Impact of Increase in Fares On Pakistan International AirlinePIA

IMPACTOFINCREASEINFARESONPIA
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KHADIMALISHAHBUKHARIINSTITUTEOFTECHNOLOGY (KASBIT) IMPACTOFINCREASEINFAIRSONFINANCIALHEALTHOFAIRLINEINDUSTRY ACASESTUDYOFPAKISTANINTERNATIONALAIRLINE AThesissubmittedtoDepartmentofFinance&Accounts FacultyofManagementSciences Inpartialfulfillmentoftherequirementsforthedegreeof MASTEROFBUSINESSADMINISTRATION (MBA) Supervisedby: MuhammadSarfrazMunir Submittedby: YasirHabib ID:4525 July,2011
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DEDICATION
Iamdedicatingthisresearchtomybelovedparentswhodidnotdeprivemefrombenefiting andhavingthelightofeducation. I would like to express my indebtedness to my parent for their intangible sacrifices and uninterruptedinspirationduringmyresearchwork.
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ACKNOWLEDGEMENT
I am gratified to ALLAH, the most beneficial, who gave me the strength and will to overcome the obstaclessurfacedduringthecompletionofthisthesis. Making a report of this stature could not be possible without the grace of ALLAH and continuous supportofmysupervisor. I feel exceptional warmth and gratitude in extending my appreciation for sincere and benevolent guidanceandpatronageofthereporttomySupervisorMuhammadSarfrazMunir.Itwasaprivilegeto haveanadvisorwhogavemethefreedomtoexploreonmyown.Hisguidanceateverystepofwriting couldnotletmystepsfaltered.Iamthankfultohimforholdingmetoahighresearchstandardwriting andforanalyzingandrectifyingmymistakescountlesstimes.AlsoforencouragingmetoohighwhenI consideredmyselftobeinvain. Last but not the least; I would render great thanks to all respondents and others who in one way or othercooperatedwithmeoverthecourseofmyresearch. BY YasirHabib IDNo.4525 DepartmentofFinance, FacultyofManagementSciences, KhadimAliShahBukhariInstituteofTechnology(KASBIT) Dated:25thJuly,2011
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ABSTRACT
The main idea behind this research is to analyze the impacts of the increase in fares on the financial performance of Pakistan International Airline. With the researcherwehavealsoconducttheanalysisthroughquestionnairewhichproves thatcustomershaveshiftedtowardstheotherairlinesandtravellingsourcesdue to increase in fares. This research also covers the difference aspects like history andthewayforwardplanofPakistanInternationalAirline.
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TableofContents
Dedication I Acknowledgement II Abstract III CHAPTER01 1 1. Introduction 1 1.1 ResearchObjectives 1 1.2 TopicIntroduction 1 1.3 InternationalOverview 2 1.4 ProblemDefinition 2 1.5 ScopeoftheStudy 2 1.6 Limitation 3 CHAPTER02 2. LiteratureReview 4 2.1 InterestRateAffectingAirlineIndustry 4 2.2 CurrencyAffectingAirlineIndustry 4 2.3 FuelPriceAffectingAirlineIndustry 5 2.4 HighOilPrices 5 CHAPTER03 3. CompanyProfile 7 3.1IntroductionofPIA 7 3.2HistoryofPIA 7 3.2.1 OrientAirwaysTakestotheSkies 7 8 3.2.2 ANewNationalFlagCarrier 3.2.3 PIAsFirstInternationalService 8 3.2.4 NewPlanes,NewDirections,NewManagement 8 3.2.5 HistoricFirstsandUnbrokenRecords 9 3.2.6 Style,GlamourandCharisma 10 3.2.7 SafetyManagementSystematPIA 10 3.2.8 ThePursuitofExcellencethroughTechnologyandQualityControl10 3.2.9 UsheringinaNewEraofGrowthandDevelopment 10
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3.3VisionMissionandValueofPIA 3.3.1 Vision 3.3.2 MissionStatement 3.3.3 Values 3.3.3.1 CustomerExperience 3.3.3.2 Services 3.3.3.3 Innovations 3.3.3.4 Reliability 3.3.3.5 Safety 3.3.3.6 Cohesiveness 3.4HierarchyofPIA 3.5NetworkofPIA 3.5.1 DomesticNetwork 3.5.2 InternationalNetwork 3.6Products&Services 3.6.1 Products 3.6.1.1 Boeing777 3.6.1.2 Boeing747 3.6.1.3 AirbusA310 3.6.1.4 Boeing737 3.6.2 Services 3.6.2.1 ATR42 3.6.2.2 BusinessClassServices 3.6.2.3 InFlightDinner 3.7ImpactofDifferenceFactorsonPIA 3.7.1 PoliticalFactors 3.7.2 EconomicalFactors 3.7.3 SocialFactors 3.7.4 TechnologicalFactors 3.8FinancialAnalysisofPakistanInternationalAirline 3.8.1 AviationIndustry rd 3.8.2 RecentResults3 Quarter2010
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12 12 12 12 12 12 12 12 13 13 13 14 14 15 16 16 16 16 16 16 17 17 17 17 17 17 18 18 19 20 20 21
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CHAPTER4 4
Methodology 4.1 ProblemDefinition 4.2 ProblemStatement 4.3 Hypothesis 4.4 Methodology 4.5 SampleDesign
23 23 24 25 26 27
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CHAPTER5 5 CHAPTER6 6 CHAPTER7 7 CHAPTER8 8
HypothesisTesting 5.1 Hypothesis 5.2 HypothesisNo.1 5.3 HypothesisNo.2 5.4 HypothesisNo.3 5.5 HypothesisNo.4 5.6 HypothesisNo.5
28 28 29 31 33 35 37
Conclusion
39
Recommendations
40
References
42
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1.1 ResearchObjectives:
Themainobjectiveofthisresearchistofindouttheimpactofincreaseinfaresontheonthe profitability of Pakistan International Airline. This report also investigates the performance of Pakistan International Airline in the last five years. In this report I tried to put my focus on differentfactorshavingimpactsonthefaresoftheairlineindustry. Ialsodiscussinaverydetailedmanneraboutthevolatilityinthepricesoffuelanditsimpact onairlineindustry.Itrytofindoutthathowtheprofitmarginofairlinecompaniesshiftsdueto changeinthepricesofoil.ThroughthisresearchItriedtoanalyzethemainreasonsbehindthe poor performance of Pakistan International Airline during the recent years and what are the necessarymeasuresneedtobetakentomakethatcompanyprofitable.
1.2 TopicIntroduction:
Airlinesarefacinggreatpressureontheirfinancialsduetothefollowingreasons; a. Strategic,financial,andoperationsriskhazards. b. Financialriskduetouncertaintyaboutfuture. c. GeneralEconomicConditionsandtheirimpactsontheprofitability. d. Specificchangesintheirrevenueduetochangeinoilprices. e. Interestratechangesandtheirimpactonborrowings. f. Currencydevaluationandtheirimpactontheoilbills. g. Fuelpriceshikeandtheirimpactsonthetotalcost. Due to the above factors and subsequently increase in the cost of travelling the airlines are under great pressure to surge the air fares which have negative impacts on their customers. Customersalwaysprefertheairlinesduetothefollowingreasons; a. CustomerServices b. Airlinescoverage c. Fares
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d. FlightSchedule
1.3
InternationalOverview
Airlines face substantial strategic, financial, and operational and hazard risks. Financial risks createuncertaintyaboutfuturecashflowsduetochangesingeneraleconomicconditionsand specificchangesinrevenues,operatingexpenditureandfinancingcosts.Managingexposureto key financial risks is an integral part of the corporate finance function. This paper studies exposure to three major financial risks confronting the airline industry in Australia and New Zealand.Itanalysestheinterestrate,currencyandfuelpriceriskexposuresforQantasandAir New Zealand, which are the dominant airlines in Australia and New Zealand, respectively. Considerable volatility and a variety of trends occurred in interest rates, currency values and the fuel price throughout the period studied. This suggests that there were potentially large gains to be derived from managing these riskseffectively. Important financial risks facing the airline industry include interestrate, currency and fuelprice risk. This paper estimates the exposuretotheseriskswithintheairlineindustryofPakistanInternationalAirline,usingboth linearandnonlinearspecifications,foravarietyofhorizonlengths. During the past few years the general discourses in science and mass media have begun to considertheglobalclimatechangeassomethingtobeaverted.Thefutureofoilasafossilfuel hasalsobeenunderdiversedebatebutnottothesameextent.Inthepasttheenergyprices wereconsidered to be relatively predictable and most importantly manageable asa cost and resource,buttherecentpricevolatility,theglobalclimatechangeandthegeopoliticalconflicts havechallengedthisassumptionradically.Furthermore,intheendof2009,theInternational EnergyAgencyannouncedthattheworldwillmeetthepeakingoftheoilproductioninaround 2030. Some authors even predict that this peak oil will lead to oil prices that will ruin the wholeglobaleconomy.Theeventsofthepastdecade,however,seemtocallintoquestionthe relevance of oil price changes as a significant source of economic fluctuations. The reason: Sincethelate1990s,theglobaleconomyhasexperiencedtwooilshocksofsignandmagnitude comparable to those of the 1970s but, in contrast with the latter episodes, GDP growth and inflationhaveremainedrelativelystableinmuchoftheindustrializedworld.
1.4ProblemDefinition:
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What are the impacts of the increase in fares on the profitability of Pakistan International Airline?
1.5 Scopeofthestudy:
The main idea behind this research is to investigate the impact of difference economical and financial factors due to which fares are being increased by the Pakistan International Airline. These factors will be discussed in details and try to find out the reasons behind them. The researcher will also analyze the impacts of increase in cost on the profitability of the airline. Further to this the researcher will also evaluate the problems faced by the Pakistan InternationalAirlineinthepastfewyearsandalsorevealsomesuggestionsthatwhatcanbe donetomakethatcompanycosteffectiveandprofitable.
