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Ph.D. Thesis

COST EFFECTIVE LOW COST CARRIER (LCC)

AVIATION MANAGEMENT BY UNIFIED AIRCRAFT POLICY

Dewan Abdullah Farooqui

Department of Business Administration, Research Scholar, Greenwich University

Contact: [email protected]

Mobile: +92300-8225651

Supervisor: Prof. Dr. Hiro Takahashi at Greenwich University

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Abstract The study conducted for this thesis analyzes the aviation industry from the global perspective in general and from the Pakistan perspective in particular. The initial part of the research comprises of the in-depth study and the historical analysis of the global aviation scenario i.e. how the aviation industry has become a major and fastest source of transportation globally since the inception of regular air services in the earlier 20th century till to-date. Later part of this research focuses on the cost effective Low Cost Carrier (LCC) aviation model in Pakistan. To achieve the cost saving management, unified aircraft operation policy was proposed. To select right aircraft for Pakistan’s domestic and regional markets, multiple evaluation factors were considered for better matching of physical requirements. The unified aircraft fleet is a biggest factor to reduce the total operating cost.

Moreover, the research on cost effective management by employing Enterprise Resource

Planning (ERP) LCC based aviation business in Pakistan was also undertaken. An elaborated analysis of the operations and functioning of ERP in LCCs’ different business divisions with real-life analysis was conducted. It was concluded that ERP modified for unified aircraft policy will give the significant improvements of the value of operation compared to the Traditional Management, General ERP, and combination of both of them.

Eventually, this research shows the potential of 8.7% increase in profits from original management policy. 3

CHAPTER 1: BACKGROUND 1.1 Aviation Market Prior to the liberalization of the aviation policies in the decades of the 1960s and the 1970s, air travel in the US and the Western Europe was limited only to the privileged and high-end customers; they were the only ones who could afford and spend a substantial amount of money. Those decades are still marked as the golden period for the as their profit margins were soaring and the aviation business was protected by the stringent regulatory environment safeguarding the interest of very few state-run and mega-airlines. Those were the times when fuel cost was not at all a major concern and airlines were enjoying strict regulatory protections. The entry barriers and protections under the regulatory regimes were preventing the entry of new competition in the market e.g. in the form of limited issuance of airlines operating licenses and the route-permits were dedicated only to the specific airlines based on the bilateral agreements. In the mid 1970s, liberalization of the industry and open sky policies initiated by the Government of the United States (U.S.) marked the beginning of the end of the golden period of the aviation business. Many mega-carriers particularly in the U.S such as Pan Am, TWA, Braniff, and Eastern airlines etc. could not sustain the tsunami of the causes and effects of the post liberalization period. Regardless of the brutalities of the liberalization of the aviation policies that caused the debacle of many mega-carriers and the considerable shrinking of airlines' profit- margins; globally all types and stratum of the consumers felt its larger benefits overwhelmingly. The free-competition environment gave way to the entry of highly efficient new airlines that brought the fare down to the level that it made possible for the masses to avail and afford air transportation 4

with ease and convenience. A new breed of carriers came into existence, which relied heavily on enticing customers solely on the basis of value-proposition. The Asian aviation market in the last two decades grew manifolds mainly due to the rapid economic growth in the Asian Pacific countries namely Asian Tigers and also due to the large size of population scattered in the vast Asian countries marked with poor land-transport infrastructure. The passenger market in Pakistan is in the early stages of the mass customization and the growth in its aviation market suggests that there is an organic and modest growth in the last few decades. The air traveling public in Pakistan is still consisting of a very small proportion of the total population. The lack of service efficiencies and market stimulations due to the presence of few incumbent-carriers in a highly oligopolistic environment gives a bleak picture of Pakistan aviation market. There seems to be a wide demand and supply gap in the air passenger market. The Pakistan domestic market is under-served and frequency- starved. The objective of the research is primarily aimed at finding the most suitable fleet of aircraft that provides maximum economic gains that strengthens the domestic and regional network within and from Pakistan. 5

1.2 Research Design and Methodology

The thesis will utilize numerous different approaches in order to give justifiable proposal.

These approaches are highlighted below:

The descriptive approach will be taken initially for the comprehension of the global aviation industry. This approach aims primarily at gathering knowledge (i.e. descriptions and explanations) about the global aviation industry. The intricacies and the complexities associated with the air travel industry marks the aviation business as one of the most volatile businesses. Later, normative approach will be taken to define how the business should be conducted in the peculiar Pakistani environment, which means that it will be necessary to define the subjective point of view that shall be used. If required, applied research will be engaged in order to support subjective views backed with scientific support and research to arrive at practical solutions. Additionally, empirical research approach will also be taken to observe and measure phenomena and occurrences in order to derive knowledge from actual experiences rather than from theory or belief.

Following are the salient features of the Research Methodology. 1. Investigate the demand of domestic and international routes and flight frequencies with- in and from Pakistan. 2. Make a mark sheet to evaluate right aircraft. 3. Select the most adequate aircraft model for Pakistan aviation business. 4. Propose Unified Aircraft Policy for Pakistan LCC business. 5. Propose modified ERP function for Unified Aircraft Policy. 6. Evaluate the impact of operation expenses by each case of aircraft model. 7. Evaluate the availability of flight frequencies by accuracy model. 6

8. Evaluate ERP functions in comparison to traditional aviation management. 9. Estimate the expected cost reduction by proposing Unified Aircraft Policy.

1.3 Specific Aims and Objectives The specific aim and objective of the report is to propose Pakistan’s specific Low Cost

Aviation Model by adopting unified aircraft policy and modified ERP functions.

1.4 Constraints The statistical data sourcing and collection pertaining to airlines and airport operations in

Pakistan is either unavailable or available in limited and unrefined form. At times, the data available in the country is outdated as compared to the availability of data in the developed world. However, the above constraint can be surmounted as global aviation data is available from the international sources and governing bodies such as International Air

Transport Association (IATA), International Commission on Aviation (ICAO), Federal

Aviation Agency (FAA), European Aviation Safety Authority (EASA), and also from the major aircraft manufacturers such as Airbus, ATR, Boeing, Bombardier and Embraer.

Aviation related periodicals and magazines, bulletins, and aviation-consulting agencies are also good sources for secondary data collection.

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CHAPTER 2: THE HISTORY OF GLOBAL AIR TRAVEL

2.1 The Nascence of Flying Man has always been seeking possibilities of soaring through the skies like birds right from the beginning of the known history. The tales and myths from the ancient civilizations from varied periods and regions depict humanoid characters, gods, iconic objects and figures having mystical flying capabilities. The Renaissance period is marked by the Leonardo da

Vinci’s most famous invention ‘the Flying Machine’ displayed the power of human imagination inspired from the nature and enthusiasm for the potential of flight. Long before the Wright Brothers, a Turkic man by the name HezarfenAhmatCelebi in 1638 AD made a successful attempt of flying almost 1.5 km and became the first ever human being to fly on his own. (Jones, 1998)

Even though the developments in aviation seem multifaceted and complex but astonishingly the absolute progress took place in just a little more than hundred years i.e. from the early twentieth century. It was the passion and perseverance of the two brothers

Orville and Wilbur Wright that brought a significant development, which altered the landscape of the contemporary world. Their dedication and hard work earned them a title of being pioneers of modern aviation. Neil Armstrong’s iconic words “That’s one small step for a man, one giant leap for mankind” are in fact more appropriate to the momentous flight in 1902 made by the Wright Brothers on their newly designed glider. It wasn't until

December 17, 1903 that their airplane, named The Flyer made the first controlled and powered flight in history lasted only twelve seconds and covered only 120 feet (Szurovy,

2003). In 1908 Leon Delagrange was the first person to fly as a passenger who flew with 8

French pilot Henri Ferman from a meadow outside of Paris (Szurovy, 2003). Commenced in Jan 1, 1914, was the first scheduled air service that began in Florida on a flying boat or seaplane. The single-plane service accommodated one passenger at a time across Tampa

Bay called the St. Petersburg-Tampa Air Boat line. The company charged a one-way fare of

$5 and after operating two flights a day for four months, the company ceased operation with the end of the winter tourist season (Szurovy, 2003).Commercial aviation progress was sluggish in the initial phase even-though the earlier headline events caught public eyes on both sides of the Atlantic. General public had serious apprehensions and fears on reliability of the new flying machines and they were hesitant to take any risky flying adventures.

The global geo-political environment always had a direct bearing on the aviation developments; the advent of World War I (1914-1919) brought a serious demand and production of military aircraft on both sides of the Atlantic. Substantial developments occurred in powering the aircraft motors to reach the speed up to 130 miles per hour (more than twice the speed of earlier aircraft). The aircraft manufacturers were focused on designing and producing larger military aircraft mostly for the purpose of bombing runs, surveillance and aerial dogfights. At the end of war there was such a large fleet of aircraft piled-up on the airfields that many aircraft companies went insolvent due to non-existent of the demand for aircraft. However, the most significant post World War I event was the initialization of commercial air service between the Great Britain and over the

English Channel. 9

2.2 The Inchoative Period The aftermaths of World War I were clearly evident with a glut of idle military aircraft parked in the airfields destined for some beacons of life. The post-war geo-political environment on both sides of the Atlantic fueled the momentum of the aviation industry.

By 1917, the U.S. government realized the progress in the development of planes and envisaged a faster coast-to-coast airmail service in conjunction with the already established train network across the country. The start of the airmail service in the U.S. embraced the beginning of a new chapter marked with many regulatory and legislative embodiments that later became the foundation for regulatory frameworks supporting the regulation of commercial aviation business. On the other side of the Atlantic, the colonial empires felt the need of initiating fast and reliable air services to facilitate overseas settlement and speed up colonial governance and trade as an alternative to slower sea connections. The idea and perception of long-haul journey was completely transformed by the tenacious and ambitious approaches undertaken by the then colonial powers and that later goaded the strong prospects and the imminence of trans-continental travel businesses.

2.3 The US Air Legislations On May 14, 1918, the U.S. Post Office initiated a modest airmail service between

Washington D.C, and New York via Philadelphia in collaboration with the Army using the war-surplus aircraft. In a very short period, the Post Office in conjunction with the ground train service was able to shave 22 hours off coast-to-coast mail deliveries. By the mid-

1920s, the Post Office mail fleet was flying 2.5 million mile and delivering 14 million letters annually (Szurovy, 2003). Once the infrastructure and feasibility of airmail service 10

were well positioned throughout the country, the U.S. government decided to privatize the civil aviation sector through the competitive bidding processes. In this regard, the

Legislative Authority granted the Contract Air Mail Act in 1925, which was also known as the Kelly Act. The initial five contracts were awarded to: National Air Transport (owned by the Curtiss Aeroplane Co.), Varney Air Lines, Western Air Express, Colonial Air Transport and Robertson Aircraft Corporation (Szurovy, 2003). All those five-awarded companies later became the predecessors for mega U.S. airlines those pioneered the global airlines industry and ruled the sky for many years to come. The Air Commerce Act of

1926authorized the Secretary of Commerce to designate air routes, to develop air navigation systems, to license pilots and aircraft and investigate accidents (Szurovy, 2003).

The act brought the civil aviation activities outside the ambit of military control and limited the government role as regulator of the private airlines. In 1930, the Watres Act authorized the Post Office to enter into long-term contracts with fewer private companies and with rates based on space or volume rather than weight. The Watres Act was in fact a realization of the oligopolistic nature of the aviation business due its intricacies involving huge investment and mass-scale infrastructure to achieve economies-of-scale. The Air Mail Act of 1934 imposed new set of rules to repudiate elements of corruption in bidding and awarding of contracts to private parties. The U.S. government also directed the dismantling of the vertical holding companies i.e. aircraft manufacturer and airline operators (most notably Boeing, Pratt and Whitney and ) to operate as separate business entities. The milestones and landmark legislative acts passed during the initial period of 11

civil aviation activities in the U.S. were the major footholds that characterized the legislative and regulatory bodies concerning the civil aviation business.

2.4 The Colonial Air link The aviation activities in the European continent during the same period were more concentrated towards passenger services connecting major capital cities and towns with in the European continent. The subsidized carriers of the colonial empires were battling to dominate each other in the context of facilitating overseas settlement by making quicker travel to and from the colonies and to accelerate colonial government and trade that were until then dependent upon ships. One of the most significant battle was between the two airlines i.e. between the Dutch based KLM Royal Dutch Airlines and the Great Britain’s

Imperial Airways to dominate the far reaches of the Dutch and the British colonial empires.

Imperial Airways was created on March 31, 1924, against a background of stiff competition from French and German airlines that enjoyed heavy government subsidies. The British government merged four of the largest existing airlines hoping that the strong merged company would face French and German competition aggressively while developing

Britain's external air services with minimized government subsidies on duplicated services

(Novac, 2013). KLM Royal Dutch Airlines founded in October 7, 1919 is the oldest scheduled airline in the world with a continuous history (Klm.com, 2014). The competition between KLM and Imperial Airways was mainly based on their ambitions to connect the empires to the far-reaching Dutch and British colonies in the continents of Asia and

Australia. Imperial Airways was committed to serve a large number of cities with in the empire, which included passenger, mail, and freight services. On-the-other-hand KLM’s 12

focused was on a few important routes, especially between Amsterdam and Jakarta using

Fokker F.12 aircraft fitted with four luxury seats. The route at that time was the longest regularly scheduled flight offered by any airline in the world which lasted 10 entire days, including 81 hours of flying time. (Klm.com, 2014) Belgium’s Sabena Airlines in 1925 pioneered a route to Africa and to Belgium's interests in the Belgian Congo.

(Sabena.alpe.be, 2014)

Imperial Airways’ ambitious air link services to the far reaches of the British

Empire became the solid basis of the export and creation of aviation infrastructure outside the boundaries of the developed world. Initially most passengers on the intercontinental routes traveling to British colonies were mainly government administrators, wealthy businessmen and empire’s sponsored research officials but later on passenger lists gradually diversified. The empire’s airmail service began in July 1937 and by mid-1938 a hundred tons of mail had been delivered to India and a similar amount to Africa. On

January 12, 1927 regular services to Cairo and Basra route began using DH.66

Hercules (DH.66) a seven seats and three-engined airliner. On March 30, 1929, a London to

Karachi service started; the length of a journey between London and Karachi comprised of

7 days that included of a flight from London to Basle, a train to Genoa and a flying boat flight to Alexandria, a train to Cairo and finally a DH.66 flight to Karachi. On December 29,

1929, the flight to Karachi was extended to . The first London to Calcutta service departed on July 1, 1933, the first London to Rangoon service on September 23, 1933, the first London to Singapore service on December 9, 1933. (Novac, 2013) The Singapore service was further extended to Brisbane on December 1934, in collaboration with the 13

Australian based Qantas Empire Airways Limited (QEA). By May 1935, QEA had extended its service from Darwin to Singapore with Imperial Airways operating the legs from Singapore to the Britain. The trans-Africa route was opened on February 9, 1936 between Khartoum and Kano in Nigeria. The journey to the Cape Town consisted of flights via Marseille, Rome, Brindisi, Athens, Alexandria, Khartoum, Port Bell, and Kisumu and onwards by land-based craft to Nairobi, Mbeya, and eventually Cape Town. By mid-1937 the airline had completed its thousandth service to the Empire. Starting in 1938 Imperial’s flying boats also flew between Britain and Australia via India and the Middle East. The airline stationed its all-male flight deck crew, cabin crew and ground crew along the length of its routes (Novac, 2013). By the end of the decade of 1930s, Imperial Airways’ global network created a strong aviation infrastructure in the entire length of the British Empire.

Infrastructure developments and expansions such as runways, taxi-tracks, parking bays, control towers, navigational, ground handling, residential facilities for the crew and transiting passengers, and catering and engineering facilities were created in all the destinations where the airlines were operating. Hence, a highly significant and sustainable global aviation infrastructure was created due to the remarkable global network and operations of Imperial Airways that became foundation of the incredible aviation developments in later decades.

2.5 The Propeller Era The two events in 1927 brought unprecedented public attention to aviation industry those became catalysts in securing the industry’s future as a major mode of civilian transportation.

The first event was the transatlantic nonstop flight from New York to Paris by a young pilot 14

Charles Lindbergh on May 20, 1927. The second event was the development of the first all passenger aircraft made of a much lighter material duralumin by the Ford Company. The

Ford Trimotor had 12 passenger seats, a cabin high enough for a passenger to walk down the aisle without stooping, and room for a "stewardess" to serve meals and assist airsick passengers (Szurovy, 2003). The Civil Aeronautics Act of 1938, the formation of the Air

Transport Association (ATA), the technological advancements and innovations in aircraft technology during and after the World War II (WWII) had a reassuring effect on the public’s impression of flying that made aviation a more established industry and attracted millions of private investment.

2.6 The US Air Acts The Air Transport Association of America was founded on January 3, 1936 in Chicago to promote the betterment of airline business and serve the interest and welfare of the members of the association and the public at large. The association since its inception fostered a business and regulatory environment that ensured safe and secure air transportation. The Civil Aeronautics Act of 1938 was enacted by Congress to regulate civil aviation activities. The act created the Civil Aeronautics Authority (CAA) that had powers to regulate airline fares, airmail rates, inter-line agreements, mergers and routes. In 1940, the CAA was split into two agencies: the Civil Aeronautics Administration (CAA) and the

Civil Aeronautics Board (CAB). The CAA was responsible for air traffic control (ATC), certification, safety enforcement and airway development. The CAB was responsible for safety rulemaking, accident investigation, and economic regulation of the airlines. (Szurovy,

2003) 15

2.7 Advancements in Propeller Technology The decade of 1930s is contemplated as the most innovative period due to the rapid advancements and improvements in aircraft technology. Subsequently, the World War II

(WWII) also had an enormous impact on aviation growth and development. The mass production of aircraft during the war contributed significantly in lowering the aircraft development and production costs. The most notable progress during the war was the development of sophisticated radar system by the British scientists. By the 1940s, airlines wanted to fly higher to avoid air turbulence; the breakthrough came at Boeing with the B-

307 Stratoliner. The airliner was the first pressurized aircraft that could fly as high as

20,000 feet and reach speeds of 200 miles per hour (Szurovy, 2003). The development of the turbo-supercharger by General Electric (GE) boosted engine performance that gave way to safe high-altitude flight in a pressurized cabin environment above 10,000 feet without the need for oxygen masks (Szurovy, 2003). In May 1941, the Civil Aeronautics

Administration (CAA) approved an ultra-high-frequency (UHF) radio range for scheduled airline navigation that allowed pilots to navigate via their instrument panels. The innovations in cockpit instruments such as airspeed indicators, rate-of-climb indicators, compasses and the introduction of artificial horizon allowed pilots to fly in reduced visibility. Monocoque fuselage construction and the cantilever wing reduced drag and yielded a significant increase in aircraft performance. The Instrument Landing System

(ILS) was introduced to aircraft by the late 1940s. (Szurovy, 2003)

Boeing 247 was the first aircraft to benefit from the latest developments at that time; the aircraft accommodated 10 passengers and cruised at 155 miles per hour with insulated 16

cabin environment, upholstered seats, and a hot-water heater to make flying a much more comfortable experience than the earlier aircraft. Later in the U.S., Douglas and Lockheed piston-liners dominated the aviation scene while in Britain Vickers Viscount was the most popular aircraft. The Douglas DC-3 (nicknamed as Dakota) was the first profitable passenger aircraft that changed the dynamics of the civil aviation industry; C.R. Smith (the long served ’ CEO and aviation pioneer) said the DC-3 was the first airplane that could make money just by hauling passengers, without relying on government subsidies. As a result, by 1939, more than 90 percent of the nation’s airline passengers were flying on DC-2s and DC-3s (Boeing.com, 2014). Later DC-6 and DC-7 aircraft were introduced with larger capacity and longer range. The DC-6 was regarded as the ultimate piston-engine airliner from the viewpoint of reliability, ruggedness, efficiency, and handling (Boeing.com, 2014). The DC-7 could fly up to 110 passengers anywhere in the world and the aircraft was the last of the Douglas propeller-powered aircraft. In 1943, the

Lockheed Corporation in California introduced the four-engine Lockheed Constellation

("Connie") propeller-driven aircraft. A total of 856 Connies were produced in numerous models; the aircraft had a top speed of over 375 mph and a service ceiling of 24,000 ft. The

Connie became the first pressurized airliner in widespread use and had big customer base around the world which included major airlines such as Trans World Airlines (TWA),

Eastern Airlines, Pan American World Airways (PanAm), Air France, British Overseas

Airways Corporation (BOAC, the successor of Imperial Airways), Royal Dutch Airlines

(KLM), Qantas Australia, Lufthansa, Iberia, Brazil based Panair, TAP Air Portugal, Trans-

Canadian Airlines, Aer Lingus, VARIG Brazilian, Cubana Airlines Venezuela Airlines. 17

Cubana Airlines was the first airline in Latin America and Pakistan International Airlines

(PIA) was the first airline from an Asian country to fly the Super Constellation

(Piac.com.pk, 2014). The improvements in engine efficiency made the Connies seven times more economical in terms of hourly productivity than the Douglas DC-3 (Doganis, 2010).

The Boeing 377 “Stratocruiser” introduced in July 1947 set a new standard for luxury air travel with its distinguishing features such as double-deck interior facilities in the form of

28 full-sized Pullman-type berths, private and semi-private compartments, two commodious dressing rooms and a well-equipped galley. The maximum seating capacity of the aircraft was up to 100 seats and had a range of 4,600 miles. PanAm was a launch customer and the aircraft’s first commercial service was between San Francisco and

Honolulu. (Szurovy, 2003)

2.8 Evolution of Commercial Travel The structure and parameters of the aviation industry were fully founded by the late 1940s.

The European and the U.S. airlines had comprehensive network and complex operational structure that facilitated the initial phase of organized commercial flying. Flying became a dependable mode of transportation and a platform to flaunt high lifestyle and extravagance for the affluent segment of the general public. In the U.S. more than half a dozen airlines established a comprehensive domestic network across the country. The U.S. airlines became fierce rivals in outpacing each other in terms of technological advancements and innovative passenger services and offerings. American Airlines (AOA) embarked upon an era of expansion that would make it the U.S. biggest airline. The airline introduced flagship concept of Frequent Flyer Program (FFP), the Admiral Club and the airport lounges. 18

Another American contribution to air travel was the introduction of a scheme to allow passengers to purchase tickets with an air travel scrip book or a debit card, a forerunner of a credit card (Szurovy, 2003). United Airlines initiated the first two-for-one ticket and introduced Skylounge flights on the Chicago-New York route, which was arguably the first first-class airline service (Szurovy, 2003). In 1936, United established the first airline flight kitchen in Oakland, California. PanAm became a truly global airline and generally perceived as America’s preeminent international carrier. The airline had a tough competition on trans-Atlantic flights with TWA in addition to American Overseas Airlines

(AOA). PanAm’s pacific services were challenged by the stern competition from United and Northwest Airlines. National and Braniff infringed the PanAm’s monopoly on Latin

American routes. On-the-other-side of the Atlantic airlines such as BOAC, KLM, Air

France, Scandinavian Airline System (SAS), Sabena, Alitalia and Aeroflot became the prominent European carriers. The rapid growth and development in the aviation industry was not just confined to the European and American continents; the newly independent states in the Asian and African continents laid the foundation of their own national carriers.

Philippine Airlines, the oldest Asian airline re-founded on February 14, 1946 with financial assistance from TWA. PanAm assisted PIA in its early days of formation and Air India received technical assistance from TWA. Hence, the thriving civil aviation industry became the cornerstone of the global socio-economic growth during the decades of the 1940s and

50s. The mighty propellers dominated the aviation skies and the era became the dawning period of the aviation grandiloquence.

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2.9 The Dawn of the Jet Age The decades of the 1960s and 70s are contemplated as the most eventful period of the global aviation industry. The industry dynamics were transformed on a mammoth scale through the introduction of high-speed fanjet engined aircraft and improvements in aerodynamic technology. The first-generation civilian jet aircraft brought colossal upsurge in the aviation growth that superseded all sorts of previous forecasts and prescient made by the aviation gurus. The U.S. and the European airlines formed strong hub-and-spoke networks and the Asian carriers created their own niche based on high quality service propositions. The Regularity Bodies such as International Air Traffic Association (IATA), the Federal Aviation Administration (FAA), and the International Civil Aviation

Organization (ICAO) braced favorable and conducive environment that fortified smooth, safe, and secure air transportation across the continents.

2.10 The Comet Tragedy The Comet (de Havilland DH 106) became the first production commercial jetliner in

August 1953 with the commencement of first jet commercial flight from London to Tokyo under BOAC colors. The duration of first scheduled nine-stop flight was 36 hours against

PanAm’s DC-6 flight, which was for 46 hours and 45 minutes on the same route. The aircraft was powered by two pairs of turbojet engines fixed inside the wings near the fuselage. The fast operating speed and high cabin pressures were contemplated the most sought-after and start-of-the-art features. The aircraft gained instant recognition and 30,000 passengers flew in the very first year of its operation. Unfortunately, the laurels associated with the Comet were ephemeral and its promising future instantaneously turned bleak due 20

to the three fatal accidents that took place one-after-the-other. The well-publicized Comet’s structural problems triggered cancellation of major orders and immediate withdrawn from the service. The aircraft’s unfortunate fate is widely regarded as a major aviation tragedy; nevertheless, the Comet’s legacy includes major milestones and technological advancements in the aviation industry. Moreover, the extensive and revolutionary accident- investigations that were taken place at that time have become precedents and they are diligently been employed even today for the air crash investigations.

