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CEO PIA, Dr. Musharraf’s vision to airlift PIA once again
GVS sat down with Dr. Musharraf Rasool, the CEO of PIA, to discuss the challenges faced by PIA, giving up routes to competitors, how CPEC might play a role and how he hopes to turn around PIA.
News Desk
May 21, 2018
News Desk |
GVS: You have been brought in because you are believed to be a change leader and the hope is that you can turn around PIA.
Dr. Musharraf: I would like to add that I was a civil servant for about ten years, I have worked as an expert for the World Bank, Asian Development Bank and the UNDP for several years. After that, I pursued a Ph.D. in economics and went on to work in 8 companies in public sector reforms. I would say that the most relevant to what I am doing right now is being an economist because Modern Aviation is a lot about economic planning; of course, it comprises of flying and engineering, but largely it’s about economic planning, cutting marginal costs and increasing marginal revenues, which was always missing in PIA. So, my first priority, when I came in, and what surprised and shocked me was the fact that they did not have data analytics to determine decisions.
GVS: What do you mean by the absence of data analytics?
Dr. Musharraf: Let’s say, on a daily basis, or on a weekly and monthly basis you want to analyze where your losses are coming from; which sectors, which flights and why? What are the cost structures that are contributing to it? And if your yields have been going down for a year, you want to know where and in what sectors?
So, that’s one of the changes, at the system level, that I started doing. The other strength I have from my background is in management. Management means decisions, anticipation, planning and then taking your decisions according to that, keeping your strategic objectives where you want the organization to get but at the same time, on a daily basis, making the required decisions; in that domain, I found that PIA’s systems and departments are broken to various degrees. My greatest challenge of all has been, if I look at the record like any other public-sector entity, the HR records are not credible, an example being, almost 95% of the people get outstanding assessments going back in the years. So, it doesn’t pass as being realistic, especially if a department has been consistently underperforming, and 95% of its employees have been consistently evaluated as outstanding, one of the two is wrong.
GVS:
What have you done about that?
Dr. Musharraf: Since I cannot depend on the records to promote people, I have started internal evaluations and started selecting people based on potential instead of looking at existing records alone. So, in interviews and short-term assignments, if they perform then they come into the promotion zone.
GVS:
Is it only interviews that you base the assessment on?
Dr. Musharraf: No, there are a lot of things you can assess on the basis of how the performance is being recorded in our systems. I’ll give you one example Flight punctuality was my early target. Now a number of departments come together in the station to make that happen, and then there’s engineering, flight hours, food, security etc. so, those kinds of KPIs, I’m instituting at departmental levels and further cascading it down.
Another challenge was to exemplify, at this point, the safety index. For any modern airline, there is a safety index that is assigned by, let’s say a European agency, which is based on random inspection. So when our aircrafts land in Heathrow, Paris, Oslo or any Middle Eastern destinations, these inspectors come unannounced and they inspect the aircraft, which means what is the readiness of the pilots to respond to an emergency? How are the engineers doing their job? How was the cargo loaded? Are the safety systems in the aircraft functional, semi-functional or non-functional? When I took over, the safety index was climbing up, which means your ratings are going bad because the index is a cumulative average.
GVS:
What’s the difference between the operating loss and the overall loss?
Dr. Musharraf: The operating loss is the simple difference between your expenses and your revenues, but when you calculate the overall loss, debt service comes in. So ordinarily, the overall loss would be a good indicator but, in this case, for the last 20 years, the losses have been capitalized into PIA, which means that each time you incur a loss of let’s say 20-30 billion a year, the government allows PIA to borrow money on its own account. This means over time the losses have ballooned.
GVS:
What is your strategy to turn that around?
Dr. Musharraf: First thing I did after coming in was to create a business plan because the airline was working without a business plan for many years and as you know, no business can actually survive without that. So, the cabinet, after appointing me, asked me to present a business plan in six weeks. We went back to the cabinet early in November, presenting the business plan to them and within it a solution of how soon we can turn around.
GVS: There was news stating that the Prime Minister rejected PIA’s turnaround business plan. They said that the plan had to be one page or two pages and that PIA brought a very long plan.
Dr. Musharraf: We did a lot of number crunching and we presented, to the government, a case about how to put a limit to the operating loss, which I was talking about, in about three years. The Prime minister’s comment, that you were referring to, was ‘this is a very ambitious program, what about a conservative program?
In the best-case scenario, we might be able to do that, but what if some of the assumptions don’t work out how you want them to. So, we went back to the Prime Minister with reworked numbers and he agreed, in principle, with those numbers, on the 30 December 2017. As a result of that, we’re moving forward to restructuring our debt. The finance department has already endorsed our plan by and large, which means that we will be getting specific support from the Government to overhaul our 30 or something engines. Going forward, the idea is that the legacy debt will be converted into a long-term paper and the Government will directly take on responsibility for debt servicing. This is better than the 2001 solution because the debt is not going away but it will be slowly going away without burdening our cash flow every month with the debt service.
GVS: The public perception is that everything is being done by the government in order to sell PIA to some other interested parties in the Middle East.
Dr. Musharraf: When I joined, I asked the interview panel if there are any plans to sell or privatize PIA and the answer was no. Had I known, at that time, or had somebody stated that PIA was to be privatized, I wouldn’t have joined because I’m not a liquidator – I’m a manager. My spirit is to revive the business, not to sell it. I, personally, believe that a country of 200 million should have its own national airline, but it should be a thriving airline, an airline that Pakistanis should be proud of.
