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Tuesday 4 December 2012

Quality and Productivity (PIA)



Executive Summary

For large organizations like PIA, there is a constant need for continuous improvement. PIA has also announced a 5-year revival plan this year. Without anticipating the outcomes of that plan, we have identified four areas that have great room for Productivity Improvement. The four areas with great potential for Productivity Improvement in PIA are: Employees per Aircraft ratio, Nepotism and Corruption in Management, Aircraft Utilization and Miscellaneous Factors. There is a need to end political intervention and nepotism. Old aircrafts should be replaced with new fuel efficient aircrafts. It should also start fuel-hedging program.

Introduction

Pakistan International Airlines (PIA) is the national flag carrier of Pakistan and the national airline operating passenger and cargo services around the world. Its main hubs are Jinnah International Airport, Karachi, the Allama Iqbal International Airport, Lahore and the Islamabad International Airport, Islamabad/Rawalpindi.
It also serves regional airports, including Peshawar International Airport, Peshawar, Faisalabad International Airport, Faisalabad and Multan International Airport, Multan that connect to the main hubs and have flights to the Middle East.


History

Air transport has probably never been more important to the development of a new nation than in the case of Pakistan. In June 1946, when Pakistan was still in the offing, Mr. Mohammad Ali Jinnah, the Founder of the upcoming nation, instructed Mr. M.A. Ispahani, a leading industrialist, to set up a national airline, on a priority basis. With his singular vision and foresight, Mr. Jinnah realized that with the formation of the two wings of Pakistan, separated by 1100 miles, a swift and efficient mode of transport was very important.

The year 1955 also marked the inauguration of the fledgling airline's first scheduled international service - to the glittering, glitzy capital city of London, via Cairo and Rome. Initially, there was much criticism, as the public could not comprehend or justify the need to operate an international route when, in their opinion, other projects vital for a developing country should have been given a higher priority. However, PIA's focus was, and continues to be, to serve the Pakistani community at large. The provision of transportation to expatriates has remained one of the foremost priorities of the national airline. Moreover, PIA earned substantial foreign exchange through international services, which it invested in the purchase of aircraft and spare parts, as fleet expansion was a grave necessity for the airline.

In 1956, orders were placed for two Super Constellations and five Viscounts which were to be delivered in 1959. At this juncture, PIA possessed a small fleet which comprised of Convairs, Viscounts, Super Constellations and DC-3s.
While Mr. M.A. Ispahani was the first Chairman of the new dynamic airline; it was the first Managing Director of PIA, Mr. Zafar-ul-Ahsan, who in his 4 year tenure, got the ball truly rolling and set the shape of things to come. The PIA Head Office building at Karachi Airport, which houses the entire major departments of the airline, was the brain-child of Mr. Zafar-ul- Ahsan. In fact, on his departure from the airline, the employees presented him with a silver replica of the building with the caption, "The House You Built".
In 1959, the Government of Pakistan appointed Air Commodore Nur Khan as the Managing Director of PIA. With his visionary leadership, PIA 'took off' and within a short span of 6 years, gained the stature and status of one of the world's frontline carriers. In aviation circles, this period has often been referred to as the "golden years of PIA".
Development, expansion, and growth were keywords that the new management was committed to. In March 1960, PIA launched its first Boeing 707 jet service on the London-Karachi-Dacca, route which later proved to be very successful. This trail-blazing accomplishment resulted in PIA becoming the first Asian Airline to operate a jet aircraft, setting trends for the future. In 1961, the airline took on the mammoth task of initiating a cross-Atlantic service from Karachi to New York. By this time, PIA had placed orders for more new aircraft, which included Fokker F-27s, Boeing 720Bs and Sikorsky helicopters. Helicopter services in East Pakistan had gained momentum by 1962 and expanded to include Sylhet, Chittagong, Dacca, Comilla and Ishurdi. PIA's helicopter services carried over 70,000 passengers during the first year of operation. At the time, it was regarded as a stellar operation, equal to any other in the world. Unfortunately, due to two mishaps, the service was discontinued in 1966.

Productivity Measures and Analysis

The Pareto principle states that, for many events, roughly 80% of the effects come from 20% of the causes.

One way of improving productivity of an organization is to focus on those key areas that have caused deficiency to a great extent. In terms of productivity, those key areas are discussed below:

1) Employees per Aircraft.

In order to do an analysis of productivity of an airline, different Financial, Employment and Traffic measures are used such as Employees per Aircraft.