2.11 The Jet Engine Breakthrough The lessons learned from the Comet’s tragedy benefitted the rival manufacturers across the

Atlantic. Although, the aircraft manufacturers Boeing and Douglas were initially contending in developing air tanker for the U.S. military but later both the companies simultaneously shifted their efforts in developing a pure civilian jet aircraft. The first successful civilian jet aircraft that soared the sky was the Boeing 707 (B707). On October

26, 1958, PanAm launched America’s first schedule jet service with the B707 (the Clipper

America) from New York’s Idlewild Airport to Paris. Unlike the Comet fixed engines, the

B707 had four podded engines held on pylons beneath the two wings. The Douglas DC-8 had a maiden flight on December of 1957 and then finally came into service in 1959. Delta

Airlines became the DC-8 launch customer with a first non-stop flight from New York to

Atlanta beating United’s first DC-8 scheduled flight by a few hours. The exteriors of the

B707 and its competitor, the DC-8, were almost identical, but the B707 wing had more sweepback, so it could fly about 20 mph faster (Boeing.com, 2014). The launch of both the aircraft thrilled the traveling public and the jets became the stars of the 1960s; hence, the 21

thundering of piston engines was gradually replaced by the high-pitched howl of jet engines. The development of the turbo-jet engine had a profound impact in increasing the speed and size of aircraft. Boeing delivered 856 B707s in different versions between 1957 and 1994 to the airlines across the globe (Michaelprophet.com, 2014). B707 had a length of

125 feet with seating capacity up to 181 passengers. Boeing modified B707 for short-to- medium routes and for use on shorter runways and the version was designated as B720. The

B720 first flew in November 1959 and the model entered service with launch customer

United Airlines in July 1960. Boeing built 154 B720s between 1959 and 1967

(Boeing.com, 2014). The Douglas DC-8 Super Sixties was launched in April 1965, with a longer fuselage and a seating capacity up to 269 passengers. The Super Sixties had the largest passenger carrying capacity until the introduction of Boeing 747 in 1970. Later,

Douglas launched the DC-8 Super Seventies equipped with much quitter CFM56 engines, which made the aircraft quietest four-engine aircraft at that time. Although the B707 outpaced the DC-8 in terms of sales but the DC-8 proved its value in the longer term. By

2002 almost all of the B707’s were no longer in commercial use, with only 80 still in service, mainly for the United States Air Force (U.S.A.F). Over half of the DC-8’s were still in use today as freighters. (Airliners.net, 2014)

2.12 The Race for Passenger Capacity During the first half of 1960s, international traffic was growing at a phenomenal 25 percent every year. At that rate, the current jet types would have a hard time keeping up with demand (Szurovy, 2003). The huge success of B707 and DC-8 aircraft brought revolution in civil air transportation and the need of a large passenger aircraft to ease traffic 22

congestions at the airports was realized. Consequently, Boeing commenced to build a super wide-body Boeing 747 (B747, nicknamed as Jumbo Jet) more than twice the size of B707 in alliance with PanAm, one of their most premier customers. In April 1966, Pan Am ordered 25 747-100 aircraft for US$525 million and became the launch customer of the aircraft (Szurovy, 2003). The first commercial flight commenced on early hours of January

22, 1970 from New York’s John F. Kennedy (JFK) Airport to London’s Heathrow Airport.

PanAm’s The Clipper Young America became the first Jumbo aircraft that crossed the

Atlantic. The momentous flight inaugurated an era of wide body aircraft and the Jumbos later earned the tile as “the Queen of the Skies”. The idiosyncratic features such as the hump-like upper deck and easily cargo conversion options made the aircraft most recognizable all over the world. Over the period of more than forty years Boeing introduced its various versions and by July 2014, 1,500 aircraft had been built, with more than 40 of the 747-8 variants remaining on order.

The McDonnell Douglas Company and the Lockheed Corporation quickly recognized the benefits of the economies of scale associated with wide body jets and both the companies simultaneously worked on developing three-engine wide body aircraft. The

McDonnell Douglas Company developed the DC-10 aircraft, which could carry up to 380 passengers in a single-class configuration. The first aircraft were delivered to American

Airlines and United Airlines in 1971. American inaugurated DC-10 service in August 1971 on the Chicago-Los Angeles route and on the same month United inaugurated service from

San Francisco to Washington Dulles. Besides the well-publicized early problems with its cargo door, the DC-10 later proved to be a real workhorse for the airlines across the globe. 23

The aircraft had three basic models, the Series 10 for transcontinental medium-haul routes and the series 30 and 40 for intercontinental long-haul routes. All in all 386 DC-10s were produced and majority of them were sold to the U.S. airlines. Lockheed L-1011 TriStar was a wide body gamble by the Lockheed Corporation. The aircraft had three-engines with a medium-to-long-range of over 4,000 nautical miles and a seating capacity up to 400 passengers. The aircraft was third in a row to enter in a wide body arena after B747 and

DC-10 airliners. Eastern Airlines became the launch customer of the aircraft in late 1972 and Lockheed delivered a total of 250 Tristars to different airlines. The Tristar was the last and not so successful commercial project of the Lockheed Corporation. In 1984, the company withdrew from the commercial aircraft business due to the below-target sale of the L1011 aircraft and the company later concentrated their focus exclusively on the military aircraft business.

2.13 The Advent of Narrow-Body Jetliners The short-to-medium haul jets were the prime focus of the European aircraft manufacturers and later Boeing and Douglas also joined the race. The SudCaravelle produced by the

French Sud Aviation firm was the most successful European first-generation aircraft. The

Caravelle’s first maiden flight occurred in 1955 and the aircraft pioneered the rear mounted engine layout. The launch customer Air France made the first schedule flight on May 12,

1959 on Paris-Istanbul route via Rome. The latest Caravelle version was the Caravelle 12 launched in 1970, which could carry up to 140 passengers (Sudaviation.com, 2014). The

Hawker Siddeley HS 121 Trident was a British short and medium-range airliner that entered in revenue service in 1965 by the state-owned British European Airways 24

Corporation (BEA). The aircraft was one of the fastest subsonic airliners with a cruising speed over 610 mph. A total of 117 Tridents were produced till 1978, which included a prominent 35 aircraft sale to the Civil Aviation Administration of China (CAAC). Another notable first-generation British short-haul jetliner was BAC One-Eleven aircraft, first flew in August 20, 1963. The Dutch company Fokker continued their efforts in developing propeller aircraft to compliment and support feeder services of the network carriers. In

1955, Fokker developed the F27 Friendship, which became the most successful twin- turboprop aircraft in the first-generation jet era. The company produced 786 F27 aircraft till the early 1980s. In the sixties, Fokker developed short-range jet airliner, called the F28

Fellowship. The aircraft made first flight in May 9, 1967. The maximum capacity of the aircraft was 85 seats at five abreast layout. The company delivered 241 aircraft to different airlines. Concurrently, the Boeing Corporation quickly assessed the importance of short- medium range aircraft to support the regional and inter-city domestic markets those were unsuitable for the B720 operation. The Boeing 727 (B727) was introduced in 1963 and

Eastern Airlines became the launch customer that commenced services in February 1964.

The B727 dominated sales of medium-range airliners and became the world’sbest-selling first-generation jetliner. The Boeing produced 1,832 B727s of different versions and series with ranges from 1,500 to 2,500 nautical miles and a passenger capacity from 148 to 189 seats. Douglas Aircraft Company (DAC) introduced the DC-9 aircraft series in direct competition with B727. The first revenue service was commenced by Delta from Atlanta to

Memphis in December 1965. The company produced 767 DC-9s from 1965 to 1982; the ultimate success of the DC-9 was based on the basic flexibility of the design and the 25

seemingly infinite number of versions that could be derived from the original baseline model. The DC-9 Series 50 could carry up to 139 passengers in a high-density layout and had a range of 2,110 nautical miles (airliners.net, 2014/). In 1967, Boeing introduced B737-

100 Classics to supplement the 727 on short and thin routes and to combat competition rose due to the introduction of Douglas DC-9. Lufthansa became the launch customer of B737-

100 in February 9, 1968, and United Airlines was the launch customer of B737-200 in

April 28, 1968. The twin-engine B737 became the best-selling short-to-medium range narrow body jetliner with a seating capacity for B737-100 and 200 series were up to100 and 115 seats respectively and a range up to 2,300 nautical miles. In all 1,144 JT8D- powered B737 classics were produced till late 1980s when the production was replaced by the second-generation B737-300. (Boeing.com. 2014)

2.14 The First Wave of Aircraft Manufacturers’ Consolidations In the late sixties, the Boeing and the Douglas Aircraft Company established their supremacy on both the narrow and the wide-body aircraft productions. Their European counterparts felt the intense competition for each aircraft project and in the absence of defense funding following World War II they could no longer develop and produce aircraft that can sustain huge capital investment. To counter such precarious situation, the European aerospace companies opted for mergers and alliances to integrate their resources and significantly reduce development and administrative costs. The two dominant aerospace companies British Aircraft Corporation and Aviation were emerged as a result of series of mergers of 12 companies in the 1950s and early 60s and later in 1977 these two companies were integrated and reorganized as (BAe). In 1970, 26

the French companies Sud Aviation, Nord Aviation, and SEREB were merged to form much stronger aerospace company called the Aerospatiale. Another French company

Dassault acquired Breguet Aviation in 1971. The resulting company developed twin- engined narrow-body jet-powered airliner called DassaultMercure, a first large-scale

European cooperation program in civil aeronautics. The aircraft first flew in 1973 was in direct competition with the Boeing 737 and had a seating capacity for up to 140 passengers.

The aircraft besides having start-of-the-art technological advancements did not make a significant mark in the aviation industry due to the global economic conditions that favored sale of American-built airliners. The American manufacturers also went through a first wave of alliances and mergers during the 1960s. The most significant one was the merger of Douglas Aircraft with the military manufacturer McDonnell Aircraft in 1967.

2.15 Establishment of Regulatory Bodies The global aviation industry became a strong catalyst of socio-economic growth by the late

1960s. The roles of international legislative and regulatory agencies such as U.S. Federal

Aviation Administration (FAA), the International Civil Aviation Organization (ICAO), and the International Air Traffic Association (IATA)werecrucial in making the international and transcontinental travelling safe and hassle-free. Established in 1966, the FAA's roles include regulating of U.S. commercial space transportation, air navigation facilities, flight inspection standards, researching and developing the National Airspace System and civil aeronautics, and developing and carrying out programs to control aircraft noise and other environmental effects of civil aviation (Szurovy, 2003). The ICAO was established in 1945 as a specialized agency of the United Nations. The ICAO Council adopts standards and 27

recommended practices concerning air navigation, its infrastructure, flight inspection, prevention of unlawful interference, and facilitation of border-crossing procedures for international civil aviation. ICAO also defines the protocols for air accident investigation followed by transport safety authorities (ICAO.int, 2014). IATA was formed in April 1945 in Havana, Cuba as a trade group with no legislative powers. IATA became voice of the aviation by launching a number of important programs and lobbying governments in the wake of successive crises (IATA.org, 2014). Towards the end of 1960s, the European and the U.S. airlines were expanding their aircraft fleet exponentially based on their strong hub- and-spoke networks. The vast array of regional, narrow and wide-body aircraft were available to support the fast growing needs of the fiercely competing airlines. On-the-other- hand, the Asian carriers were also swiftly expanding their network due to the fast growing air travelling demands fueled by the emergence of both local and international tourism industries and the rapid economic growth especially in the newly emerging Asian-Pacific countries. The airlines became the symbol of national pride and a platform to display and promote the local culture and tourism industries. The Asian carriers were also taking advantage of the fifth and the sixth freedom rights connecting east and west bound passengers from their newly emerging hubs.

2.16 The Slump Period The global aviation industry and civil air transportation were ostensibly reached their zenith in the late 1960s and early 1970s in terms of technological advancements and growth in the aviation industry. A consortium of West European aircraft manufacturers first flew the supersonic Concorde in 1969 two months after the successful testing of the Soviet-build 28

Tupolev 144 in December 1968. The beginning of the oil crisis in 1973 brought severe shocks and its horrendous effects caused many tragic casualties in the global air transportation industry. The whole industry went into a state of complete disarray and pandemonium and there was a complete overturned in terms of economic and operational parameters related to a running of the airline businesses. Consequently, the deliberation and inclination of the technological-savvy aircraft manufacturers and the major global airlines were diverted more towards achieving economical and operational proficiencies. The

Airline Deregulation Act enacted by the U.S. government in 1978 further exacerbated the non-conducive environment of the already fragile airline business and as a result, the industry pushed into several unprecedented challenges and precipitous tragedies.

2.17 The Supersonic Legacy

Concorde was the turbojet-powered supersonic passenger airliner first flown in 1969 and entered in to a commercial service in 1976. The first scheduled services began simultaneously by British Airways (BA) and Air France (AF) on January 21, 1976 on

London–Bahrain and Paris–Rio (via Dakar) routes respectively. The aircraft was a joint venture between Aerospatiale and British Aircraft Corporation (BAC) under an Anglo-

French treaty. The unique aerodynamic design and the drooping nose during takeoffs and landings were the Concorde’s most distinct physical features. The aircraft had a Mach 2.04 cruising speed and a maximum ceiling up to 60,000 feet with a range up to 3,900 nautical miles. Concorde’s most salient selling feature to the airline customers was its capability to fly more than twice the speed of subsonic jetliners, hence, cutting more than half of the journey time. However, the aircraft’s salient feature came with a hefty operational cost i.e. 29

the aircraft had a fuel consumption of 4,800 gallons per hour with a maximum capacity of just 120 passenger seats. At the time of the launch, Concorde held a great deal of interest by

16 major airlines but shortly there were a large number of order cancellations. Initially, the consortium secured orders for over 100 of the long-range version exclusive of 74 options but actually only 20 aircraft were built; seven each were delivered to Air France and British

Airways and the rest were prototypes and development aircraft. The wide-ranging inopportune circumstances affected the Concorde project. Firstly, the crash of the competing Soviet Tupolev TU-144 at the Paris Le Bourget air show severely damaged the public confidence on supersonic aircraft and besides that there were severe public concerns over the environmental issues associated with the supersonic flight i.e. the sonic boom and the noise during takeoff and landing. The 1973 oil crisis made the aircraft totally unviable in the wake of the soaring oil prices due to which the major airlines shifted their interests to the fuel-efficient wide-body aircraft that could carry three to four times more passengers with the same fuel cost per flight. A fully loaded Boeing 747 could achieve 46.4 passenger miles per gallon (pm/g) of fuel, while Concorde could only achieve 15.8 pm/g (Gordon,

2014). Despite all odds, Air France and British Airways flew Concorde for almost 27 years and the aircraft remained a major attraction for the enthusiastic and conspicuous passengers.

On April 10, 2003 both the airlines simultaneously announced the retirement of the aircraft due to low passenger numbers and the rising maintenance costs following the Air France’s

Concorde tragic crash in Paris in July 25, 2000. Even though, Concorde is regarded as an aviation-icon and an engineering-marvel of its time but the aircraft left an unpleasant legacy and a hard lesson for the aviation industry. Later, the aircraft manufacturers learned 30

through the Concorde’s failure that in the absence of commercial viability and environmental considerations, the blind pursuance of technological advancements could lead to futile and tragic consequences despite initial achievements and temporal successes.

2.18 The Oil Crisis

The unending geo-political unrest in the Middle East triggered a series of energy crisis between 1967 and 1979 that caused imposition of oil embargo by the Middle Eastern major oil producing countries. The crisis created a severe shock on the global economy and the price of crude oil escalated to $12 by 1974 from $3 per barrel. The abrupt rise in the oil prices knocked out the profitability margins and the operational perimeters of the airline business. To survive in the tough environment, airlines quickly pursued orders for the fuel- efficient jetliners. The U.S. carriers those placed large orders with the Boeing, Lockheed, and McDonnell Douglas aircraft strengthened their hub-and-spoke network with a mix of wide and narrow-body jetliners. The major global airlines also gradually shifted their fleet to fuel-efficient U.S. built jetliners to minimize the bitter effects of the fuel crisis. Even though airlines were enjoying the highest load factors but they were facing losses in the wake of rising fuel prices. The second oil shock, in 1978, resulted in dramatic increase in fuel prices to the level of $35.53 per barrel and by 1980 fuel cost represented nearly one third of airlines’ total operating costs. The significant rise in the fuel prices spun the airline- business in to a loss-making venture and by 1980, the world airlines as a whole made an operational loss before paying interest for the first time since 1961. (Doganis, 2010)

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2.19 The Deregulation and Liberalization of Aviation Policies

The anguishes and woes of the aviation industry were further inflamed by the enactment of the infamous Air Deregulation Act by the U.S. Government on October 24, 1978. Prior to the enactment, the highly competitive U.S. aviation environment was filled with the glut of empty seats due to induction of wide body jetliners. The U.S. airlines were facing daunting tasks to remain profitable and there were intense battles between the airlines to increase capacity-utilization in order to curb losses in the wake of rising fuel cost. The then U.S. regime felt that the fierce competition between the airlines under the regulatory environment infused inefficiency and redundancy in to their system. In the absence of commercial viability and economic considerations, the airlines were expanding fast with their fleet and operation network in their struggle to survive and outpace each other, thus, creating a glut of capacity and wasteful resources. The Civil Aeronautics Board (CAB), used to govern the interstate fares and sanctioning of routes to airlines. The CAB did not regulate the intrastate fares due to which the intrastate fares were lower than the interstate fares of the equivalent sector-length. Thus, to liberate the aviation market from the perilous conditions ‘International Air Transport Negotiations’ was signed by the then U.S. President

Carter on August 21, 1978. The aim of the U.S. Government was stated as ‘to provide greatest possible benefits to travelers and shippers and that maximum consumer benefits can be best achieved through the preservation and extension of competition between airlines in a fair market place’ (Doganis, 2010).The prime objectives of the act were to create opportunities for innovative and competitive pricing, to provide restriction-free traffic rights and frequencies to both schedule and charter airlines, and to allow multiple 32

designation of US airlines based on extension of bilateral agreements including liberalization of cargo business. Air Deregulation Act was the first step towards liberalization and ultimately in 1991 to ‘open skies’ phase during which most of the remaining constraints were removed especially in the U.S. and with-in the European countries. The (UK)-Netherlands agreement signed in June 1984 became the forerunner of the intra-European open sky policy that paved the way to the European common aviation era. The liberalization waves were not limited to the European and the

American continent; the Asian countries quickly adopted if not fully but partial and discriminatory liberalization policies. Some of the Asian countries granted international routes to the domestic airlines such as All Nippon Airways broke the monopoly of Japan

Airlines on some key regional international routes. Asiana became the second designated international South Korean carrier besides Korean Air. The Australian Government withdrew regulations on domestic fares and capacity limitations and allowed foreign ownership on Australian based airlines. India and China in early 1990s liberated their domestic markets and as a result several new domestic and regional airlines emerged and paved ways for a more competitive aviation environment.

2.20 Post-Liberalization Period The liberalization of the industry marked the beginning of the end of the golden period of the aviation business. Many mega-carriers particularly in the U.S such as Braniff, Eastern airlines, TWA, and Pan Am etc. could not sustain the tsunami of the causes and effects of the deregulation. The post liberalization recession battered passenger numbers, price war smashed profitability, interest rate soared to over 20 percent, and the mounting debt became 33

unmanageable. Braniff was the first classic U.S. airline that crashed in 1982. The other U.S. carriers dragged through the period and the lowering of fuel prices to $26.53 per barrel in the mid-1980s provided some temporary relief to the struggling airlines. The post deregulation scenario had made airlines vulnerable to insolvency to the level that even the promising preemptive measures to ward-off their fragility went absolutely futile. The most vulnerable U.S. airlines were the ones having international routes with weak or no domestic network. PanAm was particularly badly hit and in the second-half of the 1970s the airline be-felled by the intense competition on its key international routes. The deregulation increased the intensity of competition from both the US-based and foreign airlines on the trans-Atlantic, Latin American and Pacific routes. PanAm never had the financial resources to properly establish the domestic network that was crucial to support its international network. The airline was unable to generate sufficient cash flows and struggled through the

1980s by selling-off its lucrative assets and international routes to gain some breathing space. The airline’s dire situation further deteriorated by the series of targeted terrorist attacks on its aircraft that ultimately forced the airline to cease its operation on most of the

Middle-Eastern, North-African and Asian routes. In November 1989, PanAm’s name finally disappeared from the air-transportation scene and, hence, the industry witnessed a greatest tragedy in the aviation history. Other U.S. carriers such as Eastern Airlines and

TWA met the same tragic fate leaving behind a legacy and thousands of people unemployed. In Europe, Laker Airways was the first airline that went bankrupt. The airline pioneered the low-cost mass-transportation and regarded as a major British entrepreneurial innovation. The Laker’s debacle was a result of mounting debts due to its fleet expansion in 34

the midst of a capitalist recession. The major carriers in Western Europe such as Air France,

British Airways and Lufthansa etc. accumulated large debts and they were all financially supported by their respective national governments. Most of these major carriers were given sufficient time to adjust and make necessary changes in their organizational systems to withstand the new and tough requirements of the open-sky and free-competition environment. The clouds of hostility and uncertainty that were created during the post- deregulation period have not been settled even in the wake of the 21st century. The mergers, acquisitions and liquidations in airlines and aviation related industries have become standard norms for the survival and mitigation of losses in the aviation business.

2.21 The Consolidation and Low Cost Era Extensive consolidations, mergers, acquisitions, strategic alliances and restructuring of financial and business activities marked the post liberalization period across the entire aviation industry. The aircraft manufacturers shifted their focus from blind technology pursuance and raising aircraft speed towards economics of flying to gain fuel efficiency, aircraft range and reliability, and improvements in aircraft maintenance performances.

Globally, the incumbent network-carriers went through a series of radical changes in the running of their businesses to fight for their survival in the increasingly implacable business environment with the enactment of considerable and painful restructuring processes.

Alongside, a new innovative low cost airline-model emerged that gave way to a gradual upsurge of successful domestic and regional low-cost carriers.

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2.22 Amalgamation of European Aircraft Manufacturers The European based aircraft manufacturers were seriously challenged by the domination of

U.S. built jetliners in global aviation markets. They were at a much weaker position due to considerably smaller size of domestic markets as compared to the U.S. based aircraft manufacturers. The U.S. aircraft builders had the advantage of securing major orders from local airlines serving the world’s largest domestic market at that time. The large domestic market significantly provided security to the U.S. companies to sustain returns on huge capital employed in designing and building of the jetliners and mitigation of risks in case of limited customers’ interest in challenging foreign markets.

2.23 Creation of Airbus Consortium On September 26, 1967 the British, French, and German governments signed a

Memorandum of Understanding to start development of the 300-seat Airbus A300 aircraft.

Initially, the Airbus Industry consortium included Aerospatiale of France, CASA of Spain and 's Duetsche Aerospace (a forerunner of DaimlerChrysler Aerospace) and

British Aerospace Company (BAC). Airbus Industry was formally set up in 1970 following an agreement between Aerospatiale and Duetsche Aerospace. Spanish CASA joined the consortium in 1971. Initially, BAC backed out from the consortium due to possible conflict of interest with its own BAC One-Eleven aircraft. However, the British firm Hawker-

Siddeley continued as a contractor for developing the wings for the A300 project.

2.24 The A300 Program – First Airbus Production The first A300-B2 aircraft powered by General Electric CFM-50 engines was delivered to a launch customer Air France and the aircraft entered service on May 23, 1974 followed by 36

A300B4 one year later (Airbus A300B2/B4, Airliners.net, 2014). Production of the

A300B4 discontinued in May 1984, with manufacturer switching to the improved A300-

600 aircraft. The A300-600 was based on the development of the earlier A300B4; the new aircraft incorporated a number of significant improvements and refinements, most notable ones were its increased range and a two-crew flight deck. Both the A300-B4 and A300-600 aircraft had a capacity up to 345 and 361 of passenger seats respectively on a single-class configuration. The A300-B4 had a maximum range up to 3,600 nautical miles whilst the

A300-600 could fly up to the range of 4,070 nautical miles at a cruising speed of 860 km/h

(Airbus.com, 2014). Later, a smaller derivative Airbus A310 was developed and the first flight of the aircraft occurred on April 3, 1982, with Lufthansa being a launch customer.

The A310 is a 200-seated aircraft with two versions include the basic A310-200 and the longer range A310-300 with a maximum range up to 5,200 nautical miles (Airbus.com,

2014).