My refrain, whenever confronted by the topic, is that till when will we keep on selling everything? The heydays of privatization are behind us, nobody’s privatizing anymore. So why are we twenty years late in everything? I think in my own self and I feel confident, that if anybody in the world can do anything, we as Pakistanis should be able to do that.
GVS: Why has PIA been unprofitable?
Dr. Musharraf: In the continental study that I was citing to you or, for that matter, any other airlines turn around, there are some things that are similar across businesses. So, in this case, the major problem is that PIA has had net losses and I’ll explain in a minute what I mean by that. Primarily, it means that you have an aircraft or a set of aircrafts that you want to fly to earn revenue, but you’re flying them on unprofitable routes, where you are not earning enough and you’re incurring high costs.
GVS: So why do airlines continue with that?
Dr. Musharraf: For many reasons. Either there is lack of agility to respond to changing markets, because markets keep changing over time, or competitors behave differently. PIA has not responded to these changes, decisions that were to be taken have not been done so. PIA went into a number of new sectors based on, what I would say, erroneous business cases or feasibility studies. For example, we started flying to Bangkok last year and we are still incurring losses after many months.
GVS:
So the routes PIA has been selling in the last couple of years to Europe/United States, even before you joined, were they not profitable to PIA?
Dr. Musharraf: No. New York is a famous case, we were incurring, on average, a loss of 1.5 billion on direct operating costs on this route, annually. When PIA started flying in the 1960s, it was a different market, it was a different world. There were no competitors or very little competition, and PIA was flying a comparable product to the American and European airlines. When the Gulf carriers came in the last 20 or so years, their products were and still are far superior and there are a number of reasons for this.
GVS:
Many countries accuse Gulf carriers of being subsidized.
Dr. Musharraf: I agree with that. PIA is facing competitors who are helped through hidden financing and other subsidies being given to them. As for the other problem, imagine a median customer of PIA or a Pakistani person who wants to fly to North America and he wants to originate his journey in one of the major cities; Karachi, Peshawar, Quetta, Lahore, Islamabad, to one of the major cities in the U.S. Now, our competitors, the Gulf carriers, offer him a product that will fly from any of these major cities in Pakistan to a hub in Middle East and then directly to several destinations in the U.S.
Considering this, U.S. doesn’t allow PIA to operate direct flights from anywhere in Pakistan to anywhere in the U.S. So, what we were doing was that we were flying from Lahore to let’s say Manchester and to meet regulations, our customers would be taken off-board. They’ll go through security, their hand baggage will be checked and then they will go back into the plane, and they’ll fly to JFK alone. If they were to go to any of the other cities, they’ll have to take another domestic US flight. A more cumbersome process for the travelers. So our product was not comparable with our competitors and therefore, PIA started making losses and did so for a number of years.
GVS: Several years ago, there was some discussion that PIA would be allowed direct flights after 9/11, but it didn’t happen. Why didn’t it happen?
Dr. Musharraf: I think there was a package deal offered, that if PIA bought Boeing 777s, it would be allowed to fly direct to U.S. PIA did that, but the other side of the bargain didn’t happen, despite a lot of work put into that. Pakistan’s civil aviation had to install security equipment, and institute screening for baggage and people. I think that was done, because I had the good fortune of speaking to my predecessor who was at the helm of affairs, at that time, and he said that they did everything. The TSA would come and clear everything but then, they would come with another list and another list and I think in the end they just gave up on us.
GVS: So, when the PIA gives up a route like New York, do you get reimbursed for that or do you sell it to somebody else? How does it work?
Dr. Musharraf: It’s like this, let’s say when you close multiple shops in the market, you’re not selling your business to anybody, so it’s a similar thing. What happens is that the only thing that you have at an airport is a landing slot, you pay for that and then you have offices and you have other services to hire.
GVS: So, suppose you want to re-enter New York, can you just go back and start repaying?
Dr. Musharraf: Sure. In the case of New York, we didn’t give up the landing slots because, when PIA entered into those contracts, there were heavy penalty clauses if we did so. I decided that since we could not accumulate these losses until we came back with a comparable product to other airlines, what we needed to do was to minimize our cost of, let’s say, suspending the operation. So, some of those, landing slots, we have loaned to other airlines.
GVS: So, if a few years down the line, you are profitable, you can get those landing slots back?
Dr. Musharraf: Yes, anytime.
Because of PIA’s accumulating losses and debt being parked in the balance sheet, we have not been able to invest in the product itself such as the aircrafts, new seats, in-flight entertainment systems (IFE), etc. So, if the seats were getting old or IFE system was semi-functional, PIA did nothing about it.
Right now, one of the things that we want to do is give live streaming to our passengers, even on domestic flights. And on the long-haul flights, which are the Boeings, flying to Europe and North America, we are going to do a nose-to-tail upgrade. This means that they will have new top quality seats, both for business and economy, and business class will have flat beds, 30 inches flat screens with all the top-notch IFE systems and Wifi. Once we have those products, we will become a little more competitive. My faith is that, in Europe, we will outclass other airlines because we are flying direct to these destinations.
GVS:
Are you currently profitable on flights to Europe?
Dr. Musharraf: No. We are making losses and the reason for current losses are our inferior product. Our planes don’t have good IFE, etc. If you go to London, PIA is the best product right now, but only on some dimensions. The time dimension is okay but if, for example, your family is traveling with kids, then you may say that a seven-hour long flight, without a good IFE system, is too much.
