Contents

Executive Summary..............................................................................................................................3

1. Introduction.................................................................................................................................4

1.1. Mission Statement....................................................................................................................5

1.2. Vision Statement......................................................................................................................5

1.3. Subsidiaries..............................................................................................................................5

1.4. Ownership composition of PIA...............................................................................................6

1.5. Fleet..........................................................................................................................................6

1.6. Competitors..............................................................................................................................7

2. PIA Strategy...................................................................................................................................8

2.1. Corporate Social Responsibility.................................................................................................8

3. Strategic Analysis.............................................................................................................................9

3.1. PESTLE Analysis.........................................................................................................................9

3.1.1. Political.........................................................................................................................9

3.1.2. Economic.....................................................................................................................10

3.1.3. Social...........................................................................................................................10

3.1.4. Technological..............................................................................................................11

3.1.5. Legal............................................................................................................................11

3.1.6. Environmental............................................................................................................11

3.2. Porter Generic Strategies...................................................................................................12

3.3. Five Forces..........................................................................................................................12

3.3.1. Buyers.........................................................................................................................12

3.3.2. Suppliers.....................................................................................................................13

3.3.3. Entry to the market....................................................................................................13

3.3.4. Substitutes..................................................................................................................13
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3.3.5. Rivalry.........................................................................................................................14

3.4. SWOT Analysis....................................................................................................................14

3.4.1. Strengths.....................................................................................................................14

3.4.2. Weakness....................................................................................................................15

3.4.3. Opportunities..............................................................................................................15

3.4.4. Threats........................................................................................................................15

4. Conclusion...........................................................................................................................16

Domestic Network of PIA..................................................................................................................17

References..........................................................................................................................................19
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Executive Summary

Pakistan International Airlines Corporation (PIAC) was the national flag carrier of the
Islamic Republic of Pakistan, founded in 1955 through legislation and subsequent merger of
private owned Orient Airline. PIA operated both scheduled passenger and cargo services.
The firm is 87% state owned, with the remaining 13% held by private investors internal to
Pakistan. PIA is the only national air line operating on both domestic and international
routes.
This report is an analytical view on the strategy of PIA through applying strategic analysis
tools. I have tried to applying PESTEL Analysis, Porter’s Five Forces and SWOT analysis to
identify market position, strengths, weaknesses, operating structure and brand recognition.
The dependencies of PIA have also discussed along with the impact of economical situation
of the country on its performance.
The report also covers the influence of the government in management and strategic decision
making of the organization. It also covers the competitive advantages PIA enjoys and the
impact of inflation rate, interest rates and increased oil prices as well.
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1. Introduction

At the time of formation of Pakistan only one airline ‘Orient Airlines’ was owned by
Muslims of the Sub Continent. The Orient Airline was established in 1946 by Mr. M. A.
Ispahani on the instructions of Qaid-e-Azam Muhammad Ali Jinnah. The Orient Airline
initially started its operation from Calcutta with a skeleton fleet of just two DC-3s, three crew
members, and twelve mechanics. After the formation of Pakistan, Orient Airlines shifted its
base from Calcutta to Karachi. The birth of a new nation generated one of the largest
transfers of population in the history of mankind. The Orient Airline took part in relief
operations and transportation of people from Delhi to Karachi along with other means of
transport after partition.
PIA was formed in 1955 by the government of Pakistan through PIAC Ordinance
1955 merging the only private owned airline Orient Airlines operating in Pakistan after
assessing that the Orient Airline could not be expected to grow and expand independently
due to limited resources.

Initially the national airline continued its operations on the routes the former airline used to
serve but soon PIA started its International operation. It was greatly criticized, as the public
could not realize or justify the need to operate an international route when, in their opinion,
other projects which are very important 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
major priorities of the national airline. After one year of its formation PIA started to expand
its operations by increasing its fleet, hiring more Pilots and establishing their own repair and
maintenance centre. In the year 1959 Government of Pakistan changed its top management
and appointed new M.D. and under his visionary leadership, PIA 'took off' and within a short
span of 6 years, gained the importance 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"(www.piac.com).

Moreover, International Airlines is the only government owned airline serving both
passenger and cargo nationally and internationally PIA earned substantial foreign exchange
through international services, which it invested in the purchase of aircraft and spare parts, as
 5

fleet expansion was an important necessity for the airline. In its initial few years of operation,
it struggled for becoming a financially strong institution of the country.

