MANAGERIAL POLICY

AIRLINE INDUSTRY
Term Report

Submitted by

Mehreen Adil
Nida Haroon
Sana Saleem
Introduction to the Global Airline Industry
According to a research published by the Columbia University 1, there are
2,000 airlines operating more than 3,000 aircrafts through 3,700 airports
globally. In 2006, there were 28 million flights schedules for departures and
carried over 2bn passengers across the globe. In the past 30 years, the
growth of airline industry has been approximately 5%.

In June 2002, profits per passenger were $2.56.Airlines are coming up with
ideas to reduce costs, maximize revenues and simultaneously developing a
niche for certain privileged travelers. Ryan Air has gone to the extent of
charging its on flight customers for usage of toilets. They have emerged as a
no-frill airline reducing costs to the bare minimum to attract customers. On
the other hand, Emirates has proved that luxury know no bounds by
introducing private suites including an opulent shower facility.

However, this industry is largely dependent on oil prices. It makes the

business conditions extremely tough and unpredictable. Furthermore, it is a
price sensitive industry with substitutes available. In our report we shall
discuss all the internal and external factors influencing this industrys
landscape, globally and nationally.

According to IATA statistics the global airline sector profit is likely to grow to
$7.5 billion, with Asia Pacific and West Asia based airlines having greatest
market share and also leading the market in terms of enhanced operating
margins.Conferring to the report by the ICAO scheduled traffic analysis since
1980, the world passenger growth in air traffic is about 5% per annum. The
report also said that by 2031

Asia-Pacific will dominate the world traffic with a 32 per cent share, while the
Middle East will rise from 7% to 11%.82. IMF states that over the next 20
years, the number of airline passengers is expected to grow at 4% per
annum with airline traffic growth expected to grow at 5% per annum.

In the last three years the global airline industry has grown drastically in
spite of the continuing market turmoil.Also another important thing to be
taken into consideration is that while the North American and European
carriers are busy urging the government to put an end to the unnecessary
taxation and passenger duties, the Middle Eastern and Asian carriers are
taking advantage of both growth in the route network and the growth in

1http://www.columbia.edu/cu/consultingclub/Resources/Airlines_Eric_Henckels.pdf

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passenger demand.

Airlines globally are increasingly seeking for strategic alliances and

partnerships to increase passenger flows and produce combined profits.
Some Gulf carriers are joining global alliances and they are followed by
others.86. None the less the global airline industry is presently incurring
losses due the recent financial and economic crisis, however, Asia Pacific and
Middle East regions are expected to remain profitable although the
percentage is likely to decrease North American airlines have only improved
in terms of profitability and African airlines are still expected to break-even.
The top ten largest airlines in terms of revenue according to Forbes 2000 are
as follows:

Introduction to Pakistans Airline Industry

Airline is a lucrative industry that is one of the most dynamic sectors in the
business world. Air travel is an integral requirement of all societies since it
forms an essential part of present day lifestyle. The commercial airline
industry has come a long way towards providing proficient, comfortable and
reasonably priced means of travel and trade. It has successfully turned the
world into a global village. The profits of commercial airlines define the state
of the economy of that country. The importance of international air travel
with regards to trade cannot be underestimated, since it connects business
people across the world, and is also a means of shipping cargo. However, for
now and for some years to come, it seems that the future of the industry,
both domestic and international, will be clouded by many doubts in several
sectors; economics, energy, and regulatory policies of governments.

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History of the Industry
The Pakistani aviation industry began before the creation of Pakistan. Orient
Airways, set up in 1946, was the first official national carrier to operate in the
country. It was merged with Pakistan International Airlines, in operation since
1951, and revamped to become Pakistan International Airlines Corporation in
1955. It went on to become the first Asian airline to induct jet aircraft in the
1960s and initiated transatlantic routes during the same era. It introduced
new destinations and expanded its fleet in the 1970s; and diversified its
operations to add cargo to its portfolio in the 1980s. The Civil Aviation
Authority was set up in 1982 as a regulatory body to supervise the aviation
industry in accordance with International Civil Aviation Organization
regulations.

PIA continued to add new destinations in the 1990s and faced competition
from a private airline, Shaheen Air, established in 1993. Shaheen Air offered
charter and cargo services in addition to passenger services. It was given the
title of Second National Carrier of Pakistan in 1994. The company also set
up a maintenance organization, Shaheen Engineering and Aircraft
Maintenance Services, providing maintenance facilities to regional airlines. It
holds the rights to operate Hajj flights and remains the only private airline to
do so in the country. Foreign carriers were allowed to operate after the Open
Skies Aviation Policy was signed in the same decade. Airblue was established
in 2003 and captured a large section of the market quite quickly. There was
direct competition between PIA, Shaheen Air and Airblue. Bhoja Airlines
began operations in 1993 but ceased them in 2000 because of financial
constraints. They re-launched in 2011, but are not in operation at the
moment due to a temporary ban by the Civil Aviation Authority because of
an accident which occurred on April 20, 2012.

