Open skies policy caused Rs107bn loss in single year, Senate told - New Flyer International

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Open skies policy caused Rs107bn loss in single year, Senate told
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Open skies policy caused Rs107bn loss in single year, Senate told 

The Senate was informed on Friday, Feb. 7 that the open skies policy cost the national exchequer Rs107 billion in a single year.

“The PIA’s financial crisis started with the advent of the open skies policy adopted in the 1990s and subsequent grant of liberal rights, particularly to the United Arab Emirates and other Gulf states. Approximately Rs107bn was lost by the national exchequer during 2017 as a consequence of allowing open skies/liberal traffic rights arrangement to the airlines of Gulf countries, including the UAE, Turkey and Sri Lanka. All the passengers of these airlines were the right of airlines of Pakistan, whose earnings otherwise would have contributed to the country’s economy,” Minister for Aviation Ghulam Sarwar Khan told the house during the question hour.

He said the authorities first adopted the open skies policy in 1992 upon commissioning of Jinnah International Airport, Karachi, which had been designed keeping in view the open skies policy.

The objective of the open skies agreement between two countries must only be based on commercial reciprocity and organic (point-to-point) market growth, as envisioned in the National Aviation Policy 2019, the minister said. However, in the case of Pakistan’s open skies with city-states like Dubai, Abu Dhabi, Sharjah and Ras-al-Khaimah, it has damaged the commercial viability of the airlines of Pakistan and adversely affected the national exchequer.

He said open skies policy was mostly adopted by either country having insignificant indigenous traffic of their own or by city-states that had no domestic network, like the UAE, Qatar, Bahrain and Singapore.

“For their airlines to survive and their countries to prosper, they seek liberal rights from densely populated countries. These countries seek unrestricted traffic rights for multiple cities in countries like Pakistan while offering only one point in their territory. For example, Emirates Airlines has permission to operate to 11 cities in Pakistan, whereas the airlines of Pakistan can only operate to one point in Dubai,” the minister said.

“The airlines of the UAE and other Gulf countries siphoned off sixth freedom traffic through their hubs for the UK, Europe, the US and Canada which otherwise was the right of Pakistani airlines or airlines of the country to which the passenger was travelling. With the adoption of a liberal grant of traffic rights, the other airlines started robbing the PIA’s traffic share and the capacity glut resulted in the dumping of available capacity on low rates.”

Answering a question, Mr Khan claimed that the national flag-carrier’s deficit had dropped from Rs32bn in 2018 to Rs11bn in 2019 and this was made possible by good governance. He said the acquisition of new planes and making grounded planes operational also contributed to an increase in revenue.

He said the PIA was passing through a dire financial state but the government was keen to make it self-reliant. “Efforts are underway to improve the financial health of the corporation by reducing its losses/deficit through various means and modes… Despite facing difficulties, the PIACL has been able to improve its performance with an objective of reduction in losses.”

The minister said the major reason behind the PIA’s losses was the increased financial cost due to the loan legacy inherited from the previous governments and rising mark-ups and debt servicing. Moreover, a significant increase in fuel prices and devaluation of currency have also contributed to losses.

He said the decrease in losses was being addressed at two levels — enhancing revenues and curtailing costs. “Revenue side is being addressed by improving market share through realigning sales team, manning stations on merit, aggressive sales promotion, improvement in product and services, focusing on revenue generation through ancillary sources, mounting new flights and expanding on existing productive routes such as Saudi Arabia and Gulf.”

The minister said the cost curtailment side was being addressed through austerity measures and reduction in unnecessary administrative expenses, discipline and accountability in functions to tap leakages and wastage, cutting down loss-making routes and other ventures, route rationalisation and shifting operational facilities suitable to PIA flight operations.

“Consequently, all performance indicators such as revenue, seat factor, yield and revenue per available seat are all showing tremendous growth as compared to previous years while the considerable reduction in operating and administrative costs have been achieved,” he claimed.

Adviser to the Prime Minister on Commerce Razak Dawood, while responding to a question about failure of Pakistan’s commercial councillors posted in different countries of the world to show tangible results, told the house that as many as 23 commercial councillors had been called back. He said that 58 individuals had been interviewed for the position of commercial councillor, of whom 43 had been selected and 35 started working. He said these officers had been given training and in the coming months would be given targets for the promotion of exports.

 

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