ASSIGNMENT NO.

2
ECONOMIC ANALYSIS OF PIA
INTRODUCTION:
Transportation sector is most important sector of any economy and aviation
industry is major part of this sector. In Pakistan the transportation and
communication sector holds more than 10% share in GDP (Gross Domestic
Production). The aviation industry can affect the other sector of the economy, e.g.
the International Trade, tourism and socio-economic condition of the country.
Airlines industry in Pakistan has three major players right now: Pakistan
International Airlines, Airblue, Aero Asia and Shaheen Airlines. Their target market
includes domestic travelers as well as Pakistanis living abroad particularly in the UK
and 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.

NEW ENTRANTS:
PIA has made Investment of billion of rupees for acquiring the state of the art
aircrafts for operations in North American sectors. International routes are major
area of competition for upcoming airlines. The CAA policy regarding the
international routes are very open but require the minimum standards to be met
before operating on international routes and must have experience of domestic
operations before going to be international.
Recently two new private airlines, AirBlue and Royal Airlines have started their flight
operations. The AirBlue is struggling to capture the share of domestic routes mainly
the Karachi-Lahore-Islamabad sector. While Royal Air line is operating cargo flights
and successfully operated on Karachi-Dubai sector.

WORLD ECONOMY:
Economically, the new millennium has been highly volatile; the September 11
attacks revolutionized the whole world. Consequently, there was a global
depression in the North America, South America, Australia and Europe. However, in
Asia especially Pakistan the effect in the short term was otherwise. According to the
latest statistics from the General Aviation Bureau, due to the fuel price surge, the
cost of fuel has accounted to 31% of the cost of major business of airline companies
in the first half of this year from 22%. The whole airline industry has afforded
additional cost expenditure of 1.27 billion RMB
The economy began to boom because of greater remittances from abroad and
whole sum immigration by expatriates. As a result, demand for air travel in South
Asia rose.
Economic conditions of Pakistan are however improving. PIA has cost a advantage
over its competitors because of its newly acquired, improved, long distance aircrafts
from Boeing’ which give longer range and better fuel economy than any other jet
currently produced. This cost advantage is a barrier to entry for new firms.
However, this cost advantage will not be significant on domestic routes.

CURRENT SCENARIO:
It must also be stressed that Pakistan used to be the hub for international carriers
up to the 1970s, for both East-West and reciprocal flights. Karachi airport was a
bustling place with vibrant aviation activity. Due to various political developments in
the region, deteriorating law and order situation in Karachi in the 80s, development
of alternate aviation infrastructure in the region, and lack of vision exercised by
Pakistan’s aviation hierarchy, international carriers started shifting their regional
hubs to other more attractive locations in the Gulf area. Successive governments in
Pakistan continued to remain passive bystanders in this fast changing scenario.
Since then, the Gulf region in general, and UAE and Qatar in particular, have shown
extraordinary vision and planning to not just develop attractive aviation
infrastructure in their countries, but also develop support industries of international
standards, along with airlines which have gradually become world class.
Today, the Gulf region is not just a trendsetter for global aviation and tourism
industries; it is also the highest growth area both for passenger and cargo traffic.
This is certainly a cause for deep concern and embarrassment for Pakistan when
seen in the light of the fact that Pakistan was a regional aviation hub just 20-25
years ago; it had the most progressive airline in the region in the form of PIA; its
professionals helped set up airlines like Emirates and Singapore Airlines, etc. We
allowed these major advantages to slip from our hands due to sheer negligence,
lack of professionalism, and internal wrangling.

The reasons why PIA has managed to survive, despite it’s under par and erratic
performance and competition are: federal government patronage, CAA’s support to
the national carrier, and a high average growth rate of passenger traffic of around
8-10 percent per annum, to and from Pakistan, during the past 15 years.

Our government has yet to understand the importance of civil aviation as a ‘driving
force’ in the growth of a developing economy. This is despite several high profile
examples within our region.

Bibliography
http://www.pafkiet.edu.pk
http://www.pakistaniaviation.com/Competition-In-Open-Blue-Skies.htm, Competition in blue
skies, Asfaque Ahmed.

ASSIGNMENT MADE BY :
ATIKA IMTIAZ 7184
HIRA SARWAR 7208
NATASHA
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