Why is PIA Losing Money Amid Air Travel Boom in Pakistan?

What is behind the domestic and international aviation boom in India and Pakistan? Why is Pakistan doing better than India in terms of international passenger growth while badly lagging in domestic air travel?

Passenger Aircraft at Karachi International Airport
What has happened to the global airline industry since the passage of the US Deregulation Act of 1978? Why did many big airlines of yesteryears die in spite of huge growth of air travel? How did so many upstart low-cost carriers succeed while state-owned airlines failed?

Why are the domestic air fares in Pakistan three times higher than those in India for similar distances? Why does state-owned PIA control two-thirds of Pakistan's domestic market? Why isn't there more competition on domestic routes in Pakistan?

Why are state-owned airlines, including PIA and Air India, losing a lot of money, requiring massive taxpayer subsidies and still performing poorly? Why aren't these airlines run more efficiently? Are PIA jobs used for political patronage? Why does PIA fly so many empty seats rather than cut fares to expand market?

Viewpoint From Overseas host Faraz Darvesh discusses these questions with Misbah Azam and Riaz Haq (www.riazhaq.com)

https://youtu.be/hh99nMnueBA




Related Links:

Haq's Musings

South Asia Investor Review

Pakistan Air Travel Market

Pakistan $20 Billion Tourism Industry Booming

Saving PIA, Railways and Education in Pakistan

Pakistan: Political Patronage Trumps Public Policy

Riaz Haq's Youtube Channel

Comments

Riaz Haq said…
Pakistan International Airlines refis Roosevelt Hotel with $105M loan
Government-owned company has long sought to sell the property

https://therealdeal.com/2018/04/19/pakistan-international-airlines-refis-roosevelt-hotel-with-105m-loan/

The Pakistan International Airlines has leased or owned the Roosevelt Hotel since 1979 and has several times since sought to get rid of it. And sans sale, the overseas owners refinanced the debt on the property, records filed with the city Thursday show, with a $105 million loan from JPMorgan Chase.

JPMorgan Chase’s refinancing replaced $140 million in previous debt on the hotel issued by Wilmington Trust, a subsidiary of M&T Bank.

PIA did not immediately respond to requests for comment and JPMorgan Chase declined to comment.

Built in 1924, the 600,000-square-foot hotel, located at 45 East 45th Street in the recently rezoned swath of Midtown East, is not landmarked and is a prime target for demolition and office tower construction, making the site worth hundreds of millions of dollars. So what’s held up a sale? Politics in Islamabad.

In December, Pakistani Prime Minister Shahid Khaqan Abbasi rejected a selloff plan for the Roosevelt, according to the Express Tribune, an English-language paper in the country. PIA, a government controlled company, had come up with the plan as part of a larger strategy for paying off roughly $5.3 billion in debt.

“Apart from being a valuable property, the hotel also carries cultural significance for Pakistan,” Abbasi said in rejecting the PIA plan.

PIA last put the hotel on the market in 2007, asking $1 billion. In August, The Real Deal reported that an investment group led by hotelier Shahal Khan was interested in acquiring the hotel. Khan is also making a bid for the Plaza Hotel on Fifth Avenue.

Riaz Haq said…
India tried to sell its national airline. It got zero bids

http://money.cnn.com/2018/05/31/investing/air-india-privatization-fails/index.html

India has failed to find a buyer for its ailing national airline.
Selling Air India was one of the government's economic priorities for this year, and the failure of the auction will dampen hopes that it could privatize other state-owned companies.

Bidding for the national carrier closed Thursday without a single prospective buyer coming forward.

"As informed by the transaction adviser, no response has been received for the expression of interest floated for the strategic disinvestment of Air India," the Indian Ministry of Civil Aviation said on its official Twitter account.

The government put Air India on the auction block last year, and was offering bidders the chance to buy 76%. It wants to scale back taxpayer support for an airline that has lost money for years.

The auction deadline had already been extended in the hope that a buyer may come forward. The future of the indebted carrier is now very uncertain.

"Further course of action will be decided appropriately," the ministry said in its tweet.

Air India declined to comment, referring the matter to the ministry. Aviation ministry officials did not respond to requests for comment.