The Airbus A300 is regarded as a first twin engine wide body jetliner and Europe's first successful postwar aircraft. Initially the consortium received not-so satisfactory orders for the A300 program and by 1979 there were only 81 aircraft in service. The airline- customers at that time had apprehensions regarding the success of the aircraft due to the earlier appalling failures of the European based Concorde and Dassault-Mercure aircraft programs. However, the launch of the narrow body A320 aircraft in 1987 made the Airbus

Industrie a major player in the global aircraft markets posing a serious competitive challenge to the U.S. aircraft manufacturers.

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2.25 Formation of EADS. The Airbus manufacturing processes pioneered the just-in-time inventory management i.e. the final-assembly line at Toulouse receives complete aircraft section by the consortium partners due to which the assembly line assembles the aircraft more efficiently with more flexible and reduced costs as opposed to building the whole aircraft at one site. The successful joint-collaboration of the international partners also confirmed a landmark step forward that established the vision of the European-Union. The European governments encouraged intra-European mergers and alliances in order to enhance Europe’s collective abilities to compete against the U.S. aviation industry. In 1990, the French MatraEspace and British Marconi Space Systems merged to create Marconi Space and later in

1994, the merged company acquired British Aerospace Space Systems. In May 2000, Matra

Marconi Space and the space divisions of Dasa were combined in a joint venture under the name , 50 percent of which was owned by Aerospatiale Matra and BAE Systems and 50 percent by Dasa. Two months later, in July, Aerospatiale Matra, Dasa, and Spain’s

ConstruccionesAeronáuticas S.A. (CASA) merged to create the European Aeronautic

Defence and Space Company (EADS). The EADS at its formation became the third largest aerospace company in the world (after Boeing and Lockheed Martin). (Amir, 2014)

2.26 Second wave of American consolidations. In early 1990s, the U.S. aerospace companies went through a second series of divestitures and mergers to gain economies of scale. Textron Inc. acquired the small aircraft maker

Cessna in 1992 from General Dynamics. General Electric sold its aerospace division to

Martin Marietta in 1993 and retained its aircraft engine manufacturing business. Lockheed 38

merged with Martin Marietta in 1994 to form Lockheed Martin Corporation. In 1995,

Northrop acquired the Grumman Corporation and became Northrop Grumman Corporation.

In 1997 Boeing merged with McDonnell Douglas to establish the world’s largest aerospace company. The U.S. antitrust law approved the merger on the grounds that one strong U.S. based commercial aerospace company would effectively and successfully compete with the

European based EADS and maintain a favorable balance of trade. The consolidations and mergers brought forward the two strong U.S. based aerospace companies i.e. Boeing focusing on commercial aviation business whilst Lockheed concentrating on military aerospace business.

The mergers and acquisitions were also extended to Canadian aerospace company

Bombardier that acquired business jet makers Learjet and Canadair, as well as De

Havilland Canada and Britain’s . Following the dissolution of the U.S.S.R. in

1991, the Soviet civil aircraft manufacturers lost their captive markets, as their aircraft designs and technology deemed obsolete, unreliable and non-economical against western build fuel-efficient aircraft. However, they continued supplying military aircraft (MiG and

Sukhui fighters) and technology to former Soviet republics, Eastern bloc partners such as

Poland and the German Democratic Republic, China, India, Syria, Iran, and Iraq.

2.27 Advancements in Aircraft Technology The aftermath of the 1970’s oil crisis was the deliberation of the major aircraft manufacturers such as Boeing and Airbus on developing economical and fuel-efficient aircraft. The rapid modernizations in areas of aviation technology in reducing costs per capacity tonne-kilometre were due primarily to increasing efficiency of the jet engines i.e. 39

engines were able to carry a larger payload for a given level of propulsive thrust. Thus, the successive aircraft models were faster and larger in size with increased range that resulted in ever-decreasing costs per capacity ton-kilometer. The following graph depicts a steady decline in average fuel burn from 1960s to 2010, which is due to multiple factors involving improvements in both aircraft and engine technology together with fluctuations in fuel prices and general inflation.

Source: Rutherford, 2011.

The Charts A, B & C below clearly indicate the advancements in aircraft technology in the last 50 years of Boeing commercial aircraft depicting the changing trends and dynamics of aviation industry. The first-generation jetliners brought breakthrough in terms 40

of aircraft speed as compared to earlier propellers. The technological emphases on second- generation airliners were more towards enhancement of capacity and reliability towards achieving economies of scale. Finally, the third-generation of jetliners were provided with much longer range at optimum capacity enhancing further economies of scale and promoting point-to-point long-haul operations. The current-generation aircraft are much more economical on maintenance because of advancements in aircrafts’ structure technology and fuselage construction. The use of carbon fiber in aircraft construction leads to less corrosion and fatigue that ultimately decreases routine and non-routinemaintenance.

2.28 The Second-Generation Airliners The second-generation jets developed and produced by Boeing, McDonnell Douglas and

Airbus Industrie dominated the aviation market worldwide except for airlines from the eastern-bloc countries those were using the Soviet-built aircraft. Boeing continued with the development of new and improved models of B737 and B747 aircraft series. McDonnell

Douglas and Airbus Industrie introduced new series of both narrow and wide body aircraft programs.

2.29 The Boeing 737-300 program The B737-300 was the first of the three members second-generation 737 family aircraft powered with CFM56 engines delivered first time in November 1984. The success of the second generation Boeing 737 family pushed sales of the mark to over 3000, a record for a commercial jetliner (Boeing: - Passenger Plane Information, 2014). The B737-300 retained

80% airframe spares commonality with the first generation B737-200 jetliner due to which the aircraft were easily inducted by the previous first generation B737 airline-customers. 41

The aircraft became the backbone of many airlines’ short haul and regional fleet. The

B737-300 also comprised of the stretched 737-400 and shortened 737-500 versions.

2.30 The Boeing 747-300 & -400 programs The Boeing Company also introduced the B747-300, which entered in commercial service in 1983. The aircraft had an extended upper deck that increased passenger capacity by 10 percent and improved engines that reduced fuel burn 25 percent less than the 747 classics.

A total of just 81 B747-300s were delivered till 1990 (Boeing.com, 2014). The Boeing 747-

400 first flew on April 29, 1988, became the best-selling model of the 747 series. The aircraft had significant changes from the earlier -300 model that include two crew digital flight deck with six large CRT displays, an increased span wing with winglets (the -400 was the first airliner to introduce winglets), new engines, recontoured wing/fuselage fairing, a new interior, lower basic but increased max takeoff weights, and greater range of 7,260 nautical miles. The -400’s range was the game-changer eliminating transit-stopovers and made possible direct flights on prevalent long-haul routes.

2.31 The All New Boeing 757 Program In the 1980s Boeing introduced two new series of aircraft i.e. B757 and B767. The first

B757-200 rolled out on Jan 13, 1982 and entered in to commercial service in January 01,

1983 by the launch customer Eastern Airlines. The B757-200 was a twin-engine short-to- medium-range jetliner incorporated advance technology for exceptional fuel efficiency, low noise levels, increased passenger comfort and top operating performance as compared to the first-generation jetliners. The aircraft can carry up to 228 passengers in a single-class configuration. 42

2.32 The Boeing 767 program Boeing also introduced a medium-to-long haul, twin-aisle Boeing 767 series jetliner. The first B767 entered service in Sept. 8, 1982 followed by B767-300 that entered service in

September 1986. TWA used B767-200 for the very first time on transatlantic ETOPS flights. The B767 series has been produced in 5 models i.e. B767-200, B767-300 and their extended range variants such as B767-200ER and B767-300ER and the latest model B767-

400ER. The B767-200ER has the longest range in the B767 family i.e. up to 6,385 nautical miles. The B767-200, 300, and 400 series have maximum passenger-seat capacity of 290,

350, and 450 respectively on a single-class configuration. The B757-200 and twin-aisle

B767 were developed concurrently; many airlines operated both the aircraft because of shared commonality in terms of propulsion, aerodynamics, avionics and spares requirements.

2.33 The MD-11 program McDonnell Douglas launched MD-11 project on December 30, 1986 as a modernized, slightly stretched and re-engined development of the DC-10 tri-jet. The first aircraft was delivered on December 7, 1990 to the launch customer Finnair. The aircraft had a maximum range of 7,630 nautical miles with the maximum capacity of 410 passengers on a single-class configuration. The MD-11 had superior performance and operating economy than its predecessor DC-10 model due to advancements in aerodynamics, propulsion, aircraft systems, cockpit avionics and interior design. (airliner.net, 2014)

2.34 The MD-80 series program In August 1980 McDonnell Douglas introduced MD-80 aircraft, a stretched and advance version of its predecessor Douglas DC-9 aircraft. The MD-80 was a quieter and fuel- 43

efficient twinjet that entered airline service in October 1980 simultaneously by the launch customers Swissair and Austrian Airlines. The aircraft had a maximum range up to 2,700 nautical miles with a maximum passenger seating capacity up to 172 passengers on a single-class configuration. The company produced four MD-80 models i.e. the MD-81,

MD-82, MD-83 and MD-88. In November 1989, McDonnell Douglas introduced MD-80 successor the MD-90 in February 22, 1993. The aircraft first commercial service commenced in April 1995 by the launch customer Delta Airlines. The aircraft had an advanced flight deck, including an electronic flight instrument system (EFIS), a full flight management system (FMS), a state-of-the-art inertial reference system, and LED dot- matrix displays for engine and system monitoring. Other features include an advanced interior design, vacuum lavatories, new electrical and auxiliary power systems, an upgraded digital environmental control system, lightweight carbon brakes with digital anti-skid system, and significant improvements to the aircraft hydraulic system ( ). Following the merger of Boeing and McDonnell Douglas in 1997, the Boeing Company suspended production of MD-90 (Boeing.com, 2014) and MD-11 aircraft by 2000 and 2001 respectively, once outstanding orders were fulfilled. The MD-11 tri-jets later became popular as a freighter aircraft following the introduction of current generation twinjet the

Airbus A330 aircraft. (Airliner.net, 2014) 44

2.35 The Third-Generation Jetliners

Narrow body competition:

2.35a The Airbus A320 program

A Technological Breakthrough: After the success of A300 and A310 programs, Airbus

Industrie launched the A320 program in March 1984. The A320 is a narrow-body twin- engined aircraft that revolutionized the short and medium-range aircraft markets. The aircraft has a maximum capacity of 180 passengers with a range up to 3,050 nautical miles.

The first delivery of the aircraft was made in 1988 and since then the A320 family has become the bestselling Airbus jetliners. The A320 was the first aircraft with the fly-by-wire flight control system. The stretched version known as A321 can carry up to 220 passengers in a single class lay-out and the shorter-fuselage versions A319 and A318 can carry up to

156 and 132 passengers respectively. The A320 family is available with an option of two engine types i.e. CFM56 and V2500. Airbus delivered first A320ceo aircraft in December

2012 to Malaysian based low cost airline Air Asia. The A320-Ceos are fitted with

“Sharklets” large wingtip devices that brought four percent savings in overall fuel consumption on long haul sectors (Airbus.com, 2014). The Airbus has launched A320-Neo program, the new improved versions will be more fuel-efficient and eco-friendly with new engine options. The Airbus claims that A320-Neo family will be 15 percent fuel efficient than the current A320 models, the new aircraft will have two tons of additional payloads, up to 500 nautical miles of more range and reduction in engine noise and emissions. The first of these aircraft are expected to enter service in 2016 (Airbus.com, 2014). 45

2.35 b The Boeing 737(Next-Generation) Program

The launch of the A320 program in the late 1980s forced the Boeing Company to work on developing the B737 Next-Generation (B737 NG) program to retain its dominance in the narrow-body market. The Boeing 737-700 program was launched on June 19, 1993. The

B737-700 is altogether a new narrow-body aircraft that not only shares the same series name but also having similar shape of the earlier B737-Classics. The B737 NGs were designed with improved aerodynamics and engine performance to compete economically at par with the A320 jetliners. The NG’s are fitted with two CFM56-7 engines those are 7% more fuel-efficient than the CFM56-3 engines fitted on the B737 Classics. The aircraft’s faster cruise and lower taker-off and approach speed helps in less fuel burn. The flight deck with LCD displays, strengthened fuselage and improvements in flight controls, wings, and landing gear systems are some of the distinct features of the B737 NGs. The Boeing also enhanced the production and assembly line of the B737 program that enabled the company to produce 21 aircraft per month on a single moving line. The B737-700 was the first NG aircraft that entered in to commercial service in 1998 with the launch customer Southwest

Airlines. The aircraft has a maximum capacity of 146 passengers in a single-class layout.

The aircraft replaced the second-generation B737s and is in direct competition with A319.

The B737-700ER launched in February 16, 2007 with All Nippon Airways is the longest range B737-NG family aircraft having a range of 5,510 nautical miles. The B737-800 is a stretched version that superseded the B737-400 and is in direct competition with A320. The

-800 entered service in 1998 with the launch customer Hapag-Lloyd (now TUIfly) having a maximum capacity up to 189 passengers in a single-class layout. Boeing launched the 46

longest stretched version of the B737-NG family; the B737-900 in 1997. The first delivery of the -990 series was made in May 15, 2001 to the launch customer . The

B737-900ER was delivered to launch customer Lion Air on April 27, 2007. The aircraft has a maximum capacity up to 215 passengers with a maximum range up to 3,200 nautical miles. The aircraft replaced B757-200 and is in direct competition with A321. The Boeing

Company also introduced the shorter version B737-600 in 1995 that was in direct competition with A318. The company produced only 69 -600 series aircraft up till 2010 and due to lack of customers’ interest; the company ceased the production of the -600 series. In

July 2011, Boeing delivered the new B737NGs with the improved CFM56-7BE engines that give 2% decrease in fuel burn. In 2011, Boeing announced the B737 MAX program with the three variants; the 737-7, 737-8 and the 737-9. The improvements in the B737

MAX program are the introduction of new efficient CFM International LEAP-1B engines, fly-by-wire control systems, and the lengthening of the nose landing gear. The first delivery of the aircraft is expected in 2017 to the launch customer . (Boeing.com,

2014) 47

2.36 The Wide-Body Competition:

2.36 a The Airbus A330 Program.

In the early 1990s Airbus simultaneously introduced medium and long haul families of jetliners A330 and A340 aircraft. Both the aircraft were developed in parallel to each other sharing common airframe components but different in number of engines. The

Airbus A330 is a wide-body medium-to-long range twin-engined jetliner having a range of 4,000 to 7,250 nautical miles. The aircraft is available with a choice of three engines i.e. General Electric CF6, Pratt & Whitney PW4000, and Rolls-Royce Trent 700. The

A330 has two variants i.e. 200 and 300 series. The A330-300 entered service in

January1994 with Air Inter (French defunct airline) as a launch customer followed by shorter variant A330-200 in 1998. Since the launch, the A330 family has become popular as an economically efficient aircraft that quickly replaced first and second-generation trijets and earlier Airbus models. The A330-300 can carry up to 440 passengers in a single-class configuration having a maximum range up to 5,700 nautical miles. The

A330-200 is a shortened and longer-range variant having a seating capacity of up to 375 passengers with a maximum range up to 7,200 nautical miles. The A330 program has become a cash cow for the manufacturing company and the Airbus has announced in

November 2012 that they would introduce new and improved version of -200 series. The new version will have engine and aerodynamic improvements that will result in 2% less fuel burn with increased gross weight to 242 tons and range extended by 350 nautical miles. The aircraft is expected to enter in service in mid-2015. (Airbus.com, 2014)

48

2.36 b The Airbus A340 Program

The Airbus A340 family is a wide body four-engine aircraft that was designed for long haul trans-oceanic routes because of its immunity from Extended Range Twin Engine

Operations (ETOPS). The aircraft had four variants i.e. A340-200, -300, -500 and -600 series. The seating capacity ranges up to 375 passengers in the standard -300 variants and up to 440 passengers in the stretched -600 series. The range depending upon the series is between 6,700 to 9,000 nautical miles. The A340-300 was the first aircraft of the A340 family that entered service in 1993 simultaneously with the launch customers Lufthansa and Air France. The -200 is a shorter variant, -500 has the longest range, and -600 has the largest passenger capacity in the A340 family. The A340 is now considered as not so successful program, the airlines all over the world moved to more economical A330s and

Boeing 777s twinjets because of the tremendous improvements in the reliability of engines.

Due to mass cancelling of orders and lack of customers’ interest, Airbus finally announced suspension of A340 production on November 10, 2011. (Airbus.com, 2014)

2.36 c The Boeing 777 Program

Boeing launched the B777 program in October 1990. The B777 is a world’s largest twin- engined long haul jetliner that was designed to bridge the gap between B767 and B747. The aircraft depending on the model has a typical seating capacity up to 314 to 451 passengers in a single-class layout, with a range from 5,235 to 9,380 nautical miles. The first B777-200 was delivered to launch customer United Airlines on June 26, 1995, followed by the first delivery of B777-300 to launch customer Cathay Pacific Airways on June, 1998. The B777 49

family is available in five models: 777-200, 777-200ER (extended range), 777-200LR

(longer-range), 777-300 and the 777-300ER. The B777 family is considered as Boeing’s best-selling models due to its distinct features such as cabin spaciousness, improvements in airfoil technology, flight deck design, passenger comfort, and interior flexibility. The jetliner brought the twin-engine economic advantages fostering point-to-point traffic on long-haul routes. The Boeing 777 family has become the most preferred and workhorse jetliners for most of the major global airlines. The B777 is a market leader in its category that quickly replaced out-of-production A340 and MD-11, and competes directly with the

A330-300 and the upcoming A350 jetliners.

2.36 d The Boeing 787 Program

To replace the ageing B767 jetliners, Boeing worked on developing an all-new long-range mid-size jetliner program the Boeing 787 (B787 Dreamliner). The first aircraft was rolled- out on July 8, 2007 and the first flight took place on December 15, 2009. The aircraft entered into a commercial service on October 26, 2011with the launch customer All Nippon

Airways. The three years delay in the commencement of the commercial service was due to defective and failure of receiving parts on time from foreign vendors, as almost 30% manufacturing of the aircraft was out-sourced to numerous suppliers worldwide. The

Boeing Company claims that B787 is 20% more fuel efficient than the previous generation similar category aircraft. The B787 distinct features include prime use of composite material in the airframe and a smoother nose contour. The aircraft share a common type rating with the B777 that allows airlines to have a same pool of pilots for both the aircraft- types in their fleet. The B787-8 is the base model of the B787 family having a range from 50

7,650 to 8,200 nautical miles depending on seat configurations. The aircraft family has a capacity of 210 to 335 passengers depending on different variants and class-configurations.

The B787-9 is the first stretched variant having a range of 8,000 to 8,500 nautical miles.

The aircraft is expected to enter in to commercial service in the last quarter of 2014 with the launch customer Air New Zealand; the airline plans to use B787-9 on its long-haul nonstop destinations. The Boeing has announced another stretched B787 variant the B787-

10 that would be replacing current B777-200 and A330-300 aircraft.

2.36 f The A350 Program

The A350 family is a long haul, twin-engined jetliner with a maximum capacity of 440 to

550 passengers in a single class configuration. The aircraft is positioned against market leaders B777s and B787s. Airbus claims that the aircraft would be more fuel-efficient and

8% lower in operating cost than the B787. The aircraft made its maiden flight on June 14,

2013 and expected to enter into commercial service in 2014 with the launch customer Qatar

Airways. As of December 2013, Airbus has received orders for 812 aircraft from 39 customers around the globe. (Airbus.com, 2014)

2.37 The Super Wide-Body Competition 2.37 aThe Airbus A380 Program

The announcement of the A380 program on December 19, 2000 by the supervisory board of the Airbus was yet another gamble of €11 billion by the company to achieve its objective of offering all range of aircraft to dominate the global aviation industry. The A380 is a double-deck, four-engine jetliner designed to support long haul hub-and-spoke network by 51

the mega-carriers. The aircraft made its maiden flight on April 27, 2005 and entered in to commercial service in October 2007 with the launch-customer Singapore Airlines. The aircraft A380 has a range up to 8,500 nautical miles and maximum seating capacity up to

853 passengers in a single class configuration. As of June 30, 2014 Airbus secured 324 firm orders for the A380 out of which Emirates alone placed 140 firm orders. At the time of launch of the A380 program, the Airbus Consortium had high hopes of capturing major share of super wide body aircraft market enjoyed by the B747 jumbo-jets for many years.

In contrast to Airbus, Boeing was of the view that air travel has already been moving away from the traditional hub-and-spoke system that consolidates traffic into large planes, and towards more non-stop routes that could be served better by smaller planes. The launch of twin-engine long-haul jetliners in 1990s especially B777s and A330s have transformed the long haul air traveling more towards point-to-point transportation. Moreover, opening of secondary airports worldwide for long haul operations has also contributed in limiting the growth of super large size jetliners. The aircraft order lists clearly shows that the major airlines now prefer twin-engine medium-to-large size jetliners to complement their point- to-point long-haul operations. In fact, Boeing’s point-to-point theory received more validation as none of the A380 customers opted for its optimum passenger capacity meant for high-density long haul routes. Almost all the A380 customers selected much less passenger-capacity mixed-class interior layout based on targeting high yield passengers.

Hence, the future of the A380 program seems not so brilliant and that compelled Airbus to launch another €12 billion worth of A350 program.

52

2.37 b The Boeing 747-8 Program

Boeing announced the B747-8 Intercontinental program in 2005 in order to grasp the replacement of ageing B747-400 and large freighter markets. The B747-8 is the third- generation long-haul largest commercial aircraft offered by the Boeing Company. The aircraft is designed to tap the traditional high-density slot-restricted routes having a maximum capacity up to 500 passengers with a range up to 8,000 nautical miles. The aircraft is a much-improved model in the 747 series with more economical engines, new wings technology, a new interior to enhance passenger experiences, and more economical friendly than the previous B747 models. The Boeing claims that the aircraft has an economic advantage against its direct competitor A380 i.e. the B747-8 has 6 percent less per seat-mile cost that translates into 21 percent less per trip-cost compared to the A380.

The B747-8 made its maiden flight on March 20, 2011 and first aircraft delivered to launch customer Lufthansa in 2012. The growing popularity of the twin-engine long haul aircraft suggests that the production of B747-8 freighter version has a much better chance to survive than its passenger version.

2.38 The Regional Jetliners 2.38 a The Embraer E-Jets

The new wave of narrow-body jets introduced by the Brazilian aerospace conglomerate

Embraer S.A. has stimulated and enhanced growth in the regional markets worldwide. The

Embraer E-Jet family is a series of narrow-body medium-range twin-engine jetliners composed of two main families i.e. the E170s and the E190s. The E-Jet program have been a commercial success and well accepted amongst both and regional airlines 53

worldwide. The E170 and E175 make up the base model and E190 and E195 are the stretched variants with different engines and aerodynamic systems. The E-Jets were first launched in 1999 in Paris Air Show and entered production in 2002. The first E-170 was delivered in March 2004 to Polish Airlines (LOT) and the first commercial flight took place on March 17, 2004, from Warsaw to Vienna. The E-170/E-175 models have the capacity up to 80 passengers and a range up to 2,100 nautical miles. The E-190/195 models have a maximum capacity up to 114/122 passengers with a maximum range up to 2,300 nautical miles. The first flight of the E-190 took place on March 12, 2004 and the first delivery was made to the launch-customer New York based low cost carrier JetBlue. The two families share nearly 89% commonality, with identical fuselage cross-sections and avionics. In

November 2011, Embraer announced E2-jet program with improved engines and with a new aluminum or carbon fiber based wings design. The first delivery of the E2 jet is expected in 2018.

Bombardier is also working on developing a family of narrow-body, twin-engine, medium-range jetliners called the CSeries. The CSeries have two models i.e. 110-seat

CS100 and the 135-seat CS300. The CS 100 made its maiden flight on September 16, 2013 and the first delivery is expected in the second half of 2015.The narrow-body and regional aircraft markets being the largest and the most dynamic are covetously targeted by the three more aircraft projects namely the Russian based SukhoiSuperjet 100, the Chinese Comac

C919, and the Japanese Mitsubishi Regional Jet (MRJ). All of these aircraft projects are in the development and certification phases. The success of these projects are highly dependent on the international certification, customers’ confident and the manufacturers 54

marketing abilities that also include political and diplomatic clout in penetrating the difficult politically divided international markets.

2.39 The Regional Propellers Apart from the jetliners, the regional and feeder markets are also inundated with new generation propeller aircraft produced by the two manufacturers; ATR (Avions de transport regional) and Bombardier Inc.

The ATR 42 and 72 Turbo-Propellers.

The ATR is a French-Italian manufacturer based in Toulouse, France. The company currently produces two families of twin-turboprop, short-haul regional aircraft; the ATR

42-600 and the ATR 72-600. ATR launched the new -600 series on October 02, 2007 and the first aircraft commenced the maiden flight on March 4, 2010. The new ATR 42–600 and ATR 72–600 features technological enhancements to the previous -500 series in terms of efficiency, dispatch reliability, low fuel burn and operating cost. The aircraft is fitted with new PW127M engines, Glass Cockpit, and new avionics with CAT III capabilities.