1.1. Mission Statement

“As a symbol of national pride, we aspire to be a choice airline, operating profitably on

modern commercial concepts and capable of competing with the best in the International as
well as Domestic markets” (www.piac.com.pk/mission&vission)

1.2. Vision Statement

“To be fiercely competitive, consistently exceeding customer expectations and be the choice
employer that embraces modern technology in all spheres of its activities”
(www.piac.com.pk/mission&vission).

1.3. Subsidiaries

Along with passenger service and air cargo, PIA operates the following subsidiary services.

1. Speedex courier Service delivers documents and parcels of any size, to the doorstep
of its customers.
2. Engineering Service, an established aircraft maintenance and repair company that
provides solutions to the aviation industry.
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1.4. Ownership composition of PIA

The firm is 87% state owned, with the remaining 13% held by private investors internal to
Pakistan.

Ownership
Government Private Sector (Internal)

13%

87%

1.5. Fleet

S.No Type No. of Crafts

1 Airbus A310-300 12
2 ATR 42-500 07
3 Boeing 737-300 06
4 Boeing 747-200 01
5 Boeing 747-300 05
6 Boeing 777-200 06
7 Boeing 777-300ER 03
Total 0
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1.6. Competitors
At domestic level, PIA had been the only airline for over 40 years, but in 1993 Aero Asia
International Ltd. was born and up to 1996, it had captured little of the domestic market.
Presently the Air Blue and Shaheen Airline are the strong competitors of PIA at domestic
level. PIA is struggling to stop the growing market share of Air Blue and Shaheen Airline by
offering low fare operation in domestic operations and by expending the domestic new
destinations.
On the international routes there are several airline competitors of PIA, some of them are
Emirates Airline, Lufthansa, Japan Airlines, Thai Airways, Saudi Airlines, Iran Air,
Malaysian Airlines, Dragon airlines and many more that use the Pakistani airports as transit
stations.

Domestic Market Share

60%

50% 48%

40% 35%
National Market Share
30%

20% 17%

10%

0%
PIA Airblue Shaheen Airlines
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2. PIA Strategy
PIA’s objective is to firmly establish itself as Pakistan’s leading scheduled passenger and
cargo airline through continued improvements and expanded offerings of its valuable service.
Its strategy to achieve this is:
 Competitive fares.
 Industry-leading customer service.
 Frequent flights on national and International routes.
 Low operating costs, addressing aircraft and equipment, personnel productivity,
customer service costs and airport access fees.
 Taking advantage of the Information Technology.
 Taking advantage of geographic importance and
 Commitment to safety and quality maintenance (www.piac.com.pk)
The company operates a policy of offering the reasonable fares available from the industry.
The company has launched its electronic air ticketing system which makes passengers more
comfortable and save their time. The system also helps the airline to reduce expenses incur
from operation of booking offices in different locations and the cost of agents.
PIA has changed almost all of its old crafts with new Boeing aircrafts which reduced the
huge costs spend on maintenance of different types of old crafts.

2.1. Corporate Social Responsibility

PIA is driven by the highest standards of corporate governance and social responsibility. As a
public sector organization and a business leader, PIA believes in building strong relationships
with customers, partners, employees, and the communities in which it operates. The
organization's values are exemplified in a range of corporate initiatives designed to impact
positively on the lives of multiple stakeholders. PIA practices active corporate citizenship
through social services, support for non-profit organizations, medical services for employees,
the promotion of sports, and educational initiatives.
PIA has institutionalized the practice of good governance by establishing a Corporate Social
Responsibility Committee. (www.piac.com)
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3. Strategic Analysis
Macro environment and internal environment of a firm play very important role in achieving
competitive advantage by a firm. To identify and examine the strengths and weaknesses
along with opportunities and threads and to analyze the strategies of PIA, I shall apply the
following strategic analysis tools which we have already studied.
3.1. PESTLE Analysis
This tool looks at macro environment of a firm. The macro environment affects the firms at
major level therefore it is necessary to analyze the affect of political, economic, social,
technological, legal and environmental factors on the firm.

