tariq project report-24!06!2011
TRANSCRIPT
Final Year Project
Factors Affecting Profitability
Of Airline Industry Of Pakistan
Submitted by
Muhammad Tariq Ali Khan
(52286)
SUPERVISOR
Syed Danish Aftab Zaidi
PROJECT REPORT SUBMITTED TOPAF-KARACHI INSTITUTE OF ECONOMICS AND TECHNOLOGY
TABLE OF CONTENTS
I. Factors Affecting Profitability of Airline Industry of Pakistan I
Letter of Approval:....................................................................................... iv
Letter of Transmittal:......................................................................................v
Letter of Authorization:..................................................................................vi
Acknowledgement:.......................................................................................vii
Abstract:..................................................................................................... viii
1.0.0 Introduction : ........................................................................................01
1.1.0 Background to the Problem:.............................................................01
1.2.0 Purpose of the Research Project:.....................................................02
1.3.0 Hypothesis::......................................................................................02
1.4.0 Significance of Research Project......................................................03
1.5.0 Assumption of Project:......................................................................03
1.6.0 Limitations:.......................................................................................03
1.7.0 Delimitations:....................................................................................04
2.0.0 Literature Review:..............................................................................05
2.1.0 Crafting and Executing Strategy:......................................................06
2.1.1 Revenue Management:....................................................................06
2.1.2 Managing The Fleet , Finance & Assets:..........................................07
2.1.3 Managing Staff:...............................................................................07
2.1.4 Fleet Utilization:................................................................................07
2.1.5 Profitability and Load Factor for Airline: ............................................08
3.0.0 Research Design and Methodology:.................................................09
3.1.1 Population of the Research Project:...............................................09
3.1.2 Sampling Methods:.........................................................................10
3.1.3 Sample:..........................................................................................10
3.2.0 Instrumentation:..............................................................................10
3.2.1 Data Collection:..............................................................................11
3.2.2 Ethical Consideration:.....................................................................11
3.4.3 Data Presentation: .........................................................................12
3.2.4 Operational Definition of Research Variables:................................12
TABLE OF CONTENTS
I. Factors Affecting Profitability of Airline Industry of Pakistan II
3.2.5 Procedure for testing hypothesis: .............................................13
4.0.0 Data and Interpretation of Results : ...................................................14
4.1.0 Research Variables......................................................................... 14
4.2.0 General Description of Data:............................................................14
4.3.0 Data Presentation:............................................................................15
4.4.0 Results of Hypothesis.......................................................................20
5.0.0 Conclusion & Recommendations:....................................................26
5.1.0 Conclusion:.......................................................................................26
5.2.0 Suggestion of further Studies:..........................................................28
Annexure : ....................................................................................................29
References:...................................................................................................34
I. Factors Affecting Profitability of Airline Industry of Pakistan III
Letter of Approval
Project Title : Factors Affecting Profitability of Airline Industry of Pakistan
By : Muhammad Tariq Ali Khan
MB-2-07-52286
Supervisor : Syed Danish Aftab Zaidi
Academic Year : Spring 2011
This Research Project has been approved by the Board of Advanced Studies at PAF
KIET. The project is being submitted for the partial fulfillment of the requirements for
the degree of Master of Business Administration.
Approval Committee:
Mr. Syed Danish Aftab Zaidi
(Supervisor) (Director Academics)
I. Factors Affecting Profitability of Airline Industry of Pakistan IV
LETTER OF TRANSMITTAL
ToMr. Syed Danish Aftab ZaidiPAF Karachi Institute of Economics & TechnologyCity CampusKarachi.June 30, 2011
Respected Sir:
This project has been prepared with the experience and knowledge I have acquired while studying in the institute and the methodologies learned during the course of conducting business research.
I have tried to fulfill all requirements to the best of my knowledge as per the advice and guidelines provided by you. I hope that my report will rise to the expectation of yours.
