PAKISTAN INTERNATIONAL AIRLINES CORPORATION

S.KAMAL HAYDER KAZMI,
Research Analyst
, PAGE
Feb 23 - Mar 01, 2009

Pakistan International Airlines (PIA) Corporation's principal activity is to provide air transport services and provision of engineering and other allied services. PIA is the flagcarrier airline of Pakistan headquartered in Karachi. It is the 31st largest airline in Asia, operating scheduled services to 35 destinations throughout Asia, the Middle East, Europe and North America as well as a domestic network linking 23 destinations.

Its main bases are at Jinnah International Airport Karachi, the Allama Iqbal International Airport, Lahore and the Benazir Bhutto International Airport Islamabad/Rawalpindi. The airline's secondary bases include Peshawar International Airport, Faisalabad International Airport, Quetta International Airport and Multan International Airport from which it connects the metropolitan cities with the main bases, the Middle East and the Far East.

The airline is owned by the Government of Pakistan (87%) and other shareholders (13%). It employes 18,043 people as of May 2008. The shares of the corporation are quoted on all three stock exchanges of Pakistan.

PAKISTAN INTERNATIONAL AIRLINES DOMESTIC FARES
DEPARTS ARRIVES BUSINESS ECONOMY PLUS ECONOMY
KHI ISB 14,800 to 17,700 PKR 9,300 to 10,300 PKR 5000 to 8,200 PKR
KHI LHR 16,300 PKR 8,800 to 9300 PKR 5,700 to 8,300 PKR
Source: PIA

CARGO OPERATIONS

PIA also operates an extensive cargo delivery system within Pakistan. PIA Cargo transports a range of goods across Pakistan as well as to international destinations. These include meat and vegetables, textiles, paper products and laboratory equipment. In 2003, PIA launched "PIA Speedex", a courier service in Karachi, Lahore and Rawalpindi/Islamabad; expanding within a year to 12 cities. Today, the airline offers services in over 70 locations within Pakistan, with shipments collected and delivered from customers' homes. From 2004 to Sep 2007, PIA Cargo operated two Airbus A300 Freighter aircraft through MNG Airlines under wetlease/ACMI to Haan and Luton; initially these also operated to Amsterdam, Basel and Cologne.

FINANCIAL HIGHLIGHTS
(Rs in million)
INDICATORS THIRD QUARTER ENDED NINE MONTH ENDED
  2008 2007 2008 2007
Turnover - net 22,834 17,165 60,397 52,046
Aircraft Fuel Cost 13,991 7,124 33,616 21,416
Other Cost & Expenses 13,232 11,593 35,878 36,499
Exchange Loss / (Gain) - net 13,936 269 22,784 (135)
Financial Costs 2,131 1,817 5,841 5,213
Loss Before Tax 20,437 3,069 38,436 10,643
Loss After Tax 20,437 3,155 38,436 10,904

Pakistan International Airlines financial highlight shows the key business structure. PIA has incurred an unprecedented loss of over Rs 38.4 bn which includes foreign exchange translation loss of Rs 22.8 bn on US $ denominated loans obligations as a sequel to the steep depreciation of the rupees. Despite steep competition from the regional carriers, overall net revenue grew by 16%, passenger's revenue growth 17% whereas cargo revenue growth 10% in the 9 months period ended Sep 30, 2008, against the corresponding period last year.

Various measures like imposition of fuel surcharge, increase in fares, and improvement in revenue management have helped in enhancing the revenue. PIA also continued to face tough time throughout the period under review and especially the third quarter of 2008 proved to extremely difficult for the corporation. As a result, during the ninth months period under review compared to the corresponding period last year, PIA losses increased by Rs 27.8 bn mainly due to Rs 22.9 bn increase in exchange losses and Rs 12.2 bn increase in fuel cost; partly compensated by Rs 8.4 bn increase in net revenue. Despite rising inflation rate, the corporation has achieved success in its cost cutting measures as a result the operating expenses including fuel cost reduced by Rs 621 mn a decrease of 2%. The corporation has achieved 98% of E-ticketing by Sep 30, 2008 and it is expected that the remaining 2% which is mainly due to interline electronic-e-ticketing will be achieved shortly.

PRIVATIZATION

In late 90s, the Government of Pakistan considered selling the airline to the private sector due to the persistent losses suffered by the airline. The Government announced the privatization plans but they were never implemented. Several steps towards outsourcing of non-core business have been initiated. Catering units (starting with Karachi Flight Kitchen), ground handling (starting with ramp services) and engineering are to be gradually seperated out of the airline and operated as independent companies.

PIA IN KARACHI STOCK EXCHANGE IN FEBRUARY 2009
DATE OPEN RATE CLOSING RATE
2 2.83 2.7
3 2.7 2.68
4 2.68 2.61
6 2.61 2.71
9 2.71 2.64
10 2.64 2.69
11 2.69 2.63
12 2.63 2.69
13 2.69 2.79
16 2.79 2.91
17 2.91 2.85
18 2.85 2.75
19 2.75 2.7
Source: KSE

FUTURE OUTLOOK

No doubt, PIA faces many challenges due to loss in profitability. For increasing its profits, PIA's strategy should focus on vital pursuit of higher revenue generation and cost rationalization. In addition, new initiatives should be launched to increase revenue through third party engineering sales, revamping of cargo business by improving physical and technological infrastructure, development and launch of innovative products to maximize revenue generation and increase in market share.