PIA experiencing amplifying losses

Pakistan International Airlines is continuously on the verge of losses, due to which it’s a very difficult situation for the government to find a proper and deliberate buyer.

According to its financial report card for the nine months ended September 30, the national carrier racked up an after-tax loss of around Rs32 billion. This compares with a loss of Rs33 billion that it had reported for the entire calendar year 2012.

The airline’s revenues, in particular, took a 12.6 per cent hit to reach Rs71.7 billion in 9MCY13, from Rs82 billion in the corresponding period last year. Revenue from passengers dropped 13.7 per cent to Rs63.6 billion, while that from cargo dipped by a marginal 2.3 per cent to Rs4.7 billion.
According to sources the main reason for the losses is insufficiency of aircrafts, as a lot of air planes are stranded for maintenance.

It is also observed from various financial statements that available seat kilometres (ASK) has declines to 13 billion this year comparatively to 14.7 billion last year. This factor is mostly considered as a revenue generator.
PIA’s employees have accused it of operating high-fuel consuming Boeing 777s which are designed to be used on long distance flights but are used on short routes, like those between Karachi, Lahore and Islamabad.

Meanwhile, revenues also took a hit as the Saudi government imposed a quota restriction on Hajj travelers from the country, and PIA carries massive number of pilgrims to and from the country every year during Hajj season.
Regardless, PIA’s mounting losses come while international jet fuel prices have stabilized.
Its fuel cost declined by 9.5 per cent to Rs40.8 billion, from Rs45.1 billion during the period under review. Its total cost of services dropped 6.7 per cent to Rs76.7 billion.

The continuous declining value of rupee against dollar is another gigantic issue for the airline.
The rupee’s depreciation also reflected into higher finance costs for the airline, which rose to Rs9.32 billion, from 8.42 billion. In other words, PIA’s finance costs were almost 1.9 times its gross profit.

It is reported that almost one-third of the airline’s non-fuel expenses which is around Rs12.6 billion is staff related. These expenses also accounted for roughly 20 per cent of the airline’s total passenger revenue for the period. The airline spent nearly Rs198 million on printing and stationary.

Meanwhile, the government has announced that it intends to split the airline into two companies, PIA1 and PIA2. PIA2 would be a saddle state-owned with all the unviable components of the national carrier (including its ageing equipment and non-flight operations) by the end of this year.