Sincerely,
Muhammad Tariq Ali Khan 52286
I. Factors Affecting Profitability of Airline Industry of Pakistan V
LETTER OF AUTHORIZATION
JUNE 30, 2011
Dear Reader
I have been authorized by Mr. Syed Danish Aftab Zaidi to prepare Report on
“Factors Affecting the Profitability of Airline Industry of Pakistan”.
This project has been prepared with the experience and knowledge I have acquired while studying in the institute and the methodologies learned during the course of conducting business research.
Sincerely,
Muhammad Tariq Ali Khan 52286
VI
Acknowledgement
First of all, I am deeply grateful to Almighty Allah for enabling me to accomplish this
research project.
I am deeply indebted to my supervisor Mr. Syed Danish Aftab Zaidi of the PAF KEIT
whose guide lines, suggestions and encouragement helped me to complete this
report.
I also want to thank Sqd. Ldr. Mr. Abdul Hameed for all his sincere help and
assistance in the final version of the paper for English style and grammar, correcting
both and offering suggestions for improvement.
At the end, I would like to give my special thanks to my family whose patient love
enabled me to complete this work.
II. Factors Affecting Profitability of Airline Industry of Pakistan VII
Abstract
This study was carried out to examine the relationship between the Profitability and
the other factors of Airline Industry of Pakistan. The data used was collected from
various annual Financial reports of Pakistani Airlines, data recorded by P.C.A.A.
(Pakistan Civil Aviation Authority ), Internet and Articles & Journals from 2005 until
2010. The data was analyzed using statistical data analysis (Regression analysis).
The dependent variable was the Net Profit and set of independent variables
comprised of Operating Cost, Flights per Aircraft, Expenditure per Flight and
No. of Passengers per Flight. The main objectives were to examine the influence
of independent variables on the Profitability of Airline Industry of Pakistan. The
findings reveal that Operating Cost, Flights per Aircraft, Expenditure per Flight and
No. of Passengers per Flight have strong relationships with the Profitability of Airline
industry of Pakistan. Finally, this study confirmed that Operating Cost and No. of
Flights per Aircraft are the most dominant factors that influence the Profitability of
Airlines of Pakistan.
II. Factors Affecting Profitability of Airline Industry of Pakistan VIII
1.0.0 INTRODUCTION:
The airline industry has altered the life in which people live and conduct business
by shortening travel time. The concept of distance has been changed. Now it is not
considered impossible to visit and conduct business which was considered remote
earlier.
(Jane's airlines & airliners by Jeremy Flack, 2003) states that “ airline main aim is
to provide air transport service to passengers & freight forwarders. Airlines supply
services by owning or leasing their own aircrafts”.
According to (Robertson & David, October29, 2008 )“ it’s an intensely competitive
market for an airline industry. During the past years, the air line industry has
completely changed their business strategies; they are now expanding their
domestic and international services. Previously airline industry was generally owned
by the government however in most of the countries, all major airlines have been
privatized.”
(DELAG, 22-08-2010) Deutsche Luftschiffahrts states that “ Aktiengesellschaft was
the world's first airline. It was founded on November 16, 1909 with government
assistance, The five oldest airlines are Netherlands' KLM, Colombia's Avianca,
Australia's Qantas, Czech Republic's Czech Airlines, and Mexico's Mexicana. KLM
first flew in May 1920, while Qantas was founded in Queensland, Australia, in late
1920”.
1.1.0 Background to the Problem:
Pakistan airline industry is still in growth phase, it has to face a lot of competition
from other regional airlines,
The type of aircraft is a factor which must be considered while selecting for the
airline fleet. The type of aircraft must be appropriate to suit the requirement for
different markets. It must also be economical while considering the distances
involved. The distance covered in a trip will also influence traveler behavior. The
1
other consideration such as convenience to approach the airports, frequency of
service, and intermediate stops also matters.
The cost of air travel depends on the length of the trip, Cost structure
charged up for an airline service is upon per mile flown. But due to uncertainty in the
business with respect to fares and limited routes a lot of airlines shut down their
business. The national airline is also not in good condition. As investors and
government aren’t taking any interest therefore it is facing losses since last few
years.
