AVIATION INDUSTRY

Issues and developments

By AMANULLAH BASHAR
Nov 15 - 28, 2004

Transport industry, irrespective to its nature, whether it is rail, road, sea or air, it is essentially associated with the pace of economic development of any country.

The economic development which is reflected in GDP growth estimated at 6.5 percent for the current financial year, naturally has its impact on the aviation industry in Pakistan. The airline business which was so far a domain of the public sector, is now being shared by the private sector which is bound to grow at a much larger scale in the days to come. Currently, it is a public and private sector combination, however, the private sector was still experiencing the teething problems of the initial stages.

Since the airline business had been the absolute domain of Pakistan International Airline (PIA), the state-run organization for over 40 years, the private sector airlines will naturally take some time to have a strong hold in the aviation business.

The aviation analysts were however estimating that if the private sector airlines were given an even playing field with the public sector airline, they may soon leave far behind the only public sector airliner i.e. PIA which has its own problems mainly due to excessive politicization in the past incurring heavy losses, the chronic issue of over staffing and the currently faced with higher fuel prices and aggravated debt servicing due to depreciation of rupee against dollar.

According to latest interim report issued by PIA for the 3rd quarter July-September 2004, the third quarter turned out to be very difficult period for the airline industry in general and for PIA in particular emanating from the extra ordinary increase in the fuel prices. The aircraft fuel bills have gone up from Rs2.7 billion in July-September 2003 to Rs4.7 billion in July-September 2004 showing an increase of approximately Rs2 billion or 74 percent. Likewise fuel cost for the period January-September 2004 was Rs12.2 billion as compared to Rs8.6 billion over same period last year, showing an increase of 42 percent.

The other factor that has negatively impacted the profitability of PIA has been the depreciation of Pak Rupee versus dollar. The devaluation of rupee has resulted in exchange loss of Rs708 million for the January-September period and Rs463 million fo the July-September quarter on the foreign currency loans availed for the acquisition of three Boeing 777 and six Airbus A-310 aircrafts. It is effective January 2003 in accordance with IAS-21. As a result, exchange losses are now charged to profit. Since Pak Rupee appreciated in 2003, this is the first year that exchange losses on loan bearing assets are being reported through profit and loss account, said the report.

Under the open sky policy of the government, the Civil Aviation Authority (CAA) had opened the aviation sector for private investor in 1993 with a view to generate healthy competition for better customer services and of course to bring down the fare level to an affordable air traveling which was so far dominated by the national carrier.

The deregulation of the aviation sector received a positive response from the private sector as number of licenses were issue to many private airlines in Pakistan. However, only one or two of them could survive as most of them had to quit their business due to heavy taxes, costly airport handling charges besides badly deteriorating law and order conditions in the country. It was not the domestic airlines which failed to sustain the cost structure of their companies, but a number of foreign airlines also wound up their services in that particularly period.

Among the private airlines which had failed to survive in the given circumstances were including Raji, Bhoja, Hajvery, and Safe airlines. However, all it happened before the revival of the national economy which started later after the change in the government in 1999. Those airlines which sustained the pressure of the situation were including Shaheen Air International and Aero Asia besides PIA which, however, survived under the protection of the government umbrella. It may be mentioned that besides providing huge financial assistance running in billions of rupees to overcome the financial liabilities of PIA till the year 2001.

Though the national airliner has succeeded to around various corners of the airline, yet the government had to come again to rescue the airline by providing yet another package of Rs5.533 billion to provide equity contribution to the corporation equivalent to the accumulated losses of PIA as at December 31, 2002 to cover interest payments on long-term loans and TFCs. As part of the package, an amount of Rs5.533 billion has been provided to PIA up to September 30, 2004 against which 253,020,805 ordinary shares of Rs10 each were issued to the government up to December 2003. The remaining 30,007,760 ordinary shares will also be issued to the government by the end of 2004.

The forthcoming Annual General Meeting (AGM) of PIA which might take place probably in January 2005 will the first occasion after its listing with the stock exchange. It is going to bring a situation for the management to face questions from a cross section of the small share holders who had purchased PIA's share at a price of Rs20 per share. It is generally said that the stock exchange is described as barometer of the economy. If this cliche is taken as true, the drastic cut in share value from Rs20 to Rs12.80 last week paints a gloomy picture about the national airline.

Besides PIA, Aero Asia in the private sector has also been allowed market share on international routes. Aero Asia has been given access to the Gulf sector, which is traditionally considered as full of revenue generating sector for the airlines.

The European especially UK and the US destinations were however enjoyed solely by PIA which has made huge investment and has acquired the state-of-the-art aircrafts for operations in north American sectors. During the current year 2004, PIA inducted 8 new aircrafts into its fleet which includes three Boeing 777 and five airbus aircrafts to fly over international routes. This is an area which the private sector airlines in Pakistan have to come through a long way to prove worthiness to operate on these routes. Though the policy to offer the international routes are very open but calls for professional standards and air worthiness of the crew as well as the aircraft to be eligible for operating on international routes.

