THE MOST INNOVATIVE COMPANY IN PAKISTAN

Journey unending, from PIA to airblue

By SADAF AURANGZAIB
June 12 - 18, 2006

On June 18th, airblue is going to celebrate its second anniversary. On this occasion PAGE has had a discourse with Shahid Khakan Abbasi, the Chief Executive of the airblue private airline.

Shahid Khakan Abbasi is a known figure both in aviation and in politics. He discusses the ups and downs of aviation industry in Pakistan. Let's share his views on this occasion.

PAGE: First of all, tell us a little about yourself.

Shahid Khakan Abbasi: I am an Electrical Engineer. I belong to Murree, did my FSc from there. Later on I spent several years in US, did my bachelors and my Masters in Engineering from University of California. From there I moved to Middle East (Saudi Arabia, Jordon, UAE) for about seven years, then came back to Pakistan and became MNA from Murree, remained MNA for five terms and also on various governmental positions like was a chairman of PIA from 1997-1999.

PAGE: Why did you move to politics from engineering, was it something that came from your family?

SKA: Well, politics was not a career for me neither are we a family of politicians. My father was a minister and MNA but we are not traditional politicians however I joined politics because it was something that had to be done.

PAGE: Where from this fondness for airline generates in you?

SKA: My father was an air force person; he was as senior officer in the air force and was the first air force pilot in Pakistan, later on he rose to a fairly high position. He also remained as MPA and MNA during 1971-1972. Flying has been a passion in fact I got my license at 17 years of age, was flying since then. I was also into sky diving and many other aviation activities which I continued till today. So it was an interest and not a profession in the beginning later when I became the Chairman of PIA, I started learning the business side of aviation and there from I learnt this business. When I lost my seat in 2002 elections, I decided to venture in this aviation business as there wasn't any commitment with the politics since then so I started taking interest in this business and with few of my friends raised money for this airline.

PAGE: Whose concept was that?

SKA: The concept was mine but then I have to sell it to the investors to raise a lot of money.

PAGE: Having been a chairman of PIA, how does it feel running a private airline?

SKA: Well, it's a different thing. PIA has already had a stable business but as it is government owned so decision making is not that dynamic. Here it's a start up; it has its own sort of requirements and challenges.

PAGE: Are you enjoying your current position?

SKA: Yes, definitely, it's a challenging and very exciting business to be in compare to running a factory or retail outlet. This is far away from traditional businesses.

PAGE: Talking of the fuel crisis as there has been a cut throat competition between the private airlines, how is airblue tackling this situation?

SKA: Well, fuel is always a major element in this business but in the last few years fuel prices have risen very dramatically. In the start the fuel was 18 rupees a litre, now its 4o rupees a litre that cuts your profit margin. It is a much bigger challenge than it used to be. You really can't raise prices beyond a certain level otherwise people won't travel.

PAGE: How do you bear its consequences?

SKA: You really can't pass it on fully. You have to absorb it in different ways. We try to increase revenue base for if revenue base would increase it would absorb the loss much more easily. There is only one way to counter when prices are beyond control that is you have to expand. That's why we expanded very rapidly in the last six to eight months.

PAGE: What is the fuel cost percentage in your total cost?

SKA: Fuel is about 40% of the total cost.

PAGE: Do the aircrafts have been purchased by airblue?

SKA: Very few people purchased aircrafts any more. It's all on operating lease. There are companies in the world that buy aircrafts and then you can obtain aircrafts from them on three, four or five years leases but these are leases where you only get aircrafts, you have to build the whole infrastructure to support it. You have to get your own pilots, cabin crew so all the infrastructure has to be built.

PAGE: How do you see the quality of the aircrafts that airblue possess?

SKA: We operate the best aircrafts in the world. The air bus of this generation, of this single line, the airbus 320 family is the most advanced aircrafts in the world.

PAGE: Airblue was entered into a deal with European aircraft maker air bus for the procurement of ten crafts... we haven't heard more about it since then?

SKA: It's a deal of 330 airbus family, these are fairly large aircrafts. It's in the process, lots of things have happened, lot is needed to be done. We hope to have delivery start in 2008.

PAGE: What domestic and international routes do airblue follows?

SKA: Domestic routes are open skies in Pakistan so right now we are operating on almost all the major routes. We are operating Karachi-Islamabad, Karachi-Lahore, Karachi-Peshawar, Karachi-Quetta, Karachi-Faisalabad and also operating on Karachi-Dubai, Lahore-Dubai, Islamabad-Dubai; we operate six flights a day, we operate on higher frequency operation that means we have multiplied our frequency with which it becomes possible to have a flight every day in the same city in the same time.