As a result, at present in Pakistan only three airlines are left in the business,
i.e Pakistan international airline, Shaheen Air international and AirBlue, which are
striving hard to give maximum services under constraint resources.
1.2.0 Purpose of the Research Project:
The main purpose of this research is to find out factors affecting the
profitability of airline industry.
How airlines are managing their Finance.
How airlines are managing their Fleet.
How airlines are managing their Employees & Services.
1.3.0 Hypothesis:
HO-1: There is significant relationship b/w OPERATING COST and profitability of
the airline. (β1 = 0)
HO-2: There is significant relationship b/w FLIGHTS PER AIRCRAFT and
profitability of the airlines. (β2 = 0)
HO-3: There is significant relationship b/w EXP. PER FLIGHT and profitability of
the airlines. (β3 = 0)
HO-4: There is significant relationship b/w PASSENGERS PER FLIGHT and
profitability of the airlines. (β4 = 0)
III. Factors Affecting Profitability of Airline Industry of Pakistan 2
1.4.0 Significance of research project:
This study was conducted to find out the facts and the attributes which affect
the overall efficiency / performance of an airline. This study also high lights the
importance and the influence of these attributes as these are the basic parameters /
indicators which reflect the health of an airline.
These attributes even estimate the future of an airline whether it would survive in the
current resources even though their inter-correlation which will help in evaluation of
weakness and strength of the organization are also being calculated. Whereas, the
dependant and independent variables are found it as they provide overall
performance and help in formulating the future plans or future project viability.
1.5.0 Assumptions of project:
Before proceeding ahead it has been assumed that:-
Un-biased respondent data should be used.
Competition between operating airlines must be fair.
External factors (such as cultural, political demographical etc) should remain
same.
There’s no direct influence of government policies on any airline performance.
1.6.0 Limitations:
This study has some limitations:-
1. In accordance with essential service act it is very difficult to gather data and
responses from employees as all operating airports work under Pakistan’s
ministry of defense.
2. Due to the negligence towards this sector Literature with reference to the
Airlines aren’t available.
III. Factors Affecting Profitability of Airline Industry of Pakistan 3
1.7.0 Delimitations:
1. Being an employee of CAA, its quiet convenient for me to get data and
records of all airlines to an extent as CAA deals with all airlines and the
record.
2. It is pertinent to mention here that due to the nature of my duty, required
information of airlines was easy to get from different airlines employees.
III. Factors Affecting Profitability of Airline Industry of Pakistan 4
2.0.0 Literature review:
It’s been a decade that airline industry growth is at its peak but mostly all the airlines
are consistently un- profitable. There are a number of aspects to run a successful
airline. Many steps are taken towards the betterment of this airline business but
mostly all of them are hitting back which are resulting great losses in the financial
statements.
According to ( Doganis Rigas, 2002 ) “ an Aviation Consultant and Strategy Adviser
of Airlines there are three main aspects to make an airline profitable which are the
unit costs, the unit revenues or yields and the load factors. To make a profitable
combinations airline managers should make adjustments in costs, fares and load
factors”.
Doganis states that “ airline industry are characterized by:-
short run marginal cost
Marginal cost of carrying an extra passenger on a flight
An airport passenger charge,
The cost of ground handling and the fuel burnt as a result of extra weight.
These costs are short, if the seats remain unsold, the revenue will be lost forever.
Therefore, he suggests that each airline must maximize revenues and their load
factors”.
Thus, it was suggested by him that “Combining passenger yields with low cost and
relatively high load factors can be easily converted into profits. He emphasizes that
low cost does not provide big profit interacting with low revenues, nor does high cost
necessarily mean low profits if the revenues are high enough”.
Doganis ended his strategy by giving an opinion to start revenue management
process, in this process profits are maximized by cutting down tickets pricing
strategy and tariffs.