The ATR 42 has the maximum capacity up to 42 passengers with a range up to 842 nautical miles at a maximum cruising speed up to 210 knots. The stretched version ATR 72-600 has the maximum capacity of 72 passengers with range up to 891 nautical miles at a maximum cruising speed up to 275 knots. (Atraircraft.com, 2014) 55

2.40 The Bombardier Q400

The Canadian based Bombardier Inc. currently produces twin-engined, medium range turboprop airliners the Q400. The aircraft has a maximum seating capacity up to 78 passengers with a range up to 1,567 nautical miles at a typical cruise speed up to 360 knots.

The aircraft has a definite lead in terms of both range and speed that makes the aircraft in advantageous position in competing against similar size jetliners. In November 2007,

Bombardier has announced development of a 90-seat stretch version of the Q400called the

Q400X project, targeting launch in 2019.

2.41 Comparison of Different Aircraft Aircraft Type

Capacity and Range Aircraft Manufacturers

Air Bus Boeing Embraer Bombardier ATR

Wide Body Long

Range: 8000-9000nmi

Capacity: 500-550 Passengers A380 B747-8

Wide Body

Range: 5250-9000nmi

Capacity: 300-450 Passengers A330-300 B777-200 ER

B777-300 ER

B777-200 LR

56

Wide Body Medium

Range: 5000-8200 B787-9

Capacity: 250-350 Passengers A350 B787-10

A330-200 B787-8

Narrow Body

Range: 3000-4000nmi

Capacity: 132-250 Passengers A319 B737-700

A320 B737-800

A321 B737-900

A320 NEO B737 MAX

Regional

Range: 1400-2100nmi

Capacity: 70-125 Passengers E170 CS-100

E190 CS-300

A318 E195

Propeller

Range: 900-1600 miles

Capacity: 30-78 Passengers Q400 ATR72

Q300 ATR42

57

The Restructuring of Legacy Carriers

The post-liberalization period is dominated by intensive measures undertaken by the global airlines to reduce cost to survive in the period of plummeting margins and strong downward pressures on real average yield. To equipoise the effects of falling yields, airlines worldwide were pressed to increase capacity and push up their load factors in order to achieve economies of scale. Simultaneously, airlines were also rapidly shifting towards fuel-efficient newer-generation jetliners in order to earn economic benefits from the new technology. The fleet replacement necessitated huge capital investment and that was difficult to implement for the financially troubled airlines. Thus, the painstaking restructuring processes turned out to be challenging for many airlines due to gruesome liberalized and open-sky aviation environment. The economic downturn in the early 1990s pushed most European and US airlines in to several years of loss making businesses or sharply lower profit margins. Yields in real terms dropped 25-35 percent between 1991 and

2006-7 in different markets (Doganis, 2010). Major airlines lost control in matching yields, revenues and load factors and they tumbled in to a vicious cycle of unending grim period.

Unfortunately, some of the industry’s giant players incessantly perished and faced defeat in the tests of time and others survived with the enactment of considerable and painful restructuring processes. 58

2.42 The Mergers of Giants

The initial phase of restructuring processes of network carriers were primarily focused on streamlining the internal affairs pertaining to operational cost savings through staff reduction, resolving pilot contracts and seniority issues, integrating of workforces and cultures, rationalization of route networks, employing revenue management systems, streamlining the supply chain, and rationalizing fleet composition etc. Alongside, the aviation industry also witnessed a new trend of airline mergers and acquisitions that gave the major global network carriers a new beacon of life. Airline mergers in the U.S. were more aimed at reducing competition in the domestic market so that the traditional mega- carriers are better equipped to compete against the fierce competition from the new breed of low-cost carriers. The merger of Delta Airlines and Northwest Airlines in April 15, 2008 formed what was then the largest commercial airline in the world with 786 aircraft. On May

03, 2010, Continental and United Airlines merger created the largest airline in the world that surpassed the Delta-Northwest merger. Later in December 9, 2013 merger of American

Airlines and US Airways Group formed the largest airline in the world with about $40 billion in operating revenue.

In contrast to US carriers, airlines mergers in Europe were more intended towards maintaining dominance in international markets while retaining the previous brand names and call signs under the umbrella of single merged company. The first merger of such type took place between Air France and KLM on May 5, 2004.At the time of the merger, Air

France and KLM jointly offered flights to 225 destinations in the world and transported 59

66.3 million passengers (economist.com, 2003). Lufthansa quickly followed the trend and in summer of 2007 acquired major shares of ailing Swiss International Airlines. In 2009,

Lufthansa Group overtook Air France-KLM as Europe’s largest airlines group when it acquired major shares of British Midland, Brussels Airlines and Austrian Airlines. The

British-Iberia merger was finalized on January 21, 2011, resulting in the formation of

International Airlines Group (IAG), the world's third-largest airline in terms of annual revenue and the second-largest airline group in Europe. In November 2011, IAG announced an agreement in principle to purchase British Midland International from Lufthansa and the sale was completed for £172.5 million on March 30, 2012.

The tangible benefits of the mega-mergers could only be achieved after an extended period of loss making businesses that is essentially required to sort out countless post- merger issues. Historically, the mega-mergers such as Air India-Indian Airlines and Air

Canada-Canadian Airlines faced daunting tasks to overcome issues related to integration of diversified fleets, corporate cultures, operational systems, and organizational policies of two completely different corporate entities. Hence, apart from safeguarding the market dominion, the mega-mergers do not guarantee the accomplishments of all the objectives that were previously envisioned. 60

2.43 The Alliances and Code-Share Agreements

Following the post-liberalization period, major network carriers began to realize their vulnerability from new regional competitors or smaller airlines with a better or lower cost product. To overcome threats from the regional low cost airlines, the network carriers initiated alliances that assist symbiosis or coexistence between the established carriers and/or the new competitors. The fundamental objectives of the alliances are to establish a seamless network of services for the regular alliance passengers through unified service standards and in-flight services. The first of these global alliances is the Star Alliance, which was founded in May 1997. The Star Alliance is the world's largest global airlines’ alliance and its current member airlines are Adria Airways, Aegean Airlines, Air Canada,

Air China, Air India, Air New Zealand, All Nippon Airways, Asiana Airlines, Austrian

Airlines, Avianca Holdings, Brussels Airlines, Copa Airlines, Croatia Airlines, EgyptAir,

Ethiopian Airlines, EVA Air, LOT Polish Airlines, Lufthansa, Scandinavian Airlines,

Shenzhen Airlines, Singapore Airlines, South African Airways, Swiss International Air

Lines, TAP Portugal, Thai Airways International, Turkish Airlines and United Airlines. As of December 2013, the current members serve 1,269 airports in more than 192 countries, with an annual number of 637.6 million passengers (Staralliance.com, 2014). Following

Star's success, a second major alliance “OneWorld” was formed on February 1, 1999. Its member airlines include Air Berlin, American Airlines, British Airways, Cathay Pacific,

Finnair, Iberia, Japan Airlines, LAN Airlines, Malaysia Airlines, Qantas, Qatar Airways,

Royal Jordanian, S7 Airlines, TAM Airlines, Srilankan Airlines and US Airways plus some 61

30 affiliated airlines. As of March 31, 2014, OneWorld is the third largest global alliance in terms of passengers with 506.9 million passengers (oneworld.com, 2014). The third major alliance “SkyTeam” was founded in June 2000 and the alliance despite being the last entrant, has become the world's second largest global alliance in terms of network connections and passenger numbers. It member airlines include Aeroflot,

AerolineasArgentinas, AeroMexico, AirEuropa, Air France, Alitalia, China Airlines, China

Eastern Airlines, China Southern, Czech Airlines, Delta Airlines, Kenya Airways, KLM,

Korean Air, Middle East Airlines, Saudia, Tarom, Vietnam Airlines, Xiamen Air, and

Garuda Indonesia. As of 2013, the alliance members serve over 14,500 daily flights to 728 destinations in 149 countries with an annual number of 588 million passengers

(skyteam.com, 2014).

2.44 The Rescue Investments The three major alliances together have created a strong cartel leaving a limited market share for non-member airlines. The non-member airlines have been restricted as regional carriers and in order to survive in the hostile environment they are carving their own niche as ethnic carriers desperately seeking alliances or code shares with other airlines. Some of the financially strong airlines such as UAE based Etihad Airways have become a rescue investor for ailing operators; the airline is buying equity stakes in carriers spanning from

Australia to Ireland. In December 2011, Etihad announced it had taken a 29.21% stake in

Air Berlin, followed by minority stakes in other airlines such as Air Seychelles (40%), Aer

Lingus (2.987%),Virgin Australia (10%), India based Jet Airways (24%), Air Serbia (49%),

Swiss based Etihad Regional (33.3%) and Alitalia (49%) (Etihad.com, 2014 ). The Middle- 62

eastern giant Emirates Airlines has so far not joined any of the three major alliances instead the airline has pursued code share agreements with other carriers in joint-operations to and from its hub Dubai. In April 2013, Emirates signed a ten years partnership including a codeshare agreement with Qantas that resulted in shift of Qantas’ European stopover hub from Singapore to Dubai. The Qantas is using Dubai for onward connections primarily to

Europe on Emirates’ network and curtailed its non-profitable European routes. In

September 30, 2014, Emirates also signed a 10-year Management Concession Agreement with TAAG Angola Airlines. As part of the agreement, Emirates will provide TAAG with the management expertise and supports in strategic planning, devising of fleet and network plan and various other airlines operations, whilst bringing synergy through the complimentary networks.

2.45 Strategic Joint Ventures The low cost airlines such as AirAsia, Air Arabia and Latin American airline holding company LANTAM Airlines Group pursued strategic joint ventures in different countries to establish synergized airline operations. Air Asia is a Malaysian based low-cost airline operating with its affiliate airlines in Thailand, Indonesia, Philippines, and India. AirAsia X is its subsidiary focusing on long-haul routes. Similarly, the Sharjah based low-cost airline

Air Arabia has a joint venture airline in Morocco; Air Arabia Maroc mainly operating services from Casablanca to Europe. The LATAM Airlines Group incorporated under

Chilean law is a result of the merger between LAN Airlines and TAM Airlines that took place in 2012. The group airlines operate as separate entities in Chile and Brazil with subsidiaries in Argentina, Colombia, Ecuador, Paraguay and Peru. 63

2.46 The Rise and Dominance of Low Cost Carriers The free-competition environment gave way to the entry of highly efficient new airlines that brought the fare down to the level that it made possible for the masses to avail and afford air transportation with ease and convenience. Regardless of the brutalities of the liberalization of the aviation policies that caused the debacle of many mega-carriers and the considerable shrinking of airlines' profit- margins; all types and stratum of the consumers felt its larger benefits globally. A new breed of carriers came into existence, which relied heavily on enticing customers solely on the basis of value-proposition. In order to cater to the needs of underprivileged markets; Southwest Airlines in the U.S. initiated their operation in 1971 and became pioneer in offering services purely on low cost model. The airline focused on four principles: fly one type of aircraft to keep down engineering and maintenance overheads; turnaround aircraft as quickly as possible; and abandon loyalty or air miles schemes. Southwest Airlines is now the third largest airline in the world in terms of number of passengers carried and also one of the most profitable airlines in the world.

Practices in traditional and low cost carriers differ in order to facilitate and serve different types of customers accordingly (Norris, Thomas, Wagner and Forbes Smith 2005).

Following the success of Southwest, the European low-cost carriers i.e. Ryanair and

EasyJet stormed the European regional markets. Ryanair is an Irish low-cost airline and in

2013 the airline was the largest European airline by scheduled passengers carried.EasyJet is the largest British airline and is the second-largest low-cost carriers in Europe, behind

Ryanai. The airline, along with associate company EasyJet Switzerland now operates from

23 bases across Europe. The Pioneer of low-cost travel in Asia is Malaysia based carrier 64

“Air Asia”. The Airline operates with the world's lowest unit cost of US$0.023 per available seat kilometers (ASK) and a passenger break-even load factor of 52%

(Airasia.com, 2014). Following are the key features of typical low cost model that revolutionized the practices and principles of the airlines. (Dewan, 2012)

2.47 Single-Type of Aircraft The typical LCCs adopt the fleet plan that ensures single type of modern and fuel efficient aircraft in order to keep their aircraft operating cost as low as possible i.e. saving on aircraft engineering and maintenance expenses, aircraft fuel-burn, flight-crew conversion and recurrent training cost, and spare parts carrying cost etc. One large fleet of single type of aircraft enables the airlines to achieve operational economies-of-scale and also allow them to formulate lean organizational structure.(Dewan, 2012)

2.48 High Aircraft Utilization

Unlike the traditional airlines, a LCC's aircraft is kept flying as much as possible with high frequencies between the pair-cities. A fast turnaround is critical to ensure the time spent on the ground is minimal. LCC’s turnaround time on an average is 25 minutes; compared to 1 hour for a traditional carrier. On an average, LCC’s utilization per aircraft is 12 block hours per day; a traditional aircraft on an average does about 8 block hours per day. (Dewan, 2012)

2.49 Offering No-Frills In contrast to traditional airlines, the underlying business for a LCC is to get a person from point A to point B and everything else is considered to be luxury item, which can be acquired for a small fee like on extra carry-on and checked luggage, food & beverages, 65

internet access etc. Unlike traditional airlines, LCCs provide unassigned seating configuration, ticket less boarding, no refunds and no loyalty programs; such activities further reduce the overhead costs associated with traveling.(Dewan, 2012)

2.50 Serving Secondary Airports LCCs mostly serve secondary airports wherever possible and those airports are not necessarily to be the busiest and well connected. Operating from the so-called secondary airports is cheaper than the primary airports and they are also a lot less congested and the turnaround time for aircraft is a lot shorter. The benefits on saving of airport-related charges such as aircraft handling, landing, and parking fees etc. are transferred to the customers in the form of discounted fares on operating flights to and from the secondary airports.(Dewan, 2012)

2.51 Point-to-Point Network Unlike traditional carriers, LCC shuns the hub-and-spoke system and embraces the simple point-to-point network. Almost all the LCCs' flights are short-haul (3-hour flight or less) with relatively high number of frequencies between the two cities. The point-to-point network enables them to generate significant savings due to less complex baggage handling system and also eliminates the complexity and high cost associated with handling of transit passengers.(Dewan, 2012)

2.52 IT based Revenue and Sales Distribution System Distribution costs are something that traditional carriers most often ignore and they mostly rely on travel agents and their own sales offices. LCCs keep their distribution channel as simple as possible and they rely on the Internet and call centers (their own or outsourced) 66

for the bulk of their sales; this means that the airlines do not pay any commission to the travel agents, which would otherwise have been reflected in high-fares. LCCs offer flexible pricing to their customers and offer discounts on early bookings and in this way they are able to successfully implement high yield based revenue-management-system.(Dewan,

2012)

2.53 Outsourcing of Non-Core Business Functions The typical LCC’s organogram depicts an organizational structure which is mostly lean, simple, less bureaucratic and without many layers of management. Unlike traditional carriers, LCCs prefer to outsource most of their support functions to the best service providers in order for them to concentrate and specialize on their core business activities.

As a result, they have leaner organization structure with highly productive, motivated, and multi-tasked people working for the organization.(Dewan, 2012)

2.54 Lean organizational structure The typical LCC’s organogram depicts an organizational structure which is mostly lean, simple, less bureaucratic and without many layers of management. The highly charged and motivated environment in LCCs gives their employees feelings of high empowerment; they experience delegated responsibilities and authorities and have a high sense of personal- responsibilities. The employee-per-aircraft ratio of LCCs is always much lower than the traditional carriers. The multitasking of activities in LCCs enables their employees to deliver high productivity and produce savings for their organization and at the same time they are able to draw high salaries, perks, and other benefits than the employees working in the traditional carriers. The proper delegation of authority, high visibility of company’s 67

leadership, clear articulation of the company’s mission, encouragement to creative and innovative ideas and smooth flow of communication are the hallmarks of some of the best performing LCCs that create highly motivated and stress-free environment. Hence, the typical organizational structure of a LCC provides an opportunity to have win-win solutions for both the organization and its employees in the form of high productivity and savings derived from the multitasking and lean organizational structure. The employees receive benefits in the form of lucrative perks and high take-home salaries, which are usually attached with the fair, and the equitable reward system based on employees’ productivity- ratios. (Dewan, 2012) 68

CHAPTER 3: THE PAKISTAN AVIATION SCENARIO

The capriciousness and volatility of the Pakistan’s civil aviation scenario has historically been tangential to the tremendous growth potential that the country inherited right from its existence. The large size, big population base and the strategic location of the country necessitated existence of a thriving and a viable civil aviation industry. The country has witnessed an outstanding beginning of civil aviation activities in the first few decades of its independence. The Pakistan’s civil aviation industry was considered as Asian vanguard in the decades of 1960s and 70s. The country’s national flag-carrier PIA is contemplated as pioneer airline that brought the concept of high quality aviation services to the Asian developing countries. In fact, other Asian carriers later embraced the PIA’s Business Model of high quality of services with the tinge of Asian warm hospitality that made them forerunners in terms of ranking of service-quality globally. As growth and progression in aviation industry is directly linked to the pulsation of geo-political and economical situations; the earlier laurels of Pakistan’s civil aviation industry were also greatly affected by the fast-changing global geo-political scenarios and the Country’s own domestic challenges. The opening of job opportunities in the Gulf region and migration of Pakistanis to Europe and the North America in early 1970s gave an enormous boast to Pakistani aviation traffic. However, the separation of in 1971, the 1970s oil crisis and political instability in the country faded the perpetuation of progresses and brilliant growth in aviation industry that were manifested in the preceding decades. Subsequently, the fast growth of Pakistani aviation traffic slowed down to insubstantial organic growth that was mainly due to the incompetence of the local aviation players, absence of eloquent aviation 69

policies and effective leadership and infiltration of corruption and nepotism in all layers of local aviation industry. Consequently, the current state of Pakistan’s civil aviation industry is in complete dismay and consternation beside the tremendous growth opportunities that is constantly prevailing in the country.

3.1 Birth of a Country Birth of an Airline The post world-war II wave of nationalism throughout the world lead to the dissolution of the vast British Empire in to many new independent countries in the African and Asian continents. The vast Empire started losing the grip of the control of their former colonies.

The people of the Indian Sub-continent those constituted about two-thirds of the population

(about 450 million people) of the whole empire supported for the independence from the

British domain. The long struggle for the independence steered the formation of two independent countries of India and Pakistan in 1947. Pakistan was created to satisfy the aspirations of Muslims those campaigned for independent nation where they can lead their lives according to the Islamic principles. The country was divided into two parts, the West

Pakistan and the East Pakistan, with the West having most of the area and the East having most of the population. The divided State was separated by a hostile nation and the communication between the two halves was difficult. The sea journey between the two halves was a weeklong circuitous route via Sri Lanka and the overland route was a long, indirect, and unreliable through a hostile territory. Hence, an air link appeared to be the most discernable solution for a fast and reliable connection and that goaded the formation of Pakistan civil aviation industry.

70

3.2 Orient Airways At the time of independence, Karachi was considered as an important gateway of Asia. The

Karachi Airport was Imperial Airways’ lifeline hub connecting the British Empire with the

Indian Subcontinent, Southeast Asia, and Australia. After the independence the airline activity in the country was fragmented and unreliable. Several small airlines, led by Orient

Airways started their operations known as the inter-wing route that connected the two halves of Pakistan despite occasional disruptions on flying across India due to geo-political problems. Two industrialist brothers, Mirza Ahmad and MirzaAbol Hassan Ispahani, founded Orient Airways on October 23, 1946 in Calcutta, India. After the independence, the airline’s headquarter was shifted to Karachi. On October 1, 1947, Orient Airways inaugurated its regular air service between Karachi and . The following day on

October 2, 1947, Orient Airways linked Karachi to and Rawalpindi, and thence to

Peshawar, and also to . In few months, the airline increased it fleet up to twenty aircraft comprising mainly of C-47/Dc-3s. The airline also started regular flights to Gilgit and on behalf of the Ministry of States and Defense. The remarkable operation was a very bold initiation at that time to offer social service to a remote community. The approach valley in Gilgit is too narrow to turn around for the aircraft with no possible place to land in the event of engine failure. The flights to the land-locked mountainous and remote region of Gilgit and Baltistan were also strategically important for the Government of Pakistan to retain sovereignty over northwestern Kashmir. Later, Orient Airways purchased a small fleet of pressurized Convair 240 twin-engine airliners to put them in service between Karachi and Dhaka. The first flight took place on May 1, 1949; the 71

scheduled flight to Dhaka had two intermediary stopovers at Delhi and Calcutta. With the initiation of this service; Orient Airways became the launch customer of Convair 240s in

Asia and the aircraft had a range capability of flying direct from Karachi to Dhaka. (Davies,

1997)

Besides the early laurels and the remarkable initiations, Orient Airways faced a major setback due to a crash in March 1953 that exacerbated with an intense competition by the foreign carriers especially by the introduction of BOAC Comet jetliners. On domestic routes, Orient Airways faced a minor competition by the introduction of flights from Karachi to Lahore and Delhi by Pak-Air formed in November 1949 with a fleet of

DC-3 aircraft. By this time, the airline began showing signs of decline and there was a growing movement within the Government to form a national airline under a complete state control. Consequently, Orient Airways was officially amalgamated with the newly formed

Pakistan International Airlines (PIA) on October 1, 1953. PIA was formed in to a state corporation on March 11, 1955. All the assets and routes of Orient Airways were absorbed and its shareholders received 40 percent of PIA. Even though Orient Airways maintained its operation for a brief period of nine years but the airline’s vital role in the foundation of the airline industry of Pakistan will never be forgotten.

3.3 Pakistan International Airlines The history of Pakistan’s civil aviation industry highly reflects its vulnerability and sensitivity to the country’s geo-political and socio-economical environment. Immediately after independence, the Government of Pakistan pursued foreign policy that was slanted towards the United States and its allies as opposed to the Indian’s foreign policy that was 72

more skewed towards the Soviet Union and the Eastern Bloc countries. To counter unceasing dangers from the archrival India, Pakistan always needed the US military and diplomatic support to build-up its arm-forces. Consequently, the foreign policy also affected the aircraft purchases and technology transfers to Pakistan’s civil aviation industry.

On May 25, 1953 the Government of Pakistan ordered three Lockheed Model 1049C Super

Constellations for the newly formed PIA. On June 7, 1954, the first PIA service began from

Karachi to Dhaka with Super Constellations that replaced Orient’s Convair 240 inter-wing services. With the inaugural of this service, the airline became the launch customer of the aircraft in Asia. Later PIA began Karachi-Bombay service on December 13, 1954. The following year on February 1, 1955, PIA initiated the milestone Super Constellation service from Karachi to London. At the time, it was the fastest flight on a highly competitive route

(Davies, 1997)

In the early years of Pakistan’s independence, the determination and aspirations of the people at power were overwhelmed with the nationalistic spirit. It was due to the strong fortitude and patriotism of those people that Pakistan was soon considered as one of the frontrunner Asian countries in economic and social developments. The newly created PIA also replicated the same spirit and became the vital stimulus in achieving the national aspiration. One of the first acts of the new corporation was to link the commercial capital of

Pakistan, Karachi, with the capital of India, Delhi, on March 15, 1955 (Davies, 1997). In the summer of the same year, Government of Pakistan signed the technical assistance agreement with Pan American Airways to provide management assistance, planning and technical support to PIA. The following year PIA ordered three of the latest Vickers 73

Viscount 815 short-haul propeller-turbine airliners and brought its CV-240 fleet up to four.

The Convair 240s and DC-3s became the backbone of PIA’s domestic network. The airline added additional weekly frequency to London via Geneva and Cairo in the late 1950s. The inter-wing flights between Karachi and Dhaka and the flights between Karachi and Lahore were progressed to daily frequencies by October 1956.Twice weekly flights were introduced between Lahore and Dhaka. By March 6, 1958, Super Constellations were introduced on inter-wing routes. After two fatal accidents that involved a DC -3 in 1957 and a Convair 240 in 1958, the Viscount’s order was increased to five aircraft to replace the aging fleet on domestic routes. The first Viscount was inducted on regular flights on

January 31, 1959, from Karachi to Delhi.

