AVIATION

Competition heats up

By SYED M. ASLAM
Mar 22 - 28, 2004

The volume of passenger air traffic is one of the salient indicators of the health of a national economy because it reflects the growth, development, domestic tourism and overall socio-economic realities of a country. Till early 1990s state-owned national flag carrier Pakistan International Airlines enjoyed the complete monopoly on the domestic sector and was also assured a piece of business on the international routes because it was mandatory for the nationals to fly the airline on overseas route.

The deregulation encouraged induction of private airlines many of which wounded up their operations years ago primary due to various reasons including millions of Civil Aviation Authority's dues. Bhoja, Hajvery and Raji have scrapped operations while Safe Air, which also went out of operations, has once again been granted license. Two other private airlines, AirBlue and Royal Airlines, the second already operating in Karachi-Dubai cargo flights, will also be commencing passenger operations shortly. It also resulted in pushing the domestic passenger traffic phenomenally due primary to low fares, particularly on the major trunk routes of Karachi-Islamabad and Karachi-Lahore. However, one of the major failure of the private airlines has been its inability to operate flights of the less-lucrative sector due mainly to reasons of economy thereby leaving PIA to serve what it calls "loss-making sectors" as public service. PIA, however, has also scrapped services to many such sectors eliciting public criticism.

At present, the commercial air traffic in Pakistan is shared by three airlines the state-owned PIA and private Shaheen Air International and Aero Asia. The bulk of the domestic commercial traffic is dominated by the PIA a portion of which is also shared by the two other private airlines, both of which are also operating international flights on a number of routes in the Gulf. With the induction of two new private airlines soon, the competition is going to heat up for the benefit of travelers, or at least that is expected.

The aviation sector was deregulated just 11 years ago thereby implying that its still in infancy here in Pakistan. Despite wrapping up of operations by a number of private airlines the deregulation has helped played a pivotal role to the growth aviation in Pakistan lead primary by competitive air fares which at times were only affordably more than that the highest-priced fares by the Pakistan Railways.

The competition for passenger air traffic is going to heat up once again shortly. Once again because four private airlines Bhoja, Hajvery, Safe and Raji wrapped up their operations years ago leaving the market open to the remaining operators the national flag carrier Pakistan International Airlines (PIA) and private Shaheen Air International and Aero Asia.

The closure of the four private airlines, which many say helped equalize the sharp decline in passenger air traffic within Pakistan like elsewhere across the globe, highlights the failure of the deregulation of the Pakistani aviation industry 11 years ago. It did not only deprive the CAA millions in dues owned by the private carriers which in fact was also cited as a primary reasons for their closures. The closures also resulted in gradual increase in domestic fares that could not had been possible if the private airlines were still operative today.

Three private airlines, two new and one old, are expected to start commercial operations in the coming few months. AirBlue and Royal Airlines have already got the license that allow them to operate commercial passenger flights while Safe Air has been granted license for the second time. The private investment in the aviation sector not only underlines the optimism of the new operators about air travel in Pakistan but also proves that the growing demand offers an untapped niche to the new airlines. It also shows that the slump in the aviation industry is over, or at least nearing its end.

NEW OPERATORS

Royal Airlines is part of an international conglomerate. It was incorporated in Pakistan as a private limited company in November 1998 and obtained its domestic and international charter license in early 1999. It is the first air charter company in Pakistan to operate schedule cargo flights daily to and from Karachi, Sukkur, Multan, Lahore and Islamabad, continuously since May 2001. From January last year, it commenced started freight services to Dubai from Lahore via Karachi.

Royal Airlines (Pvt.) Limited became the first airline to get the Registered Public Transport license under the new aviation policy in October 2002 and since been operating chartered flights on domestic and on Dubai sectors since May 2001. It has plans to start passenger flights on the domestic routes but prefers to keep its plans low-key.

The passenger operations would be an extension of the freight operations of the Royal Airlines which acquired the scheduled chartered license about 3 years ago and been successfully operating on domestic routes Karachi, Lahore, Sukkur, Multan and Islamabad- as well as to Dubai for over two-and-half years. Presently, Royal Airlines' fleet comprises 4 Russian aircraft 2 AN-12 each with a cargo capacity of 18 ton and 2 AN-26 each with a cargo capacity of 5 ton.

Royal Airlines has many firsts- the first to get the Registered Public Transport License (RPTL) under the new aviation policy and the only airline, operating dedicated freight services within the country. It has fulfilled all the prerequisites for the license including the minimum paid-up requirement of Rs 100 million plus bank and cash guarantee of Rs 10 million each. It has played a vital role to promote exports indirectly carrying not only captive cargoes for almost every single courier service but also such shipments as fresh fruits & vegetables, seafood, etc., to Dubai. Royal Airlines would be commencing passenger operations on the domestic sector soon, the exact timing of which is guarded by the management as a close-kept secret.