1.6Limitations:
TherearesomanylimitationsandhurdlesthatIfoundinthatresearch.Firstofalltheproblem that I faced in that research was to find out easily the relevant researches according to my topic. One of the biggest hurdles that made my report limited is the restriction of sample data. I considered only those individuals in the sample space that either working in PIA or used to travel only from PIA and those individuals who used to travel from other Airlines was not consideredinthesampledata. Then another difficulty was to get the appointment from correct respondent as it was a bit difficulttasktogetappointmentfromeachrespondent.Onceyougetappointmentthennext hurdlewastopersuadethemtofilloutyourquestionnaireastheyshowedsomanyconcerns regardingfillingoutthequestionnaire. Timelimitwasanotherseriousissue,astocollectthedataIhadtovisitthreecitiesofPakistan with in limited time as well as the appointment that I got from respective respondent was clashingwiththeappointmentfromanotherrespondent. AnothermajorproblemwastocollecttherelevantfinancialdataofPIA,requiredformyreport. AssuchsortofdataisveryconfidentialandBankshesitateinprovidingsuchinformations.
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LITERATUREREVIEW
2.1 Interest Rate Affecting Airline Industry:
Interest rate risk is especially important to airlines given their substantial use of debt finance. High leverage ratios are prevalent in the airline industry due to its capital intensive nature and the relatively high cost of equity. Equity can be more difficult to attract because of high earnings volatility, as reflected in the lower than average price earnings ratios typically found in the airline sector. Borrowing costs are directly related to interest rate changes. Moreover there are significant indirect costs associated with higher yields. Bartram (2002) emphasizes the impact of interest rates on general economic conditions and the progression of the business cycle, with its consequential effect on consumer demand. This is especially pertinent for industries such as airlines, where demand is cyclical and contains a large discretionary component. Carter, Rogers and Simkins (2002) consider the underinvestment problem due to expected distress costs. Higher interest rates increase expected costs of distress and this is particularly so for the airline industry where leverage is high and distress costs are substantial. Since both direct and indirect costs of borrowing move in the same direction as interest rates, returns should be negatively related to interest rates. It is therefore expected that interest rate exposure coefficients will be negative. 2.2 Currency Affecting Airline Industry:
Management of exchange rate risk is important since airline profitability is related to currency values for a number of reasons. First, revenues and expenses are denominated in several currencies. Second, borrowings often are denominated in several different currencies. Third, tourism demand, both inbound and outbound, is influenced by exchange rate levels. Shapiro (1975), Marston (2001), Williamson (2001), Allayannis and Ihrig (2001), Bodnar, Dumas and Marston (2002), contribute to a large literature that analyses the theoretical determinants of YasirHabibID#4525
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exchange rate exposure, under a variety of industry structures. These papers show that exposure is related to: 1. The mix between domestic and foreign sales revenue. 2. The intensity of domestic and international competition. 3. The extent to which domestic and foreign inputs to production are substitutable. The exposure determinant literature emphasizes that the nature of the competitive structure of the firms industry plays a crucial role. Industry related factors such as markup and pass-through strongly influence exposure levels. Markup is the price over cost margin, while pass-through refers to a firm adjusting its foreign currency price levels to offset the impact of exchange rates changes. Exposure is lower for more highly concentrated industries, since markups are higher. Exposure and pass-through are related to product substitutability and market share. Appreciation [depreciation] of the domestic currency reduces [increases] the borrowing cost of foreign-denominated debt and other foreign sourced costs. This suggests a positive relation. However, the effect of currency movements on revenue is ambiguous. Foreign demand for international and domestic flights moves inversely with the value of the home currency.
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2.3
Fuel-Price Affecting Airline Industry
Fuel price risk management matters since jet fuel costs comprise a significant component of airline operating costs. Carter, Rogers and Simkins (2002) argue that airlines also face an underinvestment problem whenever profitable investment opportunities arise during times of high jet fuel costs. Short term cash flows are likely to be directly related to changes in the fuel price due to price change inertia. Revenue responsiveness may initially be slow due to advance sales, pre-committed advertised package fares, etc. In the longer term, much of the price effects are likely to be passed on as all airlines face similar fuel costs. The adjustment will not be complete, however, to the extent that total industry demand is affected. In the medium term, the impact of fuel price exposure is likely to be more firm specific and reflect varying degrees of competitive power and/or fuel efficiency across different airlines. Carter, Rogers and Simkins (2002) provide evidence that airline cash flows and stock returns are negatively correlated with fuel price changes. Airline profitability is reduced by the direct and indirect costs associated with the fuel price. Since competition prevents an airline from perfectly undoing the impact of changes in fuel prices by adjusting its fare schedule or seat capacity, the fuel price exposure coefficient is predicted to be negative. 2.4 High Oil Prices
This study focuses on the effects of high oil prices on multinational enterprises (MNEs). As the global climate change has made energy related issues popular, it has also stimulated the debate over the peaking of oil production and the future of oil based economy. There is a lot of speculation over these topics as nobody knows the exact situation of the remaining oil reserves. High oil price, which is usually a result from tight oil supply, can affect negatively to the whole global economy. Thus it is important and interesting to assess how the high oil prices can affect the globally acting multinational enterprises. During the past few years the general discourses in science and mass media have begun to consider the global climate change as something to be averted. The future of oil as a fossil fuel has also been under diverse debate but not to the same extent. In the past the energy prices were considered to be relatively predictable and most importantly manageable as a cost and resource, but the recent price volatility, the global climate change and the geopolitical conflicts have challenged this assumption radically. Furthermore, in the end of 2009, the International Energy Agency announced that the world will meet the peaking of the oil production in around 2030. Some authors even predict that this peak oil will lead to oil prices that will ruin the whole global economy. The oil prices breached the $150 barrel price on the 2nd quarter of 2008. At the time of writing, it has been since declined back to under $100 and now, during a global recession, floats at around 80$. In the price level of $150 the general economy begun to react but those companies that are pursuing international business generally felt the soaring oil prices in the operations. In the management barometer published by Price Water House Coopers (2005), North American multinational enterprises recognized energy prices as the number one hindrance for new investments in the 3rd quarter of 2005. At that time, the nominal price of an oil barrel was around $50. In the 2nd quarter of 2008on the verge of the gloomiest chapter of YasirHabibID#4525
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the global credit crunchoil prices were well beyond $100. When riffling through the annual reports of MNEs it can be seen that environmental matters such as proper treatment of effluents, office recycling, origins of raw material and emission control have been somewhat a must for multinationals for some time now, but these issues seldom derive from a direct attempt to make operations more economically competitive, although the environmental driven actions tend to often lead to similar results (Porter & van der Linde, 1995). The future of the oil aspect is important to be discussed because at least at the moment it has been underweighted due to global climate changealthough it links strongly to the phenomenon and the mitigation of itand the still ongoing financial recession. The future of oil defines also the future of our globalize economy and the effects will somehow affect all of us. The decade of 2010s is predicted to be the decade of scarcity when it comes to resources (Evans, Jones & Steven, 2010), and companies need to acknowledge this in their strategies.

