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Why is PIA Losing Money Amid Air Travel Boom in Pakistan?

What is behind the domestic and international aviation boom in India and Pakistan? Why is Pakistan doing better than India in terms of international passenger growth while badly lagging in domestic air travel?

Passenger Aircraft at Karachi International Airport

What has happened to the global airline industry since the passage of the US Deregulation Act of 1978? Why did many big airlines of yesteryears die in spite of huge growth of air travel? How did so many upstart low-cost carriers succeed while state-owned airlines failed?

Why are the domestic air fares in Pakistan three times higher than those in India for similar distances? Why does state-owned PIA control two-thirds of Pakistan's domestic market? Why isn't there more competition on domestic routes in Pakistan?

Why are state-owned airlines, including PIA and Air India, losing a lot of money, requiring massive taxpayer subsidies and still performing poorly? Why aren't these airlines run more efficiently? Are PIA jobs used for political patronage? Why does PIA fly so many empty seats rather than cut fares to expand market?

Viewpoint From Overseas host Faraz Darvesh discusses these questions with Misbah Azam and Riaz Haq (www.riazhaq.com)

https://youtu.be/hh99nMnueBA

Related Links:

Haq's Musings

South Asia Investor Review

Pakistan Air Travel Market

Pakistan $20 Billion Tourism Industry Booming

Saving PIA, Railways and Education in Pakistan

Pakistan: Political Patronage Trumps Public Policy

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Comment by Riaz Haq on April 21, 2018 at 4:37pm

Pakistan International Airlines refis Roosevelt Hotel with $105M loan
Government-owned company has long sought to sell the property

https://therealdeal.com/2018/04/19/pakistan-international-airlines-...

The Pakistan International Airlines has leased or owned the Roosevelt Hotel since 1979 and has several times since sought to get rid of it. And sans sale, the overseas owners refinanced the debt on the property, records filed with the city Thursday show, with a $105 million loan from JPMorgan Chase.

JPMorgan Chase’s refinancing replaced $140 million in previous debt on the hotel issued by Wilmington Trust, a subsidiary of M&T Bank.

PIA did not immediately respond to requests for comment and JPMorgan Chase declined to comment.

Built in 1924, the 600,000-square-foot hotel, located at 45 East 45th Street in the recently rezoned swath of Midtown East, is not landmarked and is a prime target for demolition and office tower construction, making the site worth hundreds of millions of dollars. So what’s held up a sale? Politics in Islamabad.

In December, Pakistani Prime Minister Shahid Khaqan Abbasi rejected a selloff plan for the Roosevelt, according to the Express Tribune, an English-language paper in the country. PIA, a government controlled company, had come up with the plan as part of a larger strategy for paying off roughly $5.3 billion in debt.

“Apart from being a valuable property, the hotel also carries cultural significance for Pakistan,” Abbasi said in rejecting the PIA plan.

PIA last put the hotel on the market in 2007, asking $1 billion. In August, The Real Deal reported that an investment group led by hotelier Shahal Khan was interested in acquiring the hotel. Khan is also making a bid for the Plaza Hotel on Fifth Avenue.

Comment by Riaz Haq on May 1, 2018 at 8:36am

New #IslamabadAirport opens, to handle up to 25m flyers a year. #Pakistan #Islamabad #airports

https://gulfnews.com/news/asia/pakistan/first-pictures-new-islamaba...

The new airport is capable of serving nine million passengers and 50,000 metric tonnes of cargo annually; expansion plans target servicing about 25 million passengers by 2025.

“The current annual turnover of passengers at the Benazir Bhutto International Airport is about 4.5 million.
The number of passengers is growing by 14 per cent annually as compared to national air passenger growth rate of less than four per cent,” Civil Aviation Authority (CAA) Deputy Director General Amir Mehboob was quoted by the Tribute as saying.


The airport comes with a bill of more than Rs100 billion ($861.5m; or Dh3.15 billion), and is connected to both Rawalpindi and Islamabad.


First pictures: New Islamabad airport opens, to handle up to 25m flyers a year
Rs100 billion airport connects both Rawalpindi and Islamabad; boosts capacity to 25 million passengers a year


25m passengers
The new airport is capable of serving nine million passengers and 50,000 metric tonnes of cargo annually; expansion plans target servicing about 25 million passengers by 2025.


