increases. And it also
causes to decrease the number passengers. As the value of rupee decreases which
causes a loss to company.

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Recommendations and suggestions:


• Needed better functioning of human resource and administration department
• Management is needed to perform it responsibility professionally. Reducing
costs and trying to achieve more market share by combining the organization.
• Marketing department must deliver in order to create a strong figure for the
organization. It must be responsible for creating more sales and getting more
market share. Providing awareness about the good characteristics of the
organization. Getting information on related field and report to the top
officials.
• Coping with fuel rising prices in a way as most successful airlines are doing
• Modernizing the airline’s fleet is badly needed as well proper maintenance of
the fleet is required.
• Must take advantage of the increment in the air transportation especially
towards Middle East countries and India.
• Better and modern functioning of training and development department
• Need for accountability.

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Implementation of program:
Human resources and administration department:
Pakistan International Airlines is a huge company with over 18, 000 employees. A
human resources and administration department is working but it is needed to be work
efficiently and according to the standards. If it would have been working properly
then there would not been 525 ratio of employees per plane.
Jobs must be designed by this department. Each and every position must be clearly
defined. From the chairman to a sales agent and even further down everyone must be
clear about his responsibilities. He should be held responsible for his job.
International standards for recruitment must be adopted. Right number of persons
must be appointed for a specific job. Proper advertisements for each and every job
must be done. So that as many talented candidates can come in front. PIA’s
manpower should be combination of youth and experience. Both the age groups shall
be included in order to gain profitability.
Rewards and incentives must be attached with the performance. Similarly there
should be a check if an employee is not fulfilling his or her responsibilities. Job
security must be done so that employees feel secure within the organization and
remain loyal and committed to it, work for its benefits. Employee participation in the
decision making must be enhanced.
For the top level management such as chairman or managing director people having
aviation industry experience must be hired. There should be no political or
government influence during recruitment or selection. Merit must be considered at
first.

Management issues:
There should be no compromise on discipline. Discipline should be the key factor for
the organization. Policies must be clearly defined. Goals and objectives should be
determined for the organization as a whole and individually as well. Management
must assure that each and every person is committed to his job and the organization is
going towards the achievement of its targets. Management should ensure the
punctuality of flight, in flights services and their standard must be world class. Safety
and maintenance issues for the planes must be strongly checked. Management’s

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perspective should be to increase the profitability and ensure the good image of
Pakistan. Security and safety of cargo must be ensured. It must be management’s
responsibility to ensure services to the passengers both in plane and at airport as well.
The management must talk to the government on roué rationalization. Only those
routes must be held which are profiting or which can provide profits in the future. The
management needs to bring all the available resources in use and bring the modern
facilities, softwares and information to the organization or at least report the need to
top level decision makers. Management should be done by objectives, both short term
and long term. Short term objectives to increase the profit and market share by
reducing the costs and expenses. Long term objectives must be image building,
providing state or the art equipment and fleet to the organization and creating
corporate culture and value in the organization.

Marketing department:
Pakistan International Airlines marketing department has two divisions. It is
passengers division and cargo division.
Passenger sales division must be held responsible to boost sales by introducing
different types of packages. It must also have the responsibility for handling customer
queries and complaints.

Effective campaigning of the special interests tourists’ packages for Pakistan to


increase the travel to Pakistan must be done. Soft and brighter image of Pakistan and
PIA must be enhanced.

Cargo division must be responsible for supplying both perishable and non-perishable
goods in the global market place.
The major objectives of this division should be:
• To develop Strategic alliances with other carriers so as to increase the capacity on
the high yield sectors.
• Annually enhancing the cargo reservation services, terminal services and
warehousing services at domestic and international stations to be competitive other
carriers in the industry.
• Revisions of cargo fares and offerings on annual basis to optimize the full potential
of cargo space on all the sectors
Marketing planning should be done in such a way:

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• It must gather effective information regarding marketing and sales activities of


various airlines.
• Must Adopt and access the emerging softwares / programs which are needed to
remain competitive in the industry.
• Annual assignment of realistic sales targets must be given to each sales area
• Effective evaluation of the sales targets on monthly basis must be done to take
corrective measures for fulfillment of the sales targets.
• The organization must provide a lot of activities in-flight to ensure that the
passengers are entertained during their journey. These activities include movies,
music, and in-flight duty free shops.
•The pricing objective of PIA should be to maximize profits. It is considered an
airline which charges high prices as compared to its competitors. So it must provide
services to the passengers comparable to its price. Prices and services must be settled
in accordance with the industry.
PIA being huge organization must use a lot of promotional methods to persuade
people to use its services. These must include advertising (newspaper, internet),
through its own magazine, personal selling, sales promotion, and public relations.
Advertising is an impersonal form of communication which should be used by PIA in
many ways, such as TV ads, print ads.
PIA can also use internet for its promotion. The passengers must provide online
booking facility, online checking facility and up to date flight schedule.
PIA is treated much of an ethnic airline rather than being a commercial airline. Its
image must be advertised and portrayed in such a way so that every group and
segment of passengers can travel on it.