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3.1IntroductionofPIA:
Pakistan International Airlines Corporation is a Pakistanbased company that is principally engaged in the provision of air transport services. Other activities of the Company include provision of engineering and other allied services. The Company operates in two business segments:airlinesoperationandhoteloperation.Theairlinesoperationsegmentprovidesair transport and other allied services. Hotel operation segment provides accommodation and relatedservicesinPakistan,UnitedStatesandEurope.ItswhollyownedsubsidiariesincludeSky rooms (Private) Limited and Midway House (Private) Limited. Pakistan International Airlines Corporationhasa99%interestinPIAInvestmentsLimited.
3.2HistoryofPIA:
Air transport has probably never been more important to the development of a new nation thaninthecaseofPakistan.InJune1946,whenPakistanwasstillintheoffing,Mr.Mohammad Ali Jinnah, the Founder of the upcoming nation, instructed Mr. M.A. Ispahani, a leading industrialist, to set up a national airline, on a priority basis. With his singular vision and foresight,Mr.JinnahrealizedthatwiththeformationofthetwowingsofPakistan,separated by1100miles,aswiftandefficientmodeoftransportwasimperative. 3.2.1OrientAirwaysTakestotheSkies: On23rdOctober1946,anewairlinewasborn.Initiallyregisteredasapilotprojectin Calcutta,OrientAirwaysLtd.hadatitshelmMr.M.A.IspahaniasChairmanandAirvice Marshal O.K. Carter as General Manager. The new carrier's base remained in Calcutta and an operating license was obtained in May 1947. Four Douglas DC3s were purchased from Tempo of Texas in February 1947 and operations commenced on 4th June1947.ThedesignatedrouteforOrientAirwayswasCalcuttaAkyabRangoon,which also happened to be the first postwar international sector to be flown by an airline registered in India. Within two months of Orient Airways' operational beginnings,
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Pakistanwasborn.Thebirthofanewnationgeneratedoneofthelargesttransfersof populationinthehistoryofmankind. OrientAirways,alongwiththehelpofBOACaircraftwhichhadbeencharteredbythe GovernmentofPakistan,startedreliefoperationsandtransportationofpeoplebetween DelhiandKarachi,thetwocapitals.Subsequently,OrientAirwaystransferreditsbaseto PakistanandestablishedavitallinkbetweenKarachiandDacca,thetwocapitalsofthe twowingsofPakistan.WithaskeletonfleetofjusttwoDC3s,threecrewmembers,and twelve mechanics, Orient Airways launched its scheduled operations in a fairytale manner. The initial routes were KarachiLahorePeshawar, KarachiQuettaLahore and KarachiDelhiCalcuttaDacca.Bytheendof1949,OrientAirwayshadacquired10DC3s and 3 Conveyor 240s which were operated on these routes. In 1950, it had become increasinglyapparentthatadditionalcapacitywouldhavetobeinductedtocatertothe growingneedsofthesubcontinent. 3.2.2ANewNationalFlagCarrierforPakistan: Orient Airways was a privately owned company, with limited capital and resources. It could not be expected to grow and expand independently. It was then that the Government of Pakistan decided to form a stateowned airline and invited Orient Airways to merge with it. The outcome of the merger was the birth of a new airline, throughPIACOrdinance1955onJanuary10,1955. In addition to transport activities, Orient Airways had established the nucleus of overhaul and maintenance facilities and acquired trained pilots, engineers and technicians, measures which proved to be a great asset for PIA during its teething phase. 3.2.3PIAsFirstInternationalService: The year 1955 also marked the inauguration of the fledgling airline's first scheduled internationalservicetotheglittering,glitzycapitalcityofLondon,viaCairoandRome. Initially, there was much criticism, as the public could not comprehend or justify the needtooperateaninternationalroutewhen,intheiropinion,otherprojectsvitalfora developingcountryshouldhavebeengivenahigherpriority.However,PIA'sfocuswas, and continues to be, to serve the Pakistani community at large. The provision of transportationtoexpatriateshasremainedoneoftheforemostprioritiesofthenational airline. Moreover, PIA earned substantial foreign exchange through international services,whichitinvestedinthepurchaseofaircraftandspareparts,asfleetexpansion wasagravenecessityfortheairline.

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3.2.4NewPlanes,NewDirections,NewManagement: In1956,orderswereplacedfortwoSuperConstellationsandfiveViscountswhichwere tobedeliveredin1959.Atthisjuncture,PIApossessedasmallfleetwhichcomprisedof Conveyers,Viscounts,SuperConstellationsandDC3s.WhileMr.M.A.Ispahaniwasthe firstChairmanofthenewdynamicairline;itwasthefirstManagingDirectorofPIA,Mr. ZafarulAhsan,whoinhis4yeartenuregottheballtrulyrollingandsettheshapeof thingstocome.ThePIAHeadOfficebuildingatKarachiAirport,whichhousestheentire major departments of the airline,was the brainchild of Mr. ZafarulAhsan. In fact, on hisdeparturefromtheairline,theemployeespresentedhimwithasilverreplicaofthe buildingwiththecaption,"THEHOUSEYOUBUILT". In 1959, the Government of Pakistan appointed Air Commodore Nur Khan as the ManagingDirectorofPIA.Withhisvisionaryleadership,PIA'tookoff'andwithinashort spanof6years,gainedthestatureandstatusofoneoftheworld'sfrontlinecarriers.In aviationcircles,thisperiodhasoftenbeenreferredtoasthe"GOLDEN YEARS OF PAKISTAN INTERNATIONAL AIRLINE". Development, expansion, and growth were keywords that the newmanagementwascommittedto.InMarch1960,PIAlauncheditsfirstBoeing707 jetserviceontheLondonKarachiDacca,routewhichlaterprovedtobeverysuccessful. This trailblazing accomplishment resulted in PIA becoming the first Asian Airline to operate a jet aircraft, setting trends for the future. In 1961, the airline took on the mammoth task of initiating a crossAtlantic service from Karachi to New York. By this time,PIAhadplacedordersformorenewaircraft,whichincludedFokkerF27s,Boeing 720BsandSikorskyhelicopters. Helicopter services in East Pakistan had gained momentum by 1962 and expanded to includeSylhet,Chittagong,Dacca,CamillaandIshurdi.PIA'shelicopterservicescarried over70,000passengersduringthefirstyearofoperation.Atthetime,itwasregarded as a stellar operation, equal to any other in the world. Unfortunately, due to two mishaps,theservicewasdiscontinuedin1966. 3.2.5HistoricFirstsandUnbrokenRecords: In1962,findingtheupperwindsforecastfavorable,PIAsetouttobreaktherecordfor thefastestflightbetweenLondonandKarachi.WithrepresentativesofFAI(Federation AeronautiqueInternational)onboardtomonitortheofficialtimings,PIAcompletedthe flightin6hours,43minutes,51seconds,arecordwhichremainsunbrokentothisday. In1964,PIAachievedanotherhistoricfirst,regardedamajormilestonesinthehistory of the airline. On 29th April, 1964, with a Boeing 720B, PIA earned the distinction of