The other thing is, airlines are in profits from the entire flight. This includes the people in the economy and the business section. Our seat uptake in the business section has been horribly low over the years so, unless we fix the product there, we cannot sell business. The business segment is a big revenue contributor.
Considering the segment of the market where we plan to operate in the future, maybe in a years’ time, we’ll offer the business class a range of comparable attributes of the business class to the Gulf carriers.
GVS:
One change you haven’t addressed – which is the elephant in PIA’s room – is the number of employees you have and the labor cost. PIA’s has around 450 employees per aircraft versus Emirates that has 150. Similarly, domestic competitors such as Shaheen and Airblue have around 90 employees per aircraft.
Dr. Musharraf: Labor cost or the employee to aircraft ratio are not exact comparisons. PIA is a type of vertical integration, which means that a number of services that we could procure from the market, we are producing in-house. Other airlines don’t do that. Technical ground support or other services like flight kitchen and many others, are usually procured from outside agencies and therefore, not included in their human resource numbers. PIA is vertically integrated, which means it does all of that in-house.
PIA has 450 employees per aircraft which is almost four times than the world average of around 100-150 employees per aircraft
#GVSmagazine
Having said that, it doesn’t mean that we are optimally staffed, of course, we are over-staffed. The real challenge for PIA is not the absolute number, the reason being that our salary bill, as a percentage of total cost, is less than 20%. We can continue that with restructuring, restructuring would be great. But the real problem is that people have not been recruited for their skillset, employees mismatch is a big issue in PIA. Whereas in numbers, we have a lot of people, it doesn’t mean that we necessarily have all the people we need.
Let me give you another example, scheduling is the one department where you have to minimize the network cost that we talked about in routes. These are strategic decisions that have to come from data but there are also periodic decisions that you have to take. And the decisions that I am trying to take are on margin contribution; which flights should I forgo? Where should I increase or reduce frequency? That has a lot to do with data analytics and scheduling. This means that you have a software which will tell you if you have the aircrafts for these market conditions, what is the best network for you etc.
I don’t have people who are technically equipped to understand or use the software. Yes, there are a large number of people, but not the kind of people I need in the airline. Similarly, modern aviation finance is very sophisticated, and PIA doesn’t have these modern finance people. For example, if I ask them to analyze something for me, I don’t get the answers right away which means that my decision making, at best, is hampered and slow.
GVS: Why can’t you outsource these services?
Dr. Musharraf: If we outsource sometimes, we get into legal challenges. People say, ‘why is the hiring on contract?’ There, politics jumps in, because sometimes the internal employees, quite frankly, come through a system where their promotions weren’t always merit-based, and now they think that it’s an entitlement.
GVS: There have been various attempts by governments, to fix the politics within PIA but then the government and the PIA’s top management enter into head-on collision with the employees of the PIA. Are you doingsomething to reduce that friction?
Dr. Musharraf: The law defines a certain role for these associations but, over a period of time, there have been ‘shadow managements’ in PIA. For example, cabin crew assignments, in Emirates or in another modern airline, use a software where you plug in your parameters, such as, flight duty time limitations and other factors. The software creates a roster, this is your best roster, and it tells you how many people are going on leave, how many are going be flying when should be the next sector that should be flying? If you want skillset parameters built into it, the software takes care of that. In PIA, traditionally, the unions get into it and they say that they will be the ones deciding rosters, which leads to money being exchanged in that and it becomes a hotbed of corruption.
GVS: What can you do?
Dr. Musharraf: We are trying to insist that this is a management function and we have to do it transparently. We have tried to convince them and we’ll try to continue working with them but if there is a collision, there is a collision, what do we do with that? Very frankly, I think sooner or later, the government and other stakeholders in Pakistan will have to make a decision, that this is a Pakistani institution and it is a great Pakistani institution with a great history. Now, you can reform it, change it and make it into a modern airline or leave it the way it is.
What we’re trying to do is identify people with talent and potential in each department and put them into challenging roles, supporting them to bring out their best. However, politics has not forsaken PIA. It’s very much meddling, on a daily basis, into PIA. So I’m summoned by National Assembly and by the Senate, almost on a weekly basis.
GVS: Are your competitors, CEOs of Turkish airlines, Etihad or Qatar burdened with these challenges?
Dr. Musharraf: I am sure they are not called to explain why a certain person has not been promoted or not sent abroad, not for those reasons.
GVS: Can we talk a little bit about the Open Skies policy that we have introduced in Pakistan? That seems like a big reason why PIA is having these losses.
Dr. Musharraf: Well, I mean it’s, of course, the Government’s policy decision. Ideally, I think it should have been introduced but in a more deliberate manner. So, like any other trade, free trade and protectionism comes and goes in the world. As you see the trend right now, between the U.S. and China, protectionism has come back again.
So, at a national level, Pakistan needed to have decided, at some point, that what will work for us. I’ll give you one example, when you do open skies with Dubai or with the UAE, on the surface it seems symmetric as you get equal rights to fly to each other’s countries, but when you look at this particular industry, you have to look at the structure of each other’s airlines. In PIA, you fly to one destination or two such as Dubai and Abu Dhabi, but going from a number of destinations within Pakistan. So, unless people are terminating their journeys there, you are contributing to the hub of two other airlines in the UAE. When they fly to Pakistan, they are collecting people from a number of your origins, pulling them into their hubs and taking them into long-haul flights to Europe or North America or Africa.
