Project Report on PIA-SM

Topic: Project Report on PIA (Pakistan International Airline)

Subject ________ Strategic Management Class ________________ M.com 4th (x) Submitted to

Muhammad ARSLAN Sarwar Submitted by Names:

Roll no.

Mohammad USMAN

095

Malia Azam

113

Saira Arif

131

Chaman Iqbal

051

PIA (Pakistan International Airline)

Acknowledgement

Thanks to ALLAH almighty for giving us the skill as well as we also wants to tribute to our HOLY PROPHET Peace Be upon Him who show us the reality of God.

We would like to thank to our professor Muhammad ARSLAN SARWAR (Strategic Management) who have been providing guidance and support during the whole process of our report. We feel motivated and encouraged every time we attend his lectures. Without his encouragement and guidance this report would not have materialized.

The guidance and support received from all the group members who contributed to this report, was vital for the success of the report. We were grateful for their constant support and help.

This report was arguably one of the most thrilling experiences in 4st semester. Making this report has immensely helped us in understanding the skills of Strategic management. Thanks!

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DEDICATED To Our Beloved parents Muhammad ARSLAN Sarwar All UOG’s faculty All sweet friends, fellows and group members

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Table of Contents 1

Title

2

Acknowledgement

3

Dedication

4

Introduction

5

Brief history

6

Vision and mission statements

7

Internal and external assessment

8

SWOT analysis

9

Situational analysis

10

Strategies implementation

11

Matching Matrices

12

Quantitative strategic planning matrix

13

Recommendations

14

Conclusion

15

References

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INTRODUCTION Pakistan International Airlines is the national flag carrier, and as a symbol of National pride. PIA head office is located in Karachi Airport. Principal activity of the PIAC is to provide air transport services (passengers and freights). In addition, the corporation is engaged in providing engineering, training, and other allied services. PIA play vital role in the growth of GDP as well as earn sufficient foreign exchange for the country. It became member of IATA (International Air Transport Associations) and commercial operation as a scheduled carrier for passenger and cargo transportation. Pakistan International Airlines Corporation (the Corporation) was incorporated on April 18,1956 under the Pakistan International Airlines Corporation Act, 1956(PIAC Act, 1956) and its shares are quoted in all the stock exchanges of Pakistan.57 % shares held by Government of Pakistan, and rest of 43 % shares held by Financial Institutions, Investment Companies, Individuals, Joint Stock Companies, Foreign Companies etc. As the government is the principal owner of the airline so the government selects the Board of Directors and the Chairman/CEO.

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Brief History In the days when Pakistan was still in the revolting position (June 1946) Mr. Mohammad Ali Jinnah, the Founder of the upcoming Nation, instructed Mr. M.A. Ispahani, a foremost industrialist, to set up a national airline, on precedence basis. With his stupendous vision and forethought, Mr. Jinnah had anticipated that with the formation of the two wings of Pakistan, alienated by 1100 miles, a swift and well-organized mode of transport was imperative. The novel airline was primarily a pilot project, registered in Calcutta as Orient Airways Ltd, on 23rd October, 1946. With A.M. Ispahani as the Chairman and Air vice Marshal O.K. Carter as the General Manager of the new air hauler, operating license for the airline was obtained in 1947 with Calcutta as the base. Orient Airways was a privately owned company, with limited capital and resources. It could not be expected to grow and expand on its own. It was then that the Government of Pakistan decided to form a state-owned airline and invited Orient Airways to merge with it. The outcome of the merger was the birth of a new airline, named Pakistan International Airlines (PIA) on 11 th March, 1955. Pakistan International Airlines established in 1954. PIA's first Super-Constellation (AP-AFQ) registered on Apri'24, 1954. PIA started its regular service from May 10, 1954. Pakistan International Airlines Corporation formed with merger of PIA and Orient Airways. PIA entered the world of international aviation with a service from Karachi to London via Cairo and Rome. Boeing 707-320 "International" introduced on the London route. First three of five Fokker F-27s received and order placed for three Boeing 720B jet aircraft. PIA is the first Asian airline to operate a pure jet aircraft. At present, PIA operates to 75 destinations (38 international and 37 domestic) in countries spread over 4 continents of the globe. One could say that since its inception in 1955, PIA has indeed, come a long way.