How to cope with rising fuel prices:


Most of the world airlines are having a great problem in handling rising fuel prices in
the international market. PIA is already in a financial crunch and such situation where
there is a price rise every day faces a difficult situation. PIA can adopt the policy of
hedging like many other airlines which are going in profit. It can borrow money from
banks with the help of government (as having full support of the government) and
hedge the fuel for certain periods.
Another way to cope rising fuel prices is to insure the fuel or to sign future contract
with jet fuel providing companies such as Shell.

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By maintaining the fleet in a good condition with the passage of time can also save
the fuel to great deal.

Modernization of fleet:
A big reason for the decrease of market share and profits is due to the aged fleet of
Pakistan International Airlines. PIA is competing with the rich and wealthy airline
companies from the Middle East. Average age of PIA’s fleet is 13 now with the
induction of 4 new planes, while its competitors have average age fleet between 7-8
years. PIA must modernize its fleet. At the moment it has 43 planes out of which only
33 are operating while rest of them are not in operating condition. PIA must
modernize and expand it fleet number to 55 in the coming two years. Fuel efficient
planes must be bought. It will not only enhance the brighter image but also will bring
great financial benefits by reducing maintenance cost and fuel consumption. The
modern fleet will be well equipped with all the modern facilities.

Explore more market:


India can be a great market for Pakistan international Airlines. It is a huge market and
needed to increase its flight to India. Similarly the frequency of flights can be raised
to profit making routes. According to IATA average annual growth in passengers will
be 5.8% for Asia pacific and 6.8% for Middle East from 2007-2011. PIA can take
advantage of this situation and by providing greater services it can get more market
share.
Training and development department:
Training and development must function properly. It must prepare the employees for
the upcoming challenges and threats in the industry. Both the airline’s staff and other
employees of the organization must be well equipped with the latest techniques and
skils used in the airline industry. Engineering department plays a vital role in this
regard. A lot of money can be saved if engineers and technicians are well equipped.
No need to go abroad for maintenance and over hauling of the planes.
Accountability:
There should be proper check and balance in the organization. Everyone should be
held responsible for its responsibilities. There should be proper audit of each and

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every department of the organization. If found any mishap, the responsible people
must be punished.

Finance:
• Government of Pakistan holds 83% of the shares of PIA.13 % or more shares
can be sold through IPO’s so that more finance will come into the company.
Also private investors’ interest will rise. Both the government and private
interest will give a new look to the company. The way of thinking will be
changed entirely.
• Pakistan international can lease its some of the international routes which are
going in loss (such as American routes) and it is thinking to close these
stations. Similarly it can arrange an agreement with domestic airlines.

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Benefits
 By purchasing new fleets the repairing cost decreases and attracts the
customers that cause to decrease the cost and increase the revenue of PIA.
Fleet modernization will bring more security, safety, less maintenance
expenses and will project a brighter image of the airline.
 By applying the modern techniques of management, management will focus
on its objectives and goal in an efficient and productive manner which will
reduce the expenses and focus on the achieving the profit
 By properly marketing itself PIA will present a better image to the world. By
clearly describing facilities and projecting its image it will help in growing
market share
 Training and development of employees will prepare the employees for
current tasks and for future challenges.
 By removal of old employees it creates an opportunity for fresh energetic
candidates to show their performance. It also causes to reduce the cost because
their salaries have been increases very high.
 By the publication of magazine the awareness of the people about PIA
increases. It increases the number of passenger that increases the revenue.
 Timely decisions are possible by decentralizing the decision making power.
 Strict control on inventory stock will reduced the cost.
 By appointing employees on permanent basis the sense of ownership will
increases. When employees secure about future they can focus on their work
more efficiently.
 By giving the importance to the suggestion of lower level management and
their participation in decision making, they wok with responsibility and tried
their best for the organization.
 Reducing the HR budget by clearly defining the job and designing the jobs.
So right number of people and required number of people will work. A proper
performance and reward system will induce employees to work effectively,
efficiently and remain loyal to the organization