The Gulf carriers, they subsidize their flights or charge lower fares on Pakistan to UAE destinations but they can recoup that on the other leg – the long-haul flight. Can PIA do that? Of course, not – our flights terminate in the UAE. That’s why we have been hurt badly by the open skies.
GVS: Can we go back on open skies policy?
Dr. Musharraf: The government can take those decisions but, in the national interest, you do what suits your country. You could have done open skies in a more deliberate manner, you could have opened your main hubs only or done something else. For example, in the case of India, what they do is if a carrier flies within 5000 km range into India, unless the local carriers have attained an 80% seat factor, they do not allow the additional frequency to the external country operators. Pakistan could have had that kind of arrangements.
GVS: Now what about CPEC? Is CPEC introducing a new dimension to PIA’s operations?
Dr. Musharraf: Yes. But, in CPEC, we want to build our flights into China, so one of the things that I’m attempting to do is to use the new Islamabad airport as a hub for PIA.
So, what happens is that, right now, when PIA flies from New York, you’re basically terminating your flights into Pakistan and that’s, of course, an important segment of the market for us. Going forward, what we want to do is offer an option to fly to China, the Far East or to Australia ultimately. You can fly to these destinations from Europe or North America, while taking a connecting flight from the Islamabad airport, where you have good transfer or layover facilities and, continue your journey into China or other Far East destinations. That means, for my PIA network, I need to reposition my flights. So, that also becomes a necessity. Then People will have to understand that, sometimes, when I’m trying to build a route in China, in the short run, I maybe cash-strapped or I cannot just keep on adding new aircraft. I may have to pull aircrafts from my loss-making routes, let’s say, from Muscat or other places, where I’m not earning anything.
GVS: What do you need to do to make these our airport hubs?
Dr. Musharraf: Offer them connecting flights with connectivity to China, Australia and to, let’s say Bangkok, and Kuala Lumpur.
GVS: What is the viability of that? Have you done studies?
Dr. Musharraf: We are studying this and we already have some earlier studies. There is an ITA database that we have analyzed. What we find is, how many, for example, people travel from the UK to Bangkok or from the UK to China. Right now, what they do is that they have to go and, let’s say, they can take direct flights and many airlines offer direct flights but then, there are Gulf carriers and they don’t fly direct from Europe to China or Far East. They always have a layover, often at their hub. So, what happens is that Dubai might be a great airport, but not for frequent business travelers because, at such a huge airport, you don’t want to have a layover at such a congested area. This is because of economies of scale, even in airports.
In Islamabad, we will be able to offer better connectivity, because you’ll have two lags which, are equally balanced, perhaps with an even shorter overall flying time and a good airport. So, there are number of things we can do as add-ons. Sometimes, what airlines do, in Europe, is that they will offer you a stop-over in a city with an easy visa process. For example, you can stopover at Istanbul, and spend twenty-four hours there. That also allows you to offer them difficult connections, so let’s say, there is an eighteen-hour connection, you can offer them one and a half day instead of just spending one day or less than a day. We have those kinds of products in mind.
GVS: You changed PIA’s logo to the Markhor. What’s the significance?
Dr. Musharraf: Great significance. Markhor is the national animal, Markhor has a history that it had become an endangered species close to extinction, just like PIA, and then sprung back and it’s doing great now. So, in terms of resilience, in terms of agility, in embracing challenges and being there on the horizon. I think those are the values we want to manifest through this logo, not only to our customers but also, internally, to our employees. We want this change in our logo, to be a set of values that will take down into our organization and define people’s behavior according to that. In addition, the change of logo also signifies that the management is committed to changing and immediately changing and bringing in a lot of improvement in our services. We could have surreptitiously tried to improve services, but I thought that we’ll announce our challenge.
GVS: Have you thought about the legacy you want to leave behind?
Dr. Musharraf: My main ambition is to make sure that Pakistanis can be confident, that we will succeed at turning around. In taking up the PIA challenge, my ambition has been to demonstrate that. It is to show that ordinary Pakistanis can achieve world-class.
GVS: What would be your message to the educated people who read this? How can they help you in your mission?
Dr. Musharraf: I think, primarily, to not subscribe to a lot of negative things that are said about PIA, and have an open mind, at least, for PIA. Also, when we improve our services, give us credit and when we fulfill their expectations, give us measured criticism, which is more focused. This is because I feel that our staff and people are overburdened by criticism and, when criticism is multiplied and mixed with a lot of old notions like ‘this is happening because of this’, whereas it’s not happening because of that. Here, is a national airline that is struggling to survive and improve at the same time. When you have a great challenge, every month, like I am faced with, with the reality of either not paying my staff or not paying for fuel, which is 30% of the cost, and when the fuel costs are increasing, and where exchange losses hit us badly, criticism can have a very negative effect. I think people need to recognize that we are doing a lot of meaningful work, under very challenging circumstances, especially when some of the support we need from various stakeholders, is not forthcoming.
Dr. Musharraf Rasool is the CEO of PIA since September 2017. He holds a Ph.D. in Economics from Georgia State University. He stood first in the nationwide competitive exam of the Civil Service of Pakistan. He is a seasoned technocrat with experience in various capacities in the government of Pakistan and multilateral institutions such as the World Bank, ADB, and UNDP.
https://www.globalvillagespace.com/ceo-pia-dr-musharrafs-vision-to-airlift-pia-once-again/
GVS sat down with Dr. Musharraf Rasool, the CEO of PIA, to discuss the challenges faced by PIA, giving up routes to competitors, how CPEC might play a role and how he hopes to turn around PIA.
