Until then Pakistan's domestic airline industry was reserved for the national carrier, which provided a social service by operating the loss-making lifeline routes alongside its busy trunk routes. The operation of these unprofitable government-subsidised routes continues to reflect on PIA's bottom line and the carrier has had to give priority to a major rethink of its marketing objectives in the wake of the challenge mounted by the private carriers.
Initially, domestic deregulation, which came as part of the country's economic liberalisation, saw a launch of new services by several private carriers but only Aero Asia and Shaheen Air International - the latter began as a cargo service - have constantly held their ground. Meanwhile, Bhoja Air has made a comeback after a short disappearance from the scene. Both Hajvairy Airlines, the second passenger airline to emerge after Aero Asia, and Raji Aviation are defunct. But the shake-up was inevitable in light of the cut-throat competition and low fares necessary at the outset to entice passengers away from PIA.
Shaheen Air led the way towards deregulation of the airline industry. Shaheen began operating limited Boeing 747 cargo services from Karachi in late 1991, well before domestic deregulation, and was financed by an air force pension fund worth US$290 million.
Deregulation also paved the way for Aero Asia to launch the first private sector domestic passenger service on 6 May 1993. Since then the carrier has never looked back. Owned by the Tabani group of companies, Aero Asia has growing ambitions boosted by its success so far in carving out a niche for itself with only a modest operational fleet.
Having cornered nearly 22 per cent of the domestic passenger market, Aero Asia is leading the private sector challenge against PIA, closely followed by Shaheen with 18 per cent. The national carrier remains dominant, however, with 55 per cent of the domestic market. 'PIA is too big an airline for us to compete with, but we are proud to have given them a challenge on domestic routes,' says the airline's chief executive, Ashfaq Jan, formerly a PIA employee for 35 years. 'We have stressed punctuality, supported by outstanding inflight service with smooth takeoffs and landings for which we are indebted to our Romanian pilots,' he adds. Meanwhile, Bhoja Air, is in its second innings after having resumed operations in June 1994, and has secured a 5 per cent market share. The carrier had previously closed down following a dispute over fees with the Civil Aviation Authority.
Two months before its third anniversary, Aero Asia is operating daily flights from Karachi to six domestic cities, and is PIA's main competitor on the Lahore, Islamabad and Faislabad routes. At the end of March the independent was operating six BAC 1-11s and a Boeing 707 leased from Tarom and Rom Avia, and was in the process of finalising a finance lease agreement to purchase four of the BAC 1-11s. 'We have converted four BAC 1-11s from wetlease to drylease and in a month's time they should be Aero Asia's property,' says Jan. A generous investment allowance makes it more attractive to purchase aircraft outright rather than continue with long-term leases, he adds.
Bhoja Air began operating flights on 7 November 1993, but soon ran into liquidity problems and had to suspend operations due to non-payment of fees to the CAA. However, the carrier was relaunched in mid-1994, and now operates two B737-200s leased from Aer Lingus and Lithuanian Airlines on scheduled services from Karachi to various domestic points. Most of the airline's engineers and pilots are supplied under the wetlease agreement with Lithuanian Airlines.
Bhoja is confident that it will find its place in the market with its competitive fares, late check-in facilities, and attention to baggage handling and inflight service. 'It is our facilities that will eventually make the biggest impression,' says Bhoja's human resources executive, Kaleem Ahmed. 'Our growth plans are to operate more flights on existing routes and to open up new points on the domestic circuit,' he adds.
But so far the main challenge to PIA's dominance is confined to Aero Asia and Shaheen Air International, first launched as a joint venture between the military Shaheen Foundation, with 51 per cent, and leading general sales agents Akbar Aviation, with 49 per cent. However, Akbar has since been bought out by the Shaheen Foundation, leaving the carrier under the sole control of the military.
Shaheen began operations on Karachi-Islamabad and Karachi-Lahore on 1 December 1993, and has since emerged as a major player on the domestic circuit. Domestic growth has shown a steady increase since deregulation though PIA's traffic has remained stagnant at just over 3 million passengers a year. However, the national carrier's domestic income has slowly grown over the past six years due to gradual fare increases.
PIA is burdened with the social obligation of having to operate 'lifeline' routes to far-flung regions while the Karachi-based private carriers offer cheaper fares on its prime business routes. Not surprisingly, the national carrier wants the independents to share its social burden but so far Pusni, in Balochistan, is the only 'lifeline' route served by an independent - Aero Asia.
Initially, Pakistan's economic liberalisation and domestic deregulations policies left PIA bewildered. The carrier went from having no domestic competition at all, to having a handful of aggressive new rivals eating into its market. The ensuing slump in PIA's domestic market share came as the national carrier was trying to consolidate its network in the Asia-Pacific region by adding new destinations and developing existing routes.
At first PIA was tolerant towards its new competitors, but now new measures are being devised to tackle its dwindling market share. PIA has countered with improved flight timings and distribution methods, but the carrier has yet to address the key problem of its competitors' fares, which are nearly 20 per cent lower than its own.
A proposed domestic frequent flyer programme has been on hold for over two years, however, while the domestic problems have distracted attention from the airline's much-needed fleet renewal programme.
PIA's inability to tackle its domestic losses is seen as the reason for a recent top level management reshuffle, which saw former managing director M Niwaz Tiwana return to his old position at the airline in place of Air Vice Marshall Farooq Umar. Ironically, Umar had been brought in from Shaheen Air to take up Tiwana's post under previous prime minister Nawaz Sharief, after one of the airline's aircraft was involved in an accident. Amazingly, he had survived a later change in government.
As an old PIA hand, Tiwana is well aware of the tough task that lies ahead of him. His problems will be compounded by plans by the independent domestic airlines to extend their operations into international markets. It is its monopoly on international services that has kept PIA profitable so far. Interim results for 1995 show a net profit of US$9.6 million for the year to June, up from $4.7 in 1994, on revenues of $834 million.
But Aero Asia has already been granted rights by the Pakistani government to operate services to the former soviet union state of Kyrgyztan, though the carrier is still awaiting approval from the republic.
Aero Asia's next target will be the Middle East, one of PIA's most lucrative markets. A large number of Pakistani expatriates travel to and from the Gulf and all three independent airlines covet these important routes. But government approval will be increasingly hard to come by in view of the strength of opposition from PIA. The carrier fears a repeat of the domestic experience on the international sectors which have so far helped to sustain its profitability.
Source: Airline Business