3.1.1. Political
The politics of South Asia and Middle East in general and politics of Pakistan in particular
are very important for PIA as its major destinations are located in these regions.
The political situation in Pakistan is not normal. In the history of Pakistan hardly one or two
governments have completed their tenures. Political instability in the country is result of
interference by non political forces. The frequently changing political environment suffer
firms operations especially the government own organizations. The new governments change
the top level management soon after taking the charge of the government and appoint people
with political background on top level of organizations without testing the required
educational qualification and relevant experience. PIA is the most politically affected
organization as every new government appointed their own people who turned a profitable
organization into a loss bearing one which stopped its growth and started journey towards
decline.
Any change in government regulations of a country affect the firms operating within
boundaries of that country. In 1993, with the deregulation of aviation industry in Pakistan
opened up opportunities, allowing airlines from private sector to compete with PIA on
domestic and international routes. Since 1993, 4 private owned airlines have been established
to compete the national airline at domestic as well as international routes and the share of
PIA in domestic routes reduced to 48% from 100% in these seventeen years although the
international market share was not affected too much.
 10

War on terror is another political issue which seriously affected the organization’s
profitability. Tourists and businessmen changed their minds and selected other countries for
travel and invest and PIA lost a large number of their international passengers resulting in
decreased seat reservation and the organization suffered with considerable losses on
international operations
3.1.2. Economic
The economic condition of Pakistan is in a critical position. Economic growth is very low as
compare to other countries. The inflation rate is very high. Foreign investment is also
unsatisfactory. As PIA is operating from Pakistan, its international operations are affected by
exchange rates.
Oil prices are an issue for all airlines. A huge amount is being paid as fuel cost. Increase in
oil prices affected the income of PIA as well. Fuel is the main component of airline
operations. The oil prices are increasing at a higher rate affecting the PIA’s profitability.
These all economic drawbacks seriously affect the performance of PIA.
3.1.3. Social

Pakistan is ranked among lower-middle income countries. The Pakistani model for economic
growth since independence was described above as restricted growth. Social development
has lagged behind economic growth, resulting in unequal social development and notable
deficiencies in education, health services, sanitation, and gender equality (Khan, Omar
2004). The society of Pakistan is moderate in accepting changes. The social changes in
Pakistan are gradually taking place. Due to globalization and advancement in information
technology, the people accept social changes occurring throughout the globe. There are two
standards in our society, one is the upper class society and the other is lower level society
which is in majority.

The majority prefers to use alternate low cost means for traveling which affects the growth of
the organization.
Pakistan is an agriculture base country and a huge population is involved in agricultural
activities and they do not get too many opportunities for travelling. The business class is very
limited in size so PIA has limited chances to expand its operations at domestic level.
 11

3.1.4. Technological
The internet has enabled PIA to keep costs low by allowing customers to book through its
website rather than through an agent. However, the web is less attractive for PIA expansion
in east domestic, as access to information technology is limited to certain areas and facility
providing activities lower the other developing countries in the region. This situation is likely
to change in the longer term.
PIA wholly depends on other agencies for exchange of their older crafts to new ones. It also
requires a huge financing system which is very difficult to it because of the economic
condition of the country as well as its own financial position. PIA is unable to buy new
technology as it costs too much. For this purpose the organization approaches to financial
institution that provide funds on their own conditions which reduces the profitability as the
organization spends a huge amount on paying interest.
3.1.5. Legal
The involvement of government in PIA is backed by legislation. The government uses these
powers delegated by legislation in their own interest which affects the performance of the
airline.
Another drawback is its centralized system which is a time consuming practice and the
important actions cannot be taken immediately. Delays due to this centralized system create
problems for smooth operation of the airline and it causes huge losses and the organization
also loses available opportunities due to long decision making process.
As PIA operates internationally, the laws of different countries also affect the organization’s
performance. The laws restrict the PIA’s operations to some destinations and it also pays
different taxes at international airports imposed by those governments which reduce the
profit margin of the organization.
3.1.6. Environmental
The main environmental issue facing PIA is that of policies formulated by legislation about
greenhouse emissions. The airline industry affects the environment negatively by increasing
air pollution and noise pollution. PIA uses regional airports to reduce the environmental
effects on busy airports situated in main cities of the country. Furthermore PIA has also
introduced waste disposal plan which helps in reducing pollution in the country. PIA has
 12

