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)
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:
- 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.
- 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.
- PIA
carries medical related equipment free of cost.
- Defense
related equipment is transported free of cost particularly a lot of parts
for PAF are transported free of cost.
- 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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