Aviation Analysis: Pakistan – The Great Sleeping Giant of Aviation

Pakistan is South Asia’s second-largest economy, with over 220 million people and a steadily growing middle class. The economic structure has changed dramatically over the past decades. Unlike other sectors, the service sector has grown significantly. Despite many challenges over the past two decades, the economy is gradually moving onto a higher and more sustainable growth path.

However, due to a large number of challenges, Pakistan’s aviation industry can be described as “the great sleeping giant”, which must wake up from the effects of the pandemic and immediately seize the opportunities for a better future.

In September, I had the honor of being part of a high-level business delegation from the United Arab Emirates and Germany visiting the Government of Pakistan and other authorities; with the aim of advising the country on the sustainability of its sectors, including aviation. The delegation’s trip to Karachi and Islamabad was a real eye-opener.

Before the pandemic, Pakistan’s air transport sector was expected to grow by more than 180% over the next 20 years.

In 2019, more than 500,000 direct and indirect jobs in Pakistan were created by the air transport sector. Today, 1.3 percent of Pakistan’s GDP is supported by aviation sector inputs and foreign tourists arriving by air. In 2019, 85% of all international departure seats from Pakistan were to destinations in the Middle East, especially Dubai with 2.3 million departures.

The fate of Pakistan’s airline industry is set to change for the post-pandemic era. To date, the Pakistani aviation sector has faced a large number of specific challenges: political instability, security situations, inadequate infrastructure, poor safety culture, inconsistency in state policy, inconsistent tax laws , weak economic growth, limited access to investments and funds, absence of structural reforms and unfavorable economic policies.

Overview of the current aviation environment in Pakistan

Around the world, traveling by plane is generally more expensive than a domestic bus or train ride. However, this does not legitimize what Pakistani passengers are charged for domestic flights, in the wake of weak local competition.

A one-way ticket from Karachi to Islamabad costs around $ 45, or $ 0.064 per mile for a domestic flight in Pakistan. A cheap Delhi-Mumbai ticket costs $ 55 and around $ 0.049 per mile looking to India. This clearly shows that the difference in fare per mile has elucidated the industrial mess in Pakistan for a decade.

Despite recent new entrants to the market like Fly Jinnah, the market is still limited. Following the exit of private carrier Shaheen Air in 2018, Pakistan International Airlines (PIA) has been the main beneficiary in the domestic market to date. Pakistan has been an oligopolistic airline industry where Serene Air and Air Blue, as private airlines, compete and compete with the national carrier PIA. Last year, another airline entered the Pakistani domestic market: AirSial.

Although Pakistan is the fifth most populous country in the world, the country’s domestic market performs poorly in terms of available national seats divided by population – Pakistan has around 0.03 seats per person, compared to the United States. India (0.16), Nepal (0.11) and Bangladesh (0.04).

The total market share of low cost carriers in Pakistan still has a lot of room to grow. Their share is much lower than that of some neighboring countries of Pakistan such as India. In the days before Covid-19 (2019), there were less than 1.3 million low-cost seats departing from Pakistan. This represents 12.6% of the total capacity offered in the Pakistani market. Unlike the country’s current low-cost market, low-cost carriers in India account for around 34 percent of all international seats.

Given the relatively low penetration of low-cost airlines in the Pakistani market to date, various opportunities exist – for example on Gulf services (UAE, Bahrain, Saudi Arabia, Qatar, Oman, Kuwait). Before the pandemic, only three of Pakistan’s top 10 international routes by capacity offered had the presence of at least one low cost carrier.

The route between Pakistan and the Gulf, with the largest share at low cost by capacity offered, is Dubai-Karachi with 21%. The share of low prices on most routes between Pakistan and the Gulf cities is surprisingly less than 6%.

PIA’s fight

In view of PIA’s poor safety performance, the airline must ensure that the quality of its personnel and the airworthiness of its fleet comply with safety standards; thus satisfying international regulators such as EASA, ICAO and FAA.

The national carrier suffered from a chronic lack of profitability due to operational inefficiencies. To be financially viable in the post-pandemic era, the loss-making carrier must increase revenues, reduce costs and restructure its balance sheet. All of these initiatives will help restore the confidence of potential customers, restart flight operations on currently closed / banned routes and strengthen codeshare agreements with other airlines to increase overall revenues.

Conclusion

Factors such as the high proportion of young people in the population (15-33 years old: 63%), the growing middle class, the real GDP growth of 3.9% in 2020-2021 and the growing awareness of the government the importance of the aviation industry to a country lays the foundation for a better future.

Despite the bottlenecks, the investment climate has improved in recent years. Looking at the current macro environment of Pakistani airlines and airports, structural reforms and economic policy readjustments will be needed to wake up the sleeping giant. For example, the Pakistani government needs to rationalize the heavy taxes on airline tickets in order to make air travel more affordable for the Pakistani people. Air Arabia’s recent joint venture with conglomerate Lakson Group paves the way for a better and sustainable future for the country’s aviation industry.

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