3.4 The First Jet in Asia The Technical Agreement with PanAm provided PIA an access to latest technological developments. PanAm was the launch-customer of B707; the first successful jet that revolutionized the passenger air travel. The most proficient Managing Director in the history of PIA Air Commodore Malik had a farsighted approach and he missed no opportunity of bringing PIA in the league of leading global airlines. On March 7, 1960, the only five years after its official foundation, PIA became the first jet operator of Asia, by operating regular once a week service from Karachi to London replacing Super

Constellations on the route. A year later on May 5, 1961, the service was further extended to New York. The B707s were replaced by the smaller Boeing 720Bs, which for a short while, happened to be the longest-ranged airliners in the world (Davies, 1997). On the domestic grounds PIA introduced twin-engined Fokker Friendships in February 1961that 74

quickly replaced DC-3 operations on socio-economic routes. For a short period, PIA also introduced scheduled helicopter services to remote regions in East Pakistan. The service was initiated as a cheaper solution than building airfields in inhospitable terrain. The airline served ten points by Sikorsky S-61N helicopters and the services were closed down in 1966 after a fatal accident. All these remarkable advances made the PIA name synonymous with forefront airlines on global platform. Western trans-Atlantic travelers who took advantage of the Fifth Freedom rights enjoyed by PIA were given an opportunity to enjoy the gracious service provided by the Pakistani flight attendants (Davies, 1997). The airline’s in-flight services marked with eastern hospitality had a novel appeal to the western travelers. By the late 1960s, PIA became the pioneering Asian airline that triggered other Southeast Asian airlines specifically Singapore Airlines to follow PIA’s Business Plan based on fifth and sixth freedom traffic rights, brand-new fleet and high quality service proposition with highlights of Asian warm hospitality.

3.5 The Zenith Period The two decades of 1960s and 1970s were highly momentous for PIA as the airline reinforced its network with new routes and additional frequencies. The services between

Peshawar and Kabul and between Lahore and Delhi were inaugurated in 1964.The most significant event of the same year was the inauguration of services to China. The start of services to China made PIA to operate the first non-communist route from the West to the

People's Republic of China, which, for fifteen years, had been isolated from the rest of the world. On April29, 1964, PIA’s first Boeing 720B service flew from Dhaka to Shanghai, via Canton. The same year on May 10, 1964, PIA also became the first non-communist 75

airline to operate services to Moscow as an intermediary stop on the airline’s operation to

Europe. In 1965, the airline also added Tehran on the European services.

In the mid-sixties PIA bought British Trident 1E Trijets to be used on its Inter-wing, domestic trunk, and Gulf routes. The Tridents floundered and underperformed in typical hot and tropical conditions and proved to have barely adequate range specifically on the vital inter-wing routes. Later in 1970, PIA managed to sell all of its four Tridents to the Civil

Aviation Administration of China (CAAC). The sale of the aircraft was not only a biggest breakthrough for the sanction-ridden Chinese carrier at that time but also for the Hawker

Siddeley that later secured whopping order of thirty five aircraft from the CAAC.

Following the delivery of two brand-new Boeing 707-340s in the summer of 1966, the airline greatly expanded its international route network. Paris and Istanbul were added as new European points and Nairobi via Aden were added in the rapidly expanding network.

PIA became a major airline force in the Middle East where the influx of skilled and semi- skilled labor soared due to burgeoning oil industry. PIA quickly tapped the prospects and formed a comprehensive network in the Persian Gulf States. Baghdad, Jeddah and Kuwait came on line on November 1, 1966.A week later, on November 10, services were begun to

Bahrain, Doha and Dubai. At the other end of the operational spectrum, PIA also expanded its route network to the Far East from its East-Pakistan base in Dhaka. The services between Dhaka and Bangkok were initiated on April 1, 1967. The Bangkok service was further extended to Manila and Tokyo in November 1969. PIA made good use of its Sixth

Freedom privileges by connecting European points to Bangkok, Manila and Tokyo. Later in 76

1970, the airline introduced B707 freighter service to London. Hence, by the start of the decade of 1970s, the PIA’s route network expanded to four continents and the airline was fully recognized as a high quality global carrier from Pakistan.

3.6 Perils and Challenges The history of PIA is marked with two major challenges that the airline’s management amicably handled with immense audacity. First was the war that broke out between

Pakistan and India in the September of 1965. PIA’s aircraft were temporarily parked in

Tehran and Istanbul and one Boeing was stationed at Peshawar. The war was over in few days and consequently the airline’s operation and route-plan quickly returned to the pre-war level by the end of the year. The inter-wing flights were reinstated directly on February 9,

1966, over-flying Indian Territory rather than routing through circuitous diversion during the war period via Colombo. Only after half a decade later, the airline faced another catastrophic event that altered the company’s entire operation. The East Pakistan became an independent state on December 16, 1971, due to the civil war and growing agitation triggered by the foreign forces against the perceived injustices carried out by the West

Pakistani politicians.

The separation of East Pakistan completely altered the PIA’s operation. The inter- wing operations were closed down and the traffic demand instantly came down to half of the pre-war level. For a brief period, the airline leased out some of its aircraft to shed overcapacity situation. Nevertheless, the PIA’s management demonstrated tremendous agility and resilience that swiftly brought the airline back to strong footings. The airline rapidly resumed its global operations based on the sixth freedom privileges and innovative 77

marketing campaigns considered unprecedented at that time. The re-orientation of the fleet and routes brought the airline’s seat-mile output back to its pre-1972 total in a very short period. The flights to China were re-routed initially through Colombo as an intermediate stop. Later, flights to Shanghai via Colombo were replenished through direct flights to

Beijing from Islamabad on January 20, 1973. The trans-Atlantic flights were reinstated on

April 1,1972. The ‘Batik Route” flights to Bangkok, Jakarta, Kuala Lumpur and Singapore all through Colombo were inaugurated on November 3, 1972.

The oil crisis in early seventies created a slump and decline in the fast growth of global aviation industry. Antagonistically, there was a steady traffic and capacity growth at

PIA mainly due to tremendous increase of passenger travel from and with in Pakistan. The international traffic from Pakistan received a major lift in early seventies mainly due to the increase in demand for skilled and semi-skilled workforce in the Gulf States. Furthermore, a sizable population of Pakistani families immigrated to Great Britain and North America gave boost to overseas ethnic traffic. Additionally, the annual hajj pilgrimage provided extra capacity utilization to the constantly growing international passenger traffic from

Pakistan.

3.7 Wide Bodies The airline’s proficient management made concerted efforts to tap all the possible avenues and opportunities pertaining to the growth of aviation passenger business in Pakistan. A strong and world-class infrastructure related to aircraft Engineering and Maintenance,

Ground Handling, Crew and Management Training, In-flight Catering etc. was created. The management quickly gauged the challenges posed by the fuel crisis and worked on building 78

wide-body fleet for the airline. In the first phase, the airline placed an order for three

Douglas DC-10-30 wide-bodied tri-jets in April 1973. The trijets induction is marked with shady official deal and later revelations pointed to illegal payments of commissions and ultimately PIA received US$2.1 million damages, awarded by the US Criminal Court

(Davies, 1997). The DC-10s were put into service on European and North American routes.

Later, the change in top management at PIA altered the direction of the long-haul fleet expansion. Air Marshal Nur Khan who was re-appointed as Chairman, and Enver Jamall, as

Managing Director, both worked diligently in the enhancement of the airline’s fleet. On

May 5, 1976, two Boeing 747-200 leased from Portugal's airline, TAP, were inducted into nonstop flights to London from both Karachi and Islamabad. In 1978, the airline ordered more 747s and four Airbus A300B4s, the latter for $167 million (Davies, 1997). By the start of the decade of 1980s, PIA had been able to build a complex wide-body fleet with three different types of aircraft. The complex and diverse fleet eroded the airline’s abilities to achieve efficiency through economies-of-scale and became one of the main reasons for the airline’s high Operational Cost. The airline in later years confronted with high Cockpit

Crew Training expenses, heavy Engineering and Maintenance costs, and maintained multiple Parts Inventory in order to keep its fleet up and running.

3.8 The Vigor at PIA By the late 1970s PIA brand was established as a high-quality service airline. The airline’s expertise and technical staff became the first choice for the newly formed airlines in Africa and the Middle East. PIA commendably assisted many new airlines by using the high standards of its technical staff, especially in engineering and maintenance. The airline 79

assisted in establishing Air Malta on April 1, 1973, by providing full technical and management support in exchange of acquiring 20 per cent stake in Air Malta. Many other

African, Middle Eastern, and Asian carriers sought PIA technical and management assistance during their start-up periods. The most commendable service in this regard was the airline’s key role in establishing Dubai based Emirates Airlines in 1985. Emirates wet- leased two aircraft from PIA with 73 managerial staff, 25 cockpit-crew, and 40 engineering and maintenance personnel stationed in Dubai for the full start-up support. (Wilson, 2005)

The decade of the 1980s is marked with geo-political commotion around Pakistan as a result of the Soviet occupation of Afghanistan in 1979. Pakistan’s key role in the Afghan conflict severely affected the pace of its socio-economical development that directly hit the country’s aviation growth. In 1981, PIA for almost the first time in its existence faced red ink on the balance sheet and the Government injected $60 million into the airline in the form of loans and direct cash in exchange for an equity shareholding to meet the severe cash flow crisis (Davies, 1997). Throughout the decade, there was no significant addition and enhancement in the airline’s fleet. The airline inducted six B737-300 in July 1985 to replace its ageing B707s and B720s deployed on domestic and regional routes. With the induction of B737s PIA once again became the Asian launch-customer of the aircraft-type.

Additionally, the airline also bought four F27s from Brazil to support its domestic feeder network. Toronto was added in PIA’s network in 1989 as a second North-American station.

In 1990, Lahore became the third Pakistan city to have direct B747 service to London, and in the same year Manchester was added as a second British terminal. 80

3.9 The Dwindling Period The decade of 1990s came with great prospects for Pakistan as the dawn of democracy brought new hopes and aspirations for the nation. Contrary to the dreams, however, the decade is marked with political turmoil one after the other. Consequently, failures of amateurish democratic governments decelerated the economic progress that the country had witnessed in the previous decades. The state run institutions were badly smashed by the political instability coupled with severe corruption, mismanagement, nepotism, and lack of effective and visionary leadership imposed on them by each successive regime. At the time when the global carriers were countering the affects of post oil crisis and open sky regime,

PIA on-the-other-hand was confronted with the Pakistan’s own domestic political problems.

The airline along with the other state run institutions became instrument for the new governments to provide jobs to their party workers. The top management positions were reserved for the senior party officials as trophy-posts and rewards in recognition for their dedication and loyalty towards their political affiliations. Hence, senior management became tools for securing the interests of their party-lords that resulted in instilling corruption, inefficiencies, and loss of strategic direction in the airline. Therefore, PIA was transpired as mere ethnic-carrier and the airline gradually lost track from the league of global quality carriers. The pernicious issues such as over-staffing, lack of strategic direction, obsolete fleet, revenue and financial losses, poor branding and image, dissatisfied customers and loss of employees’ self-esteem and morale became the permanent mark in the crumbling organization. 81

The deterioration in the airline covered all the spheres of its management and PIA crumbled in to becoming a typical state-run airline with a mere focus on ethnic traffic. The airline carried one of the highest employee-to-the-aircraft ratios. Most of the employees were politically hired evading the employment based on merit system that is crucial for retaining airline’s Safety and Quality Standards. The airline transpired as least preferred organization by the first-class graduates and skilled workforce. Instead, the nincompoop and incompetent management staff replenished and filled the airline’s key positions. The airline’s persistent operational losses had created the demoralized environment that triggered the competent employees to move out to other organizations.

The loss of strategic path largely manifested in the airline’s poor fleet plan. Thus, the airline gravely suffered from all the issues related to lack of fleet management and high cost of its ageing fleet. Throughout the 1990s,no significant decisions were made pertaining to the fleet plan those were essentially required in the wake of the low-cost era. In June

1991, PIA received the first of six Airbus A310-300 aircraft that the airline had ordered.

The aircraft were last few production of the type and the controversial purchase of these aircraft was made at a time when Airbus already launched the next generation family of

A330 aircraft. Hence, the induction of previous generation A310 aircraft left PIA with the cost-disadvantage situation and loss of passenger appeal against the growing competition from the Gulf-based carriers. Gradually, the airline lost the preferred status, as launch customer for new aircraft and the airline became the incessant customer of used aircraft market. In 1999, PIA leased five B747–300 aircraft from Hong Kong based Cathay Pacific

Airways to replace its ageing B747-200M fleet. Later, the airline purchased these aircraft 82

with the addition of one more aircraft. All of these aircraft were used mainly on its North

American, European as well as on hajj and umrah pilgrimage traffic. The airline’s small and diverse fleet of 30/40 aircraft was always composed of six to seven aircraft types.

Hence, the airline carried a heavy burden of high Maintenance cost, cockpit crew training, and multiple parts inventory to keep its ageing and diverse fleet up and running. The old depleted cabin interiors exacerbated in losing passenger appeal against latest interior features available in next generation aircraft.

The PIA’s network that stretched over four continents in the 1980s started to shrink sharply in the 1990s. The reason for the closure of many routes was due to the loss of sixth- freedom traffic those were highly sensitive to service quality and flight frequencies. The airline’s in-flight services lost appeal to the international passengers as the services manifested more inclination towards satisfying ethnic traffic. In 1990s, PIA was still serving some of the international routes on weekly basis that was not preferred by the frequency-sensitive international passengers. In March 1992, PIA became the first foreign airline to provide service to Tashkent, Uzbekistan, with a once weekly Boeing 737 flight direct from Islamabad, marking, incidentally, the 43rd international destination (PIAC.com).

Regrettably, in the later years many of the airline’s international routes specified for the sixth-freedom traffic were closed down mainly due to less passenger payload on weekly- based frequencies. Consequently, the airline’s network turned out to be restricted to satisfying ethnic traffic only i.e. the airline was flying only to those destinations where

Pakistani passengers could travel. On the domestic grounds, no efforts were made to stimulate domestic traffic and the airline continued with the network having almost the 83

same frequencies and capacity those were made available in the early 1980s. The airline sustained the domestic operation with a small fleet of ageing B737s and 1950s vintage F27 aircraft. However, on major domestic trunk routes wide-body long-haul aircraft were used, hence, the domestic primary routes were kept frequency-starved. There was a total disregard in building a strong regional fleet for the domestic and the regional routes. Thus, the Pakistani air traffic reflected sluggish growth throughout in 1990s not because of the lack of market potentials but mainly due to the bad performance of the national carrier.

3.10 Continuing Challenges in the Millennium The dawn of a new century for PIA was filled with gloomy depictions of the issues and challenges that the airline faced towards the end of the last century. The shambling condition of the airline erased all signs of the laurels that the airline once achieved.

Towards the start of the millennium PIA became a white elephant organization that frequently in needs of sovereign bailout on the taxpayers’ money. The absence of proficient management made the airline wandering aimlessly in the highly competitive aviation industry. The Government of Pakistan is compelled to support the airline, as there is no other reliable alternative to support the crucial and strategically vital both domestic and international air links. Even though, the Government deregulated the aviation industry in early 1990s that allowed the entry of a few private-sector airlines. But towards the start of the new century none of the private-sector airlines had been able to make any significant contribution towards the growth and development of the local aviation industry. In fact, the local private-sector airlines backed by non-professional and ethically compromised management style significantly contributed in bringing down the quality and safety 84

standards of Pakistan aviation industry. As a result, Pakistan became a nurturing ground for the international agents and touts to market and dump old and obsolete Western and Soviet built aircraft from unreliable sources. Hence, in this precarious scenario, the Government felt obligatory to support ailing national-carrier for the sustainability of the aviation business in Pakistan.

From the time of independence in 1947 until recently, Pakistan has seen several military interventions provoked by the apparent bad governance, mismanagement, and incompetence of the civilian régimes. Historically, the military order comes as a last resort to safeguard and eradicate the country from the unembellished mess and anarchy stimulated by the ostensibly incompetent civilian setups based on the fragile democratic system.

Likewise, on October 12, 1999, the then Chief of the Army Staff General Pervez Musharraf overthrew elected Prime Minister Nawaz Sharif and imposed emergency in the country.

The restoration of order and stability in all public sectors of the country was the main priority of the military setup. Like many other public sector organizations, PIA was also in a state of dismay and needed immediate attention to address the airline’s lingering issues.

From many years the decisions for replacing its wide body fleet was in doldrums due to intense clash with in the organization and government authorities to favor malicious aircraft deals. In the past, the senior officials within the organization acted as cronies for aircraft agents opposed and rejected all fleet related decisions those were not favoring financial benefits and personal gains to them and their masters. As a result, PIA suffered huge losses due to ageing aircraft fleet and the decision for replacing its long haul fleet was immediately required. 85

The new management at PIA under military regime succeeded in placing an order for eight aircraft of Boeing 777 family. The management evaded long delaying processes designed to cater malicious intentions and vested interests of various officials within and outside the organization. The order consists of three B777-200ERs, two B777-200LRs and three B777-300ERs. The first of three B777-200ER aircraft was delivered in January 2004 and the first B777-200LR was delivered in February 2006. The induction of longest range

B777-200LRsmade PIA the launch customer for the aircraft-type in the world. The B777-

200LRs enabled PIA to offer non-stop flights from Toronto to Karachi, Islamabad, and

Lahore from March 3, 2006. The airline further acquired the fourth B777-200ERon a ten- year lease from the International Lease Finance Corporation (ILFC) on December 6, 2005.

To replace the ageing A300-B4 aircraft from the fleet, PIA also leased six more Airbus

A310-300 aircraft direct from the Airbus Company. The induction of the A310-300s is perceived to be controversial due to non-compatibility of engines and the aircraft vintage.

The newly inducted A310-300 aircraft were not only timeworn but they were fitted with different Pratt & Whitney engine as compared to the GE engines fitted on previously inducted A310 aircraft. Hence, the induction of additional A310s contributed in further enhancing complexities in the areas of airline’s fleet and parts management. Following the fatal accident of Fokker F27 near Multan on July 10, 2006, the PIA’s management grounded its entire 1960s vintage Fokker fleet. To replace Fokker F27s, the airline purchased seven ATR42-500 aircraft. The first ATR42-500 aircraft was delivered to PIA in

January 2007. The selection of ATR42-500 was also filled with conspiracies and controversies. The hurriedly shift of order to ATR42s from previously selected Bombardier 86

Q300s endorses the conspiracy theories attached with the purchase of these aircraft. The selection of ATR42 was based on matching Fokker’s capacity; hence, the airline management was totally oblivious of the better operational economics associated with the larger capacity ATR72 and Bombardier Q400 aircraft. With the induction of ATR42s, the airline sustained the domestic and regional network without any consideration of growth in the market. The management gave no realizations and recognitions on the traffic-growth and socio-economic transformations that must have taken place in the period of three or four decades since the induction of Fokker F27s in the 1960s.

The induction of new aircraft gave PIA a facelift on passenger services; however, the airline could not completely washed-out the financial mess and operational complexities. The efforts were made to divest airline’s non-core businesses such as

Catering, Ground Handling, and MRO facilities. However, the interest of genuine investors melted down due to intentional delays in decision making and loopholes in the system related to divesting activities. With the change of Government and return of democracy in the country in 2008, the airline’s recovery path was again placed in the backburner. The crucial decisions for the sustainability of the airline business were totally overlooked.

Consequently, the airline encountered severe financial crisis and threats of suspension of its domestic and regional operation due to non-availability of aircraft. The B737-300s that the airline purchased in 1985 were showing signs of aging; hence, became undependable and expensive to operate. The critical decisions for the withdrawal and replacement of the aircraft were deliberately delayed due to personal interests and gains of invisible opportunists having influence in the layers of management. As a result, the airline was 87

deprived of the effective regional fleet and that has caused the airline to face loss of business growth, and market share on the domestic and regional routes.

In February 2012, PIA ordered 5 more Boeing 777-300ER aircraft with delivery starting in 2015.The decision for building the airline’s regional fleet is milled under the strife of the influential lobbies that are working against each other. To sustain the domestic and regional network, the airline leased 4 B737-800 from Travel Service and Corendon

Airlines. At the same time, the airline inducted 2 A320-214 series aircraft in its fleet, first in June and second in July 2014. Another wet leased A320-211 aircraft from Jordan

Aviation joined PIA on August 11, 2014. The airline’s incompetent and indecisive management is unable to plan an effective fleet plan; instead, aircraft are being inducted erratically satisfying the vested interests of various briefcase middlemen on the street and their cronies having influence on the authorities at power. All of these chronic issues have seriously impaired the financial liquidity that left the airline struggle to sustain its already limited operation. The efforts are being made by the authorities to privatize the airline in order to reduce the burden of the ailing organization on the national exchequer. Generally, the intentions to privatize the airline are rightly perceived as malicious and malignant.

Historically, PIA was saved many times from both local and international scavengers who unscrupulously made attempts to take control of key assets and privileges that the airline possesses and enjoys as a national carrier. The airline business is strategically significant for a geopolitically sensitive and important country like Pakistan; hence, sincere and genuine efforts are to be made to build an effective, efficient, and viable aviation infrastructure in the country. 88

3.11 Pakistan Civil Aviation Authority (PCAA) Pakistan Civil Aviation Authority is a public-sector autonomous body working under the

Federal Government of Pakistan through the Ministry of Defense. PCAA was established on December 7, 1982, earlier prior to its creation, a Civil Aviation Department in the

Ministry of Defense used to manage the civil aviation related activities. The PCAA performs all kinds of civil aviation related activities including the regulatory, air traffic services, airport management, infrastructure and commercial development at the airports, etc. The CAA’s vision is to promote and regulate civil aviation activities, and to develop an infrastructure for safe, secure, efficient, adequate, economical and properly coordinated civil air transport service in Pakistan. (CAA Pakistan, 2015)

The main objectives of a PCAA policy are to improve governance and oversight for the compliance of ICAO standards of aviation safety, security and efficiency and to provide level playing field for and liberalize aviation sector in the country by allowing market forces to determine the price, quality, frequency and range of air services options. (CAA Pakistan, 2015)

The PCCA has issued Policy Guidelines in 2015 for start-up carriers in order to achieve its core objectives. The Guidelines issued by PCAA for the start-up of airlines on both Charter and Regular Passenger Transportation (RPT) is appended in Annexure A and the list of airports in Pakistan is appended in Annexure B.

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3.12 The Pakistan Passenger Market Analysis

3.13 The Total Passenger Market The passenger market in Pakistan is in the early stages of the mass customization and the growth in its aviation market suggests that there is an organic and modest growth in the last

38 years. The air traveling public in Pakistan is still consisting of the very small proportion of the total population. There are two prime reasons for a small proportion of air travelers in the country; the first reason is the low per-capita income due to which the majority of the population cannot afford air transportation services. The second reason is the lack of service efficiencies and market stimulations due to the presence of few incumbent-carriers in a highly oligopolistic environment especially in the domestic market. The incumbent airlines have restricted the domestic services and the number of flight frequencies at high market prices. The total passenger market of Pakistan in the last 38 years i.e. from 1972 to

2010 has a mean growth rate of 5.86 percent. The figure for the total passenger market in the year 2009-10 has reached to 15.08 million passengers. The Pakistan’s aviation market is broadly categorized into the domestic and the international passenger markets. Out of the

15.08 million passengers in 2009-10, 8.3 million passengers i.e. 55 percent of the total traffic comprises of the international passengers, whereas, 6.78 million passengers i.e. 45 percent of the total traffic comprises of the domestic passengers.

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Total Passenger Traffic at all Airports in Pakistan

Year Terminal Growth Transit Growth Total Growth

2005-06 14,311,486 8.16% 339,317 -10.15% 14,650,803 7.65%

2006-07 14,008,760 -2.12% 342,375 0.90% 14,351,135 -2.05%

2007-08 13,933,357 -0.54% 276,652 -19.20% 14,210,009 -0.98%

2008-09 13,960,496 0.19% 279,609 1.07% 14,240,105 0.21%

2009-10 14,817,193 6.14% 264,280 -5.48% 15,081,473 5.91%

Year 2010

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The table below shows the average growth rate in percentage of the Pakistan’s total

passenger market for every 5-year from the year 1975 to 2010.

Average Growth Rate of Pakistan’s Total Passenger Market

Years Avg. Growth

1975-1980 17.28%

1980-1985 5.34%

1985-1990 6.10%

1991-1995 4.12%

1995-2000 -1.14%

2000-2005 2.88%

2005-2010 2.15%

The figure in the above graph shows that the highest growth in the total passenger

traffic is observed during the period 1975-1980 which is 17.28 percent. The main reason for

such a high growth rate is attributed to the opening of the employment opportunities for the

Pakistani workers in the newly oil rich countries of the Middle East in the early 1970s. The

other reason is the performance of the state run airline PIA, which at that time was

considered to be a fast growing and one of the best airlines from Asia. In the following 5-

year periods, the average growth rates though remain positive but had consistently come

down mainly due to the lack of market stimulation in a highly monopolistic domestic 92

environment. During the period 1995-2000, the total market is showing a negative growth rate of 1.14 percent. The prime reason for such a negative growth rate was the liberalization of aviation policies enforced by the then Government of Pakistan that mainly affected the domestic passenger market. The northern corridor i.e. the airports of the cities of Islamabad,

Lahore and Peshawar were made open for the international traffic and the foreign airlines were also allowed to operate international flights from these cities. Most of the passengers from the northern cities preferred direct international flights from their home cities instead of transiting through the Karachi airport. As a result, now the current domestic passenger market is mainly comprised of the point-to-point traffic only.