23
Causes of loss to PIA

Financial performance
During the first quarter of 2007, the airline achieved a 5% growth in overall revenue
mainly supported by 7.6% increase in passenger revenue which was partially lowered
by a 10% reduction in cargo revenue. The revenue growth was reduced due to the EU
ban from early March which meant only the Boeing 777 were able to operate into
Europe. This caused many of the European services to be put on hold until the aircraft
that were considered to be inefficient to be brought up to EU standards so they can
continue flying. Even with the fuel cost remaining at the 2006 level due to stable oil
prices in the first quarter 2007, the operating and financing cost increased in
proportion. The impact of 2006 salary hike, increased cost of leased aircraft and
higher maintenance cost of PIA fleet increased the overall operating expenses by
19%. Consequently, the airline suffered an operating loss of Rs 2.5 billion in the first
quarter.

Privatization
PIA is owned by the government of Pakistan. The privatization of PIA has been
announced but was never implemented by the government. Though PIA reported a
total turnover of $1 billion in 2005, profitability was affected due to doubling of
global fuel prices since 2000. The high oil prices have increased yearly losses. In first
six months of 2006, PIA has lost $100 million dollars (Rs. 6 billion). Another source
of PIA's inefficiency has been the over-staffing of employees over the past 10-20
years that has crippled the organization’s finances. Another reason for losses in PIA is
that the higher officials of PIA tend to go abroad with their families on the expense of
PIA. Back door discussions with potential buyers continue without any positive result.
Following the global trend, several steps towards outsourcing of non-core business
have been initiated. Catering units (starting with Karachi Flight Kitchen), Ground
Handling (starting with Ramp Services) and Engineering, are to be gradually carved
out of the airline and operated as independent companies.

24
Causes of loss to PIA

Achievements and Recognitions


• First airline from an Asian country to fly the Super Constellation.
• First Asian airline to operate a jet aircraft.
• First Asian airline to be granted maintenance approval by the US Federal
Aviation Administration (FAA) and the Air Registration Board, predecessor
of the British Civil Aviation Authority (CAA).
• First non-communist airline to fly to the People's Republic of China, and
operate a service between Asia and Europe via Moscow.
• First airline in Asia to induct the new technology Boeing 737-300 aircraft.
• An IBM 1401, the first computer in Pakistan, was installed in PIA.
• First airline in the world to operate scheduled helicopter services.
• First airline to show in-flight movies on international routes.
• PIA set up Pakistan's first planetarium at Karachi.
• The first airline in South Asia to introduce auto-ticketing facility.
• The first airline in the world to fly to Tashkent, capital of the newly
independent state of Uzbekistan.
• First airline in the world to start Air Safari with jet aircraft.
• First Asian airline to start flights to Oslo, the capital city of Norway.
• First airline in the world to induct Boeing 777-200LR, the world's longest
range commercial airliner.
• First airline in the world to take delivery of the Boeing 777-200LR Worldlier
(Longer Range Variant).
• Pakistan International Airlines Flight Services Department was awarded the
ISO 9001:2000 certification award during May 2006.
• First airline in the south east region to offer seat reservations through mobile
communications.
• First airline in Pakistan to operate a flight with an all female crew at command
and serving in the cabin.
• PIA was briefly featured in the Adam Sandler movie 'Anger Management.'

25
Causes of loss to PIA

SWOT Analysis of Pakistan International Airlines:

Strengths:

• Domestic and International Reputation


• Direct flights from small cities to foreign destinations
• Organized distribution channels
• Product Quality on domestic sector

Weaknesses:

• Centralized decision making


• Aging Fleet
• Ground services (lack of staff, improper management)
• Less technologically advanced as compared to foreign airlines
• High charges as compared to other airlines
• Weak financial position.

Opportunities:

• New product innovations


• Improving quality by new techniques and resources
• 2007-2011 great increase in world air transportation

Threats:

• Unstable Government policies


• Inflation
• Increasing competition
• Increasing fuel prices.

26
Causes of loss to PIA

References
http://www.piac.com.pk/
http://en.wikipedia.org/wiki/Pakistan_International_Airlines
http://www.answers.com/topic/pakistan-international-airlines?cat=biz-fin
http://news.bbc.co.uk/1/hi/business/1561315.stm
PIA ANNUAL REPORTS(2004,2005,2006,and 2007)
Philip Kotler and Kevin Keller,”Marketing Management”12th edition
Mr. Ashraf(air traffic controller) 0344-7868287
Mr. M. Nasir(salary Maintainer) 0333-2386892

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