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becoming the first airline from a noncommunist country to fly into the Peoples RepublicofChina.PIA'sfirstservicetoChinawasfromKarachitoShanghaiviaCanton. In196465,PIAexpandeditsfleetfurtherwiththeadditionofafourthBoeing720Band two Fokker F27s. Serious development had become a reality and the PIA team continuedtomoveaheadwithambitiousplansandgoalsforthenationalflagcarrier.A collectiveprideandjoyousbuoyancywaspervasivewithinthePIAfamily.Ridinghighon thecrestofsuccess,PIAbecameahouseholdnameinPakistaninthemidsixties.The warbetweenIndiaandPakistan,during1965,furthertestedthenationalairline.PIA Played a major role in providing logistical support to the Armed Forces by operating special flights using Boeings, Super Constellations, and Viscounts. The Founder of the Nation,Mr.JinnahhadpredictedthatthePakistanAirforcewouldneedthesupportofa civil airline in special circumstances, and this came into evidence during the war. In 1966, a system of feeder services linking eight new points in West Pakistan was introduced.Bythistime,theairline'sViscountswereprovinginadequateowingtotraffic growth,andhadtobereplacedbyTridents.Theairlinecontinuedupthegrowthcurve, receivingtwoFokkerF27s,twoBoeing707sandoneTridentinthefollowingyear. 3.2.6Style,Glamour,andCharisma: Aroundthistime,theairlinesawachangeinthetopslot.AirviceMarshal,AsgharKhan tookoverthereinsofPIAforatenureof3years.Anumberofhighpointsareattributed tothisperiod.Themostcolorful,ifnotthemostsignificant,occurrenceforPIAwasthe introductionofanewairhostesses'uniformdesignedbynoneotherthantherenowned Frenchdesigner,PierreCardin.Takingtheaviationworldbystorm,thismovewasmore than any other single factor, imprinted PIA's name on the international market. The uniformswereaninstanthit,bothathomeandabroad. 3.2.7SafetyManagementSystematPIA: PIAisthefirstairlinetogetcertified(initialcertification)onSafetyManagementSystem (SMS)byCivilAviationAuthorityCAAPakistan.CAAAirNavigationOrder(ANO91.0032 issued in September 2008) binds all airlines operating in Pakistan to have SMS. Well before the issuance of this ANO, PIA initiated SMS awareness and implementation in July2008.PIAawardedinitialcertificationonSMSin27thFebruary2009byCAA. 3.2.8ThePursuitofExcellencethroughTechnologyandQualityControl:

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Notcontentwithanumberofhistoricfirstsunderitsbelt,PIAmadehistoryyetagain, by installing Pakistan's first computer, IBM1401, in 1967. PIA's first Engine Overhaul Shop, located near the Head Office building, was also completed and commissioned around this time. The Ground Training School (GTS) now known as the PIA Training Centre was first conceived and developed during 196162. Interestingly, training was initially imparted in the Tshaped building which has now become the PIA Dispensary, closetotheHeadOfficebuilding. Besidesvisibledevelopmentandgrowthintrafficandrevenuesinthesixties,PIAadded additional destinations, new equipment, and cuttingedge technology to support its ever expanding operations. A new Jet Hangar for Boeings with a supporting airframe overhaul shop was completed and commissioned in 1968. In 1970, PIA set up its own Flight Kitchen in Karachi, which caters, even today, to the national airline as well as othercarriers.Overtheyears,withtheairline'sexpansionandincreasedcapacity,the needforasecondFlightKitchenbecameimperative. 3.2.9UsheringInaNewEraofGrowthandDevelopment: PIA heralded the nineties by donning a bright new corporate identity. Oldtimers may remembertheflutterthattheearliergreenandgoldliveryhadcreatedwhenitwasfirst introduced in 1974. However, in keeping with the changing times, PIA introduced a smart,sporty90'slook.ThefamiliarPIAgreenwasreinforcedwithmossgreenandpale bluestripeswereincorporatedintothenewcorporateidentity.Thestripes,auniversal symbolofsport,highlightedPIA'sactiveparticipationandsponsorshipofadiverserange ofnationalgames.PIA'splayershavealwaysbeenattheforefrontofPakistaniCricket, Hockey,Squash,Football,Chess,Bridge,PoloandTableTennisteams.Theninetiesalso saw the expansion of PIA's massive Hajj and Umrah operations to Pakistan's smaller cities, in addition to the major cities of Islamabad, Peshawar, Lahore, Quetta and Karachi. PIA's growth continues unabated and the airline now operates globally, covering the entire domestic landscape and international destinations spread over 4 continents.
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3.3Vision,MissionandValuesofPIA:
3.3.1Vision: Tobeaworldclassairlineexceedingcustomerexpectationsthroughdedicated employees Committedtoexcellence 3.3.2MissionStatement: As a Symbol of National Pride, We Aspire to be a Choice Airline, Operating ProfitablyonModernCommercialconceptsandCapableofCompetingwiththe BestintheInternationalaswellasDomesticmarkets. 3.3.3Values: 3.3.3.1CustomerExpectations: PIAisthemosttrustednameintheindustry.Thereasonofitsgoodwillis accordingtheexpectationoftheircustomersthatPIAhasfulfilledalways. Byprovidingcompetitivetariff,extensivecare,andconveniencetotheir valuedandpotentialcustomers. 3.3.3.2Service: PIAaimsatprovidingvaluableanduniqueservicestoitscustomers.They aremorepersonalizedandcourteoustotheircustomers.Theservicesare valuableandrare;thisisthereasonwhycustomerstrustPIA. 3.3.3.3Innovation: PIA currently has a number of 43 fleets and aims at increasing this numbers to 53 by the next few years.PIA is adoptive to changes and believeininnovationthatscreatenewideasandtranslatingtheseideas intoaction. 3.3.3.4Reliability:

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PIA is the most experience airline with its service with more than 53 years. This has built in PIA has become the most reliable airline. PIA is knownforitsloyaltyandconsistency. 3.3.3.5Safety: The most challenging responsibility of any organization is to provide complete satisfaction to its employees and customers together. This satisfactionrewardsfavorableandeasyworkingconditions.Theinflight servicesarecustomersfriendlyandtheorganizationaltheorganizational environmentisalsoemployeesoriented. 3.3.3.6Cohesiveness: PIAhas12departmentsworkingintheirowndirectionandalsoprovides anumberofservicesincludingspeedexcourierservice,cateringetc.The mostimpressivepartisthesealldepartmentandservicesareintegrated inacohesiveway.
3.4HierarchyofPIA:
Thisorganizationisdividedintofollowingdepartments: HumanResourceandAdministration, Marketing, CorporatePlanning, InformationServices, Finance, FlightServices, FlightOperation, Engineering,ProcurementandLogistics, CustomerServices, TrainingandDevelopment, QualityAssurance. The organ gram of the organization follows, with the Chairman at the top and directors of departments reporting to him. The structure is centralized with the toplevel management makingthedecisions.