PAGE: As an aviation man are you satisfied with the open skies policy of the government?

SKA: Domestic as I said is an open skies policy that means we can operate anywhere, anytime

PAGE: Perhaps talking about international routes...

SKA: Internationally for us there are open skies, even if we want to operate hundred times a day for Dubai nobody has problem. But open skies is a policy that is followed by both the countries, it couldn't be just from one side like if we want to operate Saudi Arabia we can't.

PAGE: How do you see the role of government in building an edifice for international routes for airblue?

SKA: Right now the government is slowly opening up. Like, we have been allowed eight flights a week and hopefully we will be allowed to operate other destinations as well. The destinations like Thailand, Singapore etc which we are not operating today, we will hopefully operate in future. Many destinations are available however the major markets are Gulf, Saudi Arabia, UK and North America.

PAGE: If the government will permit you to start operating international route, would it help managing fuel cost?

SKA: It doesn't help because Pakistan has the cheapest fuel in the world for Pakistani air crafts. It's locally produced and the prices structures are as such that the Pakistani airlines would benefit the most.

PAGE: What is the yearly growth rate of airblue?

SKA: We have risen to a level that we expected to establish ourselves and also to spread the cost over vital raise. In just sixty days from Dec 1 to Feb 1, we doubled the capacity of our crafts, in that way we have over 100% growth in sixty days. It is such thing that expands very rapidly if you have market and have a capacity to get additional aircrafts.

PAGE: Airblue is the pioneer in introducing the concept such as E-ticketing, what further improvements are in progress?

SKA: In order to speed ahead, you have to keep ahead of the curve, you have to innovate. We should not follow the traditional model of business. For example, E-ticketing, nobody has sold a single E-ticket in Pakistan before we came in. E-ticketing are not web sales, web sales are different thing. Anybody can do web sales. E-ticketing is where there is no physical interchange of any papers. It's a paper less environment. Even our office environment is very different, we just operate through emails and we don't have any files or people filing them. When you add web sales to that then you have a vital phase from which you can distribute. We have our several agents selling us. PIA is now fifty years old, they have less than five hundred agents selling them. It is very difficult for PIA to add an agent however through online capacity we can add up agents very easily. Accounting becomes very simple. If you look at PIA may be 10% of employees are in some way attached to managing or distributing tickets where as our company has only four people in accounting; everything is automated then there is real time information, MIS is very very effective. Whenever a ticket is sold, I can be anywhere but I know what ticket has been sold because it's a web based system, we just need to access the web. We can see what sales are for today, for the last hour, for the last month, for the last year, all information is available on internet so that's the standard we are meeting.

PAGE: Right now you are only considering passengers; there are no cargo flights ... are you neglecting it?

SKA: We are not neglecting it but it's a totally different business. You will never see a bus company running trucks so cargo is a very different business, we don't have any intentions regarding cargo flights.

PAGE: How do you see the level of growth of air traffic of Pakistan?

SKA: You have 12% of nominal growth that is very good. When we came in, we told the government that there is a suppressed demand in the market that will result in 18 to 20% growth. The first year we saw 35% of growth, if you look it periodically from year by year like if you look at the years 2005 v/s 2004, the growth was 35% and that was because there was a suppressed demand and PIA was spinning passengers. Today we have not lost a single passenger. PIA, Aeroasia, Shaheen have not lost a single passenger, they have their own nominal growth. We are all living within the growth in market so we are not taking anybody's share on the pie.

PAGE: What do you say about the competition and for the people who want to be a part of this business?

SKA: There are several people who want to come in this business but as I said it's easier to waste money else where as people who think in traditional sense will not be able to enter this business, it's a very risky business. In order to venture in this business you need to think out of the box as if you think within the box you will be nowhere.

PAGE: What hierarchy structure do you have for operating this airline?

SKA: We don't have any hierarchy structure, its all web based however there are managers, middle management, higher management but it's a very very short fluid environment so that makes a very quick decision making. We have given a lot of authority to the line people so that most of the issues don't even get to us; they have the authority to resolve them.

PAGE: How big do you see the growth of your airline in the coming years?

SKA: It all depends on how much the government let go. If they let go Saudi Arabia tomorrow, we can expand 300 % in two months. If India visas open up we can expand 300% in one month so its lot of activity out there but there are some constraints. Right now we are operating within the constraints but still a hundred million dollar company.