Despite its losses, and growing competition from budget carriers such as SpiceJet and IndiGo, Air India is still a major player in an aviation market that is projected to be the world's third biggest by 2026.
Riaz Haq said…
#Pakistan about to become #tourism's next big thing. In 2015, #Pakistan welcomed 563,000 overseas arrivals. That figure grew to 965,000 in 2016, 1.6m in 2017 and 1.9m last year. #security #economy https://tribune.com.pk/story/1946713/1-pakistan-become-tourisms-next-big-thing/#

The image of Pakistan as an unsafe country for tourists is gradually changing and now many countries around the world see the potential for tourism in Pakistan, Telegraph reported on Monday.

According to the publication, Pakistan was once one of the highlights of the classic ‘hippie trail’ or ‘overland’ route from Europe to the Far East, a rite of passage for disillusioned Western youth. Peshawar and Lahore were considered not only safe – but also fine places to kick back for a few days in a budget hostel.

Prime Minister Imran Khan is committed to kickstarting tourism to help raise money for a welfare state. His policy has so far extended to tweeting pictures of the country’s beaches and snow-capped mountains, hosting a two-day tourism summit last week, and, most significantly, cutting the red tape and entry requirements that have the potential to put off visitors.

As of this month, residents of five countries – the UK, China, Turkey, Malaysia and the UAE – can take advantage of a new online e-visa system, while most restrictions on movement within the country have been abolished.

Jane Westwood of Wild Frontiers, one of the few UK operators to offer tours of Pakistan, welcomed the changes. “The old visa system was very convoluted,” she said. “Both travellers and tour operators needed to file numerous supporting documents and the whole process took two weeks or more – now it can be wrapped up in a matter of hours. It is also significantly cheaper, from £134 down to the equivalent of $60 [£46].”

She also praised the loosening of the No Objection Certificate (NOC) system, under which travellers needed special permission to visit certain parts of Pakistan. These have been scrapped for all but a few border regions, opening up parts of Kashmir, Chitral and Gilgit-Baltistan.


“It’s a beautiful country, and one of the most welcoming,” said Westwood, who has visited twice. “The mountain scenery is staggering, and it’s perfect for trekking, but there are fascinating cities too. Islamabad is leafy and green, with wide boulevards; Lahore has a remarkable Old City, gardens, museums and forts – a real combination of old and new. Then there’s the Kalasha Valleys, which have a unique pagan culture, with traditional lifestyles, dress and festivals.”
Riaz Haq said…
With a population of 216 million, Pakistan is the world’s fifth-largest country, sandwiched in size between Indonesia and Brazil. It is also large geographically, with an area bigger than Turkey.

Since 2014, Pakistan’s GDP growth has averaged 4.7%, dragged down by less than 2% last year. The country’s average was the second-lowest in South Asia, with only Sri Lanka achieving lower growth. Bangladesh (7.2%) and India (7.0%) performed strongly.

In 2019, total seats to, from, and within Pakistan amounted to 24.1 million, up by 53% – or 7.4 million – over 2010, data from OAG indicates.



https://www.anna.aero/2020/07/31/pakistans-international-seats-68-since-2010-domestic-seats-population-lower-than-bangladesh/


Despite 7.4 million seats added since 2010, Pakistan’s capacity was down nearly 8% YOY in 2019, with a loss of two million seats.

This decline was the result of a myriad of things, including the country’s struggling economic performance, PIA’s ongoing major problems, and the end of Shaheen Air in late 2018.

Shaheen Air was Pakistan’s third-largest operator in 2018, down from number-two in 2017, mainly as it ceased operating before the end of the year.

The rise of SereneAir, which launched in 2017, has not been sufficient, with this carrier operating nine domestic routes with a fleet of just four B737-800s.

Last year was in many ways extraordinary, so perhaps not too much attention should be paid to it.

Pakistan’s international market increased by 68% between 2010 and 2019, with over eight million seats added.

Pakistan’s own airlines were flat in 2019 versus 2010, with their share falling from 52% to 31% – the lowest in many years.

This decline, eliminating the growth from 2014-2017, was partly from Shaheen Air’s cessation. In 2018, over seven in ten of Shaheen Air’s seats were deployed internationally, mainly to the core Pakistan markets of the UAE and Saudi Arabia.