News Desk
May 21, 2018
News Desk |
GVS: You have been brought in because you are believed to be a change leader and the hope is that you can turn around PIA.
Dr. Musharraf: I would like to add that I was a civil servant for about ten years, I have worked as an expert for the World Bank, Asian Development Bank and the UNDP for several years. After that, I pursued a Ph.D. in economics and went on to work in 8 companies in public sector reforms. I would say that the most relevant to what I am doing right now is being an economist because Modern Aviation is a lot about economic planning; of course, it comprises of flying and engineering, but largely it’s about economic planning, cutting marginal costs and increasing marginal revenues, which was always missing in PIA. So, my first priority, when I came in, and what surprised and shocked me was the fact that they did not have data analytics to determine decisions.
GVS: What do you mean by the absence of data analytics?
Dr. Musharraf: Let’s say, on a daily basis, or on a weekly and monthly basis you want to analyze where your losses are coming from; which sectors, which flights and why? What are the cost structures that are contributing to it? And if your yields have been going down for a year, you want to know where and in what sectors?
So, that’s one of the changes, at the system level, that I started doing. The other strength I have from my background is in management. Management means decisions, anticipation, planning and then taking your decisions according to that, keeping your strategic objectives where you want the organization to get but at the same time, on a daily basis, making the required decisions; in that domain, I found that PIA’s systems and departments are broken to various degrees. My greatest challenge of all has been, if I look at the record like any other public-sector entity, the HR records are not credible, an example being, almost 95% of the people get outstanding assessments going back in the years. So, it doesn’t pass as being realistic, especially if a department has been consistently underperforming, and 95% of its employees have been consistently evaluated as outstanding, one of the two is wrong.
GVS:
What have you done about that?
Dr. Musharraf: Since I cannot depend on the records to promote people, I have started internal evaluations and started selecting people based on potential instead of looking at existing records alone. So, in interviews and short-term assignments, if they perform then they come into the promotion zone.
GVS:
Is it only interviews that you base the assessment on?
Dr. Musharraf: No, there are a lot of things you can assess on the basis of how the performance is being recorded in our systems. I’ll give you one example Flight punctuality was my early target. Now a number of departments come together in the station to make that happen, and then there’s engineering, flight hours, food, security etc. so, those kinds of KPIs, I’m instituting at departmental levels and further cascading it down.
Another challenge was to exemplify, at this point, the safety index. For any modern airline, there is a safety index that is assigned by, let’s say a European agency, which is based on random inspection. So when our aircrafts land in Heathrow, Paris, Oslo or any Middle Eastern destinations, these inspectors come unannounced and they inspect the aircraft, which means what is the readiness of the pilots to respond to an emergency? How are the engineers doing their job? How was the cargo loaded? Are the safety systems in the aircraft functional, semi-functional or non-functional? When I took over, the safety index was climbing up, which means your ratings are going bad because the index is a cumulative average.
GVS:
What’s the difference between the operating loss and the overall loss?
Dr. Musharraf: The operating loss is the simple difference between your expenses and your revenues, but when you calculate the overall loss, debt service comes in. So ordinarily, the overall loss would be a good indicator but, in this case, for the last 20 years, the losses have been capitalized into PIA, which means that each time you incur a loss of let’s say 20-30 billion a year, the government allows PIA to borrow money on its own account. This means over time the losses have ballooned.
GVS:
What is your strategy to turn that around?
Dr. Musharraf: First thing I did after coming in was to create a business plan because the airline was working without a business plan for many years and as you know, no business can actually survive without that. So, the cabinet, after appointing me, asked me to present a business plan in six weeks. We went back to the cabinet early in November, presenting the business plan to them and within it a solution of how soon we can turn around.
GVS: There was news stating that the Prime Minister rejected PIA’s turnaround business plan. They said that the plan had to be one page or two pages and that PIA brought a very long plan.
Dr. Musharraf: We did a lot of number crunching and we presented, to the government, a case about how to put a limit to the operating loss, which I was talking about, in about three years. The Prime minister’s comment, that you were referring to, was ‘this is a very ambitious program, what about a conservative program?
In the best-case scenario, we might be able to do that, but what if some of the assumptions don’t work out how you want them to. So, we went back to the Prime Minister with reworked numbers and he agreed, in principle, with those numbers, on the 30 December 2017. As a result of that, we’re moving forward to restructuring our debt. The finance department has already endorsed our plan by and large, which means that we will be getting specific support from the Government to overhaul our 30 or something engines. Going forward, the idea is that the legacy debt will be converted into a long-term paper and the Government will directly take on responsibility for debt servicing. This is better than the 2001 solution because the debt is not going away but it will be slowly going away without burdening our cash flow every month with the debt service.
GVS: The public perception is that everything is being done by the government in order to sell PIA to some other interested parties in the Middle East.
Dr. Musharraf: When I joined, I asked the interview panel if there are any plans to sell or privatize PIA and the answer was no. Had I known, at that time, or had somebody stated that PIA was to be privatized, I wouldn’t have joined because I’m not a liquidator – I’m a manager. My spirit is to revive the business, not to sell it. I, personally, believe that a country of 200 million should have its own national airline, but it should be a thriving airline, an airline that Pakistanis should be proud of.