AirBlue, the second airline to get the RPT license under the new aviation policy, is in the final phases of starting domestic operations which may commence by as early as next month. PAGE has learnt that AirBlue has acquired 3 new generation Airbus A-320 aircraft on dry lease each of it has 20 Business Class seats and 126 Economy class seats. Sources told PAGE that AirBlue would help generate over 2,400 jobs 400 direct and 2,000 indirect for an all Pakistan crew. AirBlue which has already hired 25 cockpit crew which are getting hands-on training in Europe while it has also hired 50 cabin crew which is also undergoing training overseas.

AirBlue aims to focus passenger comfort at prices that offer value for money and that explains its decision to have leather-upholstered seats in the Business class and offering in-flight entertainment not offered by any other airline, including the PIA, on the domestic sector. The airline has also made arrangements with quality caterer outside to serve what it calls "exquisite cuisine" to the travelers. Initially, it will operate 3 flights on the Karachi-Lahore sector and similar number of flights on the Karachi-Islamabad sector daily.

AirBlue will introduce the concept of total e-ticketing for the convenience of passenger which would also help it to eradicate the back-dating system associated with manual ticketing that costs airlines, including its competitors, millions in losses every year. The absence of manual ticketing and the introduction of computerised check-ins by hand-held computers would help AirBlue offer quality-conscious travelers value for their money by offering quality product and consistent scheduling.

AirBlue which has a paid-up capital of Rs 500 million is a public limited company and plans to offer Initial Public Offering at the Karachi Stock Exchange in May.

In addition to 3 daily flights each on the Karachi-Lahore and Karachi-Islamabad sectors AirBlue also has plans to operate one circular Karachi-Sukkur-Multan-Karachi flight daily. The total frequency of which adds up to 15 flights a day. The AirBlue is aiming to provide world-class service on new generation aircraft which are comparatively newer than those used by the other private airlines, AirBlue's aircraft are just about 5-year-old, without compromising on quality, service or fare.

It aims to focus on quality and service primarily at fares competitive with the national flag carrier PIA. It also has plans to offer heavy discounts for the senior citizens and students as well as operating night coach at discounted fares. The AirBlue, thus, is looking forward to soon become the fourth airline serving the domestic sector in a market, the bulk of which is served by the PIA and a portion is enjoyed by Shaheen Air International and Aero Asia which promotes itself as the country's first lowfare airline.

As mentioned earlier, Safe Air has once again be granted the license to commence commercial operations on the domestic sector. The airline commenced operations in 1999 which lasted for two years due primarily to problems with the Civil Aviation Authority regarding unpaid dues. The CAA has reissued the license to the Safe Air which is reportedly back with an investment of 12 million euro by a foreign group and is expected to start commercial operations soon.

About a couple of years ago, Safe Air appeared on the horizon of airlines in the private sector in Pakistan, it had some dispute with CAA of Pakistan, which appeared to have been resolved but the airline disappeared from the scene.

The opening of air transport industry for the second time around would help meet increasing demand for both the passenger and cargo traffic. It would also instill competition to encourage air travel by offering choices to people in more ways than one particularly in a market where the closure of many private airlines in the near past resulted in pushing the airfares.

At present, the PIA dominates not only the major portion of the domestic passenger traffic but also the small volume of cargo traffic on the domestic sector. It heavily dominates the passenger traffic on the international sector. The airline embarked on an ambitious $ 2 billion fleet replacement plan last year to induct 10 aircraft in the fleet by 2011 and the thawing of ice between Pakistan and India resulting in re-opening of Indian air corridors would help it not only regain lost business but also to operate flights on the Far East sectors closed in the aftermath of the Indian ban.

PIA announced to resume flights to India with an expanded schedule last December with 12 direct weekly flights to New Delhi and Mumbai. The airline, which has since resumed its operations to India, can now fly with bigger aircraft type as its expanded operation is no more restricted type of equipment, additional capacity or size of aircraft. The expanded operation allows PIA to fly to Colombo, Dhaka and Kathmandu directly and resumption of operations to Bangkok and Hong Kong.

PIA also signed an accord for the purchase of 8 E777 aircraft worth $ 1.2 billion from the Boeing company at the total cost of $ 1.2 billion December last year. The signing-in ceremony will be held at the US Export-Import Bank in Washington. PIA chairman Ahmed Saeed will represent the national airlines at the ceremony. Last year, the Ex-Imp Bank agreed to provide $125 million to Pakistan to help it buy passenger aircraft from the Boeing. The deal was underwritten by US Export Import Bank, the first such deal underwritten by the Bank between Pakistan and a private US firm.

