ONE YEAR OF CHAIRMAN & CEO, PIA, IN OFFICE: AN EVALUATION

PIA is now well positioned and on its way to recovery on all fronts

July 10 - July 16, 2006

On April 19, 2005 Mr. Tariq Kirmani, a corporate veteran of 35 years of service, in Fuel Finance and Marketing sectors, was appointed Chairman & CEO, PIA.

Two days after taking charge of office, on Tuesday, April 21, 2005, the Chairman and CEO PIA, in his address to the Higher Management, emphasized that a corporation should begin by having a clear Vision, Mission and Values, together with a set of Code of Ethics. This was required in order to function as an efficient and vibrant organization, geared to meet the needs of its valued customers.

For an organization that had posted a Rs. 54 million loss only a year earlier and seen to be functioning without any clear Vision, with a Mission that was diluted with ambiguity and contradictions, and whose set of values were suffering from degeneration, it was like music to the ears. Nevertheless, for an organization with a perpetual disregard for honesty, merit and loyalty, and governed by hardly any Code of Ethics, it seemed a tall order.

Today, however, exactly one year later, the airline has a clear cut Vision, a well-defined Mission, and a set of Corporate Values, all well wrapped up in an enviable Code of Ethics booklet. The Organization now had determined its direction and role.

All key performance indicators relating to the aviation industry namely, Yield, Market Share, Seat Factor, Number of Passengers, Aircraft Utilization, Service Standards, and Share Value showed significant improvement over FY 2004.

The bottom line conceals more than it reveals. Even a cursory look into the numbers will show that while all the key performance indicators applicable to any airline's performance showed wholesome improvement, all of it was undone by just one factor i.e., price of jet fuel.

The otherwise profitable bottom-line was dented by an impact of Rs.8.6 billion on account of increase in the price of fuel alone in 2005 over 2004.

In fact, fuel prices continued to rock the entire airline industry as these bedeviled the budget and projections of most airlines. It ate up a total of 44% of PIA hard earned revenues. Thus, IATA carriers collectively reported losses of US$ 7 billion in 2005. Little wonder, financial numbers projected last year for PIA's 2005 budget was invalidated as expenditure on fuel outpaced all other numbers. Reaching a level of Rs.26.5 billion in FY 2005 from Rs.18 billion in 2004 it also overturned PIA's projected profitability.

The year's profit also absorbed the one time cost of mandatory retirement of certain categories of employees amounting to Rs.487 million.

If the fuel prices were kept constant at FY 2004 level then Pakistan International Airlines would have made a profit of Rs.3.3 billion in 2005.

PIA, in 2005 increased its revenues by 11%. PIA carried 3.2 million International Passengers in 2005 with a market share of 49% and in the domestic arena, PIA carried 2.2 million passengers with a market share of 65%. Seat factor was up in 2005 to 73.1% from 69.1% in 2004. Both domestic and international seat factors showed an increase.

Fleet Utilization was higher then in 2004 and even better then the industry average. Add to this the fact that PIA recorded the highest punctuality rate in the last 26 years of its history that stood at 87%. PIA's schedule regularity was an unprecedented 98.2% in 2005.

Vision, Mission, and Values, grew out of and were formulated by the employees themselves, to give them a sense of ownership and commitment. These statements had finally come out of the closet of Boardroom Minutes and Manuals, and displayed as posters throughout the network, in every office and, were a constant reminder to the employees, as well as the customers, who also saw them when they visited the PIA offices and, if required, held the employees accountable against those standards. This has also had the effect of spurring the employees to a commitment, as they became the custodians and owners of the very same Values that they themselves had defined in the first place. The Code of Ethics Booklet soon followed and distributed to every employee of PIA.

Having set the direction of the PIA, The Chairman and CEO, like someone who is in a hurry to cover up for previously lost time began to take steps by first empowering the employees, and thereafter holding them accountable. He set up the weekly Management Committee, short for ManCom, Meetings of the Senior Vice Presidents, together with the relevant General Managers and their Teams to review on a weekly basis, and all issues of major concern to PIA that had gathered moss over the past years and take decisions on them. He also set up a weekly meeting of Employees Leadership Team, ELT, with a set number of relevant members that deliberated on recruitment, re-structuring , promotions, employment, redundancies, needs, grievances related to policies in short all issues related to human resources.

Rapid activity followed and the last year saw a multiple of activities in all areas. Whether it was Environment, Health or Safety, that was up-graded to a Directorate, or recruitment of fresh talent or giving PIA a new look at its corporate office, a new environment in its premises, or it concerned the up-gradation of cafeteria's where the common employee ate in which the Chairman & CEO, including the Vice Presidents also began to eat and thus commingle with the common employees.

The new Vision was now followed, a new culture developed and a new era of PIA began to take shape. Activity soared to new levels, and everyone seemed to have been shaken up from their slumber.