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 Political Economic Social Technological
LegalEnvironmental(PESTLE) Analysis of the
Global Airline Industry

One usually thinks of luxury and comfort along with convenience once the
term Airlines is mentioned. However, airlines around the world are facing
the ongoing problem of lower profits, high operating costs and decreasing
margins due to various factors. The PESTLE analysis helps one gain an
insight on the global airline industry as it stands today.

Political
The global aviation industry is deregulated on the supply side as opposed to
being regulated on the demand side, which leads to increasing competition
among various airlines and allows passengers and fliers to press for more
amenities and low prices. The political environment is therefore highly
regulated favoring passengers over airlines. This is because of the fact that
the global aviation operates in an environment where there is great
passenger safety along with decreasing monopolistic behavior and tighter
regulation of the operations of airlines.

Economic
The attacks of 9/11 have definitely effected the development of the aviation
industry along with the recession, which followed the bursting of the dotcom
bubble. Moreover the fluctuations in the price of oil because of the Second
Iraq War as well as the spike in oil prices before the Great Recession of 2008
have had a severe impact on the aviation industry. The ongoing global
economic slowdown has led to a decrease in passenger traffic throughout the
world. In addition to this, there is increasing competition from low cost
carriers along with high aviation fuel prices, labor demands and increasing
maintenance and operating costs. This has resulted in many airlines being
victims of bankruptcy while some find it hard to run their operations
profitably. Such downturns have given rise to consolidation among airlines as
they seek to leverage efficiencies through economies of scale and look
towards merging with other airlines.

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Social
With the emergence of the Millennial generation into the consumer class, the
airline industry is required to cater to the increasing demands of this
segment by balancing their costs. In addition to this, the Baby Boomer
generation is retiring which was a great source of income for the airline
industry. Moreover the profile of passengers has changed from more
business class passengers to economically minded passengers since they
prefer making use of improved communication facilities to conduct meetings
instead of travelling to meet their business partners. With the advancement
in technology, all types of information regarding various airlines is widely
available leading to increase in competition and a focus on providing better
quality customer service.

Technology
Initially the extensive technology used by airlines was limited to the aircraft
and its operations excluding the ticketing and distribution aspects. However
with time, many airlines have made use of the advancements in technology
for their front office and customer facing functions. Mobile technology has
led to efficient functioning of the ticketing and distribution process. Moreover
social media has widely evolved and does not only provide information
regarding airlines but also displays customer views, comments and feedback.

The global airline industry is in a phase called the Airline Death Spiral
which has led to many airlines going bankrupt worldwide along with a closure
of few. Furthermore regulators are not lenient with airlines when they ask for
more time or less strict rules. Increasing competition and demanding fliers
have made it difficult for full service airlines to compete on price and volume.
Furthermore the profitability of the global aviation industry is greatly affected
by the increased cost of doing business.

Legal
The number of lawsuits by customers as well as workers has increased over
the past few years. Moreover regulators are getting stricter with airlines in
order to ensure that they are not violating any laws. There is increased fear
among airlines since they are aware of the fact that they are constantly
being scrutinized therefore they have to be careful with delays, safety issues
and other factors which may make them a victim of expensive lawsuits.

Environmental
Compared to recent times passengers are now becoming more
environmentally conscious. Airlines have therefore adopted green flying

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and are responsive towards the concerns of environmentalists. Moreover
consumers and activists have turned a critical eye towards airlines and their
corporate social responsibility due to which social responsibility initiatives
are being greatly scrutinized.

(PESTLE) Analysis of Pakistans Airline

Industry
Political
The political situation of thecountry has an immense influence on the
workings of the airline industry. Over the course of history, the military
dictatorships and lack of stable democracy in the country has translated into
high levels of instability.