The decision to replace the fleet was necessary because the average age of PIA's current fleet was 23 years. The airlines has 40 aircraft and over 22,000 employees. PIA has already received its first Boeing 777 aircraft and has since resumed operations on the sectors affected by the Indian ban. It resumed twice weekly service to Kathmandu in Nepal from January 4 this year 2004. It also introduced weekly Quetta-Sharajah-Quetta flight around the same time and while PIA already operates a weekly flight to Dubai from Quetta, it is operating a third international flight from Quetta to Mashad despite a small load.

PIA also announced a 50 percent reduction in fare on the Quetta-Karachi sector for people travelling to Almaty, Central Asia, and introduced Lahore-Sharjah flight from January 1 this year.

The closure of air corridors by India and the termination of flights to a number of sectors in the Far East and Kathmandu deprived the PIA of substantial losses in revenue which runs into as much as $ 50 million. The opening of the Indian air corridors and the resumption of operations on the Far Eastern sectors plus the introduction of international flights mentioned above would help the airline to make up the losses through expanded operations to India.

PIA plans to start flights to Glasgow, Scotland from April this year and to Houston two months later. It has already resumed its flights to Tashkent, Uzbekistan and Almaty, Kazahkstan in Central Asia once a week from Karachi via Islamabad from December.

On the 11th of this month Pakistan and China signed a historic agreement to expand air services between the two friendly neighbours. The agreement would enable the Civil Aviation Authority of China (CAAC) and the state-owned national flag carrier Pakistan International Airlines to increase operations on Karachi-Islamabad, Beijing, Urumqi and Shanghai sectors with immediate effect.

The agreement would help PIA to increase the maximum number of passenger and cargo flights to China from 4 per week to 14 per week. PIA would also be able to operate flights to Shanghai in addition to Beijing and Urumqi. The Chinese Airline would be able to fly to Lahore in addition to Islamabad and Karachi. The two airlines would also be allowed to book passengers on each other's flights on a reciprocal basis. The two countries have also agreed to start a bilteral code-sharing operation the first time ever the PIA has entered into such a sharing system with any foreign airline. The agreement would also allow PIA to operate flights of its Los Angeles sector through China in addition to the Japan route already available.

PIA has also decided to reschedule four Boeing flights to Lahore weekly on the demand by the business community of Multan and the surrounding areas.

INFRASTRUCTURE DEVELOPMENTS

The air transport sector of Pakistan would also get a boost from newly developed Port of Gwadar in the Balochistan province. The development of the Gwadar Port, the third deep sea port of the country and the first of Balochistan, would serve as a link with the Central Asian States. The government decided to upgrade the Gwadar International Airport at a cost of 480 million rupees last year. Once upgraded, the airport will be able to handle wide-body aircraft such as Airbus and Boeing 747 aircraft.

Similarly, the construction for the new runway of Sialkot International Airport was in full swing in May last year. The airport expansion would cost Rs 1.57 billion and is spread over 1007 acres and the project is expected to be finished in 27 months. It would be able to accommodate wide-body aircraft such as Boeing 747 and 777. The BOO project is the first in the country of this magnitude and once completed would not only help facilitate the export from Sialkot, dubbed the export city of the country, but also to such important industrial centres as Gujranwala, Wazirabad, Narowal and Gujrat.

The new Lahore Airport, the Allama Iqbal International, & its terminal building was opened for domestic and international traffic on 17 March last year. The 10.3 billion rupee project can now handle 6.5 million passengers a year to accommodate the growing passenger traffic until 2015.

DENOUEMENT

The Pakistani aviation industry has been able to shake off the dust of 9/11 better than many of its counterparts in the world. As was, the events of that fateful day hit the two industries most prominenetly than others the insurance and aviation. It resulted in closures of tens of smaller airlines and massive lay-offs at many big national flag carriers across the world. It also inflicted a blow to the Pakistani aviation industry in term of reduced flying frequency, closure of operations by over a dozen foreign airlines, closures of operations by PIA to India and destinations in the Far East due to the closure of air space.

Things, however, have started to pick up: Two new commercial air lines would be starting domestic operations soon, the PIA has started operation to India and Far East, and the foreign carriers who closed their Pakistan operations are back.

The domestic travel has reverted back to pre-9/11 levels and the international traveling is also picking up. Expansion works have been completed at the major airports across the country while on many others it is underway.

The competition is about to heat up once again for the domestic market with the start of operations of three additional airlines two new and one old. At present there are three airlines- PIA, Saheen and Aero Asia are sharing the domestic market among themselves but soon there would be six carriers operating on the domestic sector.

The ensuing competition would offer choice to domestic air travelers in more ways than one by introducing the needed competition. We have to wait and see just what kinds of benefits it would offer to the travelers.