PIA can take the Gulf carriers head on

Updated December 24, 2018

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The worst-affected markets for Pakistan International Airlines (PIA) are the United Kingdom and the United States mainly because of Emirates and, to some extent, other three major foreign airlines.

This is despite the fact that the existing bilateral air services agreement between Pakistan and the United Arab Emirates is more favourable to Pakistani airlines than the UAE ones. The agreement entitles Pakistani airlines to carry traffic on the Dubai-United Kingdom as well as Dubai-United States routes. These traffic rights are known as fifth-freedom traffic rights in terms of the Air Law.

It is perplexing to note that PIA never thought of exploiting these rather liberal traffic rights granted to Pakistani airlines by all three countries: United Arab Emirates, United Kingdom and United States. Instead, it has stopped its operations to the United States and left the field completely open to Emirates and other foreign airlines. Even on UK routes, it does not provide passengers with the choice of the daily direct (non-stop) service from Karachi, Lahore or Islamabad. It tends to combine passenger traffic from two Pakistani airports in order to fill up 360-400-seater aircraft before leaving for London or Manchester.

Passengers will always be ready to pay a premium for a direct service that can save them time

A lack of daily service does not suit businessmen. They need such a service from each of the three major Pakistani airports. Hence, almost all businessmen are compelled to travel one of the four sixth-freedom carriers — Emirates, Qatar Airways, Etihad Airways and Turkish Airlines — which provide a number of flights from each of these three airports.

A sixth-freedom carrier is an airline that picks up passengers from foreign countries — ie Pakistan — and carry them first to their own home airport, deplane them and make them go through a cumbersome rechecking procedure involving complete security and immigration checks before allowing them to board another aircraft to the desired destination — ie the United Kingdom or the United States.

The chances of missing the connecting flight due to a delayed arrival or a long waiting time before boarding the next scheduled flight are always there.

Passengers will always be ready to pay a premium for the direct service that can save them the time and inconvenience of rechecking at an intermediate airport. But unfortunately, PIA is unable to provide daily service to the United Kingdom or the United States from all major airports in Pakistan. This provides an opportunity to all four sixth-freedom carriers to plug in the gap.

In fact, Emirates provides six daily flights or 42 weekly flights between Karachi and Dubai. This is because of unlimited traffic rights available to it, albeit on a reciprocal basis, for the Dubai-Karachi route. These unlimited traffic rights, however, are not available to Emirates on other routes like Lahore and Islamabad where it can operate a maximum of 10 weekly flights.

PIA can beat Emirates and other sixth-freedom carriers on Pakistan-UK and Pakistan-US markets based on the following competitive advantages.

One, Pakistani ethnic traffic prefers to travel by PIA provided it can serve them on a daily basis at least to/from three major airports in Pakistan.

Two, PIA can fly first to Dubai instead of another Pakistani airport to fill up its wide-bodied aircraft to provide daily service to the United Kingdom from all three major airports. For example, on the Karachi-Dubai-London route, the aircraft can be filled up by Dubai-bound passengers as well as London-bound passengers. On the Dubai-London route, empty seats can be filled up by way of selling tickets up to 20 per cent cheaper than Emirates. That will still be higher than the marginal cost of filling up each empty seat.

Three, unlike Emirates, London-bound PIA passengers will not have to go through the cumbersome process of security and immigration checks at the Dubai airport before boarding again on another aircraft for onward journey. This will also eliminate the time spent waiting for the connecting flight or missing it altogether because of delayed arrival from Pakistan.

Four, on the basis of operating costs, PIA’s flights are about 20pc cheaper than its competitors because it does not pay route navigation and airport charges in Pakistan. In fact, it also withholds passenger fees payable to the Pakistan Civil Aviation Authority.

To compete with Emirates, PIA will need five additional wide-bodied aircraft in order to launch daily three flights — one each from Karachi, Lahore and Islamabad — to the United Kingdom via Dubai. Another daily flight to New York or any other suitable destination in the United States may be routed through Manchester rather than Dubai. A code share agreement with an American Airline, such as Jetblue etc, will help serve the entire US market.

A 250-seater Boeing 787-800 will be more suitable than the current fleet of larger B-777s. It has about 20pc better fuel economy than the aircraft it replaces. Being a relatively small aircraft, it will be easier to fill it up on a daily basis with passengers and belly cargo. In the beginning, PIA may wet-lease five aircraft for about a year or so before dry-leasing them. The dry lease cost of a B-787-800 is about half a million dollars per month per aircraft, which is far less than that of a B-777.

It costs about $100,000 for a return trip to the United Kingdom and twice as much to the United States. The annual budget of about Rs15 billion will, therefore, be required for the proposed operations to the United Kingdom and another Rs10bn for the United States. PIA can achieve the breakeven load factor with aggressive and innovative marketing for all the proposed flights.

Even a bit of a loss may be taken for this particular venture as it will help provide Pakistani ethnic traffic a choice of service it desperately wants. Such an initiative will certainly upset Emirates and other sixth-freedom carriers that have almost no competition at present from PIA in the UK-US market.

The writer has served as additional director at the Civil Aviation Authority and is an expert in airline economics
afsarmalik@yahoo.com

Published in Dawn, The Business and Finance Weekly, December 24th, 2018