3.14 Statistical Description of the Total Passenger Market The statistics shows that the mean of the growth is 5.86 percent from 1972 to 2010. The kurtosis is 1.433, which is less than 3 that means the curve is platy Curtis. The standard deviation is 9.01 percent indicating that the standard deviation of the growth is low. The mean is slightly greater than the median; therefore, the data is positively skewed. The scattered diagram of the data shows a weak correlation between time and growth; however, the trend line clearly indicates the decline in growth of the total passenger market, which is also evident from the equation of trend line where slope is -0.0052. (The details of the data analysis can be found in the attached excel file under the name Descriptive Analysis)

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Descriptive Statistics

Mean 5.87%

Standard Error 1.50%

Median 5.50%

Mode N/A

Standard Deviation 0.09

Sample Variance 0.01

Kurtosis 1.43

Skewness 0.21

Range 0.45

Minimum -0.18

Maximum 0.28

Sum 2.11

Count 36.00

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3.15 Domestic Passenger Market The total domestic market has reached a figure of 6.78 million passengers in the year 2009-

10 and shows a growth of 8.14% from the previous year. The average growth rate during

2005-2010 is showing a negative trend and it is mainly due to the decrease in transit traffic,

the slowing down of the economic activities due to the disturbed geo-political situation and

the lack of market stimulating activities. The shrinking of the domestic market is also due

to a reduction in number of flights by the in-efficient and cash-starved private airlines. The

recent accidents and the safety-issues associated with the private airlines have raised public

concerns over the safety measures and standards followed by these airlines. The opening of

a northern corridor for the international flights also resulted in the decrease of domestic

transit traffic.

Domestic Passenger Traffic at all Airports in Pakistan

Year Terminal Growth Transit Growth Total Growth

2005-06 7,392,370 7.87% 103,355 9% 7,495,725 7.89%

2006-07 6,872,130 -7.04% 113,739 10% 6,985,869 -6.80%

2007-08 6,519,570 -5.13% 107,957 -5% 6,627,527 -5.13%

2008-09 6,173,978 -5.30% 96,223 -11% 6,270,201 -5.39%

2009-10 6,710,082 8.68% 70,501 -27% 6,780,583 8.14%

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Year 2010

The domestic air traveling public in Pakistan is broadly categorized into various customer types such as businessmen from both large multinational and small and medium enterprises (SME), officials from government and armed forces, diplomats, migrant workers, visiting family, friends and relatives (VFFR) and recreational travelers.

Businessmen from large MNCs, government officials and VFFR from upper classes are time, frequency and quality sensitive customers. Most of the passengers belonging to the other categories are price and value sensitive. Due to the very high-ticket prices, most of the air-traveling passengers are the high-income groups belonging to the upper-middle and the above classes of the total population. The domestic passenger market is further sub- divided into the following four broad categories such as a) Domestic Trunk, b) Secondary, c) Tertiary and d) Socio-Economic routes. Out of the 6.78 million of the total domestic passenger-market, 30 percent and 64 percent of the traffic comprises of the trunk and the secondary routes respectively, and the remaining 6 percent is of the tertiary and socio- 96

economic routes. Following is the chart depicting the various passenger segments traveling

on key domestic routes.

Various Passenger Segments Traveling on Key Domestic Routes

Term/ Relative From To Passenger Profile Category Connect Yield

Karachi Lahore Term Business, Financial and Education High Trunk

Business, Government, Armed Karachi Islamabad Term High Trunk Forces, Diplomatic and Visa

Afghan related, SMEs, Traders and Trunk/ Karachi Peshawar Term Medium/Low Migrant workers Secondary

Agro Chemical, Farming, Migrant Karachi Multan Term Medium/Low Secondary Labor

Specialist manufacturers and Karachi Faisalabad Term Medium/ High Secondary Exporters

Mainly government business, Some Lahore Islamabad Term High Secondary VFR/Recreational

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3.16 Domestic Trunk Routes The two sectors i.e. Karachi-Islamabad-Karachi and Karachi-Lahore-Karachi are the most

important domestic trunk routes. Both of these routes comprised of 30 percent of the total

domestic market i.e. both of these routes contributed to 2.04 million of passenger-flow out

of the total 6.78 million of the total domestic market in the year 2009-10. There is a double-

digit growth of around 14 percent from the period 2008-09 to 2009-10; the traffic was

increased from 1.75 million passengers in 2008-09 to 2.04 million in 2009-10. The total

number of flights in 2009-10 were 15,408 i.e. 7,952 flights were on Karachi-Islamabad-

Karachi sector and 7,456 flights were on Karachi-Lahore-Karachi sector.

Domestic Passengers Growth Rate on Primary Routes

2008-09 2009-10

Routes No. of Growth No. of No. of Growth No. of

Passengers Rate (%) flights Passengers Rate (%) flights

KHI – ISB 433,528 -5.7% 3,034 528,238 21.8% 3,878

ISB – KHI 438,690 -0.7% 3,359 518,903 18.3% 4,074

Round Trip 872,218 -3.2% 6,393 1,047,141 20.1% 7,952

KHI – LHE 434,643 -6.5% 3,225 494,866 13.9% 3,797

LHE – KHI 442,676 -6.9% 3,201 496,964 12.3% 3,659

Round Trip 877,319 -6.7% 6,426 991,830 13.1% 7,456 98

Year 2010

3.17 Domestic Secondary Routes The total traffic of the secondary routes has reached a figure of 4.35 million passengers in the year 2009-10 which is 64 percent of the total domestic market. The major domestic secondary routes in terms of value consist of the sectors such as Karachi-Faisalabad-

Karachi, Karachi-Multan-Karachi, Karachi-Peshawar-Karachi, and Karachi-Quetta-Karachi.

The total numbers of flights in these sectors were 6,269 in the year 2009-10 i.e. 1,143 flights were on Karachi-Quetta-Karachi sector, 1,798 flights were on Karachi-Peshawar-

Karachi sector, 1,161 flights were on Karachi-Faisalabad-Karachi sector, and 2,167 flights were on Karachi-Multan-Karachi sector.

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Domestic Passengers Growth Rate on Secondary Routes

2008-09 2009-10

Routes No. of Growth No. of Growth No. of flights No. of flights Passengers Rate (%) Passengers Rate (%)

KHI – QET 53,294 -10.2% 559 48,163 -9.6% 585

QET – KHI 51,698 -10.6% 545 45,752 -11.5% 558

Round Trip 104,992 -10.4% 1,104 93,915 -10.6% 1,143

KHI – PEW 101,661 -2.7% 860 112,023 10.2% 908

PEW – KHI 115,126 0.5% 830 111,551 -3.1% 890

Round Trip 216,787 -1.0% 1,690 223,574 3.1% 1,798

KHI – LYP 57,686 -23.1% 748 56,059 -2.8% 590

LYP – KHI 58,027 -16.7% 747 49,883 -14.0% 571

Round Trip 115,713 -20.0% 1,495 105,942 -8.4% 1,161

KHI – MUX 73,371 -11.2% 1,106 48,634 -33.7% 1,097

MUX - KHI 68,630 -14.5% 1,076 46,169 -32.7% 1,070

Round Trip 142,001 -12.8% 2,182 94,803 -33.2% 2,167

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Year 2010

3.18 The Analysis of Variance (ANOVA) We applied ANOVA test to see the difference in traffics between the major secondary sectors such as Karachi-Quetta-Karachi, Karachi-Peshawar-Karachi, Karachi-Faisalabad-

Karachi, and Karachi-Multan-Karachi. The analysis indicates that the f-value is 17.695, whereas, the critical value at 95% confidence is 4.066. As the calculated f-value is greater than the critical value, therefore, there are significant differences between the sample means.

All the major secondary routes have different market dynamics; hence, each of these sectors should be dealt differently at the time of adding new services and new flight frequencies. The details of the analysis are listed below and the working can be seen in the attached excel file under the name “ANOVA Test.”

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The Analysis of Variance

ANOVA

Source of Variation SS df MS F P-value F crit

Between Groups 23,483,601,378 3 7,827,867,126 17.6950503 0.00068494 4.06618055

Within Groups 3,539,008,711 8 442,376,089

Total 27,022,610,089 11

3.19 The International Passenger Market The total international passenger market of Pakistan has reached a figure of 8.3 million

passengers in 2009-10. The current traffic from Pakistan to the countries with in the Indian

sub-continent is dependent on the stringent visa policies and the bi-lateral air-service

agreements between the member countries due to which it is suppressed to inadequate

frequencies and the flight operations are restricted only to the start-run airlines. PIA has the

monopoly on the Indian sub-continent routes from Pakistan and has an advantage of sixth

freedom rights connecting passengers from the Indian sub-continent to the Middle East via

Karachi. The regional passenger traffic from Pakistan is mostly dominated to the Middle

Eastern countries of Saudi Arabia and the oil rich Gulf states.

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International Passenger Traffic at all Airports in Pakistan

Year Terminal Growth Transit Growth Total Growth

2005-06 6,919,116 8.47% 235,962 -16.54% 7,155,078 7.41%

2006-07 7,136,630 3.14% 228,636 -3.10% 7,365,266 2.94%

2007-08 7,413,787 3.88% 168,695 -26.22% 7,582,482 2.95%

2008-09 7,786,518 5.03% 183,386 8.71% 7,969,904 5.11%

2009-10 8,107,111 4.12% 193,779 5.67% 8,300,890 4.15%

There are approximately 2.5 million Pakistanis working in Saudi Arabia and the

other Gulf states; hence, there is a strong traffic of overseas workers from Pakistan to these

Gulf countries. The price-sensitive overseas workers prefer PIA and the other Pakistani

private airlines, whereas, the Gulf based carriers are taking advantage of the sixth freedom

rights; they provide convenient connections from their hubs to Europe and the North

America, thus, they are able to capture premium long-haul passengers in addition to the

point-to-point regional traffic from Pakistan. The direct flights from Pakistan to the

European and the North American cities are available only by PIA. There is a sizeable

community of approximately 3.0 million Pakistanis living in Europe and the North America.

The Gulf based airlines have driven out the European airlines from the Pakistan market;

hence, traffic to Europe and the North America is dominated by PIA and the Gulf based

carriers. There are a significant number of business and leisure passengers traveling from 103

Pakistan to the United Arab Emirates (UAE). Dubai has become a major aviation, financial,

leisure, and trade hub out of Pakistan. The strong traffic of passengers from Pakistan to

Saudi Arabia consists of both the migrant workers and the pilgrim-passengers to the holy

cities of Makkah and Medina. The overseas workers dominate traffic from Pakistan to the

other Gulf cities, in addition to the transit passengers those flying onwards to the European

and the North American countries. The traffic from Pakistan to the Far-east Asia is small

and dominated by the Far-eastern carriers such as Thai and Cathay Pacific Airways. Below

chart is showing the number of Pakistanis residing in different parts of the world:

Overseas Pakistani in 2009

S. No. Name of Country No. of Overseas Pakistani

1 Saudi Arabia 1,200,000

2 United Kingdom 1,200,000

3 United States of America 900,000

4 United Arab Emirates 737,791

5 Canada 300,000

6 Oman 152,388

7 Kuwait 150,000

8 Qatar 83,000

9 Greece 80,000 104

10 Malaysia 61,446

11 South Africa 60,000

12 Bahrain 60,000

13 Spain 47,001

14 France 60,000

15 Italy 98,588

16 Netherlands 40,000

17 Denmark 31,000

18 Norway 30,161

19 Others 208,625

Total: 5,500,000

Source: Ministry of Foreign Affairs

3.20 Difference between the Domestic and the International Growth The Z-test for testing difference between the domestic and the international growth of

passenger market indicates that there is no significant difference between the two sample

means since the calculated z-value is -1.8816, which lies within the accepted region in 95

percent confidence level. The growth of both the domestic and the international market is

homogeneous under the identical market conditions. The detail calculation of Z test is listed

below and the working can be seen in the attached excel file under the name “Z-test

between domestic and international markets.” 105

Z-Test: Two Sample for Means

Domestic Growth International Growth

Mean 0.05523086 0.077365855

Known Variance 0.012397721 0.0095666

Observations 37 37

Hypothesized Mean Difference 0.022134995

Z -1.816985205

P(Z<=z) one-tail 0.034609689 z Critical one-tail 1.644853627

P(Z<=z) two-tail 0.069219379 z Critical two-tail 1.959963985

3.21 Market Drivers The drivers in aviation growth include economic factors such as high GDP growth, good

industry performance and corporate profitability, expansion in air services, high disposal

income and availability of low fares. Growth in air travel, measured in Revenue Passenger-

Kilometers (RPK), has historically outpaced economic growth, represented by GDP, by

approximately 1.5 to 2.0 percent. This leads us to conclude that about 60 to 80 percent of

air travel growth can be attributed to economic growth, which in turn is driven, in part, by

international trade. The remaining 20 to 40 percent of air travel growth results from the 106

stimulation provided by the value travelers place on the speed and convenience that only air travel can offer. For example, travelers value choice of arrival and departure times, routings, and non-stop flights, choice of carriers, service class, and fares. Liberalization is the primary driver enabling value creation in the global air transport network. Liberalization typically gives rise to a “bump” in traffic demand. Often, economic growth, induced directly and indirectly by improved air services, creates a virtuous circle that leads to further air transport growth, which in turn leads to added economic growth, and so on. The percentage of air transport growth that comes from economic development compared to the percentage that comes from the value of air travel services is an indicator of the maturity of an air travel market. Although individual regions may exhibit signs of slowing due to maturing markets, other regions continue to grow vigorously (The Boeing Company 2011,

P. 8). The chart below clearly shows the relationship between the growth in GDP and growth in total passenger market.

GDP vs. Passenger Growth

1972-73 1974-75 1976-77 1978-79 1980-81 1982-83 1984-85 1986-87 1988-89 1990-91 1992-93 1994-95 1996-97 1998-99 2000-01 2002-03 2004-05 2006-07 2008-09

Passenger Growth (%) GDP Growth (%) 107

3.22 The Market Drivers in Pakistan 3.23 Increase GDP Growth There is a sufficient evidence to suggest close relationship between airline activity and economic growth. It is said the growth in air transport drives economic progress and in turn benefit from it. Pakistan has significant potential for expansion, as the traveling public currently constitutes a very small proportion of the total Pakistan population. A large number of people use the railways and buses as their primary means of inter-city transportation. Rising incomes could change consumer preferences from traditional to modern modes of transportation. Pakistan’s population is estimated at 180.8 million with over 42 percent of the population is under the age of 15, over 54 percent of the population is between the age of 15-64 years and 4 percent are above 65 years of age. With about 24 percent of the population below poverty, per-capita-income increased to $2,500. The services sector earns a GDP share of 53 percent, agriculture 20.4 percent and industry 26.6 percent. The Labor Regulation index for Pakistan is 58, which are higher than China and

Sri Lanka. Real GDP growth for FY 2008-2009 was 3.0% largely aided by the service sectors such as telecommunication and finance (Economic Survey of Pakistan 2011 – 2012).

The economic growth in Pakistan is expected to increase with about 5-6 percent for the next few years and the historical average growth in total air transport passenger market in the last 38 years i.e. during the period 1972-2010 is 5.86 percent. It is evident that the organic growth in Pakistan’s passenger air transport market is expected to increase at the average growth rate of about 5-6%.

3.24 The Correlation between Growth in Total Traffic and GDP Growth 108

The correlation study shows that there is a positive correlation between the growth in total

traffic (GTT) and the growth in GDP. The result is appended below and the actual working

can be seen in the attached file under the name “Correlation between GDP vs. Total Traffic.”

Correlation between GTT and GDP

GTT GDP

GTT 1

GDP 0.2125513 1

Increasing Efficiency and Competition

The structure of the airline industry in Asia Pacific is changing as regulations are

liberalized and carriers find innovative ways to expand beyond national boundaries to serve

burgeoning demand. The impact of liberalization is particularly dramatic in the case of low-

cost airlines, which are stimulating air travel by lowering fares and opening new markets.

Pakistani domestic air-travel market is largely under-served, frequency starved and highly

priced. The major trunk-sectors such as Karachi-Islamabad-Karachi and Karachi-Lahore-

Karachi are frequency starved i.e. PIA is operating large capacity wide-body aircraft such

as Boeing 747s and 777s having 350 seats and above on these routes. Most of the

secondary and socio-economic routes are under served due to which the ticket prices are

very high and seats are mostly over booked. Majority of the traveling public belonging to 109

the middle and lower classes are forced to travel through the other cheaper means of transportation such as by train and road. The stimulation of market is highly expected by the entry of new and reliable airline in future. There is an emergence of a segment that travels by train mostly for long distances from Karachi to the other major cities such as the

Islamabad, the nation’s capital city and Lahore, the second largest city of the country. This market is primarily very price sensitive and can be shifted to air traveling if it is offered fares that are affordable and suitable to their needs (Unisys, 2006). This situation in

Pakistan can be compared to the domestic airline industry in India before the arrival of the private carriers. In 1990, aviation industry in India saw important changes with the liberalization of Indian aviation sector. India has witnessed a transformation with the entry of private full service and low cost carriers (L.C.C). In 2006, the private carriers accounted for 75 percent of domestic market share. Some factors that resulted in higher demand for air transportation in India includes growing middle class and their purchasing power, low fares offered by low cost carriers, growth of local tourism industry, increase in outbound travel from India. Due to such factors the initial period of growth of Indian domestic passenger segment went up to 50 percent per annum (Scribd, 2006). Thus, it is expected that Pakistan passenger market will show a growth in double-digit figures if there is an entry of new efficient and low-cost-carriers. The entry of new airlines will stimulate the Pakistan’s air traveling market by increasing the affordability of the masses through efficient allocation of resources combined with competent service deliveries in a healthy competitive market environment. 110

3.25 Pakistan Commercial Airline Statistics

YEAR 2008-2013 Airport Total Passengers (Numbers)

Dom Int'll Total 1 2 3 4

KARACHI JIAP 13,550,013 17,842,566 31,392,579 LAHORE AIIAP 6,448,817 12,552,093 19,000,910 ISLAMABAD BIAP 7,000,322 11,704,060 18,704,382 PESHAWAR BKIA 1,293,829 4,873,237 6,167,066 QUETTA 1,278,654 189,096 1,467,440 MULTAN 949,765 97,035 1,046,800 SIALKOT 195,057 696,657 891,714 FAISALABAD 540,675 128,491 669,166 SUKKUR 469,785 875 470,660 RAHIM YAR KHAN 245,434 26,270 271,704 TURBAT 138,664 74,205 212,869 SKARDU 206,915 0 206,915 GILGIT 172,027 0 172,027 MOHENJODARO 112,243 235 122,478 GWADER 74,509 24,599 99,108 CHITRAL 86,340 0 86,340 ZHOB 55,674 149 55,823 PANJGUR 55,793 0 55,793 D.I.KHAN 49,699 0 49,699 SAWAN 40,721 0 40,721 KADANWARI KHAN 39,621 0 39,621 DALBADIN 19,832 0 19,832 BHIT/DADU 8,577 0 8,577 SAIDU SHARIF 41 0 41

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YEAR 2008-2013 Airport Total Aircraft Movement (Numbers) Commercial Dom Int'll Total 1 2 3 4

KARACHI JIAP 122,007 117,476 239,438 LAHORE AIIAP 68,818 71,390 140,208 ISLAMABAD BIAP 71,158 59,817 130,975 PESHAWAR BKIA 14,560 35,712 50,272 MULTAN 16,265 1,844 18,109 QUETTA 13,775 2,000 15,775 SUKKUR 10,370 0 10,370 SIALKOT 1,797 8,276 10,073 FAISALABAD 6,655 1,246 7,901 TURBAT 4,787 2,214 7,001 RAHIM YAR KHAN 5,934 189 6,123 GILGIT 3,894 0 3,894 GWADER 2,852 878 3,730 MOHENJODARO 3,140 4 3,144 CHITRAL 3,134 0 3,134 SKARDU 2,476 0 2,476 ZHOB 1,884 0 1,884 D.I.KHAN 1,882 0 1,882 PANJGUR 1,654 0 1,654 SAWAN 1,499 0 1,499 KADANWARI KHAN 1,378 0 1,378 DALBADIN 669 54 723 BHIT/DADU 268 0 268

112

YEAR 2008-2013 Airport Passengers per A/C (Numbers)

Dom Int'll Total

KARACHI JIAP 111 152 131 LAHORE AIIAP 94 176 136 ISLAMABAD BIAP 98 196 143 PESHAWAR BKIA 89 136 123 QUETTA 93 95 93 MULTAN 58 53 58 SIALKOT 109 84 89 FAISALABAD 81 103 85 SUKKUR 45 0 45 RAHIM YAR KHAN 41 139 44 TURBAT 29 34 30 SKARDU 84 0 84 GILGIT 44 0 44 MOHENJODARO 36 59 39 GWADER 26 28 27 CHITRAL 28 0 28 ZHOB 30 0 30 PANJGUR 34 0 34 D.I.KHAN 26 0 26 SAWAN 27 0 27 KADANWARI KHAN 29 0 29 DALBADIN 30 0 27 BHIT/DADU 32 0 32

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CHAPTER 4: MANAGEMENT IN TRADITIONAL VS. LOW COST CARRIERS

Since the initiation of the commercial air travel, airlines strive to offer all sorts of amenities and comforts to their passengers in order to make their traveling experiences satisfactory and enjoyable. Prior to the liberalization of the aviation policies in the decades of the 1960s and the 1970s, air travel was limited only to the privileged and high-end customers; they were the only ones who could afford and spend a substantial amount of money. Those decades are still marked as the golden period for the airlines businesses as their profit margins were soaring and the aviation business was protected by the stringent regulatory environment safeguarding the interest of very few state-run and mega-airlines. Those were the times when fuel cost was not at all a major concern and airlines were enjoying strict regulatory protections. The entry barriers and protections under the regulatory regimes were preventing the entry of new competition in the market e.g. in the form of limited issuance of airlines operating licenses and the route-permits were dedicated only to the specific airlines based on the bilateral agreements. In the mid 1970s, liberalization of the industry and open sky policies initiated by the Government of the United States (U.S.) marked the beginning of the end of the golden period of the aviation business. Many mega-carriers particularly in the U.S such as Pan Am, TWA, Braniff, and Eastern airlines etc. could not sustain the tsunami of the causes and effects of the post liberalization period. However, the major carriers in the Western Europe such as Air France, British Airways and Lufthansa etc. were all supported by their respective governments and were given sufficient time to adjust and make necessary changes in their organizational systems to withstand the new and tough requirements of the open-sky and the free-competition environment. Regardless of the brutalities of the liberalization of the aviation policies that caused the debacle of many mega-carriers and the considerable shrinking of airlines' profit- margins; its larger benefits were felt overwhelmingly by all types and stratum of the consumers globally. The free-competition environment gave way to the entry of highly efficient new airlines that brought the fare down to the level that it made possible for the masses to avail and afford 114

air transportation with ease and convenience. A new breed of carriers came into existence which relied heavily on enticing customers solely on the basis of value-proposition. In order to cater to the needs of underprivileged market; Southwest Airlines in the U.S. initiated their operation in 1971 and became pioneer in offering services purely on low cost model. The airline focused on four principles: fly one type of aircraft to keep down engineering and maintenance overheads; turnaround aircraft as quickly as possible; and abandon loyalty or air miles schemes. Southwest Airlines is now the third largest airline in the world in terms of number of passengers carried and also one of the most profitable airlines in the world. Practices in traditional and low cost carriers differ in order to facilitate and serve different types of customers accordingly. Following are the key features of typical low cost model that revolutionized the practices and principles of the airlines management.

Single-type of Aircraft: The typical LCCs adopt the fleet plan that ensures single type of modern and fuel efficient aircraft in order to keep their aircraft operating cost as low as possible i.e. saving on aircraft engineering and maintenance expenses, aircraft fuel-burn, flight-crew conversion and recurrent training cost, and spare parts carrying cost etc. One large fleet of single type of aircraft enables the airlines to achieve operational economies- of-scale and also allow them to formulate lean organizational structure.

High Aircraft Utilization: Unlike the traditional airlines, a LCC's aircraft is kept flying as much as possible with high frequencies between the pair-cities. A fast turnaround is critical to ensure the time spent on the ground is minimal. LCC’s turnaround time on an average is 25 minutes; compared to 1 hour for a traditional carrier. On an average, LCC’s utilization per aircraft is 12 block hours per day; a traditional aircraft on an average does about 8 block hours per day.

No-Frills: In contrast to traditional airlines, the underlying business for a LCC is to get a person from point A to point B and everything else is considered to be luxury item, which can be acquired for a small fee like on extra carry-on and checked luggage, food & beverages, internet access etc. Unlike traditional airlines, LCCs provide unassigned seating 115

configuration, ticketless boarding, no refunds and no loyalty programs; such activities further reduce the overhead costs associated with traveling.

Secondary Airports: LCCs mostly serve secondary airports wherever possible and those airports are not necessarily to be the busiest and well-connected. Operating from the so called secondary airports is cheaper than the primary airports and they are also a lot less congested and the turnaround time for aircraft is a lot shorter. The benefits on saving of airport-related charges such as aircraft handling, landing, and parking fees etc. are transferred to the customers in the form of discounted fares on operating flights to and from the secondary airports.