      ‘Employees per aircraft’ is one measure of an airline’s efficiency with respect to the average number of all its employees per unit of production. The smaller the number of employees per aircraft, greater is the efficiency.
           
PIA has around 20,000 employees and a total of 48 air-crafts today according to the HR department of PIA. This data gives Employees to Aircraft ratio, of 417, which is amongst the highest in the world. No major airline has that kind of ratio. At 276 per aircraft, Indians are embarrassed to be associated with Indian Airlines, while in the United States; United Airlines has the highest employee to aircraft ratio in America at fewer than 120 per plane. PIA stands nowhere near that. On the other hand, the generally accepted standard for an airline is 300 employees per air-craft according to a Manager at PIA. It is to be noted that according to Indian experts for Indian Airlines, the ideal ratio should be anywhere between130-170.

The government does not look serious in helping PIA to get rid of its mess. According to media reports, despite the fact that PIA is hinting at implementing a 5-year revival plan, government has recently instated employees numbering to a couple of thousand. It's a clear deviation from PIA's plan of sacking over 4,000 non-essential employees.

2) Nepotism and Corruption in Management.


Cronyism, nepotism and corruption have become a 'way of life' in public sector entities of Pakistan. As per a general estimate, in past years almost 20% of the GDP has been lost through corruption and corrupt practices annually. In the words of Chairman NAB of General Musharraf government: '…..prevention of corruption, is about rationalization of discretionary powers, transparency, access to information and public participation, additionally, simplification of laws and procedures and effective management are factors that assist the process.' Without doubt, there is a need to liberate public sector from negative political interference in administrative matters and recruitment to promote merit system and professional standards.
It is said that there was little or no political interference until 60s but Bhutto took it to a new level. There is a complete disregard for merit since then. The trend, of forced induction of political workers in PIA that began in early 1970s, was followed by a number of successive governments causing slow and steady decline in PIA services standard.
This induction of political workers in PIA is strictly against the standards of merit. Over the time, this disrespect for merit has gone to a higher level, as people who are not even eligible to apply get the jobs. 'They [political inductees] have totally different attitude.' says a Sr. HR Manager at PIA. These inductees don't find themselves answerable to the organization as they have the patronage of their intercessors. Another significant factor of these inductions is that even if they get sacked due to corruption and poor performance, they not only get their jobs back but they also receive their pay-checks of the period of their non-employment from PIA, after they are reinstated.

On the other hand, two Nur Khan era’s in PIA’s history clearly show that how an institution can progress in the absence of nepotism and corruption. First one was from 1959 to 1965 and is remembered as golden era in PIA’s history under Nur Khan as airline’s Managing Director.



Operating Loss/Profit [1955-1965]
Year
Operating Profit/Loss (in Million Rupees)
1955
10.15
1956
09.63
1957
04.38
1958
06.71
1959
6.37
1960
9.23
1961
9.23
1962
10.68
1963
32.73
1964
49.22
1965
44.09

Second Nur Khan Era was from 1973 to 1979. In 1971-72, PIA suffered losses and in 1973, Nur Khan accepted the position of Chairman PIA on the condition that there would be no political interference from government in matters related to airline. The airline recovered under Nur Khan's leadership and began to show profits again with expansion in route network and fleet including induction of Boeing 747s.

On the 3rd of July, 2010, The Nation reported 'The Senate’s Standing Committee on Defense  has unearthed a scam within Pakistan International Airlines (PIA) about the theft of 1100 service trolleys, amounting to more than 550000 Singapore dollars, used in the planes of national carrier.'

To understand the level of corruption in PIA, the report that appeared in the same newspaper is enough. The report says: 'The members of Senate Standing Committee for Defense lost their temper when the PIA MD tried to win them over by offering them expensive watches before they took proceedings against the theft of over 1100 in-flight trolleys in the Airlines, sources in the PIA revealed on Wednesday.'

The political intervention not only leads to corruption and losses but it also leads an organization towards mismanagement. At PIA, with its feet in marsh of mismanagement, reports of accidents related to engine failure are not a surprise for experts. The back-to-back incidents of aircraft engine failure over the past few months have prompted aviation experts to call into question PIA’s maintenance standards. PIA’s spokesperson Sultan Hassan said that the high rate of engine failure was not caused because of any maintenance issue, but by birds hitting aircraft engines. Aviation experts, however, disagree. They say that the rate of engine failure is “unacceptably high”. They said that airlines experiencing shaky financial conditions can “sometimes compromise on maintenance matters” which could have a negative impact on flight safety.

