FACTORS HAMPERING GROWTH

SYED FAZL-E-HAIDER
(feedback@pgeconomist.com)
June 21 - 27, 20
10

There are many issues and problems restraining the aviation industry to grow. These constraints include absence of a comprehensive aviation policy, economic slowdown, financial and administrative issues and deterioration of security across the country.

A vibrant aviation policy is essential for growth of aviation industry in a country. Such policy supports development of infrastructure such as airports across the country and helps develop the industry to grow locally. Unfortunately, Pakistan's aviation industry still lacks a comprehensive aviation policy and it still runs through travel advisories issued from time to time. The government has done nothing significant to foster growth of aviation locally. Critics say that despite law and order problem, the absence of any policy at the government level to promote the aviation industry has exacerbated the problems adding to woes of the flagging industry, as only 18 out of 42 airports are functional and just nine are equipped to cater to international traffic.

The present coalition government has not given any aviation policy in the past two years. The new aviation policy still awaits the approval of the government. Once the government finalises and approves the policy, an increase in the number of airlines is expected that would help the aviation industry to grow.

The country's total passenger traffic rose to 14.1 million from 14 million in the last fiscal year 2008-09 compared to a year earlier. Most of the growth has come from international traffic as the number of domestic passengers dropped to 6.3 million from 6.6 million. Traveling industry pays Rs1 billion taxes to the government and more than 700 travel agencies are currently operational in the country.

FINANCIAL & ADMINISTRATIVE ISSUES

State-controlled Pakistan International Airlines (PIA) is the flag carrier airline of the country. PIA remained the only operator for many years since its creation in 1955. Pakistani aviation market however witnessed a major growth in the early nineties when four new private airlines launched their operations.

The key issues hitting the PIA in financial and administrative terms include the erosion of market position, high fuel price, organisational issues and burdened balance sheets. The major reasons behind PIA's worsened financial position have been the ineffective marketing, open sky policy, increased competition, EU ban, brand damage, inability to pass through high oil prices, failure in hedging oil prices, use of old planes, oversized establishment, ailing corporate culture, negative equity and huge debt servicing bill. PIA is still undergoing an operational, financial re-structuring and modernisation activity to further improve its customer service and performance.

Many financial scams have come to surface in PIA. Under the slain former Prime Minister Benazir Bhutto's second term (1993-1996), the corporation was overstaffed through illegal appointments. Under military setup of President Pervez Musharraf in 2001, PIA had to deal with a ticket sales scandal costing the airline $45 million a year. There have also been complaints of inefficiency and poor customer service. It has lost international stature, as it no longer remains a competitive choice for tourists or business travelers. PIA's financial health progressively deteriorated and presently the situation has reached alarming proportions.

The cash-strapped PIA plans to raise $379 million by pledging its two hotels, Roosevelt Hotel in New York and Hotel Scribe in Paris worth more than Rs60 billion rupees, giving a guaranteed rate of return from the hotels to the investors. Under the hotel plan which awaits the government approval, the state-owned companies will be invited to invest in and the airline would pledge to buy them back in about five years. The money raised will be used to partly pay off the airline's short-term debts amounting to Rs55 billion.

The former government of Prime Minister Shaukat Aziz to buy new planes had also planned the sale of Roosevelt Hotel, which had been priced at $400 million. The local analysts had however quoted a price of $1 billion for the hotel, located in upscale Manhattan in New York City. Today's ruling Pakistan People's Party (PPP) had warned the former government against the rushed sale of Roosevelt Hotel and demanded the government of calling off the plan until next government.

SECURITY ISSUE

The country has been wiped off from the radar of some of the leading foreign carriers since the country became a frontline state in the war on terror in 2002. The war on terror has devastating effects on the traveling business, as the country has been declared unsafe zone to travel by many countries. British Airways stopped flights in 2008 just months after German airline Lufthansa curtailed flights to Karachi. Singapore Airlines rolled back its operation in the country from February. Though the Singapore Airlines had given a commercial reason for rolling back its Pakistan operation, yet the real reason was the security threat.

The PIA has intensified security checks for United States-bound passengers following recent US request for stricter checks after a Nigerian man allegedly tried to ignite explosives on a flight to Detroit. Screening has been stepped up for those flying to the US, even though there are no direct flights to the US from Pakistan. The ratio of issuing visas for Pakistanis by the Western countries has been decreased alarmingly and it takes notable time to get even the visit visas.

The US-led attacks against the Taliban in Afghanistan also forced the most of the foreign airlines to cancel their scheduled flights to Pakistan and 29 of them closed their offices in the country in September 2001. The air strike against Taliban also affected PIA, as seven of Pakistan's airports had been closed and its airspace was declared as a war zone. PIA lost Rs2.09 billion on sales of Rs47.11 billion in the year ended December 2001.

Political and security situation in the Asian region also adversely affected the international operations of the PIA. In 2001, Islamabad's mounting tension with India curtailed PIA's extensive connections with the neighboring country. In January 2002, India banned PIA from its airspace. Owing to the restrictions, the Cathay Pacific stepped in to carry PIA traffic to Bangkok, Hong Kong, and Singapore. The political instability and military volatility in the Middle East and Central Asia continued to affect the operations of PIA.