“The current annual turnover of passengers at the Benazir Bhutto International Airport is about 4.5 million.
The number of passengers is growing by 14 per cent annually as compared to national air passenger growth rate of less than four per cent,” Civil Aviation Authority (CAA) Deputy Director General Amir Mehboob was quoted by the Tribute as saying.

The airport comes with a bill of more than Rs100 billion ($861.5m; or Dh3.15 billion), and is connected to both Rawalpindi and Islamabad.

The airport’s 4 levels
Level 1 - international and domestic passengers’ arrival area, baggage collection and airline offices.
Level 2 - domestic arrivals and departure lounges, visitors’ gallery and immigration counters.
Level 3 - international and domestic check-ins and international departure.
Level 4 - state lounges and commercially important persons lounges

The airport has contemporary design inspired by traditional Islamic geometric patterns. Environmentally-sustainable design strategies have been employed with the use of day light and sun shading to reduce energy use.
The interior texture of granite flooring has been used to ensure dust-free air quality.

The new airport is expected to be boon for both airlines and passengers and help lessen the bottlenecks in commercial aviation in the Pakistani capital.
Around 1,200 Airport Security Force deployed at 85 security towers to ensure safety at the airport with advanced security management systems and two bomb pit facilities.

Tourism
With the launch of new airport, Pakistan is all set to welcome foreign tourists who primarily come to visit the scenic northern areas or to participate in religious festivals.
Pakistan Tourism Development Corporation (PTDC) has announced to establish a modern Tourist Information Centre at the new airport, said PTDC managing director Chaudhry Abdul Ghafoor Khan.
Pakistan is not only rich in Islamic heritage but also a gateway to sacred sites for other religions especially Buddhists and Sikhs. 

Many holy sites for Sikhs such as the birthplace of the founder of Sikh religion in Nankana Saheb district, and Gurdwara (monastery) Punja sahib are in Pakistan.
Similarly, the monastery Takht-i-Bhai (Throne of Origins) and the 3,000-year-old Taxila of the Gandhara Valley Civilisation are revered sites for Buddhists and attract pilgrims from China, Korea, Thailand, Malaysia, Japan and Sri Lanka.

Comment by Riaz Haq on May 1, 2018 at 8:37am

New #IslamabadAirport opens, to handle up to 25m flyers a year. #Pakistan #Islamabad #airports

https://gulfnews.com/news/asia/pakistan/first-pictures-new-islamaba...


Facilities
2 runways, each 3.5-km long
90 check-in counters 
28-aircraft parking apron
15 air-conditioned jetties (passenger boarding bridges)
2 jetties for Airbus A380 
15 remote bays
Cargo apron for parking of 3 aircraft
Main and emergency runways
Taxiways
Aircraft maintenance apron
Four-level terminal building
Parking facility for 2,000 vehicles 
9 exit and entry gates
28 escalators
six service lifts
24 elevators
4 inclined travellators (moving walkways)
10 horizontal travellators (moving walkways)
5 luggage conveyor belts
15 bays with separate waiting lounges
Device charging stations
Fingerprint recognition systems
Four-star transit hotel
Convention centre
Duty-free shops
Food court
A mini-cinema
Children’s play area
Cargo terminal
Fuel farm
Air traffic control complex
Fire station rescue facilities
18 water tube-wells
3 water dams 


Operators at new airport
Pakistani Airlines
PIA 
Shaheen Air
Air Blue 
Serene Air

International Airlines
Air Arabia
Air China
China Southern
Emirates
Etihad
Gulf Air
Kuwait Airways
Oman Air
Safi Airways
Saudia
Thai Airways 
Turkish Airlines 
Others

Comment by Riaz Haq on May 4, 2018 at 5:15pm

It gleams, it glistens, it positively glows.

https://www.washingtonpost.com/world/asia_pacific/in-glistening-new-airport-pakistan-sees-ticket-to-reviving-the-countrys-prestige/2018/05/04/42f30c88-431c-11e8-b2dc-b0a403e4720a_story.html?utm_term=.f179c461f652

The new Pakistan international airport cost more than double the original budget, and its construction was repeatedly stalled for years amid rumors of financial irregularities. It was built miles away from anything, including the capital Islamabad, with no public transport available. Until last month, it still had inadequate drinking water, and some aviation systems still needed tests, postponing its inauguration yet again. 

