Ivy league’s business schools are always looking for cases to study in-depth by their students about corporations who after achieving their glorious periods, decline and struggle for their survival. Harvard, Stanford, Yale Business Schools have pioneered these kinds of studies and encourage their students not only to use Fortune-500, and multinationals but also to include state owned enterprises for their in-depth studies and making recommendations for their turnarounds.
Particularly of interest for the case studies are the corporations that started out from very humble beginnings against all odds and after reaching their zeniths, declined and even after many resuscitations, continue to struggle to stay alive. Pakistan International Airlines (PIA) fits so well in this mold as it started out from a very humble beginning and had its amazingly glorious past spanning over many decades, followed by its many years of struggle, and after several shots of life support, continues to encounter an uncertain future.
Interestingly and very uniquely, PIA (the national flag carrier of Pakistan) was created even before Pakistan came into its existence. It was June 1946, about fourteen months before a new nation was born on the global map, Mr. Mohammad Ali Jinnah, the founder of the country had a hunch that the country will need an airline that will allow travel between the two provincial capitals that will be physically 1,100 miles apart.
So, with this hunch, Quaid-e-Azam asked his industrialist friend M. A. Ispahani to set up an airline on an EXPEDITED basis. The airline will allow the government officials, policy makers, businesspeople, elite of society and the power brokers to travel efficiently between the power centers of the two provinces (West Pakistan & East Pakistan) and the capital of the country.
On October 23, 1946, just ten months before the creation of the country, a new airline was created, called “Orient Airways Ltd” and was registered in the then Calcutta. After purchasing 4 Douglas DC-3s from Tempo of Texas its operational license was obtained in May 1947 and its operations were launched on June 4, 1947. And this was the humble beginning of a brand-new airline for a country yet to be established!
Later, the “Orient Airways” moved its operations from Kolkata (Calcutta) to Karachi and continued its growth by adding more aircraft to its fleet and routes to continue its expansion.
Since “Orient Airways” was a privately-owned company, it had limited capital and resources to continue to keep up with its organic growth and with the ever-increasing passenger load and the destinations. Realizing this major handicap, government of Pakistan decided to create a government-owned airline by inviting the Orient Airways on June 10, 1955, to join in the newly created national airline, called PIA. M. A. Ispahani became the first Managing Director of the newly-minted airline.
Just after the creation of the national flagship carrier in 1955, the same year, PIA inaugurated its very first international flight to London via Cairo, Egypt and Rome, Italy. And this was just the beginning of several hallmarks and the milestones thereafter that took everyone, including the aviation industry, by a great surprise.
In the 1960s, under the prescient leadership of its Managing Director, Air Commodore Nur Khan, PIA thrived and transformed into a major International Airline in the aviation history. This period is remembered as the “Golden Period” of the national flagship carrier. In March 1960, PIA became the first Asian airline by starting a Boeing 707 jet service to London. To keep its international expansion, PIA started its transatlantic service to New York. Through its helicopter services in the then East Pakistan, PIA became the first major International Airline to have an expanded network of routes carrying more than 70,000 passengers load in its first year of operations!
On January 2, 1962, PIA set yet another major record in the International Aviation history by completing a speed breaking flight from London to Karachi, on a brand-new delivery of Boeing 720-040B (AP-AMG) jet, in just six hours, forty-three minutes and fifty-one seconds (onboard were monitors from Federation of Aeronautique International), a record that is believed to be remained unbroken to-date! On April 29, 1964, PIA earned yet another milestone in its wings by becoming the FIRST non-communist country airline to fly to Shanghai, Peoples Republic of China (PRC).
Later in 1972, PIA earned the honor of flying the USA leaders (Henry Kissinger and President Richard Nixon) to PRC that led to historic breakthrough in PRC recognition by the USA as the legitimate representative of Chinese nation and proclamation & adoption of the “One China” policy by the United Nations and its member countries.
This was the golden period of PIA when it was flying high, churning out profits, and generating foreign exchange for its industrialization and nation building drive. However, this golden period did not continue any further. The 1965 war with India and later separation of East Pakistan from the motherland, followed by political instability; all these factors contributed to the decline of the up & coming and record-breaking airline that once advised and trained the new airline startups in the region (the UAE, Ethiopia, Sri Lanka, etc.).