Nor was it assisted by PIA’s international seats falling by over 800,000 – hopefully partly from it attempting to focus on profitable and marginal routes that could be improved.

PIA’s ban from the EU this year will obviously not help, with one-quarter of the operator’s international capacity to/from Europe. It has just been announced that its UK services will resume in August.

Meanwhile, foreign airlines have inevitably strengthened their offerings, with their seats growing by 137% since 2010 – up over eight million. Foreign airlines were solely responsible for the country’s international growth in this period, with Saudia, Emirates, Qatar Airways, flydubai, and Air Arabia growing the most.

Saudia, which was already Pakistan’s leading airline at the start of the decade, added the most seats of all foreign airlines, cementing its position. Saudia had 14 routes to five Pakistani airports last year; with 555,000 seats, Jeddah – Lahore was its top route.

Like South Asia generally, Pakistan is the bread-and-butter of the MEB3: Emirates, Qatar Airways, and Etihad.

Collectively, the MEB3 had 4.8 million seats to/from Pakistan last year, up by nearly three million since 2010.

Perhaps surprisingly, the MEB3 had ‘only’ 24% of total international seats last year, while their share of capacity by foreign airlines was unchanged at 35%. This was from reducing capacity in more recent years.
Riaz Haq said…
#Pakistan #Airline With 14,000 Staff for 30 Planes to Cut Half Its Workforce. Even before #Covid restrictions, #PIA was banned from key markets including the #US and #Europe. And it missed out on peak travel periods like the annual #Hajj pilgrimage. https://www.bloomberg.com/news/articles/2021-04-27/half-of-jobs-to-be-cut-as-pakistan-s-airline-fights-to-survive


Even airlines in good financial health have been left reeling because of the coronavirus, which has caused dozens to collapse and thousands of job losses globally. In its latest outlook last week, the International Air Transport Association said carriers worldwide will lose about $48 billion in 2021 as virus flareups and mutations extend the timeline for a restart of global air travel.

PIA had 30 aircraft as of Sept. 30, including 12 Boeing Co. 777s and 11 Airbus SE A320s. Hussain didn’t specify what changes would be made to the fleet, which also includes ATR aircraft, but he said the size would be “kept under 30” and include more fuel-efficient planes. PIA will no longer serve destinations such as Tokyo and Manila, Hussain said.

Pakistan vowed to cut jobs and sell non-core assets after a series of bailouts, including one of 3.2 billion rupees in June so the airline could meet interest payments. About 2,000 employees have taken voluntary redundancy already, according to the airline. Meanwhile, non-core operations such as catering and engineering will be outsourced, said Hussain, a former central bank governor.

Other assets are also being assessed, including the Roosevelt Hotel in New York, which the airline acquired during its loftier days as a symbol of Pakistani prestige. The hotel was closed last year and may be sold or redeveloped.


Riaz Haq said…
#Pakistan's Alvir Airways gets operating license, eyes ERJ (#Brazil-made Embraer regional jets).
It plans to operate from 3 hubs (#Karachi, #Lahore, & #Islamabad) to 3 destinations (#Gwadar, #Skardu, & #Turbat) - to promote #tourism & regional air access. https://www.ch-aviation.com/portal/news/105836-pakistans-alvir-airways-granted-an-ol-eyes-erjs

Pakistani startup Alvir Airways (Karachi Int'l) has been granted a Tourism Promotion and Regional Integration (TPRI) operating license by the Pakistan Civil Aviation Authority (PCAA), according to a statement issued by the regulator.

Under the National Aviation Policy of 2019, the license is valid for five years until June 2026, read the statement issued by PCAA spokesman Saad Bin Ayub.

According to the PCAA, Alvir Airways intends to acquire two unspecified Embraer jets for the startup of operations and will add more of the type in time.

The airline plans to operate from three hubs in Pakistan, namely Karachi Int'l, Lahore Int'l, and Islamabad Quaid-e-Azam Int'l to three destinations - Gwadar, Skardu, and Turbat - to promote tourism and regional air access. Alvir Airways will be pitched against PIA - Pakistan International Airlines (PK, Islamabad Quaid-e-Azam Int'l) which currently holds 100% of the market share in terms of weekly seat capacity at Gwadar, Skardu, and Turbat, according to the ch-aviation capacities module. PIA serves Skardu twice weekly from Faisalabad, daily from Islamabad, 3x weekly from each of Karachi and Lahore, and weekly from Sialkot, the ch-aviation schedules module reveals. PIA also serves Gwadar 4x weekly from Karachi; and Turbat weekly from Islamabad and thrice-weekly from Karachi.