acquired comparatively low noise new models of Boeing aircrafts (737,747 & 777) to reduce
the noise pollution.
3.2. Porter Generic Strategies
There are three main types of strategy identified by Porter in this model: differentiation, cost-
focused and niche. A differentiation strategy involves charging higher prices for features that
add value to a product. Cost-focused strategies involve reducing the features of a product to a
minimum to keep costs low so prices are minimized. A niche strategy involves providing a
highly-specialized product to a narrow market, possibly with the addition of cost or
differentiation elements.
PIA has applied two of these three strategy one is cost-focused and the other is differentiation
strategy. To introduce a concern for the business environment would involve incorporating a
feature to the product that does not reduce costs but differentiates it, potentially adding value
and enabling PIA to charge higher fares products. It is notable that, in contrast, airlines with
several ranges have struggled to achieve success with all of them. PIA has attempted to
introduce elements of differentiation on several occasions, with a Business Class and the
element of low cost with economy class as well as special packages on different occasions.

3.3. Five Forces

Porter's Five Forces theory is useful in a discussion of PIA because it looks at how influences
affect competing companies within an industry.
3.3.1. Buyers
Before 1993 the PIA was only airline at domestic level. The customers had no alternate
choices at that time. PIA offers their products to a large number of individual customers. This
kind of market will not have powerful individual buyers, allowing PIA to dictate its terms.
As customers' purchase decisions are made on the basis of price, rather than features, the
possibility of failing to provide an acceptable product is minimized. After 1993 the scenario
changed as government allowed private sector to enter the airline industry which introduced
an environment of competition. PIA’s figures for punctuality and flight completion are not
too much better than competitors especially on international routes. it is unclear whether it is
still performing better than competitors operationally. The figures are helped by its strategy
of utilization small local airports with less air traffic, hence minimizing the chance of delays.
 13

The cost-focus strategy means that introducing features for a minority group is not conducive
to making profit; the business model depends on a standard product.
3.3.2. Suppliers
PIA is a service providing organization and mostly depends on other organizations to fulfill
its needs. All airlines are subject to changes in oil prices: competitive advantage is gained
through how they approach this change.
PIA's other key suppliers are airports and aircraft makers like Boeing. It has the advantage
over competitors that the government struggles to settle issues with these suppliers and
negotiates with the suppliers.

3.3.3. Entry to the market

Entering the airline market is dependent on having the finances to set up an operation,
possibly requiring investor support. However, operations can be grown gradually, through
initially leasing or buying a small plane. In the case of PIA it is quite different because it was
initially initiated be Mr. Ispahani in the name of Orient Airlines decades ago. PIA was
established with full financial support of government.
It is harder for airlines to gain a grip in certain routes that are particularly competitive. PIA’s
financial difficulties were caused largely by aggressive competitive strategies from other
international airlines existing in the market for decades.
Undercutting competitors to force them out is common in the low-cost carrier market. While
lower prices may boost passenger numbers, the accompanying decrease in profit is not
sustainable long-term. This limits a very competitive approach to the largest companies who
can afford the impact of short-term losses to establish new routes. PIA is not in a condition to
formulate this type of strategy. It cannot bear even short term losses made to expend the
customer base because it is suffering already huge losses.
3.3.4. Substitutes
PIA is facing a strong competitive environment in domestic and in international routes.
Products (airfares) offered by the competitors are substitutes of PIA products. Price sensitive
customers shift from PIA and use alternate means of transport. At domestic level the
 14

competitors prices are low then PIA. The other alternate means include Pakistan Railways
and a huge network of inter-city coach service which enjoy from their low cost services.