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Vision and mission statements Vision PIAC has a vision to be a world class airline, meeting customer expectations through excellent services, on-time performance, innovative products and absolute safety

Mission Statement analysis PIAC’s mission statement is as follows “Employee teams will contribute towards making PIA a global airline of choice through    

Offering quality customer services and innovative products Using state-of-the-art technologies Ensuring cost effective measures in procurement and operations Developing safety culture

This mission statement addresses following core points of nine point mission statement analysis      

Product and or service Technology Philosophy Self-concept Concern for people Concern for survival growth and profitability

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SWOT ANALYSIS OF PIA Through the technique of "SWOT" one can analyze the present performance conditions of any organization and its weaknesses. Also the opportunities it can grab in the external environment and the threats it faces. This technique serves as a base for sound recommendations and conclusions

Strength Strengths are found in the internal environment of the organization. They are the backbone of an organization. Strengths of an organization can over come any kind of weaknesses that the organization is facing. PIA has a number of strengths due to which it is still one of the leading airlines in Pakistan. These are as following  PIA has status of being Flag Carrier of Pakistan.  Highest Market Share at domestic network.  Multilingual Staff on Board  Booking Offices in all major cities both at domestic and International  PIA has well established brand as its oldest airline in Pakistan.  Subsidized fares  Halal meat available at all flights.  Electronic ticketing by web and through SMS.  Highly Professional Staff  Having Government’s protection

Weaknesses Weaknesses are also found in the internal environment of the organization. Weaknesses if more in quantity can break down an organization easily. They can over come the strengths as well. PIA also faces a number of weaknesses which are as following  Old aging fleet of PIA causing higher operating cost.  Huge burden of Employees which cause financial burden.  Inadequate space on the aircraft  Charging of higher fare as compared to competitors.  Lack of marketing activities as compared to competitors.

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PIA (Pakistan International Airline)  Poor quality of food/service on board specially in domestic flights

Opportunities Opportunities exist in the external environment. They need to be recognized and used according to the business being run. An opportunity recognized and utilized at the right time will be the strength of tomorrow. Such kind of opportunities also exists for PIA in its external environment. Some of them are as following:  PIA has huge potential market in Middle East if PIA upgrades its fleet.  PIA has largest domestic network and by proper route planning PIA can generate huge amount of Revenue with higher profit.  PTDC provides favorable market for domestic as well as international sectors for the airline  PIA can generate more revenue by attracting customers through Web and Mobile Reservations system.

Threats Every organization faces external threats which could do damage to the business's performance. These threats can damage the business and even could be the reason of bankruptcy No doubt PIAC is well established and seasoned organization. Yet there are certain threats being posed by the external environment. Some of them are as under:  Negative rising perception about the country, regarding terrorism. 

Political instability and law and order situation.



Rising fuel prices in the world.



Over staffing at all levels



Frequently rising Airlines fare



Fast growing domestic and international competitors



Effective promotion strategies adopted by other competitors like Emirates and Shaheen and Air blue.

From the above SWOT analysis I came with certain conclusion about PIA. No doubt PIA has good market for further growth and it has many advantages over many others airlines. But PIA should upgrade it’s old aging fleet as it is causing the PIA major financial loss because

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PIA (Pakistan International Airline) fuel prices has risen in the international market and PIA has still old fleet, which causes higher operating cost.

PESTLE ANALYSIS This tool looks at macro environment of a firm. The macro environment affects the firms at major level therefore it is necessary to analyze the affect of

political, economic, social,

technological, legal and environmental factors on the firm.

 Political The politics of South Asia and Middle East in general and politics of Pakistan in particular are very important for PIA as its major destinations are located in these regions. The political situation in Pakistan is not normal. In the history of Pakistan hardly one or two governments have completed their tenures. Political instability in the country is result of interference by non political forces. The frequently changing political environment suffer firms operations especially the government own organizations. The new governments change the top level management soon after taking the charge of the government and appoint people with political background on top level of organizations without testing the required educational qualification and relevant experience. PIA is the most politically affected organization as every new government appointed their own people who turned a profitable organization into a loss bearing one which stopped its growth and started journey towards decline.

 Economic The economic condition of Pakistan is in a critical position. Economic growth is very low as compare to other countries. The inflation rate is very high. Foreign investment is also unsatisfactory. As PIA is operating from Pakistan, its international operations are affected by exchange rates. Oil prices are an issue for all airlines. A huge amount is being paid as fuel cost. Increase in oil prices affected the income of PIA as well. Fuel is the main component of airline operations. The oil prices are increasing at a higher rate affecting the PIA’s profitability. These all economic drawbacks seriously affect the performance of PIA.

 Social Pakistan is ranked among lower-middle income countries. The Pakistani model for economic growth since independence was described above as restricted growth. Social development has M.com 4th (X)

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PIA (Pakistan International Airline) lagged behind economic growth, resulting in unequal social development and notable deficiencies in education, health services, sanitation, and gender equality (Khan, Omar 2004). The society of Pakistan is moderate in accepting changes. The social changes in Pakistan are gradually taking place. Due to globalization and advancement in information technology, the people accept social changes occurring throughout the globe. There are two standards in our society, one is the upper class society and the other is lower level society which is in majority.