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3.5NetworkofPIA:
3.5.1DomesticNetwork:
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3.5.2InternationalNetwork:
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3.6ProductsandServicesofferedbyPIA: 3.6.1Products:
PIA'sfleetofmodernaircraftisspacious,comfortable,anddesignedtogetyoutoyour destinationsafely.PIAoperatesarangeofadvancedaircraft,rangingfromtheworld's preferredBoeing777airplanetothesuperquietAirbusA310. 3.6.1.1Boeing777: The Boeing 777 family comprises of longrange, widebody twinengine airplanes. PIA was the first airline in the world to operate all the three variantsofthe777family:777200LR,777200ERand777300ER,allof themiswelllovedbyPIA'sseasonedtravelersfortheirspaciousnessand comfort. PIA also holds the privilege of being the launch customer for 777200LR, one of PIAs aircraft holds the record for the longest commercial jet flight in aviation history. At present PIA is serving destinationsinUSA,Canada,UKandEuropethroughits777fleet. 3.6.1.2Boeing747: TheBoeing747,oftenreferredtoasJumboJet,isamongsttheworld's mosticonicandrecognizablejetairplanes.This4enginelonghaulwide bodyairplanehasatwodeckconfiguration.PIAoperatestwovariantsof 747familieswhichincludes747300and747200Combi.747Combiisso calledasithasmixedpaxandcargoconfigurationonthemaindeck.At presentduetoitscapacity,747300fleetismostlydeployedtocaterhigh density requirements like carrying intending pilgrims to and from Saudi Arabia. 3.6.1.3AirbusA310: TheAirbusA310isamediumtolongrangewidebodyairplaneproviding a spacious interior to its travelers. PIA has deployed the A310300 fleet onFarEast,RegionalaswellasDomesticroutes. 3.6.1.4Boeing737:
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TheBoeing737isoneoftheworld'sfavoritenarrowbodyshort/medium hauljetairplane.Amongstitsmanycredits,ithasthedistinctionofbeing the most ordered and produced commercial airplane of all time and Boeing continues to manufacture its variants, to date. PIAs 737300 aircraftmostlyserveitsdomesticandregionalroutes.
3.6.2Services:
3.6.2.1ATR42: ThismoderntechnologyturbopropisthelatesttypeinductedinPIAsfleet.PIAs fleetofsevenATR42500aircraftisconfiguredincomfortabletwoclassseating arrangement. This aircraft has enabled the airline to provide its valued customersthemostconvenientwaytoflytofarflingdestinationsofthecountry. 3.6.2.2BusinessClassServices: PIAsBusinessPlusclassoffersarangeofexclusiveservices,fromthetimeyou leave your home till you land at your destination. Its the only Business Class servicethatfeelslikeFirstClass 3.6.2.3InflightDining: Whether you are traveling within Pakistan or around the world, PIA's inflight diningmenuissuretotantalizeyourtastebuds.EnjoythebestofwhatPakistan hastooffer,aswellasadelectableselectionofinternationalcuisine. 3.6.2.4InflightEntertainment: AboardaPIAflight,thereissomuchtodothatyoureallywon'tfeellikelanding. Movies, Music, Games, DutyFree Shopping, Tourist Information, Maps, and RealTimeFlightInformationwillkeepyouentertainedforhours.
3.7ImpactofDifferentFactorsonPIA:
3.7.1PoliticalFactors: Politicalfactorsalwayshaveagreatinfluenceonthewaybusinessesoperatein theairlineindustryandthespendingpowerofcustomers.Inrecentyearsithas
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beenobservedthatgovernmentplayedanactiveroleinincreasingcompetition intheairlineindustry.AnumberofnewairlinessuchasAirBlueandJSAirhave been awarded licenses to enter the domestic market. Pakistan has achieved some political stability in recent years. If the management of PIA believes that thepresentgovernmentwillperformwell(consistently),thentherewillbemore investmentintheformofpurchaseofnewairplanesandlatesttechnology.The overall industry will grow resulting in more luxurious and comfortable flights. Withthemilitarytakeovergovernmentpolicieshavebecomemoreliberal. 3.7.2EconomicalFactors: Currently, Airlines industry has three major players: Pakistan International Airlines,anAirBlue,AeroAsiaandShaheenAirlines.Theirtargetmarketincludes domestictravelersaswellasPakistanislivingabroadparticularlyintheUKand USA. These countries have strong economies coupled with high purchasing power. Customers purchase behavior depends very much on prices of the competing airlines as well as services offered. As inflation rate is unstable in Pakistan, spending power of consumers has effected in the long term. In fact growthinPakistanieconomyhasresultedinanincreaseinspendingpowerand has positively impacted the airline industry. Economically, the new millennium has been highly volatile; the September 11 attacks revolutionized the whole world.Consequently,therewasaglobaldepressionintheNorthAmerica,South America,AustraliaandEurope.However,inAsiaespeciallyPakistantheeffectin theshorttermwasotherwise.Theeconomybegantoboombecauseofgreater remittancesfromabroadandwholesumimmigrationbyexpatriates.Asaresult, demandforairtravelinSouthAsiarose. Economic conditions of Pakistan are however improving. PIA has cost a advantage over its competitors because of its newly acquired, improved, long distanceaircraftsfromBoeingwhichgivelongerrangeandbetterfueleconomy thananyotherjetcurrentlyproduced.Thiscostadvantageisabarriertoentry fornewfirms.However,thiscostadvantagewillnotbesignificantondomestic routes. 3.7.3SocialFactors: Thesocialaridculturalinfluencesonbusinessvaryfromcountrytocountry.The social structure of Pakistan is closely tied. The trend is now changing as the general public is educated and is pursuing professional goals. Customers are

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more aware of market conditions and available options and want to get best value for their money. They spend considerable time and money on entertainment hence increasing the need of inflight entertainment systems. Also, word of mouth has a significant impact in the use of airline services. Hajj attracts a huge number of customers. The social environment of Pakistan is turning liberal with the new regime. The initiative to automate checkin and ticketbookingprocessmightnotbeverypopularwiththegeneralpublic(even educated population) is still technology averse. Eticketing might also face significantchallengesasconsumersaregenerallyreluctanttoprovidetheircredit cards information over the phone and the internet. The consumers, however, haveawarmreactiontotheprospectoflesscostlybutqualityserviceflights. 3.7.4TechnologicalFactors: Technologyisvitalforcompetitiveadvantageandisamajordriveroftheairlines Industry. Major technological changes are taking place in the airlines industry with innovations in the reservations and booking systems. Inflight entertainment systems and auto check in counters are two examples of such innovations. Internet plays a key role in eticketing as consumer can easily reserveticketsorcheckthestatusoftheflight.Akeyissuewillbetheextent,to which technological advancements (such as Internet) impact distribution and costsynergiesfromindustryconsolidation,canoffsetupwardpressuresoncosts. PIA has always led the path of technological innovations by introducing new technologies ahead of its competitors such as its auto checkin counters which hashelpeditgainmarketshare.ItwasthefirstairlineinPakistantoinstallSabre systemfollowedbythemarketleader.
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3.8 FINANCIALANALYSISOFPAKISTANINTERNATIONALAIRLINE
International Airlines (PIA), Pakistans national flagship airline, has been a pioneer since its
inceptionin1955.PIAprovidesairtransportservices.Otheractivitiesofthecompanyinclude provisionofengineeringandotheralliedservices.PIACargo,thecompanysairfreightdivision, deliverscargoshipmentstoover38internationaldestinationsandservestherestoftheworld through interline carriage, in addition to its domestic network in Pakistan. Its flagship courier service,Speedex,deliversdocumentsandparcelsofanysize,tothedoorstepofitscustomers. PIA Engineering is an established aircraft maintenance and repair company that provides solutions to the aviation industry. PIA Engineering delivers maintenance and overhauling servicesforcustomers,aswellasPIAsfleetofaircraft. ============================================================================== COMPANYSNAPSHOT ============================================================================== NameofCompanyPakistanInternationalAirlines ============================================================================== NatureofBusinessAirlineservice TickerPIAC NetRevenueCY08Rs89,201,257,000 NetRevenueCY09Rs94,653,765,000 Shareprice(avg.)Rs3.4 MarketCapitalizationRs5,903,033,000 ============================================================================== 3.8.1 AviationIndustry Pakistan aviation industry has been suffering from a dearth of revenue and travellers dues to a number of reasons. These reasons include absence of a comprehensive aviation policy, economic slowdown, increased POL prices, worsening law and order situation, energy and power crises, a notsostable currency,financialandadministrativeissuesanddeteriorationofsecurityacross thecountry.Moreover,theratioofissuingvisastoPakistanisbytheFirstWorld hadalsodecreasedalarminglyduetosecurityconcerns.Also,poorlawandorder situation has made Pakistan an unfavourable destination, which has impacted

