Flawed policies will not achieve a turnaround in PIA

Published July 28, 2014
The current traffic rights policy must be rationalised to protect the national interests, says the former PIA Chief Operating Officer.—Dawn file photo
The current traffic rights policy must be rationalised to protect the national interests, says the former PIA Chief Operating Officer.—Dawn file photo

THE woes of Pakistan International Airlines are largely attributable to a lack of understanding of the intricacies of the aviation business at policy level. Ignorant of the real causes for the burgeoning losses of the airline, the government has no clue about how to arrest the accelerating slide.

There is not a single airline expert amongst all decision-makers who can provide the necessary input for developing a policy framework for the government. Expertise or experience in aviation is conspicuous by its absence in the Aviation Division and on the boards of the Civil Aviation Authority (CAA) and the PIA.

The cumulative losses of the airline for the last 10 years amount to Rs200bn. The current liabilities exceed current assets by Rs144bn, and according to external auditors, “these conditions indicate the existence of a material uncertainty that may cast doubts about the corporation’s ability to continue as a going concern.” The only saving grace has been the availability of sovereign guarantees, which stopped them short of qualifying their reports.


PIA’s fate was sealed in 1998 when the sacrosanct clause of ‘reciprocity’ in the Air Services Agreements with some countries was ignored without realising that this would portend disaster for the national airline


PIA’s fate was sealed in 1998 when, on the pretext of liberalisation, the sacrosanct clause of ‘reciprocity’ in the Air Services Agreements with some countries was ignored without realising that this would portend disaster for the airline in the coming years.

This liberalisation of traffic rights further whetted the appetite of Gulf airlines, which increased in number and expanded their network to carry Pakistani passengers to third countries by transiting at their home base, like a Gulf airline going from Pakistan to the UK. This practice — known as sixth freedom — snatched PIA’s viability on long-haul routes.

An estimated 1,500,000 passengers per year were diverted as sixth freedom passengers to foreign airlines. PIA’s market share on international routes crashed from 55pc to 27pc. The estimated market value of this traffic is Rs50bn annually.

The unlimited traffic rights is now a ‘fait accomplie’ and cannot be curbed as it could invite retaliatory measures in one form or another. And any measures taken within the ambit of the aviation policy, which exclusively favours PIA and other domestic airlines, will be discriminatory and against the spirit of the Air Services Agreements.

The situation cannot be remedied by conventional methods and requires out-of-the-box thinking and innovative strategies by professionals who possess an in-depth understanding of the aviation business, with specific reference to Pakistan’s bilateral issues and operating environment.

PIA has a large number of dedicated employees in all disciplines, but their talent needs to be harnessed through guidance by seasoned airline professionals. More importantly, the current traffic rights policy must be rationalised to protect the national interests.

While the reciprocity clause of the Air Services Agreement has become null and void with regards to Gulf and some other countries, the following options are available to the government:

  • Appoint hands-on senior airline executives to continue PIA’s internal improvements and restructuring programmes, while maintaining status quo for granting traffic-rights policy. But it would not help bring about a turnaround in the PIA, and would require up to $500m annually to cover losses and development.

  • Iinitiate talks with countries whose airlines carry the bulk of the sixth freedom traffic, to downsize their operations. However, this may result in resentment and retaliatory action in one form or another, and may be considered a discriminatory measure. It may take a long time to negotiate with the UAE and other Gulf countries, and may not produce any positive result.

  • By excluding option two, the government has to evolve an out-of-the-box innovative strategy. The policy to be framed should not discriminate against foreign airlines and also include PIA and private airlines

  • It should retain ‘reciprocity’ as the guiding principle, and should reflect liberalisation based on genuine third and fourth freedom traffic countries. The right of carrying passengers from the home country to another country is called third freedom and bringing them from another country to the home country is called fourth freedom

  • It should encourage airlines of EU countries with genuine third and fourth freedom traffic to resume their operations to Pakistan

  • Initiate measures to rid the travel-trade of malpractices, particularly those relating to illegal movement of passengers Apart from the complete restructuring of PIA, such a roadmap should be adopted.

The dichotomy of views amongst PIA, CAA and the ministry of aviation for granting rights to foreign airlines and discretionary powers of approving authorities have been the bane of domestic aviation. Instead of reversing these policies, successive governments have continued with discretionary powers for granting additional flights to foreign carriers, causing colossal damage to PIA’s viability. A bureaucratic approach will not achieve PIA’s survival even with a strategic partner.

Massive sixth freedom carriage by foreign airlines is our own doing and needs to be tackled innovatively by airline professionals.

The writer is a former Deputy Managing Director and Chief Operating Officer of PIA

Published in Dawn, Economic & Business, July 28th, 2014

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