The Pakistani airlines particularly PIA are criticized for being highly
politicized. A recent incident involving former Interior Minister and current
Pakistan Peoples Party senator Rehman Malik, and Ramesh Kumar
Vankwani, a member of the ruling Pakistan Muslim League were stopped
by angry travellers from boarding the KHI-ISL flight complaining that the
politicians' late arrival had delayed the flight by at least two hours(ET,
Guardian, NYT)
Pakistans involvement in war against terror means a higher security risk
in the country and thus less visitors and lower demand for air travel.
Governments plans to privatize PIA will reduce the discriminations faced
by the private airlines in terms of higher taxes and lower subsidies
Eurozone is expected to implement Euro II standard emission system on
all flights entering its airspace. This will require more fuel-efficient planes
or a lost market; If the attempts to improve relationship with India and
Afghanistan are successful, there will be an increased travelling in the
region, thus increasing the scope for the airline sector

Economic
PIA has asked for a 25 billion loan from the GOP in January 2013, the
third and the biggest demand since 2007
According to some recent surveys, per capita income in Pakistan has

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 increased significantly, thus increasing the demand base
The recent financial crisis has affected two most important markets for
Pakistans airlines, USA and Europe. As the economy deteriorated in
these areas, the large number of Pakistanis living there found their
incomes decreasing and thus a fall in demand for the airline industry
Open Skies policy and the deregulation of the industry has meant that
there is less space for inefficient airline companies, which can be seen
by the closure of Aero Asia and Bhoja
Controlled inflation in FY 14-15 and positive economic growth of the
country will have a positive impact on the airline industry
Increasing middle class means a higher demand base for the airline
industry
Stock market has reached a record high level which can attract
potential investors
Inflation fell to 5.8 % in April 2013, with oil prices decreasing as well,
thus reducing the costs of operations for the airline sector
Overall consumer spending and consumer confidence has also
increased in the country according to a survey carried by the APP and
this is expected to positively impact the demand for air travel
According to June 2012 Ease of doing business report by the World
Bank, Pakistan ranked 107 amongst 185 countries. This can bring
fewer foreign investors in the country and can also improve the
investment position because as compared to the region
Increasing competition from new branded and low cost airlines in the
region

Social
Travelers are afraid to use local airlines given the history of crashes
and the attack on Jinnah International Airport in 2014
The law and order situation has led to immigration of Pakistani citizens
to other countries and who also visit regularly thus increasing the
demand for air travel
According to estimates, there is an increase of 15% every year in the
number of people going for Hajj and Umra, presenting the airline
industry with a high demand
Increasing population will increase the demand while increasing labor
force will increase the available employees
The youth is becoming more educated and there is an increasing
awareness of the rights of the customers, airlines are expected to
increase the quality of their services
After the terrorist attacks of 9/11, people travelling through Pakistani
airlines are often checked more extensively at the international
airports than passengers for other airlines, thus creating a
disadvantage for the local companies. However the recent attack on

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 the Jinnah Terminal exposed the vulnerability to security breach
There is an increasing awareness of hygiene and healthy diet among
consumers, presenting another challenge for our airline industry

Technological
The only profit generating department of PIA is its courier service
under the name of Speedex. However, traders have registered
complaints about the lack of cold rooms, strong rooms and the
inefficient cargo scanning systems at the airport. By making necessary
technological upgrades, this sector of the industry can be improved
and generate ore profits
Airblue has planned to increase its fleet by six more air buses which
will help the company meet its rising demand conditions
Compared to Airblues air buses, PIAs Boeings are inefficient
consumers of fuel, thus increasing the cost per flight
Online ticket purchasing is not yet so developed in Pakistan due to the
lack of rebates presented to the consumers. If this sales promotion
technique is used, it will not only increase the demand for air travel but
will also reduce the cost of employing staff at the ticket booths
The recently developed business trains in Pakistan have become a
threat to the airline industry as it covers the most important routes,
provides a higher level of comfort and is less expensive than an air
ticket
New technology like Skype or holographic techniques have meant that
people visit relatives less frequently than they used to in the past
Failures of navigation system have apparently led to the recent air
crashes, while the incompetent machinery of the planes has resulted in
many emergency landings

Legal
There has been a tightening of the laws against the airline industry, in
particular PIA, as seen by the recent judicial actions and the IATAs fines on
PIA for its irresponsible behavior including incidents such as allowing
underage children to board the plane.

PIAs refund policy is against the law and has been taken under notice.
The recently developed business trains in Pakistan have become a
threat to the airline industry as it covers the most important routes,
provides a higher level of comfort and is less expensive than an air
ticket.
New technology like Skype or holographic techniques have meant that
people visit relatives less frequently than they used to in the past.
Failures of navigation system have apparently led to the recent air

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 crashes, while the incompetent machinery of the planes has resulted in
many emergency landings.

Environmental
PIAs continuous use of the Boeings has not only increased the costs
but has also increased air pollution
The recent floods particularly in the Gwadar region have destroyed the
airports and runways of that area. The unhygienic conditions and the
flooding in the Upper Punjab will translate into low tourism in the
region
European Unions intentions to act against the pollution of its airspace
will also negatively affect our industry
Lack of pollution control and implementation of environmental laws
coupled with strengthening international requirements will adversely
impact the airline industry

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