3.3.5. Rivalry
PIA is in a particularly strong position in the market due to strong support of government.
The slight differences between PIA’s strategy and those of competitors provide them with
advantages, particularly in domestic operation. PIA can take advantage of government
support by providing competitive prices to domestic passenger by avoiding frills on short
haul routes and by reducing delays as well. Furthermore the competitors in domestic
operation are not too much strong but the policies of PIA help them survive in the market.
PIA has lost its market share to rivals on cost basis. There is no any proper system to control
operating costs which are higher than those of competitors.
3.4. SWOT Analysis
SWOT Analysis help in determining the strengths and weaknesses as well as the threads and
opportunities of a firm.
3.4.1. Strengths
PIA is the largest airline in Pakistan with more the 800 daily flights. It has developed a fast
online ticketing system which enables customers to reserve their seats without visiting the
airlines booking offices. This has helped the customer in saving their time and the
passengers prefer to travel with PIA. PIA has also successfully included latest technology in
all systems.
PIA is the national airline and has brand recognition throughout the country. People feel
pride by flying with PIA. PIA also has a superior operational structure with talented crew
and modern high technology aircrafts and access to all government owned airports.
The government fully supports during financial crisis which is a competitive advantage of
PIA over its competitors. PIA has a vast network in domestic and international destinations
which helps in growing its operation domestically and internationally and now PIA operates
globally, covering the entire domestic landscape and international destinations spread over 4
continents. PIA has established its own training center. The PIA Training Center is a leading
airline training institution that delivers the highest standards of aviation instruction. The PIA
Training Center provides quality training to PIA's pilots, engineers, air hostesses, and to
 15

employees of other associated PIA divisions which helps the organization to reduce training
costs. Furthermore the government has allowed only PIA to operate Hajj flights through
which PIA earns a considerable revenue.

3.4.2. Weakness
PIA totally depends on the government for formulation of its policies. The strategies are
designed at top level. With the change of governments, its policies are also changed which
makes it unable to sustain long term competitive advantage. Another weakness of PIA is its
centralized system. In this system all decision are taken at top level and the middle
management does not take part in decision making. As result the decisions sometimes fail to
address the problems or due to delays in decision making the organization suffers huge
losses.
the high amounts of debt are also a weakness of PIA which makes the organization unable to
make additional investment in the business and it is a big obstacle in expansion of its
business which reduces its growth rate compare to the competitors. Changes in oil prices also
directly affect on the revenue of PIA
3.4.3. Opportunities
PIA has a vast network of destinations in Pakistan and outside the Pakistan. It is an
opportunity for it to serve all destinations and utilize its modern aircrafts to generate revenue
for the country. . In the country there is a growing demand of low fare air transport and PIA
has opportunity to fulfill this demand by mobilizing its resources.
The globalization has changed the taste of people and they prefer to travel by air to save time.
By taking right decision PIA may expand its operation network and generate revenues. Free
trade agreement has enhanced the mobilization of goods between countries. PIA can take
advantage of this opportunity by expanding its cargo service.
PIA also enjoys customer loyalty. The organization may build stronger loyalty by
introducing packages for frequent travelers.
3.4.4. Threats
As PIA is currently bearing financial losses, it manages its financial requirements through
receiving long term loans from financial institution. The high interest rates are critical for
 16

PIA as it pays already a large amount as interest. Increase in interest rate results in financial
crisis. Another threat is high inflation rate which may result in reduced number of
passengers. The increasing oil rates may suffer the airlines operations and its revenue
because the airlines totally depend on oil to continue their operations. The cost of fuel is an
essential expense for all airlines. Rise in oil prices may suffer PIA’s operations in resulting
huge decline in revenues.

4. Conclusion
From the discussion above, it is clear that PIA is then only national airline of Pakistan. It has
developed a strategy different from those of its competitors, and that these differences
directly and indirectly contribute to its competitive advantage. PIA has reasonable
opportunities along with threats. But the frequent involvement of every government in top
management of PIA resulted in discontinuation of its strategic policies. An organization
earning average profits five years ago is now bearing huge loses.
 17

Domestic Network of PIA

Courtesy: www.piac.com.pk
 18

Courtesy: www.piac.com.pk
 19

References
1. Annual Report of PIA 2007
2. Omar J. Khan, Lyn S. Amine (2004) New International Business Perspectives on
Pakistan. Thunderbird International Business Review, Vol. 46(5). 493–519 Published in
2001 by John Wiley & Sons, Inc. Retrieved on January 06, 2011 from www.wiley.com
3. Michael H. Moffett (2001) Thunderbird International Business Review, Vol. 43(2) 303–
313, Published in 2001 by John Wiley & Sons, Inc. Retrieved on December 12, 2010
from www.wiley.com
3. www.piac.com
4. Business Recorder, 2011
5. Half yearly Report of PIA 2010
6. PIA Annual Report 2004 (Directors Report) Retrieved on January 06, 2011 from
www.piac.com