My refrain, whenever confronted by the topic, is that till when will we keep on selling everything? The heydays of privatization are behind us, nobody’s privatizing anymore. So why are we twenty years late in everything? I think in my own self and I feel confident, that if anybody in the world can do anything, we as Pakistanis should be able to do that.
GVS: Why has PIA been unprofitable?
Dr. Musharraf: In the continental study that I was citing to you or, for that matter, any other airlines turn around, there are some things that are similar across businesses. So, in this case, the major problem is that PIA has had net losses and I’ll explain in a minute what I mean by that. Primarily, it means that you have an aircraft or a set of aircrafts that you want to fly to earn revenue, but you’re flying them on unprofitable routes, where you are not earning enough and you’re incurring high costs.
GVS: So why do airlines continue with that?
Dr. Musharraf: For many reasons. Either there is lack of agility to respond to changing markets, because markets keep changing over time, or competitors behave differently. PIA has not responded to these changes, decisions that were to be taken have not been done so. PIA went into a number of new sectors based on, what I would say, erroneous business cases or feasibility studies. For example, we started flying to Bangkok last year and we are still incurring losses after many months.
GVS:
So the routes PIA has been selling in the last couple of years to Europe/United States, even before you joined, were they not profitable to PIA?
Dr. Musharraf: No. New York is a famous case, we were incurring, on average, a loss of 1.5 billion on direct operating costs on this route, annually. When PIA started flying in the 1960s, it was a different market, it was a different world. There were no competitors or very little competition, and PIA was flying a comparable product to the American and European airlines. When the Gulf carriers came in the last 20 or so years, their products were and still are far superior and there are a number of reasons for this.
GVS:
Many countries accuse Gulf carriers of being subsidized.
Dr. Musharraf: I agree with that. PIA is facing competitors who are helped through hidden financing and other subsidies being given to them. As for the other problem, imagine a median customer of PIA or a Pakistani person who wants to fly to North America and he wants to originate his journey in one of the major cities; Karachi, Peshawar, Quetta, Lahore, Islamabad, to one of the major cities in the U.S. Now, our competitors, the Gulf carriers, offer him a product that will fly from any of these major cities in Pakistan to a hub in Middle East and then directly to several destinations in the U.S.
Considering this, U.S. doesn’t allow PIA to operate direct flights from anywhere in Pakistan to anywhere in the U.S. So, what we were doing was that we were flying from Lahore to let’s say Manchester and to meet regulations, our customers would be taken off-board. They’ll go through security, their hand baggage will be checked and then they will go back into the plane, and they’ll fly to JFK alone. If they were to go to any of the other cities, they’ll have to take another domestic US flight. A more cumbersome process for the travelers. So our product was not comparable with our competitors and therefore, PIA started making losses and did so for a number of years.
GVS: Several years ago, there was some discussion that PIA would be allowed direct flights after 9/11, but it didn’t happen. Why didn’t it happen?
Dr. Musharraf: I think there was a package deal offered, that if PIA bought Boeing 777s, it would be allowed to fly direct to U.S. PIA did that, but the other side of the bargain didn’t happen, despite a lot of work put into that. Pakistan’s civil aviation had to install security equipment, and institute screening for baggage and people. I think that was done, because I had the good fortune of speaking to my predecessor who was at the helm of affairs, at that time, and he said that they did everything. The TSA would come and clear everything but then, they would come with another list and another list and I think in the end they just gave up on us.
GVS: So, when the PIA gives up a route like New York, do you get reimbursed for that or do you sell it to somebody else? How does it work?
Dr. Musharraf: It’s like this, let’s say when you close multiple shops in the market, you’re not selling your business to anybody, so it’s a similar thing. What happens is that the only thing that you have at an airport is a landing slot, you pay for that and then you have offices and you have other services to hire.
GVS: So, suppose you want to re-enter New York, can you just go back and start repaying?
Dr. Musharraf: Sure. In the case of New York, we didn’t give up the landing slots because, when PIA entered into those contracts, there were heavy penalty clauses if we did so. I decided that since we could not accumulate these losses until we came back with a comparable product to other airlines, what we needed to do was to minimize our cost of, let’s say, suspending the operation. So, some of those, landing slots, we have loaned to other airlines.
GVS: So, if a few years down the line, you are profitable, you can get those landing slots back?
Dr. Musharraf: Yes, anytime.
Because of PIA’s accumulating losses and debt being parked in the balance sheet, we have not been able to invest in the product itself such as the aircrafts, new seats, in-flight entertainment systems (IFE), etc. So, if the seats were getting old or IFE system was semi-functional, PIA did nothing about it.
Right now, one of the things that we want to do is give live streaming to our passengers, even on domestic flights. And on the long-haul flights, which are the Boeings, flying to Europe and North America, we are going to do a nose-to-tail upgrade. This means that they will have new top quality seats, both for business and economy, and business class will have flat beds, 30 inches flat screens with all the top-notch IFE systems and Wifi. Once we have those products, we will become a little more competitive. My faith is that, in Europe, we will outclass other airlines because we are flying direct to these destinations.
GVS:
Are you currently profitable on flights to Europe?
Dr. Musharraf: No. We are making losses and the reason for current losses are our inferior product. Our planes don’t have good IFE, etc. If you go to London, PIA is the best product right now, but only on some dimensions. The time dimension is okay but if, for example, your family is traveling with kids, then you may say that a seven-hour long flight, without a good IFE system, is too much.