III. Factors Affecting Profitability of Airline Industry of Pakistan 5
2.1.0 Crafting and Executing Strategy
According to (Thompson, Arthur A., Jr., A. J. Strickland, and John E. Gamble.
2005.) “ Success factor of an airline industry are usually its competitive factors which
rejoins and motivate all the industry members to be passionate at the work place. A
success factor have a direct and several possible uses but according to strategy
analysis, success factors are an analytical tools for examining the characteristics of
the industry”.
According to (Richard McCabe, PhD, 2006) “ an airline, should be strong and
focused on four general areas which could result in their success which are”
1) Attracting customers
2) Managing its fleet
3) Managing its people
4) Managing its finances.
2.1.1 Revenue management:
(McGill and van Ryzin 1999) states that, “Revenue management is also a vital
factor for success, as many airlines keep an eye on their RM systems and related
information technology to determine the industry’s future success and all of these
industries invest their money heavily for such systems.
According to (Talluri and van Ryzin, 2004), “ revenue management has possessed
a lot of attention in the airline business”.
According to (Kimes 1989) “ the major objective of revenue management is to give
off the correct inventory to the correct recipient, on the required time and place”.
According to (Philips 2005 & McGill and van Ryzin 1999) “ Inventory allocation and
dynamic pricing are the most common techniques for revenue management”.
III. Factors Affecting Profitability of Airline Industry of Pakistan 6
2.1.2 Managing the Fleet, Finance & Assets.
Fiancé department of any business is the most important and the complex part. The
same goes with the airline financing as all the financial matters take place on very
high level. According to (Rigas Doganis, Routledge, 2001) “Airlines don’t only
purchase aircraft and engines regularly but they also have to take long-term
decisions to meet the demand of their market as well as they have to be relatively
economical while operating and maintaining the fleet”.
2.1.3 Managing Staff.
According to (Richard McCabe, 1998), productivity of an airline can be calculated
through there management. Effectiveness of the employees clearly shows how well
is passenger been treated on the board. Reports give a clear view of airline
employee’s performance.
2.1.4 Fleet utilization:
Airplane utilization is a key performance indicator for an airline operations. Airplane
utilization depends upon following elements such as,
airplane design features and characteristics,
airline maintenance programs,
airplane technical reliability,
airline business philosophy,
market demand characteristics,
Availability of trained labor.
point-to-point service and faster airplane turnaround.
Improved and performance base airline utilizations helps on fixed ownership costs
over an increased number of trips, reducing costs per seat-mile or per trip. (Richard
M.McCabe, 2006 ).
III. Factors Affecting Profitability of Airline Industry of Pakistan 7
2.1.5 Profitability and the load factor for airlines
The result indicates that there is profitability and the growth of load factor cause
fatalities / accidents. Causality tests show that profitability does not cause
fatalities/accidents. ( Adrangi, Chow and Raffiee 1997) &( Rose 1992).
III. Factors Affecting Profitability of Airline Industry of Pakistan 8
3.0.0 Research Design and Methodology
Here we will observe major factors affecting the profitability of airline industry while
going through that data for the period of 2005 – 2009. Population of our study is
based on 20 Airlines which are providing their services in Pakistan, out of which 17
are foreign airlines and 03 are locally operated.
In this study will be collect and consider only those airlines which are being operated
from Pakistan. The main source of data as follows:-
- Data recorded by P.C.A.A. (Pakistan Civil Aviation Authority )
- Annual Financial Reports of different Airlines.
- Internet.
- Articles & Journals.
In this study, we will use both qualitative and quantitative approaches.
3.1.1 Population of the Research project
Population of our study is based on 20 Airlines which are providing their services in
Pakistan, out of which 17 are foreign airlines and 03 are locally operated. A target
population approach is used to identifying the local airlines, the static data used in
this research report was obtained through company website.
