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  1. Analysis of PIA & Reasons of Poor Performance MBA Page 1 Contents…
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  • 1. Analysis of PIA & Reasons of Poor Performance MBA Page 1 Contents INTRODUCTION......................................................................................................................................3 INTRODUCTION.............................................................................................................................................4 BACKGROUND...............................................................................................................................................7 PROBLEM STATEMENT..................................................................................................................................7 SIGNIFICANCE OF THE STUDY .......................................................................................................................8 SCOPE OF THE STUDY....................................................................................................................................8 RESEARCH DESIGN...............................................................................................................................9 Research Design & Methodology .............................................................................................................10 RESEARCH DESIGN ...................................................................................................................................10 RESEARCH OBJECTIVES ...........................................................................................................................10 SOURCES OF DATA....................................................................................................................................10 A. Primary Source....................................................................................................................................10 B. Secondary Source................................................................................................................................10 SECONDARY SOURCES.............................................................................................................................11 RESEARCH INSTRUMENTS.......................................................................................................................11 I. Questionnaire Analysis .......................................................................................................................11 II. Discussion analysis.............................................................................................................................11 QUALITATIVE QUANTITATIVE RESEARCH ............................................................................................11 UNIT OF ANALYSIS....................................................................................................................................11 LITERATURE REVIEW.......................................................................................................................12 REVIEW OF THE RELATED LITERATURE.......................................................................................................13 US Airline Industry ..................................................................................................................................13 Indian Airline Industry.............................................................................................................................14 Pakistan Airline Industry.........................................................................................................................15 Background of PIA Airline ...........................................................................................................................16 Labor Unions Strike.............................................................................................................................18 Banned For Safety Issues ....................................................................................................................18 During recruitment: ............................................................................................................................20 Employee Motivation Level: ...............................................................................................................20
  • 2. Analysis of PIA & Reasons of Poor Performance MBA Page 2 Nepotism and political involvement in the recruitment and selection:.............................................20 The lack of experience when it comes to the aerospace industry and top management: ................21 Lack of Planning: .................................................................................................................................21 DATA ANALYSIS ..................................................................................................................................22 Data analysis ...............................................................................................................................................23 Financial Standing of PIA.............................................................................................................................24 Share price during last 5 years....................................................................................................................25 Industry Overview.......................................................................................................................................26 Differences between Lufthansa and PIA airline for the investors..............................................................27 COMPARISON OF PIA WITH LUFTHANSA....................................................................................................28 Lufthansa Financial Position ...................................................................................................................28 PIA Financial Position..............................................................................................................................28 Strategic Development at LUFTHANSA...................................................................................................29 Strategic Development at PIA.................................................................................................................30 Human Capital Management at Lufthansa.............................................................................................30 Human Capital Management at Lufthansa.............................................................................................30 Image of Lufthansa .................................................................................................................................31 Image of PIA............................................................................................................................................32 Financial Performance ............................................................................................................................32 Financial Highlights .....................................................................................................................................33 Conclusion...................................................................................................................................................34 CLOSING UP...........................................................................................................................................36 FINDINGS FROM THE RESEARCH.................................................................................................................37 CONCLUSION...............................................................................................................................................38 RECOMMENDATIONS .................................................................................................................................39 References ..................................................................................................................................................40 Appendix .....................................................................................................................................................41
  • 3. Analysis of PIA & Reasons of Poor Performance MBA Page 3 INTRODUCTION
  • 4. Analysis of PIA & Reasons of Poor Performance MBA Page 4 INTRODUCTION In the 21st century, globalization, population, and technological advances in various sectors have assisted to establish tourism into one of the world’s biggest industries. According to a study, the receipts of tourism have reached more than £1100 billion by the end of 2006. In addition to that, this sector has generated more than 350 jobs. Since, the sector has the ability of generating income, taxes, currency and jobs, the industry of tourism needs to develop more to make a significant contribution to the country’s economy across the globe (Bornhorst et al. 2010: 576). Tourism industry is one of the largest worldwide, generates nearly 212 million jobs and represents an important contribution to gross domestic product of many countries. In an industry of this size, the information and communication technology (ICT) has played a key role as a means to improve the efficiency of the organization as well as the delivery of services (Bornhorst et al. 2010: 577). Airline industry is described as a strongly competitive market. The air travel has always been a large and growing industry. It facilitates international investments, tourism, world trade and economic growth. It is, therefore, centre to the globalization that is taking place in numerous other countries. In previous years, there has been a shakedown throughout the industry, having wider effects on the trends of international and domestic services expansion. Initially, the industry was partially or completely owned by the Government. Afterwards keeping the potential in view, Private businesses also start their own Airliners and starts attracting money. Before 2011 incident the Airline industry is regarded as one of the biggest and fastest growing industry. If we analyze the market of Pakistani Airliners they have some good number in their financial statements other than the Government Airliner (PIA). But it was the time when these
  • 5. Analysis of PIA & Reasons of Poor Performance MBA Page 5 Local Airlines are rated as top of the world, (PIA) is considered as one of the top most airlines of the world and its Pilots are considered as highly trained and able to handle any of the problems in air. According to an IATA survey, (PIA) was ranked as top 10 airlines of the world. Pakistan International Airlines is the national flag carrier and was established in 1955. It not only provides transportation services, but its operations extend to providing cargo services and courier services also. Pakistan International Airlines serves two markets – Domestic and International. In the domestic sector, it has outperformed itself by stretching its networks to areas where other airlines do not fly to. In the international market it faces severe competition, especially due to the fact that these international organizations are providing fares much lower than Pakistan International Airlines. Internationally also, Pakistan International Airlines is encountered with a severe and strong challenge with many renowned international names. Pakistan International Airlines faces competition with not only international airlines but also with local airlines on the various routes to the Middle East and the Gulf. Due to fierce competition and rising oil prices, international aviation industry regulations and some internal factors such as human resource issues of over recruitment, de-motivated employees, mismanagement of resources both in case of manpower and other resources, aged fleet, corruption and lack of accountability PIA is facing a deep financial crisis. It is losing its market share both in international market and domestic circuit. The present report is written about the current situation of PIA and future plan of action for PIA. Although the Airline industry is no longer experiencing the rapid growth it exhibited before 1990; commercial air travel in the U.S. remains the preferred method of transportation for a majority of Americans due to cost-effectiveness and timesaving characteristics. From 1980 to
  • 6. Analysis of PIA & Reasons of Poor Performance MBA Page 6 1990 the number of passengers traveling by air increased by approximately 72%, in contrast, in the 1990-1998 period, the airline industry only experienced 36% growth. On the other hand, if we analyze the Indian airline industry we would find out the fact that they are operating the local (Government Owned) as well as, local airlines with full zeal and zest. This means that they are increasing the profit figures and on the same way enhancing the market share internationally. One of the main characteristics of the international aviation market, its high concentration in large aircraft, has remained over the past years. This product category accounted for 55% of industry sales in 2007(Graph 1). The midsize aircraft represented approximately 10% of trade International small and less than 1%. The helicopter industry worldwide sold $ 6.4 billion or approximately 4% of the total aeronautical sector. On its Instead, suppliers of parts, components and systems continued presenting high participation in international trade, accounting in 2007 for about ⅓ of Sales of the aviation industry. It is worth mentioning that this last segment includes both components and systems used in the production process as the spare parts of Aircraft in use. The involvement of Government in these state owned institutions will results in either increase in their performance or on the other hand they would change the whole picture and diminishes the overall growth. PIA was once renowned for its stunning service and better compliance and flight safety. People feel proud while traveling from the flag bearing airline. But things have changed suddenly the Growth pattern and sales graph of PIA has gone down so much so that, its losing its valued customers. Government has announced a bailout package and emergency Aid for the Public institution in order to buy new planes and to meet up the daily requirements. On the other hand, one more reason is to fetch the daily losses.