 Technological The internet has enabled PIA to keep costs low by allowing customers to book through its website rather than through an agent. However, the web is less attractive for PIA expansion in east domestic, as access to information technology is limited to certain areas and facility providing activities lower the other developing countries in the region. This situation is likely to change in the longer term. PIA wholly depends on other agencies for exchange of their older crafts to new ones. It also requires a huge financing system which is very difficult to it because of the economic condition of the country as well as its own financial position. PIA is unable to buy new technology as it costs too much. For this purpose the organization approaches to financial institution that provide funds on their own conditions which reduces the profitability as the organization spends a huge amount on paying interest.

 Legal The involvement of government in PIA is backed by legislation. The government uses these powers delegated by legislation in their own interest which affects the performance of the airline. Another drawback is its centralized system which is a time consuming practice and the important actions cannot be taken immediately. Delays due to this centralized system create problems for smooth operation of the airline and it causes huge losses and the organization also loses available opportunities due to long decision making process.

 Environmental The main environmental issue facing PIA is that of policies formulated by legislation about greenhouse emissions. The airline industry affects the environment negatively by increasing air pollution and noise pollution. PIA uses regional airports to reduce the environmental effects on busy airports situated in main cities of the country. Furthermore PIA has also introduced waste disposal plan which helps in reducing pollution in the country. M.com 4th (X)

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

Restructuring strategy adopted by PIA to overcome losses Restructuring strategy adopted by PIA to overcome losses. Pakistan International Airlines (PIA) has developed an aggressive strategy, the company has transformed into a cumulative loss of the past eight RS200 hundred million Yuan airline president, said. Secretary of Defense and Chairman PIA Lieutenant (retd) Asif Yasin Malik solve Multan Chambers of Commerce. “We were wrong aircraft flying in the wrong direction,” he said, adding that they will buy eight new aircraft this year, in October or December. He said PIA without adding new aircraft to its fleet since a decade.

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PROPOSED STRATEGY SPACE Matrix Internal Strategic Position Y Axis

FS+ES= -1.14 X Axis

CA+IS= -0.62

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External Strategic Position

Financial Strength (FS)  ROI =+1  ROE=+1  Profitability Ratios=+2  Activity ratios=+3  Leverage Ratios=+1  Liquidity Ratio=+2  Average= +1.66

Environmental Stability (ES)  Barriers to entry=-1  Inflation=-5  Technology change=-3  Competitive pressure=-4  Demand variability=-1  Average= -2.8

Competitive Advantage (CA)  Market Share=2  Customer Loyalty=-1  Direct Flight (point to point)=-1  Huge and Young Fleet=-2  Service Quality =-3  Management Experience (Professionalism)=-5  Average = -2.33

Industry Strength (IS)  Growth Potential= +3  Market Entry= +1  Technology Knowhow= +2  Financial Stability= +2  Fuel Price Stability= +1  Human resource availability=+2  Government Support=+1  Average= 1.71

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PIA (Pakistan International Airline) +6

+5

+4

Conservative

Aggressive

+3

+2

+1

-6

-5

-4

-3

-2

-1

+1

+2

+3

+4

+5

+6

-1

(-0.62,-1.14) 3.00) Defensive

-2

-3

Competitive

-4

-5

-6

The graph indicates the PIAC to be in Third Quadrant which is defensive strategy quadrant

Defensive Strategies In the defensive quadrant the company may use one of the following strategies rectifying internal weaknesses and avoiding external threats. Defensive strategies include retrenchment, divestiture, liquidation, and concentric diversification.

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PIA (Pakistan International Airline) BCG Matrix (Boston Consulting group Matrix) PIAC is the only SBU PIAC has it has an international share of 38.04% (projection based on last year’s increase or decrease in share) making it a benchmark in its industry in relation to Pakistan. Domestically the market share is 74.61(projection based on last year’s increase or decrease in share) making it a cash cow.

Domestic SBU PIAC

M a r k e t G r o w t h

Revenue

Revenue%

Profit

Profit%

Relative MS

Growth rate

94,563,765

100

(5,822,431)

100%

100%

-0.01

PIA

Relative Market Share

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PIA (Pakistan International Airline) Foreign SBU PIAC

M ar k et G r o w t h

Revenue

Revenue%

Profit

Profit%

Relative MS

Growth rate

94,563,765

100

(5,822,431)

100%

100%

-0.05

PIA

Relative Market Share

Analysis Description The company lies in both cases in cash cow but according to “Strategic management: concepts and cases, / tenth edition By Fred R. David” if the company’s growth rate is too slow and productivity is declining then the best way to solve the problem may be in retrenchment or divestiture. In some cases when the portfolio is strong then we can opt for diversification.