Another example of corruption is an incident of cargo pilferage caught by a PIA pilot in 2006-2007. The aircraft was operating a flight from Pakistan to an Arabian Gulf country. After take-off from Pakistan the flight commander observed higher than normal fuel consumption. The higher rate of fuel consumption did not match with the load & trim-sheet that was provided to cockpit crew before flight’s departure from Pakistan. After landing at destination in the Arabian Gulf country, the PIA aircraft captain had the aircraft weighed again and nearly 200Kg of extra baggage weight and close to 2800Kg of extra cargo weight was detected which was not shown in load & trim sheet. Although aircraft was not overloaded but obviously this detection showed that wrong figures were entered in load & trim-sheet and someone at Pakistani airport was involved in cargo pilferage causing revenue losses to the airline.

3) Aircraft Utilization.

In a private TV channel's talk show, PIA Chairman Tariq Kirmani said that to become a profitable airline, PIA will have to replace old aircraft with new fuel efficient aircraft, and reduce the number of employees per plane.
The fleet of PIA and Airblue includes following air-crafts:
PIA

Aircrafts*
Total
Passengers
(Business/Economy Plus^/Economy)
12
184 (12/40/132)
205 (18/43/144)
205 (18/45/142)
6
118 (0/24/94)
119 (0/27/92)
4
320 (35/45/240)
329 (35/54/240)
2
310 (35/60/215)
*It does not include all the air-crafts in PIA's fleet.

Airblue

Aircrafts
Total
Passengers
(Business/Economy Plus^/Economy)
3
144
1
146
2
195

 

How much fuel does an international plane use for a trip?


A plane like a Boeing 747 uses approximately 1 gallon of fuel (about 4 liters) every second. Over the course of a 10-hour flight, it might burn 36,000 gallons(150,000 liters). According to Boeing's Web site, the 747 burns approximately 5 gallons of fuel per mile(12 liters per kilometer).
Consider that a 747 can carry as many as 568 people. Let's call it 500 people to take into account the fact that not all seats on most flights are occupied. A 747 is transporting 500 people 1 mile using 5 gallons of fuel. That means the plane is burning 0.01 gallons per person per mile. In other words, the plane is getting 100 miles per gallon per person. The typical car gets about 25 miles per gallon, so the 747 is much better than a car carrying one person, and compares favorably even if there are four people in the car.
In order to compare fuel consumption of the aircrafts used by both PIA and Airblue, fuel consumption needs to be calculated. Following variables are used to calculate the fuel consumption:

(1) Range
(2) Maximum fuel capacity
(3) Max take-off weight
(4) Seating capacity

1. First off I calculate fuel consumption per kilometer (2) / (1), giving a result expressed as L/KM.
2. From the result obtained above is multiplied by a given range (for instance, 1500km), giving a result expressed in L.
3. Then the result obtained above is divided by the seating capacity (L/PAX). However in this last step, there is the biggest margin for error, since seating capacities vary from one model to another. Nevertheless, analysis incorporates capacity stated by manufacturers for a two-class seating arrangement (to stay consistent). The amount of fuel consumed per passenger is for a flight distance of 1500km.

This result measures the amount of fuel used for a flight distance of 1500km, per passenger in a typical two-class accommodation.

A310-300:         51.7          L/PAX        (220)
B737-300:         56.7          L/PAX        (128)

A320:                  47.7          L/PAX        (150)
A321:                44.2          L/PAX        (185)

The above results shows that Airblue aircraft’s are more fuel efficient than PIA's. It is to be noted that above mentioned air-crafts were selected to compare those that have almost similar seat capacity.
Uniquely, the A320 Family (which includes the A318, A319, A320 and A321) offers a containerized cargo system, which is compatible with the worldwide standard wide-body system.
4) Miscellaneous Factors.


The main reasons for loss are off course political involvement, mismanagement and leakages. Other factors are:


  1. As a national flag carrier PIA has to fly to a number of locations like Gilgit in Gilgit-Baltistan region from where there are rare chances of earning a profit. Also due to bad weather conditions, aircrafts remain on the airport and thus the backlog of flights increases.

  1. Due to political reasons PIA carries bodies of overseas deceased Pakistanis for free plus a ticket is also given to next of a kin. As per Cargo sources in Dubai, on average 60 bodies per month are carried out of Dubai alone. More or less same is the number from other stations in Gulf. This is considered a high value cargo so not difficult to assess the revenue loss.