A Brand Division was created for the first time in PIA including a new Corporate Social Responsibility, CSR, Team. Marketing was restructured and Finance found a new place in the sun. There was a lot of emphasis on customer comments and feedback by the Chairman and CEO PIA. The customer had become king. His comments were given top priority each week in the ManComs, and immediate decisions were taken in all areas and their implementation reviewed and processes to facilitate the passengers were cleaned up and reviewed.

The Quality Assurance Department came into the limelight as the concept of 3C's was introduced. They stood for Convenience, Comfort and Competitiveness all done with a smile. The idea was to make the customer satisfied in all respects.

Convenience meant that for any and every passenger who decided to fly PIA, from the time they made that decision until they picked up their luggage when they reached their destination, their trip must be convenient, from start to finish. Specifically, while on board, during the course of their flight, they must be comfortable in every way and well looked after and indeed, even exceeding their expectations. Competitiveness meant that within the overall context of aviation fares in the country, the airline should not lag behind but matches the fares in accordance with the going market rates, while keeping an eye on revenue gains for both the passengers and the airline itself.

In April 2005, the Chairman & CEO, PIA, had also talked about the depreciation of Pakistan's currency against the dollar, which was 3.7 percent, and which was a negative factor that resulted in a less profit then targeted.

Co-branding made its appearance in May of the same year as PIA and Standard Chartered partnership got going and that provided for greater benefits and travel and spending enhancements for both their customers. It also heralded the advent as the first airline in Pakistan to co-brand a credit card between PIA the National Flag Carrier of Pakistan and Standard Chartered, the largest International Bank in Pakistan. The aim was to benefit both their customers in terms of a wide array of benefits including rewards such as discounted airfare, free air points, travel privileges, and other exciting benefits and features.

In a series of Communication meetings with the employees of all Stations and Departments, beginning with the Engineering personnel in May, 2005, and continuing well into this year with a meeting held in Multan in April, 2006, when the Chairman & CEO, PIA, addressed the need of following the Vision, Mission and Values of PIA whose business, in his words, was transporting people from one place to another with comfort, convenience and competitive fares. Sales, revenue and competitive profits then fall into place, but these depend on the number of passengers carried and the operational costs.

The Chairman reminded the employees in all these meetings that we require a focused vision and a change of mindset to make the carrier a commercially viable entity.

He also talked about the positive changes in the financial and operational indicators of PIA. Summing up these indicators for the whole FY 2005-6 in his last Communication Meeting in Multan, held in April 2006 and the same day he made a presentation to the Multan Chamber of Commerce and Industry. The following is a brief review of his last one year in office.

The bottom line reveals a change of color although it conceals more than it reveals. For even a cursory look into the numbers will show that while all the key performance indicators applicable to any airline's performance showed wholesome improvement, all of it was undone by just one factor i.e., price of jet fuel.

As a strategic priority, PIA has planned to reduce the overall fleet age from 29 years to 9 years in the next five years. PIA's fleet size is currently 41 aircrafts. PIA will induct 29 new aircrafts out of which three 777-200 ER's and two 777-200 LR's are already here. PIA is in the process of leasing four more 777 aircrafts and 7 ATRS. With leased aircrafts and new acquisitions, PIA's fleet strength will increase to 52 aircrafts, after retiring or selling off the old planes.

PIA's overall image has two components;

The service component; and
The competitiveness component.

In the service area, PIA has also not lagged behind but rather has made major strides, which have now and again been published in the Press. Some examples:

Since the airline industry is both a service industry and a highly competitive business PIA concentrated on aligning itself to work on both these fronts. For the customer PIA developed the service concepts of passenger's convenience and passenger comfort, along with competitiveness, as mentioned earlier. This is now PIA strategy.

For passenger convenience and comfort PIA is ensuring that from the time the passengers decide to travel by PIA till they collects their luggage, every step of the way he is taken well care of. PIA is trying to improve the all round process in all these areas.

Further, for passenger convenience and comfort PIA first upgraded the Call Center and introduced the Complaint Management System, CMS, besides significantly reviewing the Awards Plus Program. PIA has started free pick up and drop service for Club Class passengers, and getting E-ticketing in place and concentrating on efficient and easy check-in services. The staff is being trained to have a friendly and ever-helpful attitude towards the passengers. PIA is improving the airplane interiors and the aircraft tail design progressively on all aircrafts, improving its flight services, and has inducted airhostesses both nationally and internationally from all over the world where PIA operates. PIA is also improving the airlines cuisine, has a baggage tracking service in place, in short in all areas, PIA is engaged in bringing all round improvement. When the incumbent Chairman & CEO took over PIA, the passenger comment cards numbered around 167, and out of this besides suggestions, observations and appreciations, 43% were complaints. Right now we are receiving nearly 1900 hundred comment cards per week and the number of complaints has gone down to 16%. PIA is striving to bring this down to zero. Many other areas of concern related to passenger comfort and convenience are being taken care of.

Finally, to summarize this evaluation: PIA is now well positioned and on its way to recovery on all fronts. We can only hope and pray that the spiraling fuel prices do not hamper or arrest this dynamics of change.