None of that seemed to matter this week, when the mammoth, ultramodern, $105 million facility finally opened in rural Punjab province. The first arriving flight from Karachi touched down Tuesday morning, under an arc of spray from twin firetrucks, and the pilot waved the national flag from the cockpit.

On Thursday, families waiting for flights oohed and aahed at the vast marble floors and glass walls and took selfies in a landscaped picnic park. Plane crews shook hands with baggage managers. Arriving passengers grinned at glitches, such as being left mistakenly outside a locked terminal door, that would normally have had them fuming. 

“This is so beautiful and new. It’s like a dream — no pollution, so much space,” marveled Abdul Rahim, 40, a United Nations employee who had just arrived on a flight from Kabul that would previously have landed at the small, aging terminal in Rawalpindi city that served the capital area for decades. 

“It will be good for repairing Pakistan’s image,” he predicted.


The new Islamabad International Airport was built miles away from anything, outside the capital. (Aamir Qureshi/Agence France-Presse/Getty Images)

Pakistan, a vast but impoverished country, has long been isolated abroad as a dangerous haven for Islamist insurgents and starved for positive recognition. Its few bragging points included a 170-mile highway and the testing of a nuclear device, popularly known here as the “Islamic bomb” but greeted far less kindly by the world community.

This time, virtually everyone is hoping the impressive new Islamabad International Airport, a four-level complex with a smorgasbord of consumer amenities and high-tech passenger services, will be Pakistan’s ticket to revived global prestige and access, offering an attractive gateway to a scenic, mountainous country that has suffered a steep drop in foreign visitors during the past two decades of conflict. 

The airport is the nation’s largest, able to accommodate 9 million passengers a year and potentially expand to almost triple that capacity, officials said. It is also the first airport in Pakistan that can accommodate the double-decker Airbus A-380, the world’s largest passenger plane. 

“Peace has returned to Pakistan after years of terrorism, and now more tourists are coming. What we needed was an international airport, with high-tech facilities equipped to cater to their needs,” said Chaudhry Abdul Ghafoor, director of the national tourism development corporation. “Now that we have that, many international airlines will start their services here and we estimate that millions of tourists will begin visiting every year.”


Pakistani security officials stand guard at the new airport, the nation’s largest. (Aamir Qureshi/Agence France-Presse/Getty Images)

The ambitious expansion comes as Pakistan International Airlines, the country’s once-thriving national carrier, has become mired in financial difficulties and mismanagement and now possesses only 32 registered aircraft. Its future is uncertain, and various proposals to privatize or sell it have been inconclusive. 

 Officials are banking that the airport, built in a barren rural area about 25 miles from the capital, will spawn a profitable hub of domestic commercial and residential development as well as travel services and hotels, creating thousands of jobs. Signs along the nearby highway offer shares in future condo and mall complexes with names like “Airport Enclave” and “Runway View.” 

Aviation experts agreed the replacement of the old Benazir Bhutto International Airport in Rawalpindi was long overdue. It was so crowded and run-down that frequent travelers sometimes referred to it as “the bus station.” Some observers cautioned against putting too much stock in the new airport as a cure-all for Pakistan’s aviation woes.


The state-of-the-art facility can accommodate 9 million passengers a year. (Aamir Qureshi/Agence France-Presse/Getty Images)

“Airlines are facing heavy taxes in Pakistan and the authorities are strangling them,” said Farooq Rahmatullah Khan, a former director of the national Civil Aviation Authority. “Unfortunately, air travel here is seen as a luxury for the rich, when it is a necessity even for commoners,” he said, noting large numbers of Pakistanis work as laborers in the Gulf States and elsewhere abroad. He also said Pakistan needs to build more domestic airports in small cities to better connect and develop the country. 

The history of the new airport spans several political eras and upheavals. It was first envisioned during the 1980s, when the Pakistan People’s Party was in power; Benazir Bhutto served twice as prime minister from the PPP. The facility was not completed until the current era of the Pakistan Muslim League-N, led until last year by Prime Minister Nawaz Sharif. During the interim period of military dictatorship, Bhutto was assassinated in 2007, and the Rawalpindi airport was renamed for her.