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thenonPakistanitravellernumber.Theseconditionshaveadverselyaffectedthe international business.In 2009, passenger and cargo yields plummeted by 12% and 16% respectively. During 2009, passenger traffic shrunk by 3.4% globally. Industry Revenue Passenger Kilometres (RPKs) and Revenue Freight Tonne Kilometres (RFTKs) growths have been negative at 3.5% and 10.1% respectively.OutgoingwasyetanotheryearofsharpswingsinOilprices.Prices for a barrel (bbl) of IPE Brent ranged from around USD 40/bbl (in February) to USD80/bbl(inOctober)lastyear.TheaveragepricewasaroundUSD62.53/bbl, 36% lower than the previous year. Over the remainder of 2009, the crude oil price rose sharply. This trend was driven by positive expectations for the economy and speculation of a similar magnitude to that seen in 2008.Last quarter of 2009 showed consistent signs of improvement in the air freight business.Volumesandyieldsarenowmovingintherightdirectionupwards although there is still a long way to go before early 2008 levels are regained. Several years of growth have been lost in this extra ordinary downturn. Moreover, revival in the economic growth is very uneven with a strong rebound in Asia and parts of South America but weak growth in developed marketsandisexpectedtoremainthatwayforsometime.Butworldtradeis nowpickingupaddingtotheimpetusgiventoairfreightbytheinventorycycle andmodeswitching.Yieldsarestartingtoturnup,asloadfactorsrecover,but low aircraft utilization and scheduled delivers imply that capacity remains a threattorestoringprofitability. 3.8.2 RecentResults(3Q10) Net loss for the period stood at Rs 11.7 billion compared to Rs 10.7 billion, an increase of 8% over corresponding period last year. The increase is mainly attributabletoahighertaxbill.LosspersharestoodatRs4.79comparedtoa loss of Rs 5.03 last year. Operational losses decreased by 8% over the nine month period. This improvement was mostly due to a 16% increase in net revenueanda60%decreaseinexchangeloss.Somegainswereoffsetbyarise of 51% in fuel expenses and 14.6% in salaries of employees (two biggest expenses). Oil prices during the ninemonth period were volatile, starting the year 2010 at US $ 76.01/barrel and reaching US $80.01 in October 2010.The company currently has 450 employees per aircraft, which is the highest in the world. This is in contrast to the world average of 130 employees per aircraft. Recently, the management has announced new programmes for its employees including a housing scheme and employee stock ownership programme.Gross profit margin and net profit margin for the period stood at 10% and 15.73% respectively.Theyhighlightthesignificanceofthechallengemanagementfaces

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in engineering a turnaround.Rather than generating positive operating income, PIAreliesonshorttermborrowingandtradepayablestopayitsbillsandkeepit afloat. The current ratio (a measure of liquidity) stood at 0.25 as compared to 0.24lastyear.Onthebrighterside,cashbalanceincreasedfromRs0.74billion last year to Rs 3 billion. Interest costs for the company decreased slightly becauseoflowerinterestratesgloballyandthefactthatasignificantportionof PIAsdebtislinkedtotheLIBORwhichhasreachedhistoriclows.Thecompanys capitalexpenditurefortheperioddecreasedby48%toRs1.1billioncompared toRs2.1billionlastyear. PIAcurrentlyhasanegativeequityofRs30billion.Thecompanybenefitedfrom a surplus on reevaluation of fixed assets during the period which increased equitybyRs27billion.TotalaccumulatedlossesamounttoRs83billionandare themaincauseofthenegativeequity.Recently,themanagementannounceda 5yearturnaroundplanandhasaskedthegovernmenttowriteofflossesof$1.7 billion to prevent bankruptcy. The plan envisions cutting costs and buying new planes that are more fuel efficient. News items suggest the likelihood of governmentacceptingtheplanislow,andthusPIAwilleitherhavetoresortto more borrowing or declare bankruptcy over the next few years.The market capitalisationofthecompanyisRs5,833billion.MostofPIAsstockisownedby thegovernmentofPakistanandstateinstitutions.Tradingvolumesinthestock is low and the company has a beta of 0.929, which means its share price is slightly less volatile than the overall KSE100. PIA has paid no dividends during theninemonthperiod.Thecompanylastpaidadividendin2004ofRs0.50per share.FinancialperformanceFY05FY09:Beforeaccountingfordebtservicingand exchange losses, the corporation becomes profitable at operating level after 4 yearsofoperatingatalossonasimilarbasis.Therevenuein2009wentupby 6.4%yearonyear,whereasyieldincreasedby7.0%in2009

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PROBLEM DEFINITION
What are financial impacts of increase in fares on the profitability of Pakistan International Airline?
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PROBLEM STATEMENT Pakistan International Airline is the semi private organization running under the influence of government of Pakistan. Air fares the main source of the income for air line industry. Increase in fares is the main problem for the air line industry. This happens due to increase in oil prices, increase in the air port taxes, increase in the international roots permit costs, increase in the cost of the maintenance of air crafts, increase in the admin cost due to increase in the cost of difference over heads. After all these impacts air line industry was under great pressure to meet the expenses. Therefore they have increased the airfares. Due to this increase the passengers have shifted toward other travelling sources according to their affordability. Therefore researcher will work to find out the impacts of the increase in fares on the profitability of the airline.
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HYPOTHESIS
Hypothesis No. 1
Ho: Increase in fares has impact on the profit of PIA. H1: Increase in fares has negative impact on the profit of PIA.
Hypothesis No. 2
Ho: Increase in fares is according to current economic conditions. H1: Increase in fares is not according the current economic conditions.
Hypothesis No. 3
Ho; Existing fares are justifiable according to the current financial situation of the economy. H1; Existing fares are not justifiable according to the current financial situation of the economy.
Hypothesis No. 4
Ho; Increase in fares is necessary to meet the expenses of Pakistan International Airlines. H1; Increase in fares is not necessary to meet the expenses of Pakistan International Airlines.
Hypothesis No. 5
Ho; Customer shifts from PIA to other airlines due to increase in fares. H1; Customer does not shifts from PIA to other airlines due to increase in fares.
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METHODOLOGY
RESEARCH DESIGN The Purpose of Study:
The purpose of study is descriptive in nature.
The Type of Investigation:

The type of investigation is Casual.
Extent of Research Interference:

The research interference is moderate in nature.
The Study Setting:

The study setting is non-continued and it is a field Experiment.
The Unit of Analysis:

The unit of analysis is individual.
The Time Horizon:

The time horizon is cross sectional.
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SAMPLE DESIGN
Population: Element
Individuals must travel from Pakistan International Airline.
Unit:
Different Airports of Pakistan.
Extent
Passengers of difference Airlines specially PIA
Time
Traveling from Pakistan International Airline or any other airline on a regular basis at least fom 1year
Specify Sampling Method

Data will be collected through questionnaire and sampling method is convenience sampling.
Determine Sampling Size

50 individuals are selected for this research
Specify Sample Plan

The researcher will visit the airport and filled out the questionnaire from the travelers of PIA and other airlines to get the real view.
Select a Sample
The researcher will design the questionnaire and visit the airport to get the real data for the sampling. The population will be the travelers using the airlines from last 01 year. YasirHabibID#4525
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HYPOTHESIS
Hypothesis No. 1
Hypothesis No. 2
Ho: Increase in fares is according to current economic conditions. H1: Increase in fares is not according the current economic conditions.
Hypothesis No. 3
Hypothesis No. 4
Hypothesis No. 5
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DoyouthinkincreaseinfareshastheimpactontheprofitabilityofPIA? StronglyAgreed 9 13% Agreed 17 24% Neutral 27 39% StronglyDisagreed 10 14% Page38 Disagreed 7 10%
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Hypothesis No. 1
Z Test of Hypothesis for the Mean Data Null Hypothesis Level of Significance Population Standard Deviation Sample Size Sample Mean Intermediate Calculations Standard Error of the Mean Z Test Statistic Upper-Tail Test Upper Critical Value p-Value Do not reject the null hypothesis 1.644853627 0.999999947 0.139742443 -5.315902085 = 3 0.05
0.988128289
50
2.257142857
Based on the above we Accept the Ho and reject the H1
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Q14 DoyouagreethatcurrentincreaseinfaresisnecessarytomeettheexpensesofPIA? StronglyAgreed 2 3% Agreed 36 51% Neutral 8 11% DisAgreed 10 14% StronglyDisagreed 14 20%
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Hypothesis No. 2
Ho: Increase in fares is necessary to meet the expenses of Pakistan International airline? H1: Increase in fares is necessary to meet the expenses of Pakistan International airline?
Z Test of Hypothesis for the Mean Data Null Hypothesis Level of Significance Population Standard Deviation Sample Size Sample Mean Intermediate Calculations Standard Error of the Mean Z Test Statistic Upper-Tail Test Upper Critical Value p-Value Do not reject the null hypothesis 1.644853627 0.333140239 0.165628235 0.431258423 = 3 0.05
1.171168481
50
3.071428571
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Q12 Doyouthinkthatfaresarejustifiableaccordingtocurrenteconomicconditions? Stronglysatisfied 1 1% Satisfy 30 43% Neutral 14 20% Dissatisfy 13 25% StronglyDissatisfy 12 17%
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Hypothesis No. 3
Z Test of Hypothesis for the Mean Data Null Hypothesis Level of Significance Population Standard Deviation Sample Size Sample Mean Intermediate Calculations Standard Error of the Mean Z Test Statistic Upper-Tail Test Upper Critical Value p-Value Do not reject the null hypothesis 1.644853627 0.151978635 0.166761878 1.027984177 = 3 0.05 1.179184545 50 3.171428571
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Doyouthinkthatincreaseinfaresisnecessarytomeettheexpenses StronglySatisfied 0 0% Satisfy 28 40% Neutral 17 24% Dissatisfy 10 14%
StronglyDissatisfy 15 21%
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Hypothesis No. 4
Z Test of Hypothesis for the Mean
Data Null Hypothesis Level of Significance Population Standard Deviation Sample Size Sample Mean Intermediate Calculations Standard Error of the Mean Z Test Statistic Upper-Tail Test Upper Critical Value p-Value Do not reject the null hypothesis 1.644853627 0.563579492 0.178514691 -0.160050853 = 3 0.05 1.262289484 50 2.971428571
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Doyouthinkcustomersmayshifttoanyotherairlinesforlowrates? StronglyAgreed 2 3% Agreed 36 51% Neutral 8 11% DisAgreed 10 14%
StronglyDisagreed 14 20%
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Hypothesis No. 5
Z Test of Hypothesis for the Mean Data Null Hypothesis Level of Significance Population Standard Deviation Sample Size Sample Mean Intermediate Calculations Standard Error of the Mean Z Test Statistic Upper-Tail Test Upper Critical Value p-Value Do not reject the null hypothesis 1.644853627 1 0.075153397 -12.1655939 = 3 0.05 0.531414769 50 2.085714286