PAGE: How do you see the role of government in helping you out in your growth prospects?

SKA: The government we see is CA, that's the government for us; we don't see anybody else as government. CA has been very very supportive, it has its own constraints but I think it's a very very supportive environment. In this business if CA would not be supportive then it would be very difficult for us to operate. CA has a fairly good approach towards business.

PAGE: Some airlines that quit back from coming to Pakistan have started coming back. What's the strategy behind?

SKA: Simply economic. If the airline makes money at Timbukto, I will send it to Timbukto. Aeroplane doesn't know where it's going; it's only the people behind who knows that.

PAGE: How many domestic and international routes you are operating currently?

SKA: We have six domestic routes that are Karachi, Islamabad, Lahore, Peshawar, Faisalabad and Quetta.. Dubai is our international route.

PAGE: Airline business and tourism go together, what is your airline doing in this regard?

SKA: Well, airline can only support tourism...

PAGE: But Emirates have a very significant contribution towards tourism?

SKA: Well, that's a very big debate, did Emirates develop Dubai or did Dubai develop Emirates. For every successful airline you have to have a successful city or economy behind it. You can't operate in isolation. Here people are not willing to come to the city from airport; you want us to bring tourists! There has to be an enabling environment, law and order and perception to enhance it. I don't see Pakistan as a country of tourism in short run.

PAGE: When would you be flying to North America?

SKA: Probably never. North America is not a good market for an airline like us. I went to the US first in 1975 as a student; I had to pay thousand dollars to come home. Ticket was 950 dollars, fuel was 3 cents a gallon, air travel was 20 million dollars now it is 200 million dollars. You really can't make money with the model we have which is relying on the traditional ethnic traffic. It doesn't support North America. Emirates waited for almost twenty years before they went to North America, in the start they went once daily, then they went twice daily now they went there three times a day. That's the way to do it. That's a very tough market but you have to build it in the right way because money comes from premium passengers and not from the economy.

PAGE: Talking of your office environment, we have seen that majority of your employees are women, what's the logic behind?

SKA: You go home, call a twenty year old girl and a twenty year old boy, you will see the difference. It's very surprising, the girl will know computers, she speaks English, she has the confidence, she is groomed where as the boy has bad grades and nothing else. The girls of this country stand out; there is no comparison to them. Take engineering out we have 70% female. All the check in staff, sales staff, cabin crew even in this office we have mostly girls who are all MBAs.

PAGE: Is there any particular segment of the society that you are striking?

SKA: We are striking the whole society through better performance. We are really a full service airline, effective cost structure control the cost and we deliver well. Aviation must have a good image to strike well.

PAGE: Which do you think as a good or bad market in making profit?

SKA: Karachi-Dubai is the worst market that we have; prices are very very low, ridiculously very very low ...

PAGE: Why do you operate there then?

SKA: That's a market; there is a synergy to carry more and more people. It's not a very profitable market for us but it adds up a lot of passengers. Well, Dubai is Dubai and we have to be there. Saudi Arabia is a very high yield market. Look at the fare, 600 dollars for daily four hours flight, and its 1000 dollars for US in thirty hours flight.

PAGE: Since the government is going to privatized PIA, what is your view regarding this measure on the part of government, would it be a subsidized operation for PIA?

SKA: Well, I think PIA will lose a lot of money if it got privatized.

PAGE: What impact would it have on private airlines if PIA got privatized?

SKA: There will be more competition in the market. Everybody has to smarten up; whatever comes in will have to raise the standards. If you go to the airport now you will see counters are laid out better, things look better because we raised the standards and PIA responded, Aeroasia responded as well as other airlines too. Just the physical appearance, the way people stand there, their uniforms etc. When you raise the standards, everyone wants to respond, nobody wants to be left behind.

PAGE: Where do you give training to your crew?

SKA: We have our own training centers however we do pilot training with Air bus and don't do it locally. Over all we have eight hundred employees.

PAGE: Why don't you believe in the diversification of business other than aviation?

SKA: That requires a lot of management, lot of time which we don't have. We really want to concentrate on this business.

PAGE: What is your target for growth?

SKA: Around 20% however we will increase with time.

PAGE: How do you compare yourself with other airlines?

SKA: We now have a data base where we can compare numbers. Our airline is much similar in numbers with the Jet blue airline of US and our airline story is much similar with Indian airline by the name of Jet air. We are very similar to these airlines.