Point-to-Point Network: Unlike traditional carriers, LCC shuns the hub-and-spoke system and embraces the simple point-to-point network. Almost all the LCCs' flights are short-haul (3-hour flight or less) with relatively high number of frequencies between the two cities. The point-to-point network enables them to generate significant savings due to less complex baggage handling system and also eliminates the complexity and high cost associated with handling of transit passengers.

Distribution System: Distribution costs are something that traditional carriers most often ignore and they mostly rely on travel agents and their own sales offices. LCCs keep their distribution channel as simple as possible and they rely on the internet (their own website) and call centers for the bulk of their sales; this means that the airlines do not pay any commission to the travel agents, which would otherwise have been reflected in high-fares. LCCs offer flexible pricing to their customers and offer discounts on early bookings and in this way they are able to successfully implement high yield based revenue-management- system.

Lean Organizational Structure: The typical LCC’s organogram depicts an organizational structure which is mostly lean, simple, less bureaucratic and without many layers of management. Unlike traditional carriers, LCCs prefer to outsource most of their support functions to the best service providers in order for them to concentrate and specialize on their core business activities. As a result, they have leaner organization structure with 116

highly productive, motivated, and multi-tasked people working for the organization. The highly charged and motivated environment in LCCs gives their employees feelings of high empowerment; they experience delegated responsibilities and authorities and have a high sense of personal-responsibilities. The employee-per-aircraft ratio of LCCs is always much lower than the traditional carriers. The multitasking of activities in LCCs enables their employees to deliver high productivity and produce savings for their organization and at the same time they are able to draw high salaries, perks, and other benefits than the employees working in the traditional carriers. The proper delegation of authority, high visibility of company’s leadership, clear articulation of the company’s mission, encouragement to creative and innovative ideas and smooth flow of communication are the hallmarks of some of the best performing LCCs that create highly motivated and stress-free environment. Hence, the typical organizational structure of a LCC provides an opportunity to have win- win solutions for both the organization and its employees in the form of high productivity and savings derived from the multitasking and lean organizational structure. The employees receive benefits in the form of lucrative perks and high take-home salaries which are usually attached with the fair and the equitable reward system based on employees’ productivity-ratios.

4.1 Management Challenges in the Airline Industry The mushrooming commercial airlines have placed more strain on their management to persistently seek profits, reduce cost, and increase revenues. Increasing demand for air transportation service has compelled airlines' management to take advantage of opportunities in different markets in addition to their domestic and regional captive markets. It is highly evident that many airlines throughout aviation history have been unable to remain in business, and in most cases, it is agreed that the demise of these airlines has been attributable to their inflexible, rigid and deficient management. The development of innovative and advance management practices have contributed to recent rapid infiltrations of information technologies in all spheres of airlines’ operations, more importantly, the airlines now have compelling need to induce operational efficiencies through high productivity and cost-cutting measures. The airline business is characterized as being one 117

of the most versatile and multifaceted involving various conflicting decisions that are all needed to be optimized at the same time. The followings are the environmental characteristics that inflict peculiar management challenges and are exclusive to the aviation business as per the information available on the website titled “Modeling Applications in the Airline Industry” by Ashgate :

4.2 Impact of Many Stakeholders in the Industry Airline management does not work independently of other players in the air transportation industry. The decisions of airline management are very much affected by other stakeholders in the industry that interact with the airline management and affect its decisions e.g. airports authorities, alliances with other airlines, direct and in-direct competitors, customers, governmental agencies, suppliers, labor unions etc. The airline’s management does not only have to comply with the regulations of its home country but also with the regulations of different countries where its serves and the airspace it crosses. Its management also considers and constantly verifies the diverse needs and preferences of its potential customers and strives to provide schedule convenience, competitive fares, punctuality, quality onboard and other customer services. Airline also participates in one or more alliances to expand its network coverage or share resources with other airlines. Its management is always dependent on suppliers to provide important items such as aircraft, fuel, spare parts, meals, employee uniforms, and so on. In many cases, LCCs tend to outsource support functions to vendors, such as aircraft maintenance, aircraft cleaning, ground handling, in-flight catering and sales distributions. Therefore, an airline has to keep healthy relationships with its suppliers to continue operating successfully. Airline’s management also has to deal and maintain cordial and close relationships with its labor- unions. Finally, airline’s management continuously keeps a sharp vigilance and monitors the decisions of their competitors that relate to providing capacity, fare levels, fare restrictions, and departure times. In many situations, the decisions of the competing airlines proceed in a leader-follower pattern, where one airline takes an action and the other competing airlines try to find the best way to respond to this action. 118

4.3 Interacting Layers of Decision Like many other businesses, airline-management faces three levels of interacting decisions which are categorized under operation, planning and strategic decisions.

Operation Decisions. They are those decisions that need to be verified or updated at least on an hourly or maximum on a daily basis. They include, for example, the response to unanticipated incidents such as adverse weather conditions, flights delays and cancellations, aircraft breakdown, and absence of crew or staff due to their illness and un-foreseen circumstances. Operation decisions also include watching and keeping track of revenues, bookings, and anticipated-demand-levels in the different markets, matching prices with competitors, and managing seat inventory on each flight on a daily basis.

Planning Decisions. Planning decisions have a few months’ prospects, and it is defined as the process of efficiently using airline’s available resources to maximize its revenue. The resources available to an airline include the facilities and the personnel that operate the business. The planning decisions include forecasting the demand between every origin- destination, flight schedule development, assignment of flights to the different aircraft fleet, aircraft routing across the different airports with its maintenance consideration, planning the line of flight for pilots and cabin crew, crew accommodations, flight-gate assignment, and catering. Planning decisions also include the number of staff required to operate flights, ramp agents, baggage handlers, and so on. Planning decisions are extremely inter- dependent on each other, which makes the planning process complex and require close coordination among key decision makers with flexible and free flow of information among the team members.

Strategic Decisions. Typically require a long lead time before implementation and require a considerable monetary investment. They are also expected to have a significant impact on the form of the airline in the long term. Examples of strategic decisions include growth and expansion, fleet sizing (aircraft orders), hub locations, merging with other airlines, alliance participation, and location of maintenance facilities. Strategic decisions are expected to 119

impact on planning decisions, which, in turn, affect the operational decisions. In addition, there is a continuous reverse feedback from the operations to the people at planning phase, which also, in turn, provide advices and suggestions to the strategic decision makers.

4.4 Macro Events The air transportation industry is highly sensitive to the effects and significant impacts of events related to economical, political, technological and social changes both in domestic and international regional environments. These events necessitate that airline’s management must keep a vigilant eye on their market environment and take necessary actions to alleviate the harmful effects. To survive in business, in many situations, airlines may be forced to respond quickly in the form of cutting schedules, reducing fares, laying- off employees, and cutting of salaries and benefits.

4.5 Many Groups to Contribute Another challenge faced by airline operations is the interaction process among several groups of workers who work together to operate the flights. The product that an airline generates is a passenger seat or a space for cargo and operating each flight requires significant cooperation among several groups of workers who all share the same objective of making the smooth and coordinated operation possible. There are about 12 different groups who work on each flight before its departure. These groups include pilots (cockpit crew), flight attendants (cabin crew), maintenance crew, ramp agents, baggage-handling crew, cargo agents, fueling agents, customer service agents, gate agents, catering agents, aircraft cleaning agents, and operations agents or dispatchers. While the personnel in these groups differ in their qualifications, nature of work, workloads, and salary; they all are equally important for the departure of the flight. It is important for airline management to adequately set the work plan for each group, facilitate their work, and alleviate any possible conflict between them in a team-spirited environment. The airline management must strive 120

to create an environment and culture that motivates all the employees to have a high sense of belongingness and achievement to the common organizational goals. 121

CHAPTER 5: SELECT ADEQUATE AIRCRAFT FOR LCC IN PAKISTAN

To manage LCC aviation model in Pakistan, the biggest factor on airlines’ cost of operation lies on the composition of their aircraft fleet. There are a few aircraft manufacturers in the market from which an airline can make the purchase based on the multiple factors which are to be taken into consideration in relation to the operational, maintenance, and financial management. Following are the five aircraft that has been chosen for our analysis on the basis of adaptability, flexibility and continuity:

5.1 The Airbus A320 Family The A320 is a narrow-body twin-engined aircraft that revolutionized the short and medium- range aircraft markets. The aircraft has a maximum capacity of 180 passengers with a range up to 3,050 nautical miles. The first delivery of the aircraft was made in 1988 and since then the A320 family has become the bestselling Airbus jetliners. The A320 was the first aircraft with the fly-by-wire flight control system. The stretched version known as A321 can carry up to 220 passengers in a single class lay-out and the shorter-fuselage versions

A319 and A318 can carry up to 156 and 132 passengers respectively. The A320 family is available with an option of two engine types i.e. CFM56 and V2500. (Airbus.com, 2014).

5.2 The Boeing 737(Next-Generation) Family The Boeing 737-700 program was launched on June 19, 1993. The B737-700 is altogether a new narrow-body aircraft that not only shares the same series name but also having similar shape of the earlier B737-Classics. The B737 NGs were designed with improved aerodynamics and engine performance to compete economically at par with the A320 jetliners. The NG’s are fitted with two CFM56-7 engines those are 7% more fuel-efficient 122

than the CFM56-3 engines fitted on the B737 Classics. The aircraft’s faster cruise and lower taker-off and approach speed helps in less fuel burn. The flight deck with LCD displays, strengthened fuselage and improvements in flight controls, wings, and landing gear systems are some of the distinct features of the B737 NGs. The B737-800 is a stretched version of B737-700 that superseded the B737-400 and is in direct competition with A320. The -800 entered service in 1998 with the launch customer Hapag-Lloyd (now

TUIfly) having a maximum capacity up to 189 passengers in a single-class layout.

(Boeing.com, 2014)

5.3 The Embraer E-Jets

The new wave of narrow-body jets introduced by the Brazilian aerospace conglomerate

Embraer S.A. has stimulated and enhanced growth in the regional markets worldwide. The

Embraer E-Jet family is a series of narrow-body medium-range twin-engine jetliners composed of two main families i.e. the E170s and the E190s. The E-Jet program have been a commercial success and well accepted amongst both mainline and regional airlines worldwide. The E170 and E175 make up the base model and E190 and E195 are the stretched variants with different engines and aerodynamic systems. The E-Jets were first launched in 1999 in Paris Air Show and entered production in 2002. The first E-170 was delivered in March 2004 to LOT Polish Airlines and the first commercial flight took place on March 17, 2004, from Warsaw to Vienna. The E-170/E-175 models have the capacity up to 80 passengers and a range up to 2,100 nautical miles. The E-190/195 models have a maximum capacity up to 114/122 passengers with a maximum range up to 2,300 nautical miles. The first flight of the E-190 took place on March 12, 2004 and the first delivery was 123

made to the launch-customer New York based low cost carrier JetBlue. The two families share nearly 89% commonality, with identical fuselage cross-sections and avionics. In

November 2011, Embraer announced E2-jet program with improved engines and with a new aluminum or carbon fiber based wings design. The first delivery of the E2 jet is expected in 2018.

5.4 The ATR 42 and 72 Turbo-propellers

The ATRis a French-Italian manufacturer based in Toulouse, France. The company currently produces two families of twin-turboprop, short-haul regional aircraft; the ATR

42-600 and the ATR 72-600. ATR launched the new -600 series on October 02, 2007 and the first aircraft commenced the maiden flight on March 4, 2010. The new ATR 42–600 and ATR 72–600 features technological enhancements to the previous -500 series in terms of efficiency, dispatch reliability, low fuel burn and operating cost. The aircraft is fitted with new PW127M engines, Glass Cockpit, and new avionics with CAT III capabilities.

The ATR 42 has the maximum capacity up to 42 passengers with a range up to 842 nautical miles at a maximum cruising speed up to 210 knots. The stretched version ATR 72-600 has the maximum capacity of 72 passengers with rangeup to 891 nautical miles at a maximum cruising speed up to 275 knots. (Atraircraft.com, 2014.

5.5 The Bombardier Q400 The Canadian based Bombardier Inc. currently produces twin-engined, medium range turboprop airliners the Q400. The aircraft has a maximum seating capacity up to 78 passengers with a range up to 1,567 nautical miles at a typical cruise speed up to 360 knots. 124

The aircraft has a definite lead in terms of both range and speed that makes the aircraft in advantageous position in competing against similar size jetliners. In November 2007,

Bombardier has announced development of a 90-seat stretch version of the Q400called the

Q400X project, targeting launch in 2019.

At times, a good fleet plan can be a combination of multiple fleet type or same / single fleet. All of this depends upon the objectives an airline wants to achieve. No matter what kind of fleet management is opted for, there are certain attributes which a good fleet plan should encompass. A good fleet plan should comprise of three attributes, which are

Adaptability, Flexibility and Continuity. These characteristics are discussed in detail as follows:

5.6 Adaptability Aircraft acquisition is mainly defined by the aircraft’s type and range, matching the supply and demand as a major factor, which will influence the fleet plan. The goal for acquiring the right-sized aircraft for the Pakistani LCC model must be based on the principle of market dynamics i.e. frequency-starved market with the need of low fare price. For this fleet plan, the airline has to acquire such an aircraft, which will fall in line with both short and long- term goals i.e. an aircraft of the size which should have both, “Speed and Range,” to cover domestic and regional markets. This entitles us for the selection of the aircraft; a jet or a turbo-prop, small or big, etc. After transiting through all the assessment and analysis stages, which are discussed in this plan later, it has come to the conclusion that Embraer E190 carries more weight age, as it can cater both domestic and regional markets because of its range, which is 2,300 nm. It has also got added advantage of number of seats having 125

maximum seating capacity up to 114 passengers on single class configuration. The A320s and B737s having seating capacity up to 180 passengers would be non-viable on most of domestic routes due to their large capacity. Hence, the airline will need to induct small capacity turbo-props in combination with A320|B737NG to provide network to smaller domestic cities and towns. As compared to narrow body aircraft i.e. A320 and B737NG, the

E190 has more versatility on all domestic thick and thin routes. The E190 will provide adaptability later at the time when the airline will focus on expanding operations to regional markets from all major cities of Pakistan. Hence, the single large fleet of E190s will cater both domestic and regional routes. The aircraft due to limited seating capacity will provide more frequencies on domestic primary and secondary routes and will also provide viable network on socio-economic routes.

5.7 Flexibility Flexibility is defined as the aircraft’s ability to meet the requirements of the market in the most efficient manner. This is the reason why airlines clearly need as much flexibility in their fleet as they can get. While making an assessment between the short listed aircraft, the

E190 has the sufficient versatility and the aircraft meets the goals of low cost operation.

Following points highlight the aircraft positives:

• Better interior floor space/volume makes the terms of seat layout, position of lavatories,

galleys and overhead stowage.

• The cabin allows the cost effective and rapid reconfiguration in order to address the

market changes. 126

While significantly having lower fuel burns, the result of the E190 helps in giving lower operating costs per seat in the regional aircraft market as compared to turbprops. The flexibility of E190 allows it to operate profitably in a wide range of markets - from full service regional feed to the ultra low fare markets.

5.8 Continuity Once the planners make a decision for a particular type of aircraft, then the logic forces the planners to stick with the technology standards as the fleet develops. This will reduce the maintenance burden and will also help in efficient parts ordering. For example, this continuity will help us for standard inventories on engine parts and auxiliary power units

(APUs). The E190 has the range to cover all the domestic and regional routes within and from Pakistan. In our case the E190 provides continuity i.e. the aircraft can reduce the expenses such as spare parts support on engineering, spare engines, cockpit, avionics, pilot and crew training, etc. Eventually, by having a long-term approach and following the continuity principle, the E190 will be able to reduce the overheads cost many folds.

5.9 Market Segmentation and Spill Motivations of Travel Demand. Passengers have different motivations while traveling through an airline. Some travel for leisure, some travel for visiting family and friends and some for business etc. In Pakistan, it generally segment the market in two classes-business travelers and economy; business travelers are those who prefer to be treated exclusively with first class service like the most important with welcome drinks, spacious seats and separated from the noisy cabin. The others are those who prefer economy class because of being price sensitive. They like to travel through aircraft but can avoid treated exclusively at 127

the cost of low price. A brief introduction of the cities is given below to understand the profile and demand of the travelers originating from the respective cities.

The two major sectors, which are focusing initially, are KHI – LHE & KHI – ISB which comprise of the 70% of the total domestic payload. The distance between KHI – LHE

& KHI – ISB is 1700 km and 1800 km respectively.

Karachi is the largest city, main seaport and the main financial centre of Pakistan, and the capital of the province of Sindh. With an estimated population of 17 million, it is

Pakistan's premier center of banking, industry, and trade and is home to Pakistan's largest corporations, including those involved in textiles, shipping, automotive industry, entertainment, the arts, fashion, advertising, publishing, software development and medical research. The city is a major hub of higher education in South Asia and the wider Islamic world.

Lahore is the capital of the Pakistaniprovince of Punjab and the second largest city in Pakistan, after Karachi. The estimated population is approximately 10 million. In 2010 it was ranked by The Guardian as the 2nd Best Tourist Destination in Pakistan. Islamabad is the capital of Pakistan and the tenth largest city in the country. The Rawalpindi/Islamabad

Metropolitan Area is the third largest in Pakistan with a population of over 4.5 million inhabitants. The segmentation of travelers / business profile in the above mentioned cities can mainly be divided into visiting family & relatives (VFR), businessmen, armed forces personnel, diplomats, government officials, students, and financiers etc.

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5.10 Variation in Travel Demand over Time

Travel demand varies with time. Business–oriented routes’ flight time mainly have demand peaks in the morning and evening. Routes that fall in this category are KHI – LHE, KHI –

ISB and ISB – LHE. With large aircraft, it can have problem with the load availability. An aircraft scheduled for peak timings to a destination has to return back with lower load factor, which in turn will eventually affect the revenue margin. Thus, E190 will be justified in such a scenario, as it is easy to occupy less number of seats as compared to narrow body jets. The peak demand time can easily be met by increasing the frequencies on primary routes.

5.11 Modeling Spill for Fleet Plan Pakistan’s aviation market is not fully served. There is insufficient capacity and the need for a new entrant is on demand. There are a number of occasions when all the flights of the current operators in the most demanding sectors are full, especially in the peak hours

(morning and evening) and peak seasons (like summer or winter holidays). The average load factor, therefore, can be considered as 90%. This high demand and low supply by the aviation players provides a spill. This situation offers an opportunity for a new airline to be absorbed easily in the existing pool of airlines by taking the spill-over passengers. To cater to such a spill-over, the choice of a regional jet will be the right assessment, as the motive underneath is to gradually get the grip on viable business and then penetrate.

5.12 Modeling on a Single Sector In principle, modeling on a single sector in isolation is not recommended. Even the micro economic analysis does not relate results as positive for modeling on single sector. But, 129

there are certain exceptions like the typical example of single sector modeling in Pakistan is on these 3 sectors:

1. ISB – GIL

2. ISB – KDU

3. ISB – CTL

Single- sector modeling on these sectors happens because of the following reasons:

1. Flight in narrow valleys which is mostly “S-shaped”

2. Diversions due to cloud built-up blocks the valley

3. Accumulated cancellation of flights due to weather

4. Two flights with narrow timings creates problem of parking at the runway

An aircraft must be selected keeping in view all sectors and future sectors that the airline intends to operate. By reviewing all the primary, secondary, and socio-economic sectors, the E190 is the most suitable aircraft to be operated as one large fleet on all local stations with in the country. The capacity of aircraft is suitable to be operated on all domestic routes providing much needed frequencies on primary and secondary routes and at the same type providing a reliable and viable connection to all tertiary and socio-economic routes. 130

5.13 Modeling on a network

We took a base case of three E190 aircraft on the following routes to make a viable network for three years:

1st Year 2nd Year 3rd Year

DOMESTIC:

1 KHI - ISB

2 ISB - KHI

3 KHI - LHE DOMESTIC: 4 LHE - KHI 1 KHI - ISB 5 KHI - LYP 2 ISB - KHI DOMESTIC: 6 LYP - KHI 3 KHI - LHE 1 KHI - ISB 7 KHI -PEW 4 LHE - KHI 2 ISB - KHI 8 PEW - KHI 5 KHI - LYP 3 KHI - LHE 9 KHI - MUX 6 LYP - KHI 4 LHE - KHI 10 MUX - KHI 7 KHI -PEW 5 KHI - LYP 11 KHI - UET 8 PEW - KHI 6 LYP - KHI 12 UET - KHI 9 KHI - MUX 7 KHI -PEW 13 KHI - SKZ 10 MUX - KHI 8 PEW - KHI 14 SKZ - KHI

11 KHI - UET 9 KHI - MUX 15 ISB - LHE

12 UET - KHI 10 MUX - KHI 16 LHE - ISB 13 KHI - SKZ 11 KHI - UET Total Domestic 14 SKZ - KHI 12 UET - KHI INTERNATIONAL: 15 ISB - LHE 13 KHI - SKZ 1 KHI - DXB 16 LHE - ISB 14 SKZ - KHI 2 DXB - KHI Total Domestic 15 ISB - LHE 3 KHI - MCT INTERNATIONAL: 131

As the distances in the domestic routes are in between the ranges of 191 nm to 610 nm, network modeling with E190 aircraft will be suitable. This will help airlines to cater maximum sectors without the fear of financial losses, as filling in the capacity of a small aircraft, of 114 seats, is comparatively reachable, as compared to a jet of 180 seats. This acquirement of seats can easily be obtained by the spillover of the prevailing market. Even, if it considers the 70% load factor, the aircraft can easily reach the break-even. The E190 which is able to cover the range of 2,300 nm, the airline will not have to induct a new aircraft with a higher range, as it is able to cater the regional market, while operating international sectors from Pakistan.

The network modeling based 0n E190 is illustrated in the diagram below:

REGION PNW MUX

LYP DXB PEW

AUX HUB ISB KHI

MCT LHE

UET

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CHAPTER 6: ENVELOPING OF ERP IN LCC BUSINESS The LCC’s operational management is highly structured set-up that comprises of its core business functions i.e. primary business of an airline operation and the support functions that facilitate and assist its core operation. Fundamental requirements of the LCC’s business are clearly depicted in the value and supply chain analysis that describes the activities within and around an organization. Most of the LCCs now excessively rely on information technology (IT) based ERP systems to sustain both of their basic and support functions. According to Integrating Web Solutions (2010), ERP is an integrated computer- based system used to manage internal and external resources, including tangible assets, financial resources, materials, and human resources. It facilitates the flow of information between all business functions within and outside the organization. ERP systems are built on a centralized database and normally utilizing a common computing platform. The systems consolidate all business operations into a uniform and enterprise-wide system environment.

The extensive use of ERP applications and systems in airline-industry especially in

LCCs has become a major source of their differentiating factors in terms of achieving efficiency purely on the grounds of low cost operations. The system covers comprehensively and integrates all the LCCs’ core business activities as well as their support functions such as accounting and finance, human resource management, staff and crew training and recruitment, ground-handling, reservation system, in-flight catering, engineering and maintenance, etc. Most of the major LCCs are outsourcing their reservation system to the independent global distribution systems (GDS); they are the 133

reservation companies that specialize on providing reservation systems such as Amadeus,

Abacus, Galileo, SABRE etc. They have now adopted the IT based highly sophisticated flexible revenue and yield management systems that allow them to charge adjustable and flexible fares. The flight operation activities such as passenger services and facilitations, gate operations, baggage handling, ticketing, crew management and scheduling etc. are all linked and synchronized to airline’s ERP systems through system-collaborators provided by the collaborating companies such as SociétéInternationale de

TélécommunicationsAéronautiques (SITA). Applications provided by SITA which are used by numerous airlines throughout the world are in compliance with government security mandates. The company is a leader and the first organization to be certified for departure control systems (DCS). It provides efficient data processing which minimizes the potential fines associated with International Air Transport Association (IATA). The system collaborators also provide online self-services to the widely dispersed and traveling airlines’ staff communities. This includes managing their relationship with the airline, checking their expenses and schedules, keeping them abreast of developments in other parts of the organization and having clear visibility of their current training status and certifications.

Employee portals support all these activities and making them available instantly and securely to all the concerned employees. The increasing dependence on IT based systems has put forward the compelling obligations for the LCCs to undertake computer and data security measures and precautions and also excessively require information pertaining to security awareness and education of their employees. The ERP based systems provide full security coverage to help airlines secure their highly sensitive information and data. The 134

main issues LCCs facing now are the intense pressure to cut costs and fight back against slowing growth in the aviation market. The shape of their route-networks, the structure of their aircraft fleet and the administration and management of labor and staff have all been identified as key factors, if gains are to be made in operating efficiency and effectiveness

(Oracle 2012). There are number of other IT based priorities that LCCs are considering in order to sustain in highly competitive aviation business and they are the following:

• Targeting of specific services at business and leisure travelers.

• Centralizing of key operations internally and within airline-alliances.

• Integration and consolidation of IT systems.

• Rationalization and globalization of procurement activities.

• Leveraging of the reservation system using open systems to achieve lower cost,

access to greater information on customers, and more flexibility to adjust business

models.