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CONCLUSION
In chapter one, the researcher have given the brief introduction about the topic and cover the basic areasrelatedtoproject.Researcherfirstdiscussesthemainideabehindtheresearch,andthencovers thetopicintroduction.Furthertothisresearcheralsoincludetheinternationalanddomesticscenarioso thatbackgroundwillbeclearforthefurtherresearch. In chapter two, the researcher has discussed the difference categories of factors which influence the decisionofairlineindustrytoincreasetheairfares.Thesealsocovertheimpactsonthepassengers,as wellasontheairlineindustry.Thisalsohavethebriefintroductionthathowairlinesaresufferingdueto theirdecisionofincreaseinfares. Inchapterthree,theresearcherhasdiscussedthecompanyprofilewhichincludesthevision,mission, briefhistory,futureplans,majorachievements,anddifferenceaspectsandhistoricaleventsinthelifeof PakistanInternationalAirline. In chapter four, the researcher has discussed the methodology which covers the problem definition, problemstatement,hypothesis,methodologyandsamplingdesign. In chapter five, the researcher has discussed the testing of hypothesis which includes the analysis of questions,resultsexplanations,statisticaltoolapplicationandfinalresultregardinghypothesis. Inchaptersix,theresearcherhasfinallyconcludedthecompleteprojectanditscomponents. YasirHabibID#4525
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Inchapterseven,theresearchhasgiventherecommendationtoreservethecustomersandincreasethe profits of Pakistan International Airline so that this institution can become service oriented and profitableairlineofPakistan. RECOMMENDATIONS Inviewofthecompleteresearch,researcherhasfinallyrecommendedthefollowing; a. AirFaresshouldbegraduallyincreasedinspiteofjumpingincreasesothatcustomermaynot suffer. b. Government has to reduce the taxes on airline industry so that air fares can be reducing and largepopulationwhichisnotusingtheairlinecanutilizedthisfacility. c. Decreaseintaxeswillresultindecreaseinfareswhichwillhelptheairlineindustrytocapture thelargenumberofcustomerswhichareusinglowfaretravellingfacilities. d. This will also results in increase in profit of airline industry so that they can continue their operations. e. The policy should be devised to handle the exception rises in the oil prices like the past experienceandforthcomingsituationofArabcountries.
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f.
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Currently decision making system takes too long time to decide the changes in fares. This system should be controlled under one committee which should take decision at appropriate time.
g. Pakistan International Airline staff is not customer oriented therefore they need trainings to handlethecustomersandmaintainedthecustomerservicestandard. h. PIAshouldtransfertheincreasingeffectgraduallytothecustomerssothattheycanbearthis burdenandconsumersdidntshifttowardsothertravellingsoruces. i. PIA should established Strategic Planning department with professionals so that they can establish the policies to meet these types of cirses in such a way that didnt effect the consumersinserverway.
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DETAILS OF RECOMMENDATIONS
PIAs sustainability, growth and revenues directly depend on oil prices. A steep rise in oil prices can seriously damage the long term viability of any airline. Recently many airlines around the world went bankrupt due to rising oil prices. Airlines need to hedge against this risk by taking proper measures. The growing demand for air travel is driven by lower fares and consumer confidence. A survey by International Aviation Authority showed that ticket price is the number one criterion for passengers when selecting a flight, well ahead of the availability of a non-stop service. Since PIA is having the maximum route and fleet domestic and International destinations network in Pakistan as compared to its Competitors. So by lowering their fare rates they can increase their passengers and that can help the PIA to increase their revenue and maximize their profit. The needs of air passengers are increasingly changing, as they are becoming more andmore price sensitive. If PIA succeeds in making its prices more competitive, then the company will be able to gain significant market share. PIA started its frequent flyer and loyalty program to develop passenger loyalty by offering awards and services to frequent travelers. They need to continue these sorts of program on a regular basis because such schemes encourage repeat travel on PIA, as passengers seek to accrue the benefits given to regular travelers. This enables the airline to retain customers and reduce costs, as it does not have to spend money targeting new customers to replace those lost to other airlines. Market analysts believe that the global airline industry will experience an upturn in fortunes over the next few years. This represents an opportunity for PIA, as it could generate increased revenues and command market share if it capitalizes on increases in demand. Fluctuating foreign currency exchange rates can have a significant impact on PIAs earnings. For example, as PIA is providing its services to the UK. Negative or positive effects arise from exchange rate movements as change in expenses. Strengthening of foreign currencies against the British Pound will positively impact PIA and vice versa. There are number of factors that result in the current decline of the airline industry. One of the factors is the threat of further terrorist attacks that may result in declining in the number of business travelers. These and other factors may continue to affect demand for air travel in the future, which will affect revenues of PIA. The threat of terrorism may discourage people from traveling by air and could especially reduce the number of passengers traveling on international flights. So they need to improve their security system as well as their brand image all over the world so that passenger may feel safe to fly from PIA.
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REFERENCES
Air Transport Association (various years): Annual Report. Washington, DC: Air Transport Association. Bailey, Elizabeth E., David R. Graham, and Daniel P. Kaplan (1985): Deregulating the Airlines. Cambridge, MA: The MIT Press. Bailey, Elizabeth E. and John C. Panzar (1981): ``The Contestability of Airline Markets during the Transition to Deregulation. Law and Contemporary Problems, 44, 125 45. Baumol, William J., John C. Panzar, and Robert D. Willig (1982): Contestable Markets and the Theory of Industrial Structure. New York: Harcourt Brace Jovanovich. Bennett, Randall D. and James M. Craun (1993): ``The Airline Deregulation Evolution Continues: The Southwest EOEect. O ce of Aviation Analysis, O ce of the Secretary, US Department of Transportation. Borenstein, Severin (1989): ``Hubs and High Fares: Dominance and Market Power in the US Airline Industry. Rand Journal of Economics, 20, 344 65. Breyer, Stephen (1989): Regulation and its Reform. Cambridge: Harvard University Press. Caves, Douglas W., Laurits R. Christensen, and Michael W. Tretheway (1984): ``Economies of Density versus Economies of Scale: Why Trunk and Local Service Airlines Costs DiOEer. Rand Journal of Economics, 15, 471 89. Dresner, Martin, Jiun-Sheng Chris Lin, and Robert Windle (1996): ``The Impact of LowCost Carriers on Airport and Route Competition. Journal of Transport Economics and Policy, 30, 309 28. Morrison, Steven A. and CliOEord Winston (1987): ``Empirical Implications and Tests of the Contestability Hypothesis. Journal of Law and Economics, 30, 53 66. Morrison, Steven A. and CliOEord Winston (1995): The Evolution of the Airline Industry. Journal of Transport Economics and Policy Volume 35, Part 2 254 Washington, DC: The Brookings Institution. Strassmann, Diana L. (1990): ``Potential Competition in the Deregulated Airlines. The Review of Economics and Statistics, 72, 696 702. Transportation Research Board, National Research Council (1999): Entry and Competition in the US Airline Industry: Issues and Opportunities. Washington, DC: National Academy Press.
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US General Accounting O ce (1990): Airline Competition: Higher Fares and Reduced Competition at Concentrated Airports. GAO/RCED-90-102, Washington, DC.
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US Department of Transportation (1996): ``The Low Cost Airline Service Revolution. Windle, Robert and Martin Dresner (1995): ``The Short and Long Run EOEects of Entry on US Domestic Air Routes. Transportation Journal, 35, 14 25. Actual, Adjacent, and Potential Competition Morrison 255 Allayannis, G. & Ihrig, J. 2001, Exposure and markups, Review of Financial Studies, vol. 14, pp. 80535. Bailey, Elizabeth E., David R. Graham and Daniel R. Kaplan. 1985. Deregulating the Airlines. Cambridge, MA: MIT Press. Bartlett, C., Ghoshal, S. 1991. Global Strategic Management: Impact on the New Frontiers of Strategy Research. Strategic Management Journal, Vol. 12, Special Issue: Global Strategy, pp. 5-16. Bartram, S.M. 2002, The interest rate exposure of nonfinancial corporations, European Finance Review, vol. 6, pp. 10125. Bodnar, G.M., Dumas, B. & Marston, R.C. 2002, Pass-through and exposure, The Journal of Finance, vol. 57, pp. 199231 Brown, G.W., Crabb, P.R. & Haushalter, D. 2001, Are firms successful at selective hedging?, Working paper, University of North Carolina. Carter, D.A., Rogers, D.A. & Simkins, Betty J. 2002, Does fuel hedging make economic sense? The case of the U.S. airline industry, Working paper, Oklahoma State University. Caves, Richard. 1962. Air Transport and Its Regulators: An Industry Study. Cambridge, MA: Harvard University Press. Deering, M.,Forbes, M. 2009. The Fuel Volatile. World Trade. February 2009 issue. Di Iorio, A. & Faff, R. 2000, An analysis of asymmetry in foreign currency exposure of the Australian equities market, Journal of Multinational Financial Management, vol. 10, pp. 13359. Evans, A., Jones, B., Steven, D. 2010. Confronting the Long Crisis of Globalization. Brookings/CIC. Retrieved on 9.March.2010. Ghoshal, S. 1987. Global Strategy: An Organizing Framework. Strategic Management Journal, Vol 8, pp. 425-440.
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Impact of Increase in Fares On Pakistan International AirlinePIA

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IMPACTOFINCREASEINFARESONPIA

CHAPTER5 5 CHAPTER6 6 CHAPTER7 7 CHAPTER8 8

Fuel-Price Affecting Airline Industry

The Type of Investigation:

Extent of Research Interference:

The Study Setting:

The Unit of Analysis:

The Time Horizon:

Specify Sampling Method

Determine Sampling Size

Specify Sample Plan

Based on the above we Accept the Ho and reject the H1

Based on the above we Accept the Ho and reject the H1

Based on the above we Accept the Ho and reject the H1

Doyouthinkthatincreaseinfaresisnecessarytomeettheexpenses StronglySatisfied 0 0% Satisfy 28 40% Neutral 17 24% Dissatisfy 10 14%

Z Test of Hypothesis for the Mean

Based on the above we Accept the Ho and reject the H1

Doyouthinkcustomersmayshifttoanyotherairlinesforlowrates? StronglyAgreed 2 3% Agreed 36 51% Neutral 8 11% DisAgreed 10 14%

Based on the above we Accept the Ho and reject the H1

PriceWaterHouseCoopers. 2005. Management Barometer: Energy Prices Hammer at U.S.

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