  • 7. Analysis of PIA & Reasons of Poor Performance MBA Page 7 From 1992 to 2004, PIA has given tough time to other leading international Airlines BACKGROUND Company Pakistan International Airlines, for which this year could be the fourth unprofitable year in a row, plans to bail out of 30 billion rupees ($ 379 million), putting their hotels. For her, it is perhaps the only opportunity to raise funds in the credit crisis. "We are an organization in which no one wants to invest" - complained the managing director of the corporation Aydzhar Mohammad Haroon. New York's Roosevelt Hotel Scribe in Paris and will be part of the new business, which will be open to investment by state-owned companies. Pakistan's largest airline also plans to reduce its staff by 5,000, or 28% of the total, going to outsource. This is a necessary measure, due to the inability to obtain government assistance. Among other things, Pakistan International Airlines, 88% owned by the state, has to cope with the effects of rising fuel prices and reduced demand for tourist services caused by the downturn in the world economy. For the first nine months of the year PIA suffered a loss of 38.4 billion rupees, while last year their amount of 10.9 billion, according to "Bloomberg". According to Harun, next week, the airline hopes to get government approval for the operation with hotels. Investors will be provided with a guaranteed rate of return on hotels worth more than 60 billion rupees. After about five years of PIA expects to buy them back. PROBLEM STATEMENT ANALYSIS OF THE PERFORMACE OF PIA AND THE REASONS OF HUGE LOSSES
  • 8. Analysis of PIA & Reasons of Poor Performance MBA Page 8 SIGNIFICANCE OF THE STUDY The study is significant in such a manner that it indicates the causes of loos and Uncertainty to the flag bearing airline. As discussed above that PIA is world’s renowned airline and is competing in the market with full zeal and zest. Then what are the reasons when other Airliners are back to the track of economic progression, what is the reason why PIA is turning to huge losses. Despite of a number of competitive advantages which the Airline enjoys, it is facing huge losses. For example: Hajj flights are only allowed for PIA and thousands of passengers every year travel from PIA. On the other hand, PIA enjoys Enormous Subsidies in Taxes from the Government of Pakistan. SCOPE OF THE STUDY The Scope of the study is unique in the sense that it is useful for the employees as well as, for the stakeholders who wants to know some strategic and factual reasons behind its downturn. If we analyze the current Airline Market in Pakistan, One could find out the fact that, New Airlines are Incorporating their business operations in Pakistan with a heavy investment For Example: Recently introduced: Indus Air. Than why not PIA which is pioneer in the market and has a flying reputation.
  • 9. Analysis of PIA & Reasons of Poor Performance MBA Page 9 RESEARCH DESIGN
  • 10. Analysis of PIA & Reasons of Poor Performance MBA Page 10 Research Design & Methodology RESEARCH DESIGN The analysis of research highlights the research design as ‘Descriptive’. This kind of research design provides a complete description of regarding the problem statement and the concepts discussed in it. As in this thesis Analysis of PIA and reasons of losses are discussed in a descriptive manner. RESEARCH OBJECTIVES The main objective of the research study is as follows: a) Aviation industry of Pakistan and Analysis of PIA? b) What are the major reasons why the flag bearing Airline his facing Economic and financial Downturn? c) SWOT analysis describing the strengths and Weaknesses of PIA? SOURCES OF DATA A. Primary Source B. Secondary Source Primary data is gathered from Interviews from the people at PIA whereas on the other hand, Secondary data is collected from a complete analysis of the international literature and examples. Discussion with the employees of PIA is the major source of collecting information at PIA.
  • 11. Analysis of PIA & Reasons of Poor Performance MBA Page 11 SECONDARY SOURCES Secondary sources for the data extraction are collected from International Research papers and from IATA Association. On the other hand, Articles and performance of other airlines which are in competition with PIA. RESEARCH INSTRUMENTS I. Questionnaire Analysis II. Discussion analysis. QUALITATIVE QUANTITATIVE RESEARCH It is majorly a qualitative research in which clear description of the analysis of Pakistani Aviation Market along with the performance of PIA is discussed. The research study is more of qualitative nature rather than quantitative. UNIT OF ANALYSIS a) PIA Airline b) Economic and financial factors
  • 12. Analysis of PIA & Reasons of Poor Performance MBA Page 12 LITERATURE REVIEW
  • 13. Analysis of PIA & Reasons of Poor Performance MBA Page 13 REVIEW OF THE RELATED LITERATURE US Airline Industry Air traffic is an engine of global growth and it seems that it will remain, despite the crisis. To date, the number of passengers grew by an average 5% per year worldwide. Airbus, as well as U.S. rival Boeing, predicts a growing demand for new aircraft over the next 20 years. The manufacturers are benefiting mainly two scenarios. Firstly, more and more people in emergi
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