The other thing is, airlines are in profits from the entire flight. This includes the people in the economy and the business section. Our seat uptake in the business section has been horribly low over the years so, unless we fix the product there, we cannot sell business. The business segment is a big revenue contributor.
Considering the segment of the market where we plan to operate in the future, maybe in a years’ time, we’ll offer the business class a range of comparable attributes of the business class to the Gulf carriers.
GVS:
One change you haven’t addressed – which is the elephant in PIA’s room – is the number of employees you have and the labor cost. PIA’s has around 450 employees per aircraft versus Emirates that has 150. Similarly, domestic competitors such as Shaheen and Airblue have around 90 employees per aircraft.
Dr. Musharraf: Labor cost or the employee to aircraft ratio are not exact comparisons. PIA is a type of vertical integration, which means that a number of services that we could procure from the market, we are producing in-house. Other airlines don’t do that. Technical ground support or other services like flight kitchen and many others, are usually procured from outside agencies and therefore, not included in their human resource numbers. PIA is vertically integrated, which means it does all of that in-house.
PIA has 450 employees per aircraft which is almost four times than the world average of around 100-150 employees per aircraft
#GVSmagazine
Having said that, it doesn’t mean that we are optimally staffed, of course, we are over-staffed. The real challenge for PIA is not the absolute number, the reason being that our salary bill, as a percentage of total cost, is less than 20%. We can continue that with restructuring, restructuring would be great. But the real problem is that people have not been recruited for their skillset, employees mismatch is a big issue in PIA. Whereas in numbers, we have a lot of people, it doesn’t mean that we necessarily have all the people we need.
Let me give you another example, scheduling is the one department where you have to minimize the network cost that we talked about in routes. These are strategic decisions that have to come from data but there are also periodic decisions that you have to take. And the decisions that I am trying to take are on margin contribution; which flights should I forgo? Where should I increase or reduce frequency? That has a lot to do with data analytics and scheduling. This means that you have a software which will tell you if you have the aircrafts for these market conditions, what is the best network for you etc.
I don’t have people who are technically equipped to understand or use the software. Yes, there are a large number of people, but not the kind of people I need in the airline. Similarly, modern aviation finance is very sophisticated, and PIA doesn’t have these modern finance people. For example, if I ask them to analyze something for me, I don’t get the answers right away which means that my decision making, at best, is hampered and slow.
GVS: Why can’t you outsource these services?
Dr. Musharraf: If we outsource sometimes, we get into legal challenges. People say, ‘why is the hiring on contract?’ There, politics jumps in, because sometimes the internal employees, quite frankly, come through a system where their promotions weren’t always merit-based, and now they think that it’s an entitlement.
GVS: There have been various attempts by governments, to fix the politics within PIA but then the government and the PIA’s top management enter into head-on collision with the employees of the PIA. Are you doingsomething to reduce that friction?
Dr. Musharraf: The law defines a certain role for these associations but, over a period of time, there have been ‘shadow managements’ in PIA. For example, cabin crew assignments, in Emirates or in another modern airline, use a software where you plug in your parameters, such as, flight duty time limitations and other factors. The software creates a roster, this is your best roster, and it tells you how many people are going on leave, how many are going be flying when should be the next sector that should be flying? If you want skillset parameters built into it, the software takes care of that. In PIA, traditionally, the unions get into it and they say that they will be the ones deciding rosters, which leads to money being exchanged in that and it becomes a hotbed of corruption.
GVS: What can you do?
Dr. Musharraf: We are trying to insist that this is a management function and we have to do it transparently. We have tried to convince them and we’ll try to continue working with them but if there is a collision, there is a collision, what do we do with that? Very frankly, I think sooner or later, the government and other stakeholders in Pakistan will have to make a decision, that this is a Pakistani institution and it is a great Pakistani institution with a great history. Now, you can reform it, change it and make it into a modern airline or leave it the way it is.
What we’re trying to do is identify people with talent and potential in each department and put them into challenging roles, supporting them to bring out their best. However, politics has not forsaken PIA. It’s very much meddling, on a daily basis, into PIA. So I’m summoned by National Assembly and by the Senate, almost on a weekly basis.
GVS: Are your competitors, CEOs of Turkish airlines, Etihad or Qatar burdened with these challenges?
Dr. Musharraf: I am sure they are not called to explain why a certain person has not been promoted or not sent abroad, not for those reasons.
GVS: Can we talk a little bit about the Open Skies policy that we have introduced in Pakistan? That seems like a big reason why PIA is having these losses.
Dr. Musharraf: Well, I mean it’s, of course, the Government’s policy decision. Ideally, I think it should have been introduced but in a more deliberate manner. So, like any other trade, free trade and protectionism comes and goes in the world. As you see the trend right now, between the U.S. and China, protectionism has come back again.
So, at a national level, Pakistan needed to have decided, at some point, that what will work for us. I’ll give you one example, when you do open skies with Dubai or with the UAE, on the surface it seems symmetric as you get equal rights to fly to each other’s countries, but when you look at this particular industry, you have to look at the structure of each other’s airlines. In PIA, you fly to one destination or two such as Dubai and Abu Dhabi, but going from a number of destinations within Pakistan. So, unless people are terminating their journeys there, you are contributing to the hub of two other airlines in the UAE. When they fly to Pakistan, they are collecting people from a number of your origins, pulling them into their hubs and taking them into long-haul flights to Europe or North America or Africa.