AERO ASIA

Aero Asia started its operations from May 6, 1993. It entered the Pakistan's skies with the dedication and commitment to serve the traveling sector. The airline was called Aero Asia International, a name that is now familiar across Pakistan and the Gulf.

Aero Asia, which is a subsidiary of the "Tabani Group of Companies" (an established and prestigious business house), commenced its operation from Karachi. It operates from Jinnah International Airport - Karachi and Dubai's Intentional Airport.

Initially managed by a skeletal but dedicated team, it started its flying operations with two flights per day in 1993, and soared high to become Pakistan's largest private airline with over 650 domestic and international flights per month. The airline now claims to have a rapidly expanded route network. It flies the largest fleet of aircraft amid all the private airlines operating in the country. On the domestic front, Aero Asia flies to Karachi, Lahore, Islamabad, Faisalabad, Multan & Peshawar. While on the international network, it operates from Karachi, Lahore, Islamabad, Peshawar, Multan and Faisalabad to Dubai, Doha, Muscat, Abu Dhabi and Al Ain.

Recognition of passengers' needs has rewarded Aero Asia with customer loyalty. Growing on intensively in terms of punctuality, safety record, increased fleet of modern aircraft, web-based reservations, e-ticketing, in-flight service quality, and well-planned operations, Aero Asia gradually but steadily carving a respectable place in the airline business of the country. Its flying schedule has grown extensively to cover domestic & international routes, with very convenient flight plans. Aero Asia is a member of IATA and is registered with ICAO so as to fully cover passenger and baggage liabilities in accordance with the Warsaw Convention and Hague Protocol. All these are a result of commitment to meet the wishes of our passengers so that they fly with us again and again.

In a survey conducted by Skytrax (the leading research Advisors to the world airline and air transport industry) Aero Asia's star ranking now brings it in league with the major air carriers of the world such as Air Canada, Air France, American Airlines and PIA.

It plans to become Pakistan's first low fare airline to gain new heights. In order to provide better customer services, the airline has introduced e-ticketing (book flight from home or office), advance seat allocation, the most up-to-date in-flight entertainment, enhanced menu choices, more destinations and special packages all inclusive with commitment to provide you with the lowest fare are the attractions for the air traffic.

Adnan Tabani, Executive Director Aero Asia International Airline in a recent visit to India held detailed negotiations with his Indian counterparts of private sector and officials of tourism industry for the possibilities of starting flights from both sides to enhance tourism and facilities for the people of the two countries. Tabani says that the private sector should come forward to supplement the endeavors of the government for promoting friendly ties between the two countries

During his visit, Adnan Tabani also held talks with Subhash Goyal, President Indian Association of Tour Operators officials of Air Shahara and Tourism Department besides meeting Anish Ghandi, Managing Director Trans Media International, a leading Tour Operator in New Delhi. They agreed to promote and explore the possibilities of enhancing tourism to Pakistan and agreed to visit Pakistan early next year.

CARGO AGREEMENTS:

Aero Asia Int'l runs cargo services on its international as well as domestic flights for several major foreign airlines through Interline Cargo Agreements with the following airlines:

* Emirates Airline

* Gulf Air

* KLM - Royal Dutch

* Qatar Airways

* Oman Air

* Saudi Arabian Airlines

* Singapore Airlines

Aero Asia plants to offer a full range of online cargo and courier services which allow customers to view schedules, track shipments at any time & anywhere, make on line reservations etc.

SHAHEEN AIR INTERNATIONAL (SAI)

Shaheen Air, another private sector airline had made a good impact soon after its arrival in the business, but unfortunately the management could not sustain the adverse pressures. Recently, the new management, comprised of overseas Pakistanis from Canada have taken over the Shaheen Air. It is reported that the new management has its ambitious plan to come in a big way in the aviation business in Pakistan. Recently, they have inducted a new Boeing aircraft into its fleet which is certainly a good news for the industry.

SAI commenced its operations in Dec 1993 on a single domestic sector of Islamabad-Karachi-Islamabad with wet-leased aircraft. Within a short span of 10 months of its birth, SAI earned two unique distinctions. It became the first private international airline to be honored with the title of 2nd National Carrier of Pakistan. Since then SAI has been in a perpetual pursuit of excellence in operations and services, expanding its fleet, acquiring new routes and increasing its passenger base. SAI is now a major private airline of Pakistan, with a fleet of 6 aircraft operating more than 30-flight-a-week to 10 domestic and international destinations.

SAI's quest for the new frontiers is taking it on a path of continuous expansion as it enters the new millennium.

SAI is under a constant process of expansion and restructuring with an aim to provide the best possible service to its worthy clients. The recent expansion of its cargo service indicates the airline's response to the increasing demands of the export sector of Pakistan. Now the cargo carrying capacity has been increased to three million kilograms annually. SAI plans the induction of new aircraft in the very near future, along with the addition of new destinations in Domestic, Gulf and European sectors.