• Improvement in the customer experiences.

A common integrated IT infrastructure is core to all the issues discussed and ERP applications are great to help LCCs to address the above priorities and streamline their operations and processes. The ERP applications help the companies in reducing their operating cost by being able to control inventory costs, lower production and marketing costs, and help lower help-desk supports. ERP system is also designed to support LCCs in their infrastructure management and strategic planning processes. It improves the 135

coordination of the company's processes into one streamlined process where everything can be accessed through one enterprise-wide information network i.e. it encourages the establishment of central data warehouses and allows employees to access the information in real-time (Oracle 2012). This helps airlines in research and development, decision makings, and managerial control and also assists in tracking actual cost of the daily activities and can perform activity based costing functions.

6.1 Single Type of Aircraft Operation The typical LCCs adopt the fleet plan that ensures single type of modern and fuel efficient aircraft in order to keep their aircraft operating cost as low as possible i.e. saving on aircraft engineering and maintenance expenses, aircraft fuel-burn, flight-crew conversion and recurrent training cost, and spare parts carrying cost etc. One large fleet of single type of aircraft enables the airlines to achieve operational economies-of-scale and also allow them to formulate lean organizational structure. Unlike the traditional airlines, a LCC's aircraft is kept flying as much as possible with high frequencies between the pair-cities. A fast turnaround is critical to ensure the time spent on the ground is minimal. LCC’s turnaround time on an average is 25 minutes; compared to 1 hour for a traditional carrier. On an average, LCC’s utilization per aircraft is 12 block hours per day; a traditional aircraft on an average does about 8 block hours per day.

In contrast to traditional airlines, the underlying business for a LCC is to get a person from point A to point B and everything else is considered to be luxury item, which can be acquired for a small fee like on extra carry-on and checked luggage, food & beverages, internet access etc. Unlike traditional airlines, LCCs provide unassigned seating 136

configuration, ticket less boarding, no refunds and no loyalty programs; such activities further reduce the overhead costs associated with traveling.

LCCs mostly serve secondary airports wherever possible and those airports are not necessarily to be the busiest and well-connected. Operating from the so called secondary airports is cheaper than the primary airports and they are also a lot less congested and the turnaround time for aircraft is a lot shorter. The benefits on saving of airport-related charges such as aircraft handling, landing, and parking fees etc. are transferred to the customers in the form of discounted fares on operating flights to and from the secondary airports. About point to point network, LCC shuns the hub-and-spoke system and embraces the simple point-to-point network. Almost all the LCCs' flights are short-haul (3-hour flight or less) with relatively high number of frequencies between the two cities. The point-to- point network enables them to generate significant savings due to less complex baggage handling system and also eliminates the complexity and high cost associated with handling of transit passengers. LCC sales distribution system concerned, the costs of distribution are something that traditional carriers most often ignore and they mostly rely on travel agents and their own sales offices. LCCs keep their distribution channel as simple as possible and they rely on the internet and call centers (their own or outsourced) for the bulk of their sales; this means that the airlines do not pay any commission to the travel agents, which would otherwise have been reflected in high-fares. LCCs offer flexible pricing to their customers and offer discounts on early bookings and in this way they are able to successfully implement high yield based revenue-management-system. The typical LCC’s organogram depicts an organizational structure which is mostly lean, simple, less 137

bureaucratic and without many layers of management. Unlike traditional carriers, LCCs prefer to outsource most of their support functions to the best service providers in order for them to concentrate and specialize on their core business activities. As a result, they have leaner organization structure with highly productive, motivated, and multi-tasked people working for the organization. 138

CHAPTER 7: RECOMMENDATIONSFOR FUNCTIONING OF ERP IN LCC BUSINESS DIVISIONS

The architecture of ERP in LCC model is based on the process oriented structure that facilitates all the organizational functions. In this architecture, organizations and departments can be structured in various different ways to reflect the organizational objectives. The organizational structure defines how the firm will operate and perform. The process oriented ERP structure helps in transforming LCC business into a process-centric organization. The following division-wise study of the operation and functioning of ERP in

LCC business is based on the analysis of Oracle systems. Oracle Corporation is a multinational computer technology corporation that specializes in developing and marketing IT, enterprise and database management systems. The company also builds tools for ERP, Customer Relationship Management (CRM) and Supply Chain Management

(SCM) software etc. 139

7.1 Ground Handling and Operations Management The core activities associated with LCCs are the operation of aircraft for the purpose of transporting passengers and cargo and as a general rule; LCCs outsource most of their ground handling operations and services to the best service providers (Doganis 2010).

Examples of these ground services include air traffic control, passenger screening for security purposes, baggage¥cargo handling, fueling, catering, cleaning, waste management, and mechanical maintenance services. In cold weather stations, ground services may also include de-icing and anti-icing of aircraft, taxiway, and runway surfaces. LCCs typically require ground personnel to manage passenger and baggage check-in activities. They are 140

few specialized applications that aid the ground handling activities and are linked to the airlines’ ERP system through system-collaborators. Applications provided by SITA which are used by numerous airlines throughout the world are in compliance with government security mandates. SITA is a leader in delivering industry standards and it was the first organization to be certified for departure control system (DCS). The following are the advantageous features of the DCS:

7.2 Automated Check-in The system provides IATA standard 2D barcode that enables fast and easy reading via multiple channels off/on airport check-in and departure areas. It also enables convenient printing of boarding passes, thus, reducing ticket printing cost. Efficient Kiosk applications for sales and passenger processing using dedicated hardware have made passenger travel simpler and hassle free. These kiosks have multi-lingual capabilities and graphic seat selection/ change for customer ease. Such kiosks have increased passenger processing efficiency, reduced waiting time and lowered operational cost. Other self service check-in such as web check-in is also very proficient and the passengers can now simply check-in in the comfort of their homes; there is no transaction time and the boarding pass is also very secured (bar-coded).

7.3 Accurate Weight and Balance Accurate weight and balance allocation is essential for reducing fuel cost and in order to have a safe flight. Specialized applications help reduce fuel cost through more efficient flight operation by ensuring smooth and efficient weight and balance processing and also enables flexible “what if” planning. 141

7.4 Automated Modification Automated re-price and re-issue helps passengers take the modification process in their own-hands, thus, eliminating customer service cost. With the use of this application, customers can now re-issue tickets on their own.

7.5 Automated Fee Collection With this system the airlines can now easily sell supplementary products/services due to automated fee collection systems. Electronic fee collection facilitates airlines in generating extra revenue and caters to the passengers’ needs and desires.

7.6 Human Resource Management The most important ingredient in any business enterprise is the organization of its man- power resources. Labor represents the largest single cost that an airline controls directly and most of the LCCs employ a blend of skilled, semi-skilled and unskilled labor for their productive business functions. While some HR functions within an airline must be managed locally, the fact that staff operate in widely dispersed locations, integrated HR systems can provide a global view and control of many functions. It allows airlines to adopt structured approaches to attracting, retaining, developing and using the critical skills and knowledge needed to improve the capability of their businesses to meet new challenges.

Centralization of core HR functions and a strategy to empower staff through ERP based self-service system can work together to provide significant cost savings and economies-of- scale (Oracle 2012). The Oracle based HR system (Oracle HR) provides a foundation of workforce information leveraged across the E-business Suite, to support processes such as professional services automation, sales incentive management, asset allocation, financial 142

management, and approvals. Oracle Human Resources includes local extensions for more than 30 countries containing regulatory and cultural functionality for each country. The

Oracle HR has the following critical features that help the LCCs managing their diverse human resources in dispersed locations:

7.7 Align Workforce to Corporate Objectives Oracle HR enables LCCs to align their workforce to business objectives and assists them to systematically grow and reward talent as strategic resources. Oracle provides this via collaborative and internet-enabled capabilities. The system helps in setting up of organizational structure by implementing job positions, grades and steps to create and manage evolving business structures through job pathing and structured learning. This helps in managing flexible working arrangements using permanent, short-contract and contingent workers to staff new projects quickly and at the appropriate level of cost and skill. The system use automation to match suitability and identify required skills and qualifications and help fit and deploy people to jobs or projects. The system also helps in measuring and monitoring performance to personal goals and corporate objectives.

Through proper measuring and monitoring of employees’ performances, it helps in motivating the workforce and influence performance through targeted total compensation, including adjustments to performance-based pays, bonuses, and other non-cash benefits.

7.8 Increasing Workforce Productivity Oracle HR allows airlines to automate all aspects of workforce management to achieve drastic productivity gains and cost savings throughout their workforce, while ensuring security of confidential data and information. It enables companies to automate their basic 143

policy rules, ranging from eligibility for compensation to rules about placing people into funded positions and security access. The HR system is seamlessly integrated with the rest of the E-Business Suites, including financials for payroll and projects for project-based staffing and deployment. It ensures timely transactions with no errors and eliminates many unnecessary process steps.

7.9 Use Total Compensation to Attract and Retain People Oracle HR delivers a highly flexible, configurable approach to designing compensation and benefits programs to meet any degree of complexity. The system helps in setting up of a criteria-based pay system and assists in creating and managing leave plans for different employee-categories that are finely tuned to the needs of the organization. Oracle HR offers a complete framework for developing the skills and knowledge of the workforce, and a systematic method for assessing and rewarding their use in meeting business objectives. As a result, the airlines can now supervise, analyze and perform transactions and approvals on a workforce disperse across the world within a global security environment. The system also helps in conducting competency gap-analysis for recruiting, employee development and planning of learning for the employees.

7.10 Control Workforce Costs and Overheads The oracle HR helps in budgeting different components of the cost of each post and track expenditure against committed activities. The automated approach in the system helps in controlling spending means to require approvals prior to the creation of new posts. It also controls the hiring of new people to existing posts outside budget limits according to the 144

airlines’ policies. On a global basis, it helps airlines monitor utilization, absence headcounts and other HR related costs and overheads.

7.11 Maintenance and Support The scale of an airline's maintenance, repair, and overhaul (MRO) operations requires significant planning around moving assets, inventory, machine shops, and manpower, often on a round-the-clock schedule. The level of back-and-forth communication that needs to take place up and down the ladder is enormous at the best of times. The airlines’ business environments are in increasing pressure to link information systems with in cross-company businesses in order to develop efficiency in their MRO functions. In particular, LCCs tend to minimize aircraft-types in their fleet to maximize efficiencies in their purchasing-power, maintenance and crew utilization. Newer aircraft now are not only fuel-efficient but they have lower fixed schedule component and a greater diagnosed or measured performance element. The first step in generating computer-base system for airline MRO facilities is mapping the entire MRO supply-chain. This activity requires close integration between providers and consumers of goods and services and a high level of e-commerce capability.

The e-commerce exchange concentrates on the relationship between repair vendors and customers i.e. the transactions from airline operator to the airline base station and from the airline base station to the MRO provider. The main difference between the supplier and vendor functionality in the MRO exchange is that the airline controls the business rules whilst the vendor controls the generation of work orders within the ERP system. In addition to purchasing transaction, there is also a need to manage technical records between organizations as called for by the airlines, aircraft manufacturers and regulatory authorities. 145

Due to such complexities associated with the nature of MRO related transactions, there is thus ample scope for further work to model and prototype systems for the automation of commercial transactions between the various members of the whole MRO supply-chain

(MacDonnel and Clegg 2007). The third step (Inventory optimization) is more specific and detailed applying a mathematical solution to a well defined and large scale resource planning problem. The objective of inventory planning function is to achieve large reductions and optimization in airlines’ required inventory levels i.e. the most valuable parts should run-out first, giving the greatest savings and causing the smallest number of items to fall short; thus, making easier for airlines to maintain optimum levels of inventory.

The ERP system and automation of the process is helpful in standardizing procedures and reducing errors and uncertainties in their inter-organizational transactions.

Besides many challenges depending on the nature and diversity in organizational culture of different airlines, the benefits of MRO automation are clearly evident and have become pre- amble for the present major global carriers’ MRO related functions and activities. Now, the aircraft manufactures such as Boeing are able to give comprehensive e-commerce based

Aircraft Health Management (AHM) solutions to their airline-customers and modern aircraft are fitted with automated AHM kits that keep track and record of all aircraft service and parts related activities. AHM collects data in real time from the flying fleet and makes it available to ground operations. Teams across the MRO operations access and process information with Boeing hosted tools and this program is linked directly and simultaneously with airlines’ ERP systems or main E-business suite. 146

7.12 Procurement and Inventory Management Proper procurement and inventory management is essential to maintain lower costs associated with buying and stocking activities. Sourcing applications are the enterprise applications that improve the effectiveness and efficiency of strategic sourcing. Online collaboration and negotiation makes it easy for participants from multiple organizations to exchange information, conduct bid and auction processes, and create and implement agreements. The application also dramatically reduces sourcing cycle time and creates a complete audit trail of suppliers’ procurement professionals can use templates and flexible document styles to quickly create sourcing events. Sourcing events may also be created by directly consolidating demand from Oracle Purchasing. Buyers can even use one-click renegotiation to instantly clone expiring agreements into new sourcing events. Oracle

Sourcing slashes the manual effort required to execute each sourcing event more quickly.

Oracle Sourcing consolidates requirements, amendments, and responses in one central location, so suppliers can bid more quickly. Online tools alert buyers to events that need additional supplier actions. Online competition saves time by motivating suppliers to improve terms without time-consuming back and forth negotiation. Online collaboration makes it easy for technical, business, and commercial terms experts to lend their expertise to the sourcing process. Oracle Sourcing automates combining different scores from team members and brings additional transparency to the team scoring process. This ensures both better sourcing processes and broader buy-in to award decisions. Oracle Procurement &

Spend Analytics provides hundreds of powerful metrics, alerts, and reports, delivered though intelligence dashboards, or mobile devices, that provide near real-time insight into 147

the entire procurement operation, enabling users across all roles to make better decisions and take appropriate actions. Procurement professionals can monitor specific metrics and reports, enabling them to compare the performance of a particular supplier to that of others or performance benchmarks, aggregate disparate orders to a few strategic suppliers, and reign in rogue spending across multiple systems.

7.13 Revenue and Sales Management Maximizing yield remains a touchstone and increasingly complex issue for the LCCs.

Typically airlines do not have the ready analysis to know which customers are the most profitable since their frequent-flyer programs do not provide maximum pay-back or contribute fully to the yield strategy (Oracle 2012). Advanced pricing applications consistently execute complex pricing for maximum profit and these applications are components of the customer relationship management (CRM) solutions, the integrated suites that drive profitable customer and supplier interactions. CRM is the management philosophy according to which a company’s goals can be achieved through identification and satisfaction of the customers’ needs. Successful and seamless integration of CRM requires proper incorporation of people, process and technology (Goldenberg 2002).

The Oracle Advanced Pricing helps in solving and implementing even the most complex and volatile pricing strategies. It enables companies to quickly define and implement sophisticated pricing strategies to meet changing business requirements. The application provides a simple process for creating pricing strategies and defining and categorizing pricing rules. It allows airlines to easily add controls such as timeframes, quantities, or security. The system supports global as well as country-specific pricing. Price 148

list currency conversion translates prices from a base currency using flexible criteria that can be set differently for each target currency. Advanced pricing also supports global discounts that can be made available regardless of the currency being used. With Oracle

Advanced Pricing’s promotional limit functionality, airlines can cut off promotional spending exactly when it reaches predetermined limits. Oracle Advanced Pricing’s graphical user interface enables business people to enter prices, create formulas, and configure discounts and promotions. Airlines can also monitor promotional limits, view transaction details, and track available balances. The system helps airlines to react quickly to competition, promotions, and changing business conditions.

Accounts and Financial Management

Effective accounting and financial management are essential for successful operation of low cost carriers as the whole concept of LCC is based on efficient cost savings.

Centralized financial solution provided in ERP is an unprecedented, centralized architecture that standardizes accounting, inter-company processing and transactional taxes across the entire organization (Oracle 2012). Oracle Subledger Accounting is a powerful rules-based accounting solution that provides consistent accounting treatment to transactions created across Oracle EBusiness Suite applications. It encompasses a powerful global accounting solution, a robust inter-company solution, and a global tax solution – all built to work together on the E-Business Suite’s unified information architecture. It enables compliance with multiple legislative, industry or geographic requirements concurrently for a single entity. As a common data model and repository for all subsystem accounting activities, 149

Oracle Subledger Accounting increases transparency and enables full audit abilities of transactions and accounting information. A universal posting engine streamlines the close process, so that all sub-ledger modules can transfer data to the general ledger using a standard, auditable, and reviewable process. Payables and receivables invoices between inter-company trading partners are created accordingly where local statutory compliance requires physical invoices. Inter-company accounting is automatically generated centrally to ensure inter-company transactions are never out-of-balance. Oracle E-Business Tax centralizes the setup and maintenance of tax rules to ensure consistency in rule application and to eliminate redundant setup across legal entities. Configurable business rules enable the implementation of enterprise-wide tax content. The entire application means that the company can comply with local regulations and sophisticated tax regimes without the need for workarounds or customizations. Since Oracle Financials Centralized Solution Set provides a common data model and repository for subsystem accounting, intercompany processing, and taxation, it affords greater visibility into information across the entire e-

Business Suite. It provides reports and inquiries to analyze accounting data across sub- ledger applications and dramatically improves sub-ledger to general ledger reconciliation. It also enables managers to monitor intercompany activities throughout the enterprises and proactively resolves disputes. 150

CHAPTER 8: EVALUATION

8.1 Cost Impact Evaluation by Unified Aircraft Policy We evaluate cost impact by multiple case of aircraft configuration as Fig 2. While taking the final decision for the induction of aircraft in the airlines fleet, it should always be taken into account that the high asset value and costs of introducing a new fleet type into an airline are disincentives. Re-training of flight crew, maintenance crew, spare inventories, even customized ground equipment are all complex issues that cannot be changed overnight.

There are eight items which are significantly related to aircraft cost of operations:

✓ Fuel Consumption

✓ Booking Sheet Rate

✓ Passenger Handling Cost

✓ Inventory Cost

✓ Human Cost of Maintenance

✓ Inventory Stock Storage Cost

✓ Airport Utilization Time Cost

✓ Crew Training Cost

The hypothesis of this evaluation is a) three propeller aircraft with seating capacity up to 70 passengers, b) One wide body aircraft with seating capacity up to 400 passenger seats,

C) Combination of both aircraft i.e. two narrow bodies and one wide body, and D) Three unified aircraft with seating capacity up to 114 passengers. The result of this evaluation, three propeller aircraft policy is 63.5, one wide body aircraft is 63 and two narrow bodies and one wide body is 46. Actually, wide cabin aircraft policy is better than combination of 151

aircraft policy because of low fuel burn per seat and that is why most of the traditional carriers opt for wide body aircraft on primary and secondary routes but to cater smaller socio-economic routes, the airlines induct turbo-props in their fleet and hence, they build network based on diverse aircraft in their fleet. The proposed unified aircraft policy with adequate size of aircraft model secured 89 marks. The policy has the potential of cost saving up to 8.7% due to savings in crew training cost, inventory parts cost, fuel, aircraft maintenance, and passenger management cost.

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8.2 Evaluation of the Adequate Aircraft Model in Pakistan We evaluate the number of flight times per day by the number of passenger. The selection ratio by accuracy was calculated by the following formula:

 k    (F −1)  S = F1−    F    

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S= The number of selected flight time

F = The number of available flight time per day

K= the number of passengers

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The simulation result shows if ten passengers book their flight, then selected flight time is

6.5. This mean, 3.5 time of flights were not selected by passengers. Thus, if wide body operation policy is adopted, then the airline will be able to offer limited flights a day. On the other hand if unified aircraft policy is adopted then airlines can offer up to ten flights a day; hence, giving passengers more choice to select their preferred time slots. Therefore, unified aircraft policy will be a suitable choice for a LCC aviation business in Pakistan. 155

8.3 Evaluation of ERP

The Enterprise Resource Planning (ERP) is business management software typically a suite of integrated applications that a company can use to collect, store, manage and interpret data from many business activities, including:

A) Product planning, cost, b) Manufacturing or service delivery, c) Marketing and sales, d)

Inventory management, e) Shipping and payment.

ERP provides an integrated view of core business processes, often in real-time, using common databases maintained by a database management system. ERP systems track business resources cash, raw materials, production capacity and the status of business commitments: orders, purchase orders, and payroll. The applications that make up the system share data across the various departments (manufacturing, purchasing, sales, accounting, etc.) that provide the data. ERP facilitates information flow between all business functions, and manages connections to outside stakeholders. ERP helps in achieving improvements in operational efficiency and cost reduction, thus, enabling an overall improvement in operating performance. For the Evaluation of ERP for the LCC model in Pakistan, the following airlines’ functions are considered which were shown in chapter 3.

1) Accounts and Financial Management

2) Inventory Management

3) Ground Handling and Operations Management 156

4) Human Resource Management

5) Maintenance and Support

6) Procurement and Inventory Management

7) Revenue and Sales Management

From 3) to 7) above are the particular items specific for aviation management. The list shows original ERP and modified ERP for aviation in Pakistan.

The Traditional Management styles without an ERP system lack efficiencies and effectiveness due to lack of information flow that has become vital in today’s high pace business environment. We have compared four models i.e. Traditional Management,

Standard ERP, ERP plus Traditional Management and our proposal of ERP for LCC aviation model in Pakistan. 157

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The result of values of function shows total score of Traditional Management is 38,

Standard ERP is 27, and ERP plus Traditional Management is 56, whereas, our proposed

Aviation ERP for LCC model in Pakistan scored full marks. The reason for high marks comes from unified aircraft policy which brings simple unified aircraft maintenance, lean organizational structure, less inventory stock operation, simple organizational procedures, reduced operation tasks and low cost of operations.

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CHAPTER 9: CONCLUSION

This research shows the background of global aviation and Pakistan aviation environment in details at chapter 1, 2, and 3. The paper proposes ERP for LCC aviation management in

Pakistan. To begin with, we discussed the fundamentals of LCC Business Model and elaborated on

ERP applications in aviation management. To manage cost effective domestic and regional aviation operation in Pakistan, the right selection of aircraft is significantly important. We proposed unified aircraft policy for the effective and viable domestic and regional operation in Pakistan. For this purpose, we proposed unified fleet of E190 family aircraft. Later, we selected items for ERP specific for LCC operation in Pakistan. For the ERP considerations we compared four business models, i.e. Traditional Management without an ERP systems installed, Standard ERP systems,

Standard ERP plus Traditional Management, and Proposed ERP for LCC operation in Pakistan. The result of evaluation for LCC aviation shows our proposed ERP scored highest marks compared to other models. The main reason for highest marks comes from unified aircraft policy which brings simple unified aircraft maintenance, lean organizational structure, less inventory stock operation, simple organizational procedures, reduce operation tasks and low cost of operations. We envisage that sooner or later Pakistan’s aviation industry will experience efficient LCC based airline models running domestic and regional operations within and from the country.

The aviation business is highly volatile business that requires highest management skills and sophistication in organizational operations. Currently, Pakistan aviation business is still running on traditional model. There is a semi-government organization and a few private players operating in the country having oligopolistic business environment. There is complete absence of LCC business in the country. This paper proposes the cost saving unified aircraft policy for LCC aviation management in Pakistan. The flight duration on 160

domestic route is within two hours; therefore, unified aircraft policy with an adequate passenger capacity is the best choice to cover all domestic primary, secondary, and socio- economic routes viably. This policy can reduce the aircraft maintenance cost, parts inventory and carrying cost, crew training cost, human resource management and operational cost. The paper also evaluates the serviceability of unified aircraft based on the case of ten flights a day on a certain route. The selected flight time by ten passengers is 6.5.

The result reinforces use of unified fleet of regional jets on domestic and regional routes.

Later, this paper evaluates the cost impact by unified aircraft policy. The result of this evaluation, three propeller aircraft policy is 63.5, one wide body aircraft is 63 and two narrow bodies and one wide body is 46. Actually, wide body aircraft policy seems better than combination of aircraft policy because of low fuel burn per seat and that is why most of the traditional carriers opt for wide body aircraft. But these traditional carriers are compelled to induct turbo-props or smaller jets in their fleet to cater secondary and socio- economic routes and hence, they build network based on diverse aircraft in their fleet. The proposed unified aircraft policy with adequate size of aircraft model secured 89 marks. This policy has the potential of cost reduction up to 8.7% due to savings in fuel, maintenance, crew training cost, and passenger and human resource management cost. Average net profits of efficient conventional carriers lie under 5%, but our proposal based on unified aircraft fleet model has the potential to increase net profits up to 13.7% from the total income of operation.

The next research studies are based on the evaluation of international air route by unified aircraft policy from Pakistan to countries in the Persian Gulf and on the Innovative 161

high quality aircraft maintenance by Wisdom of Semantic database using historical data from operation of staff.

Finally, I would like to appreciate with my highest gratitude the relentless support, supervision, and cooperation that have been extended to me by Prof. Dr. Hironao Takahashi.

My special thanks to our Vice Chancellor Ms. Seema Mughal for giving me this research opportunity at Greenwich University.