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Not easy to stay in airline business

Published on 2nd Mar, Edition 9, 2015

 

It’s getting tougher to stay in one of the most competitive businesses — air passengers trafficking. It’s a combination of high management skills, acquisition and maintenance of state-of-the-art fleet, expert financial management, and above all, a delicate marketing approach aimed at passenger comfort. A recent AFP Tokyo news article appearing in Gulf Times reports ANA’s joining others in a bid to rescue bankrupt Skymark. The news article opens with the following lines: ‘Japan’s All Nippon Airways yesterday announced plans to help turn around bankrupt Skymark Airlines, reportedly joining a string of other firms offering a lifeline to the struggling carrier.’ Skymark, Japan’s third-largest airline, filed for bankruptcy protection in late January in the face of potentially massive penalties over a cancelled $2.2 billion jet order with Airbus.’

Skymark’s bankruptcy seems to ensue from its faltering financials that have taken shape during the last three years, as evident from the following figures:

(FIGURES IN MILLION JAPANESE YEN)
MARCH 31, 2012
MARCH 31, 2013
MARCH 31, 2014
Total Revenues
80,255
85,943
85,975
Cost of Goods Sold
61,642
77,463
85,134
Net Profit (Loss)
7,703
3,778
(1,845)

The most interesting aspect of the Skymark episode is that some 20 sponsors have joined hands to rehabilitate the troubled airliner which shows that the fall of Skymark has no roots in corrupt practices as is the case with our national airliner. PIA has a history of accumulated losses that are the result of corrupt political practices rather than any professional financial management failure. It was back in 2004 when PIA reported profits. Since then it has been a history of sustained losses which now stand at more than $2 billion. A $1.277 billion company accumulating $2 billion in losses, is beyond rehabilitation. Any further state money going into it will soon vanish without producing any worthwhile results. With the news appearing in the media about the malpractices rampant in PIA and its much discussed (proposed) political sell-off, the fate of the ailing public sector organization hangs in balance.
The first Asian airline to fly a jet, and a gem of airliners to help set such companies as Emirates, PIA today appears nowhere in a list of 100 best world fliers. It’s now a huge drag on state revenue purse. Once a role model for global airliners, it now breathes hard in the financial rot brought about by corruptive political inductions and continual overstaffing. Currently PIA employs more than 19,000 people. Its revenues in dollar terms were around 285 million in March 2014. For comparison purpose, one may note that the world’s third best flier, Singapore airlines with revenues of $9.2 billion, employs 14,628 people. Further, Singapore Airlines has a fleet of 105 aircrafts as against PIA’s 29 (plus 16 on order).

 

With the national air carrier in such a bad shape, it is no surprise that no airline from Pakistan appears in the list of best hundred, for the year 2014. The only redeeming aspect is that none appears in the list of 20 worst either. Airliners’ is one of the most delicate businesses as lot of things take shape in the air as well as on the ground. Customer satisfaction and keeping pace with the new technology are the two mantras of this highly competitive field.

TABLE SHOWING RANKING OF WORLD AIRLINES (SOURCE: SKYTRAX PASSENGERS CHOICE AWARDS)
RANK 2014
AIRLINE
RANK 2013
RANK 2014
AIRLINE
RANK 2013
1
Cathay Pacific Airways
6
17
British Airways
27
2
Qatar Airways
2
18
Malaysia Airlines
14
3
Singapore Airlines
3
19
Hainan Airlines
19
4
Emirates
1
20
Bangkok Airways
31
5
Turkish Airlines
9
21
Austrian
33
6
ANA (All Nippon Airways)
4
22
South African Airways
21
7
Garuda Indonesia
8
23
Japan Airlines
25
8
Asiana Airlines
5
24
Air Canada
20
9
Etihad Airways
7
25
Air France
40
10
Lufthansa
11
26
Korean Air
17
11
Qantas Airways
10
27
Oman Air
22
12
EVA Air
12
28
Dragonair
23
13
Swiss
16
29
Hong Kong Airlines
41
14
Thai Airways
15
30
Aegean Airlines
30
15
Virgin Australia
13
31
Air Asia
24
16
Air New Zealand
18
32
KLM
37

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