And this was the beginning of the downward spiral of the economic turmoil of the once darling of the major aircraft makers, both Boeing & the Airbus. During its last couple of decades, PIA has attempted to turn it around but because of the ever-present political instability, short of patience by the policy makers and new and extremely aggressive competition from the new regional (GCC) carriers like Emirates, Etihad, Qatar, Turkish, etc., and lack of support and trust by the government, leading to frequent changes in its (PIA) management did not help either.
In desperation and to have an outsider to investigate the operations, PIA commissioned IATA as a consultant to identify the areas for the root cause of its turnaround attempts failures. Just recently, IATA submitted its report to PIA’s management and made few recommendations and identified the growth opportunities in the coming years. Albeit the consultative work was supposed to be unbiased and is believed to be so by all means.
However, publicly reported information indicates that IATA did not underlinethe competitiveness and impact of the regional state-owned carriers (on PIA) who are financially supported and heavily subsidized by their extremely rich governments. These carriers such as Emirates, Etihad, Qatar, all have become aggressively so competitive and have expanded so much in noticeably short period that no other carrier can survive against them. They are not only adding new routes, luxury class services, brand new aircrafts to their fleets but also expanding their airports with facilities and amenities that other international airports envy.
Additionally, majority (80-90%) of their staff and crew members are multilingual foreigners, who are trained, refreshed and reminded regularly for passengers’ 100% satisfaction goal. Passengers with any nationality, once they experience flying with these carriers in any class of service, including the economy class, are spoiled. In many instances, their airfares are at least 50% less than any other carrier with the same origins and destinations.
Besides the service during the flight, on the ground services, particularly at their hub cities, are so impeccable that no one comes even close to them. During the flights, overwhelming entertainment choices, variety of beverage selections and meal options are offered. In the upper-class cabins (Business & First Class), on board chef prepared meals are offered along with premium quality beverages, and snacks.
Their business clubs are spacious, brightly lit, filled with amenities, beverages, and business supports in addition to gourmet meal services. The only other airlines that come any closer to these GCC carriers are Turkish, Singapore, Asiana, and Thai.
Since the major cost for flying an airline is the fuel and during last couple of decades jet fuel prices have been very erratic. In the absence of long-term jet fuel supply agreement, fuel costs alone can be very detrimental for the survival! Because of this fact alone, many EU and the US airlines have either disappeared (bankrupt), bought out by stronger carriers, or went for mergers. In fact, many state-owned carriers, particularly in Europe, have experienced the same symptoms as PIA has been showing for the past many years. Not only that PIA, majority have state ownerships, but they all have many things in common, like unions, overstaffing, political favors in hiring & promotions, mistreatments of the passengers onboard and by ground staff, luggage losses, delays in arrivals and takeoffs, overrun operational costs, poor service on the ground and on board, to name just a few.
Because of these many faceted elements, even after generous subsidies by their governments, many of the national flagship carriers could not make it. As a result of this, they have been merging with each other to bring economy of scale to survive. In 2001, Belgian national carrier, SABENA, filed for bankruptcy. SAS was privatized (>70%) by its Scandinavian countries in 2002. In 2011, British Airways merged with Iberia Airlines. As of October 15, 2021, Italian flagship carrier, Alitalia, ceased its operations for good and as of February 11, 2022, a newly formed airline “ITA” will be sold to MSC (Mediterranean Shipping Company). These are just the few highlights about the demise of the national flagship carriers.
Since PIA shares many of the same symptoms as the European national flag carriers, it makes more sense that instead of infusing more cash to continue to revive the ailing patient with multiple complications, we tread our European counterparts’ path. Thus, in today’s highly competitive environments, Pakistan’s government should encourage PIA’s management to explore merging its operations with one of the regional stronger airlines such as Emirates, Etihad, Qatar Airways, etc.
Following this path will be like what the Italian government did with its newly minted flagship carrier, ITA: “The failed carrier consistently racked up losses and has only been able to continue flying by being propped up with state aid. Without a larger partner, ITA could have a hard time competing in a market that’s already well-served, with global airlines offering long-distance flights from Rome and Milan.”
Thus, to avoid PIA’s eminent cardiac arrest and further bleeding of country’s foreign exchange reserves by providing life support frequently, it is in the best interest of Pakistan to search on an EXPEDITED basis for a stronger regional partner to merge PIA with, just like the founder of Pakistan, Mr. Jinnah, asked his industrialist friend Isphahani for the creation of a national airline.
(The writer is Executive Director, Polykemya International)
Copyright Business Recorder, 2022
The writer is Executive Director, Polykemya International
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