  1. PIA carries medical related equipment free of cost.

  1. Defense related equipment is transported free of cost particularly a lot of parts for PAF are transported free of cost.

  1. Losses accumulated from 2005 to 2008 appear to be a major hurdle in improving financial health of the airline. 2005 to 2008 are worst years in PIA’s history.







Quality Measures

1) Hypothetical House of Quality.

The house of quality shows that the customer services training is the most important attribute of product design. This will lead to a satisfied customer and thus an increase in revenue and market share.

2)  Flow Chart.

First customer enters into the ticketing office. He/she collects an automated token then he/she waits for his turn. His number is called at a specific counter where he receives services and pay payment. Now the customer exits. The PIA has latest technology for their ticketing. They check the efficiency of their employees through this system by finding out that how many customers are served by a single employee in a day. So that they further increase the efficiency as well as effectiveness of their employees.

3)  Cause and Effect Diagram.

The cause and effect diagram is used to design product, prevent quality defect, and identify potential factors causing an overall effect.

PIA has a labor force around 20,000. One reason for its losses is the excessive no of employees recruited under political pressure.

In case of Machinery, there are some aircrafts which are old but they do have aircrafts equipped with better technology. As far as methods are concerned, they are friendly but they are unable to help the customers in a satisfactory manner. In case of material, PIA uses best quality but expensive material which has some effect on their losses.

Recommendations and Suggestions



Following are some of the steps that can increase productivity of PIA.

1) End to government and political forces' interference in PIA.

2) For top management positions like managing director and directors of crucial and important departments like finance, marketing, sales, cargo etc. appointments should be made on merit. There should be no political appointments. Ads in leading newspapers should be given for these top management positions and experienced PIA employees from relevant departments should be allowed to apply for these posts. Applicants should be interviewed by selection board comprising of former top management level officials of PIA and CAA. Best possible candidates should be selected for top management positions. There should be fixed job tenure like for example four years and these top management officials should be given time to complete their tenure and show good results. Mismanagement will end by appointing people on merit.

3) The airline is overstaffed. There are 5000 to 6000 extra employees in the airline according to some reports. In PIA, there are close to employees per aircraft is very high. Under aviation industry standard usually airlines have around 130 employees per aircraft to run operations on profit. PIA will have to reduce number of employees per aircraft. These extra employees should be withdrawn gradually. By withdrawing this large number of extra employees PIA also can improve pay scale plus other benefits for its actual force of employees.

4) Corruption should be rooted out from all departments of the airline. Corrupt employees should be held accountable and punished.

5) Employees unions/associations should not be allowed to dictate terms and conditions, and should not be allowed to force management to take decision that are not in the good interest of airline. Management should take decisions in the best interest of airline.

6) Aging fleet of fuel guzzling four engine Boeing 747 classics should be phased out to reduce fuel bill. It's time to say good bye to these old technology aircrafts. These old Boeing 747s should be replaced with twin engine fuel efficient Boeing 777-300ER aircraft.

7) To improve revenue, PIA should re-launch 'PIA Cargo' and re-enter Pakistan's air freight market. The airline can convert two of its own Airbus A310-300 aircraft into cargo aircraft to re-launch 'PIA Cargo'.

8) Drastic improvements should be made in marketing, sales and route planning department to increase airline revenue.

9) Management should focus on computerized system up gradation and implementation. Management should hire the services of specialized IT personnel for their system development and up gradation on time.

10) Productivity can also be increased with more flight departures per day, either through shorter turnaround (ground) times or off-peak departure times and more seats in same aircraft type (no first class seating and/or tighter “seat pitch”).

11) PIA could fly just one plane type. That would save millions in maintenance costs of spare-parts inventories, mechanic training and other nuts-and-bolts airline issues.

12) PIA relies on a hub-and-spoke system. PIA can do most of its flying nonstop between two points. That minimizes the time that planes sit on the ground at crowded, delay-prone hubs and would allow the average PIA aircraft to be in the air for more than an hour longer each day.

13) Instead of serving meals PIA should serve just beverages and snacks. Keeping it basic would allow PIA to unload a flight, clean and restock the plane, and board another flight full of passengers in as little as 20 minutes compared with as much as 90 minutes on a network airline.

14) PIA can sell one-way fares and only in a few price. That not only keeps costs down but it also convinces fliers that they are getting value for money.

15) It should start aggressive fuel-hedging program. It would save it a huge amount.

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