Shaheen Air International claims to have the best in flight service in Pakistan. Well-trained, eager to serve cabin crews leave no stone un-turned to please valued passengers and make them feel as if they were in their own homes, surrounded by their dear ones. SAI goes to great length to train its cabin crew. The airline has own Training Centre facility, where highly competent and richly experienced instructors groom stringently selected trainee crews into professional, well-mannered and elegant cabin attendants that are one of the best in the world. Shaheen Air International has its own Food Services Department to serve its flights in the best possible manner. Food is prepared in the most hygienic manner and its quality is strictly checked before it gets on board.

PASSENGER SERVICES

This department handles complaints and ensures implementation of required services at all airports. SAI recently signed a contract of world tracing system of baggage services with SITA. SAI trained its staff from SITA England to monitor this system.

In the wake of 11th September events, many foreign carriers either decreased or suspended their operations to Pakistan, thereby decreasing the total belly space available for export cargo. Even dedicated cargo freighter operators like Lufthansa, Air France & British Airways also stopped their operations completely. The decreased cargo capacity resulted in pile up of export cargo in Pakistan. Therefore an opportunity was identified by SAI for operating cargo flights at viable yields. Subsequently, the airline decided to operate cargo flight between Pakistan and Dubai, which is a major cargo transit hub for Europe and USA.

To give a practical shape to the operation plan, a joint venture agreement was signed on 8th October 2001 with Avicon International, a Sharjah-based company dealing with aircraft charters and leasing.

Subsequently a dedicated AN-12 was positioned at Dubai and arrangements were also made for availability of IL-76 on short notice. First cargo flight was operated on 17th November 2001, since then numerous Flights have been operated between Pakistan and UAE. A total of 1296 tons of export cargo was uplifted from Pakistan, thereby helping this important sector of national economy.

SAI is the only Pakistani carrier with dedicated cargo aircraft capable of operating to regional destinations. The cargo flights are operated under its flag with NL call sign. Presently SAI is operating five cargo charter flights per week between Pakistan and UAE.

SAI cargo operations are characterized by superior service and reliability of schedule. In its own way, SAI is contributing towards the economic activity in the country. Clients are provided hassle free service and prompt delivery. Depending upon market demand, SAI plans to expand its cargo operations to more and more domestic and international destinations. Freight rates are kept very reasonable to facilitate importers/exporters in cost saving. Whenever flight clearance to Afghanistan are obtained SAI Cargo will play a pivotal role in Afghanistan relief operations in conjunction with UN and other agencies. SAI will also earn substantial foreign exchange for Pakistan and boost its economic activity in near future.

AIRBLUE

The CAA had issued four licenses for new airlines in the private sector, however, only one of them i.e. AirBlue has so far started their commercial operations while rest of the licensees are still have to make their debut.

According to market reports, AirBlue was on its way to grab the market share on the domestic routes mainly the Karachi-Lahore-Islamabad sector. The AirBlue was negotiating on Karachi-Lahore-Islamabad routes and was trying to attract attention of the revenue passengers by offering comparatively low fares on the domestic routes besides using the cutting edge technology of e-ticketing for the first time in the country.

The major focus of AirBlue is on customer comfort, it have trained its employee in foreign countries in line with providing the maximum customer satisfaction. The airline's management has claimed that they would provide in flight entertainment not offered by other airlines.

Another land mark of AirBlue airline is innovative e-ticketing technology, through web-based technology customer can make reservation on-line in 24 hours a days and 7 days a week. The convenience of air travel reservation by new system will enhance the customer satisfaction, and new innovative technologies would encourage other operators to introduce similar technologies for its survival in the market.

Another private airline SafeAir also plans to start its operation soon in Pakistan. However, no concrete evidence are there for early start of the operations. The company incorporated in Pakistan in 1999, but cancelled its operation soon, due to unpaid taxes of CAA, later on some foreign group have invested in order to re-launched their operation.

PROJECTIONS

Aviation sector can be described as an eventful or vibrant sector in view of the developments being taken place in this industry. Recently, newly developed Lahore airport has become a valuable addition in our aviation industry. The government has floated tenders for inviting designs for development of Islamabad airport in a befitting manner to represent the capital of the country. When completed this would be yet another addition to modern facilities for the air travelers in this part of the world. Construction of new airports at Sialkot and Gwadar is another significant development from aviation point of view. The two airports will add considerably to the cargo and passenger traffic to the aviation sector. It is hoped that Gwadar will be an epoch making development in the history of both sea and air cargo from Pakistan.

With the restoration of air links with India, PIA has started its operations to India, Bangladesh and the Far Eastern destinations. Though the restoration of airlinks with India has added to the flying activity especially for PIA, yet most of the Far Eastern routes were loss making routes, it is somewhat eroding profitability of the national airline. However, the foreign carriers which had closed their Pakistan operations have started considering to reopen the closed offices in Pakistan in view of the growing business in this part of the world.