The new airport, however, proved far more difficult to name. The country’s two major historical heroes, founder Mohammed Ali Jinnah and poet Allama Iqbal, already have other airports named for them. Sharif, though extremely popular during several stints as premier, lost luster after being ousted by the Supreme Court in a corruption case.

 After lengthy debate over various possible candidates, all proved too contentious. Finally, officials announced last month the new airport would be named after no one at all.


Pakistani workers move luggage trolleys in the glistening international departures terminal. (Aamir Qureshi/Agence France-Presse/Getty Images)
Comment by Riaz Haq on May 4, 2018 at 5:39pm

Pakistan PM opens long-delayed new airport in capital Islamabad

https://business.mb.com.ph/2018/05/04/pakistan-pm-opens-long-delaye...

Pakistani Prime Minister (PM) Shahid Khaqan Abbasi on Tuesday inaugurated the long-delayed new airport in the capital, Islamabad, replacing the cramped Benazir Bhutto airport often criticized by travellers.

A Pakistan International Airlines pilot waved a green and white Pakistani flag out of his cockpit window after landing the carrier’s first commercial flight at the New International Islamabad Airport.

With a sleek glass-front entrance, spacious check-in areas and jetway bridges for boarding, the Y-shaped airport promises an end to the congestion that has frustrated air travel in the past.

“This airport rightly reflects what has happened in Pakistan in the last five years,” said Abbasi.

Abbasi’s ruling Pakistan Muslim League-Nawaz (PML-N) party had been eager to open the new airport before national polls, likely in July, as it touts big-ticket infrastructure as sign of economic progress in the South Asian nation of 208 million people.

Abbasi’s government is spending billions of dollars on upgrading Pakistan’s transport infrastructure and ending energy blackouts, with freshly paved motorways as well as dams and power plants popping up across the country.

Abbasi, who has a pilot’s license and is a founder of a Pakistani budget airline, said new airports in the cities of Multan, Faisalabad, Quetta and Peshawar were in the final stages.

The new Islamabad airport, which has the capacity to handle 15 million passengers annually and space for further expansion, was first suggested in the 1980s and has been more than a decade in the making.

The delays have become a running joke with many Pakistanis, who mock the frequent announcements that the new airport would open soon and subsequent clarifications of further delays. The airport’s most recent delay was last month.

“Nothing is impossible but this project definitely seemed impossible,” quipped Abbasi, in reference to his government inheriting the project in 2013.

The new airport is about 15 km (nine miles) from the capital. Benazir Bhutto airport was in the nearby city of Rawalpindi and attached to a military base.

International travellers often complained about chaotic scenes at the airport and in 2014 it was voted the worst in the world by the “Guide to Sleeping in Airports” website, prompting widespread criticism of the airport in Pakistani media.

The new airport started full operation on Thursday.

Comment by Riaz Haq on August 5, 2018 at 11:50am

India's airlines have more customers than ever but profits are hard to find

https://money.cnn.com/2018/08/03/investing/india-airlines-in-troubl...


Shares in Jet Airways, one of the country's biggest carriers, plunged 7% in Mumbai on Friday following media reports that the company barely has enough money to make it through the next two months.

The stock has lost more than 60% of its value since the start of this year, even as it spends billions to try and compete in the world's fastest-growing aviation market.

In a statement sent to CNNMoney, Jet Airways CEO Vinay Dube slammed the media reports as "incorrect" and "malicious." Dube said the airline was implementing measures to boost revenues and cut costs, and that the company was in talks with its employees.

"Some of these [efficiencies] amongst others include sales and distribution, payroll, maintenance and fleet simplification," he added.

India's Economic Times reported that employees were being asked to take pay cuts of up to 25%.

Related: This Indian airport will fly you to the terminal for $65

More than 68 million passengers flew within India in the first six months of 2018, according to official data, a 22% increase from the same period last year.

The latest available figures from the International Air Transport Association show that India's domestic passenger traffic grew by nearly 17% in the month of May compared to the same month last year. China's grew by almost 12% in the same period, while the United States showed growth of 5.5%.


Millions more Indians are flying
The Indian aviation sector has now enjoyed double-digit percentage growth for 45 straight months.

Jet Airways has responded to that spike by going on a spending spree to boost its fleet.

It plans to add 225 new Boeing (BA) 737 Max jets over the next decade, of which 75 — worth nearly $9 billion at list prices — were purchased less than three weeks ago.