The Gulf carriers, they subsidize their flights or charge lower fares on Pakistan to UAE destinations but they can recoup that on the other leg – the long-haul flight. Can PIA do that? Of course, not – our flights terminate in the UAE. That’s why we have been hurt badly by the open skies.
GVS: Can we go back on open skies policy?
Dr. Musharraf: The government can take those decisions but, in the national interest, you do what suits your country. You could have done open skies in a more deliberate manner, you could have opened your main hubs only or done something else. For example, in the case of India, what they do is if a carrier flies within 5000 km range into India, unless the local carriers have attained an 80% seat factor, they do not allow the additional frequency to the external country operators. Pakistan could have had that kind of arrangements.
GVS: Now what about CPEC? Is CPEC introducing a new dimension to PIA’s operations?
Dr. Musharraf: Yes. But, in CPEC, we want to build our flights into China, so one of the things that I’m attempting to do is to use the new Islamabad airport as a hub for PIA.
So, what happens is that, right now, when PIA flies from New York, you’re basically terminating your flights into Pakistan and that’s, of course, an important segment of the market for us. Going forward, what we want to do is offer an option to fly to China, the Far East or to Australia ultimately. You can fly to these destinations from Europe or North America, while taking a connecting flight from the Islamabad airport, where you have good transfer or layover facilities and, continue your journey into China or other Far East destinations. That means, for my PIA network, I need to reposition my flights. So, that also becomes a necessity. Then People will have to understand that, sometimes, when I’m trying to build a route in China, in the short run, I maybe cash-strapped or I cannot just keep on adding new aircraft. I may have to pull aircrafts from my loss-making routes, let’s say, from Muscat or other places, where I’m not earning anything.
GVS: What do you need to do to make these our airport hubs?
Dr. Musharraf: Offer them connecting flights with connectivity to China, Australia and to, let’s say Bangkok, and Kuala Lumpur.
GVS: What is the viability of that? Have you done studies?
Dr. Musharraf: We are studying this and we already have some earlier studies. There is an ITA database that we have analyzed. What we find is, how many, for example, people travel from the UK to Bangkok or from the UK to China. Right now, what they do is that they have to go and, let’s say, they can take direct flights and many airlines offer direct flights but then, there are Gulf carriers and they don’t fly direct from Europe to China or Far East. They always have a layover, often at their hub. So, what happens is that Dubai might be a great airport, but not for frequent business travelers because, at such a huge airport, you don’t want to have a layover at such a congested area. This is because of economies of scale, even in airports.
In Islamabad, we will be able to offer better connectivity, because you’ll have two lags which, are equally balanced, perhaps with an even shorter overall flying time and a good airport. So, there are number of things we can do as add-ons. Sometimes, what airlines do, in Europe, is that they will offer you a stop-over in a city with an easy visa process. For example, you can stopover at Istanbul, and spend twenty-four hours there. That also allows you to offer them difficult connections, so let’s say, there is an eighteen-hour connection, you can offer them one and a half day instead of just spending one day or less than a day. We have those kinds of products in mind.
GVS: You changed PIA’s logo to the Markhor. What’s the significance?
Dr. Musharraf: Great significance. Markhor is the national animal, Markhor has a history that it had become an endangered species close to extinction, just like PIA, and then sprung back and it’s doing great now. So, in terms of resilience, in terms of agility, in embracing challenges and being there on the horizon. I think those are the values we want to manifest through this logo, not only to our customers but also, internally, to our employees. We want this change in our logo, to be a set of values that will take down into our organization and define people’s behavior according to that. In addition, the change of logo also signifies that the management is committed to changing and immediately changing and bringing in a lot of improvement in our services. We could have surreptitiously tried to improve services, but I thought that we’ll announce our challenge.
GVS: Have you thought about the legacy you want to leave behind?
Dr. Musharraf: My main ambition is to make sure that Pakistanis can be confident, that we will succeed at turning around. In taking up the PIA challenge, my ambition has been to demonstrate that. It is to show that ordinary Pakistanis can achieve world-class.
GVS: What would be your message to the educated people who read this? How can they help you in your mission?
Dr. Musharraf: I think, primarily, to not subscribe to a lot of negative things that are said about PIA, and have an open mind, at least, for PIA. Also, when we improve our services, give us credit and when we fulfill their expectations, give us measured criticism, which is more focused. This is because I feel that our staff and people are overburdened by criticism and, when criticism is multiplied and mixed with a lot of old notions like ‘this is happening because of this’, whereas it’s not happening because of that. Here, is a national airline that is struggling to survive and improve at the same time. When you have a great challenge, every month, like I am faced with, with the reality of either not paying my staff or not paying for fuel, which is 30% of the cost, and when the fuel costs are increasing, and where exchange losses hit us badly, criticism can have a very negative effect. I think people need to recognize that we are doing a lot of meaningful work, under very challenging circumstances, especially when some of the support we need from various stakeholders, is not forthcoming.
Dr. Musharraf Rasool is the CEO of PIA since September 2017. He holds a Ph.D. in Economics from Georgia State University. He stood first in the nationwide competitive exam of the Civil Service of Pakistan. He is a seasoned technocrat with experience in various capacities in the government of Pakistan and multilateral institutions such as the World Bank, ADB, and UNDP.
https://www.globalvillagespace.com/ceo-pia-dr-musharrafs-vision-to-airlift-pia-once-again/