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PIA (Pakistan International Airline) Internal External Matrix (IE Matrix) The IE matrix of PIAC is as follows

Analysis Description The above diagram indicates that PIAC lies in the middle order of “HOLD and MAINTAIN”. Inthis type of situation the company may either use “market penetration” or “product development”. In the case of PIAC we see the market penetration is not of much use hence product development in the form a visible and distinctive brand identity may be taken in mind. Here product may very well be in the form of PIAC as a pure Pakistani Brand Airline.

Grand Strategy Matrix

Small Share No Money

Strong Share or Strong Money

Strong Share and Strong Money

Sector Growth High

Sector Growth Low

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PIA (Pakistan International Airline) Analysis Description PIAC’s Domestic and International share is highest in the market but the growth in this sector in couple of last years is negative. One main important point to ponder is PIAC has financial problems these days because of debt. In this type of situation as the diagram above indicates you have the opportunity of strategies likes the following       

Cost Reduction Add related products and services for existing customers Add new products and services for new customer base Underserved Niche (very small) Market domination Strategic partnership Joint ventures

Common Strategies The most common strategies from above analysis have been  

Cost reduction through “retrenchment” or “divestiture” Product development through “ concentric diversification” o For this purpose joint venture may be used

We will further analyze them in the stage 3 of proposed strategy formulation

Proposed Strategy Formulation Quantitative Strategy Planning Matrix (QSPM) Analysis Description The QSPM clearly tells that cost reduction is the most important and first thing to do in this type of environment cost reduction may be done in one or more than one following areas, which ever suites best       

raw material procurement logistics - inbound and outbound production ( process ,time and work study, maintenance ,automation) energy human resource ( out sourcing ) sales & marketing finance

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PIA (Pakistan International Airline) Raw material procurement is almost impossible in current financial condition of PIAC; no doubt PIAC is already working on production in its case deliverance of service, Human Resource Management Is the focus point of all the problem as far as the analysis (SWOT) goes. Sales and marketing have already been started to develop to automation and e ticketing compromising

Proposed Strategy We propose the retrenchment strategy or turnaround strategy by the help of rightsizing. Our main goal is to go through a temporary belt-tightening, which will allow the firm to pursue a growth strategy at some future point

Structure to Strategy match This topic may be considered most important in this analysis and report. The structure of organization is very important in creating resonance between people and profits. Higher benefits in form of huge profits and above average returns are only for organizations which have structures according to their strategies “Main problem of PIAC is the fact that it is not adaptable in nature when it comes to change. This is to exclude image on logo or fleet. This is greater than this this is to consider that every strategy comes with its own proposed structure”

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PIA (Pakistan International Airline) Recommendations  There is a need to adopt a transparent method for privatization of these enterprises through proper mechanism and plan which would boost the economy.  It will also help the government get rid of the circular debt piling up against these institutions.  There is also a need to encourage both local and foreign investments in Pakistan and give confidence to private sector to contribute its share for economic recovery of the country.  Without giving confidence to the private sector economic revival is impossible as the private sector is engine of growth and can create employment and competition.

Conclusion From the discussion above, it is clear that PIA is then only national airline of Pakistan. It has developed a strategy different from those of its competitors, and that these differences directly and indirectly contribute to its competitive advantage. PIA has reasonable opportunities along with threats. But the frequent involvement of every government in top management of PIA resulted in discontinuation of its strategic policies. An organization earning average profits five years ago is now bearing huge loses.  There is a need to adopt a transparent method for privatization of these enterprises through proper mechanism and plan which would boost the economy.  It will also help the government get rid of the circular debt piling up against these institutions.  Without giving confidence to the private sector economic revival is impossible as the private sector is engine of growth and can create employment and competition

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PIA (Pakistan International Airline) References 1. www.piac.com 2. http://tribune.com.pk/story/269007/finance-ministry-tells-pia-to-adopt-austerity-measures/ 3. http://www.bdoebrahim.com.pk/index.php?option=com_content&task=view&id=525&Itemid=0 4. www.Businessrecorder.com 5. http://www.paperpkads.com/news/index.php/restructuring-strategy-adopted-by-pia-toovercome-losses/ 6. http://www.slideshare.net/biztekians123/strategicanalysisofpia

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Project Report on PIA-SM

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