But with several airlines competing to offer Indians cheaper ways to travel, the constant pressure on fares has made it difficult to make money. A surge in oil prices, combined with a plunge in India's currency — the rupee — is squeezing finances across the industry.

"On one side your costs are going up significantly, on the other side your ability to pass on those costs is limited," said Kapil Kaul, India CEO for the Center for Asia Pacific Aviation.

"The Indian market, despite having growth, has been mostly profitless," Kaul added.


Costs are rising, fares not so much
Dube, the Jet Airways CEO, underscored those challenges on Friday.

"The aviation industry is currently passing through a tough phase given a depreciating rupee and the mismatch between high fuel prices and low fares," he said, adding that the airline has come through similar storms in the past.

Jet Airways isn't the only Indian carrier that's under pressure.

Profit at market leader IndiGo fell 97% in the quarter ended June, compared to the same period last year. CEO Rahul Bhatia also blamed the falling rupee and rising fuel costs.

India is also having to prop up its loss-making national carrier.

Since failing to sell a 76% stake in Air India to private investors earlier this year, the government has been forced to pour hundreds of millions of taxpayer dollars into the airline to keep it flying.

Comment by Riaz Haq on September 4, 2018 at 10:24am

#India said on Tuesday it was working on a relief package for its #airline industry, which is forecast to lose up to $1.9 billion this financial year due to rising costs and low fares. #Aviation https://www.cnbctv18.com/aviation/india-plans-relief-package-for-ai...

Two of the biggest and oldest carriers, Jet Airways and state-owned Air India, are struggling to stem losses in the world's fastest-growing domestic aviation market, where competition is intense and fuel taxes are high.

Rajiv Nayan Choubey, the top civil aviation bureaucrat, said that help to cut airline costs was on the way along with a planned $120 million capital injection for Air India, according to Reuters affiliate NewsRise.

Choubey, who was speaking on the sidelines of the International Aviation Summit in New Delhi, did not give details of the planned relief package for the industry.

As well as high fuel taxes, Indian airlines are hit by a goods and services tax on maintenance operations that makes domestic work uncompetitive, consulting firm CAPA India said in a report on Monday.

It forecast an industry loss of up to $1.9 billion in the financial year ending March 31, up from a January estimate of a loss of $430 million to $460 million, the difference fuelled largely by a weakening rupee and a rise in oil prices.

CAPA estimated that India's airlines, including Air India, need an additional $3 billion of capital in the near term to shore up their balance sheets.

Choubey said the government would offer Air India state-guaranteed borrowing worth 21 billion rupees ($294 million), along with an equity infusion of 8.6 billion rupees.

"If we do not support Air India, there may be a value erosion," NewsRise quoted Choubey as saying.

In June, the government said it had been unable to attract bidders for a 76 percent stake in the airline.

Cheap Market

Indian airlines, which have ordered hundreds of new Airbus SE and Boeing Co jets, have struggled to stay profitable despite filling nearly 90 percent of seats as domestic passenger numbers have more than doubled over the past four years.

Cut-throat competition has made India one of the world's cheapest domestic airline markets and deals such as $50 one-way tickets on the two-hour flight from Mumbai to Delhi are easy to find.

"While it is easy to find Indian passengers who want to fly, it's very difficult for airlines to make money," said Alexandre de Juniac, director general of the International Air Transport Association.

Jet Airways last month reported a quarterly loss of 13.23 billion rupees, saying it aimed to cut costs, inject capital and monetise its frequent flyer programme.

In July, budget carrier IndiGo, the country's largest airline, reported its lowest quarterly profit in three years, with earnings down 97 percent.

Infrastructure

The airlines' woes notwithstanding, India has big plans to improve air connectivity as its economy continues to enjoy fast growth, lifting annual air trips to 1 billion in the next 15-20 years, around five times current levels.

The government also wants to build 100 new airports over the next 10-15 years at a cost of about $60 billion, Civil Aviation Minister Suresh Prabhu told the conference on Tuesday. India currently has around 130 airports.

Issues such as land acquisition, however, often delay construction and expansion of airports - and other projects - in India.

The domestic airport in Mumbai, for example, is struggling to keep pace with surging footfalls, and a second airport has yet to be completed despite years in the planning.

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