Inside Financial Markets

PIA misses revenue target but chairman optimistic about Prospects

Pakistan International Airlines (PIA) has missed revenue target of Rs 54.77 billion budgeted for the first six months (Jan-July) of the current calendar year 2016 by a wide margin. The revenue is less by 6.4 percent as compared to Rs 46.15 billion during the same period of last year, top PIA officials revealed while briefing the Senate Special Committee on Performance of PIA. The officials termed the decrease in fares after decline in oil prices and a tough competition with other airlines behind the decreased revenue.

However, PIA slashed fares by 18-19 percent while other competitors by 30-35 percent, said officials when Parliamentarians raised questions and asked for comparisons. The committee met with Mushahid Ullah Khan in the chair here on Monday where questions were raised on the PIA’s financial matters, services, lack of professionals and directed the management to give due attention towards capacity building of its flight crew, ensuring improved facilities and services to passengers besides making the airline a strong competitor in the market.

The committee was further informed that cash support to PIAC from government of Pakistan during the period from June 2013 till 31st December, 2014 was Rs 20.6 billion. ECC in its meeting held on December 6, 2014 approved $52 million for induction of 15 aircraft into PIA’s fleet on dry lease basis. This amount would be injected as equity by the government of Pakistan. PIAC has already received the said amount from GoP. Further approval of GoP guarantees from June 2013 till date is Rs 28.8 billion against loans obtained by PIA.

PIA Chairman Azam Saigol while briefing the committee said the government had 91.7 percent shares in the airline, converted it into a company on April 19, 2016, which is being governed under the Companies Ordinance 1984. Public/others are 4.4 percent shareholder while PIA employees Empower Trust are 3.9 percent shareholder, according to him.

He apprised the body that the PIA fleet consisted of 38 aircraft including 11 A320 Airbuses, five A310 Airbuses, 11 Boeing 777, six ATR 42 and five ATR 72, adding that currently PIA’s permanent staff strength was 14,317. “Employees to per aircraft ratio is 376,” he added. Saigol said efforts were being made to further expand the fleet and hopefully it would reach the 42 figure during the current financial year and 60 by 2020. He said domestic market shares of PIA had increased from 42 percent to 65 percent from January to May during the last fiscal year.

Presently, he said, PIA flights are operating to 49 destinations, including 27 international and 22 domestic. “It has a market share of 24 percent in international and 47 in domestic air travel market during 2015 whereas for 2016, it has been projected at 27 percent and 68 percent, respectively,” he added.

The chairman said PIA was introducing its premium service brand titled “PIA Premier” aimed at restoring the confidence of passengers in the airline. Initially, he said, PIA launched the service with improved features and facilities at par with leading airlines to passengers on the London sector. The chairman said performance of the national flag-carrier is improving gradually, saying that now top leading companies are approaching PIA with offer to give top aircraft.

When the panel was informed that PIA is answerable to the Securities and Exchange Commission of Pakistan, Farhatullah Babar said parliamentarians have the right to exercise their oversight role as the public money is involved in PIA and “it is our responsibility.” He regretted that a foreigner has been appointed chief executive officers of PIA, which is tantamount to discouraging its senior management. The PIA management could not satisfy the committee members about financial matters of PIA.

Mushahid Ullah directed the PIA management to come with full preparations in the next meeting to respond to all queries of Senators. Answering a query of Mushahid Ullah said, the PIA authorities said that they have a plan to operate flights on new international routes including Barcelona, Milan and Bangkok besides increasing the number of flights to New York.

Senator Nauman Wazir directed PIA officials for an inquiry into the fire incident in engineering department. He said that PIA has been politicised which resulted in its deteriorating conditions. Senator Lieutenant General Abdul Qayyum (Retd.) said that Rs 20 million of medicines are being purchased from a specific medical store and directed for sharing details in next meeting.

PIA officials admitted that it is passing through a dire financial phase. However, the present government is very keen to make it self-reliant. Efforts are under way to improve the financial health of the Corporation by reducing its losses through various means and modes. A stringent action is being taken against corruption and mismanagement. Flight punctuality has increased to 85.6% during 2016. PIAC has recently signed agreements for acquisition of 20 x aircraft on dry lease ie 13 x A-320 and 05 x ATRs-72 prop-turbo, out of which II x A-320 and 05 x ATR-72 and 2 Boeing 777 have already joined PIAC’s fleet and the remaining two A-320 will join PIAC fleet very soon. The average age of fleet has also been reduced presently to 10 years which will further reduce to 8 years after grounding of above 20-year-old A-310s.

Additional flights have also been scheduled to increase international operation on viable routes. In this regard, PIA has started twice weekly flights between Dubai and Karachi, daily flights between Dubai and Lahore and Dubai-Islamabad and resumed flights between Dubai and Peshawar.

The airline has also been involved in taking various steps in cost reduction and productivity improvement. This includes re-negotiations on contracts, route rationalization, restructuring by discontinuing loss making routes. PIA has entered into the ‘Code Share’ agreement with Etihad Airlines which has helped in expanding its network. PIA is also in negotiations with other airlines for mutual co-operation which will certainly increase its customer base to a greater extent. Through ‘Code Share’, PIA and Etihad benefited with additional 2,000 passengers during the last two months (Jul-August 2015) and around 5,000 more reservations/bookings from September 2015 onwards, the officials briefed the committee.

Baqar Hussain

A Wannabe CFO, just had stepped in the corporate sector, willing to explore every aspect here and learn as mush as i can, awareness for those who dont, get the info where ever possible and stay up to date always.

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Inside Financial Markets was a joint publication of Pakistan Stock Exchange (PSX)and Society of Technical Analysts Pakistan (STAP)