The PCAA said Alvir Airways was granted the license in line with a vision by Prime Minister Imran Khan to promote tourism and regional connectivity. It was presented by PCAA Director-General Khaqan Murtaza and other dignitaries to Alvin Airways Chief Executive Officer Tehseen Awan, Managing Director Syeda Huma Batool, and Chief Operating Officer Shahzaib Mahmood at the regulator's head-office in Karachi on July 12, 2021.

Speaking at the event, Awan said that Alvir Airways would start domestic flights in the first phase before purchasing more aircraft. He said the company aimed to provide employment in the aviation sector and become a major player in the Pakistan aviation industry.

The company has begun recruiting staff on its website, which, however at this stage, gives no further insight into its corporate set-up.

Neither the company, nor Awan were immediately available for comment. Awan currently holds the position of managing director of Vetworld, an animal health company, according to his LinkedIn profile.

Riaz Haq said…
What is a Regional Aircraft and what are the opportunities?
The regional aircraft market continues to be a key growth sector within commercial aviation, contributing significantly to efficiencies in the airline networks and ensuring safe and seamless mobility, while respecting environmental obligations.


https://www.cleansky.eu/regional-aircraft

Regional carriers typically operate aircraft, such as regional jets and turboprops, with a seating capacity ranging from 20 to 130 seats, on short to medium-haul routes. By the end of 2015 the regional aviation world fleet comprised of about 9000 units (4350 turboprop and 4650 regional jet) representing more than 33% of the worldwide commercial fleet and performing over 40% of total commercial flights (and 25% of total flight hours).

In the recent past the annual worldwide traffic served by regional aviation exceeded 700 billion ASK (Available Seat Kilometres). Only in Europe were regional carriers able to offer more than 120 billion ASKs to passengers, with an average distance of 320 NM (about 600 km) and more than 200 million people flew on regional aircraft within the European network.

Regional aviation demonstrated its strongest traffic growth over the last two decades. In the next 20 years regional air traffic is expected to triple at an average yearly rate of 6% (compared to a 5% rate in total commercial aviation), generating a market demand of about 9000 new regional aircraft (with a market value of about € 360 billion, averaging € 18 billion per year).

The regional market is currently led by non-European players, with the exception of turboprop manufacturer ATR (a 50/50 Joint Venture between Leonardo and Airbus Group). For Europe‘s aeronautical industry there‘s a clear and urgent need to invest in developing new technologies in order to recover global leadership.

The integration of innovative and affordable technologies in future aircraft platforms is a key success factor for manufacturers as it increases the appeal and customer benefits, providing a better inflight experience for passengers. Furthermore, airlines derive significant economic advantages from operating modern aircraft which are more efficient, eco-friendly, easier and cost-efficient to manage and maintain, saving money through the reduction of operating costs.

New and improved technologies positively impact all these elements, contributing to a reduction in operating costs through lower fuel burn, reduced maintenance costs, reduced navigation and airport fees as a result of structural weight savings due to innovative aircraft configurations and the use of lighter materials.

All these benefits and economic advantages will be even more evident for regional turboprop aircraft that are typically less expensive to operate than regional jets. Technological enhancements also appeal to passengers who can enjoy a better inflight experience thanks to improved comfort and lower cabin noise levels, and this means less noise in and around airports too.

Clearly, investment in developing new technologies represents a fundamental differentiator for European aeronautic manufacturers in order to maintain or even to increase their competitive advantage against non-European players. Over the coming years, Europe‘s technological leadership will gain an increasingly relevant role and will contribute to a substantial market-share increase in the regional aircraft segment with consequent job creation.

In a future characterised by extensive use of innovative technologies, regional aviation‘s potential market will increase to more than 10,000 units over the 2025-2050 timeframe, and the market-share of a new European regional turboprop program will rise to 30-40% - doubling what it is today.

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