There are about 20 foreign and regional airlines operated in Pakistan from different
countries of the world, such as:-
a) Air Blue
b) Air Arabia
c) Air China
d) Biman Baangladash
e) Cathypacific Airline
f) Emirates Airline
g) Etehad Air
h) Fly Dubai
i) Gulf Air
j) GMG Air
III. Factors Affecting Profitability of Airline Industry of Pakistan 9
k) Iran Air
l) Iraq Air
m) Malaysian Airline
n) Oman Air
o) Pakistan International Airline
p) Qatar Airways
q) Shaheen Air International
r) Saudia Air
s) Thai Air
t) Turkish Air
3.1.2 Sampling methods :
The convenience sampling method was adopted to determine the factors affecting
the profitability of Pakistani Airlines, It is a non-probability sampling method . it is a
least expensive of all sampling methods. In this method, we conveniently can add
and delete our sample on the bases of accessibility and availability of data.
3.1.3 Sample:
To find out the factors affecting profitability of Airlines in Pakistan, the said research
considered only (03) Airlines Currently operating in Pakistan such as Pakistan
International Airline (PIA), Airblue and Shaheen Air International(SAI) from our
targeted population. We will observe different ratio analysis in our study Such as:
Flights per Aircraft.
Expenditure per Flight,
Passengers per Flights,
Operating Cost per Flight.
We will collect and analyze the data for the period of 2005 – 2009. The time frame of
this research if 6,months. The sample selected for this research according to
financial availability of the targeted companies.
III. Factors Affecting Profitability of Airline Industry of Pakistan 10
3.2.0 INSTRUMENTATION My study is purely based on statistical data
analyses. Study is about the factors that affect the profitability of Airlines operating in
Pakistan. Best analysis tool for the study is Regression.
3.2.1 DATA COLLECTION :
The data used in this study was acquired from different sources. The main source of
data is as follows:-
Data recorded by P.C.A.A. (Pakistan Civil Aviation Authority )
Annual Financial Reports of different Airlines.
Internet.
Articles & Journals.
Passengers
The period covered by the study extends to five years starting from 2005-2010
3.2.2 ETHICAL CONSIDERATION:-
Ethical consideration are basically to protect the rights of research participants.
The undersigned assures that a procedure will be adopted to consider all relevant
ethical issues. The results which will arise from my analysis will be based upon my
independent judgment. And they will not affect the activities of the Airline industry.
Following are some of the ethical consideration that I will try to follow.
All the participants are voluntary
The research participants will be fully informed about the procedures
and risks involved in the research
The study will not put any participants in a situation where they might
be at risk of harm both physical and psychological.
The information regarding the subject study will not be made available
to anyone who is not directly involved in the study.
Tthe participant will remain anonymous where ever and as far as
possible throughout the study.
The participants will be provided with all treatment or program that
have beneficial effects.
III. Factors Affecting Profitability of Airline Industry of Pakistan 11
3.2.3 Data Presentation
This research project would be done in the form of
Charts
Graphs
Figures
Tables
Tools The tools which will be used to complete the research are as under:
Microsoft Excel.
Microsoft Word.
Microsoft PowerPoint.
3.2.4 OPERATIONAL DEFINAITON OF RESEARCH VARIABLES.
Net profit
Net profit is calculated by subtracting an airline’s total expenses from total revenue,
thus showing what the company has earned (or lost) in a given period of time
(usually one year). It is also called net income or net earnings.
Operating Cost :
An expense incurred by the Airline in transacting normal operations. Operating
expenses include wages for employees, research and development ,administrative
and selling expenses but exclude interest, taxes, and cost of goods sold.
Flights per Aircraft:
It means that how many flights are carried out by a single Aircraft in the year. It is
calculated by dividing total no. of flight in one year by total No. of A/C.
Expenditure per Flight:
it means how much is the expenditure of Airline per flight. It is obtain by dividing total
expenditure by dividing by total No. flight in one year.
III. Factors Affecting Profitability of Airline Industry of Pakistan 12
Passengers per Flight:
It means how many passenger had travelled by each flight. It is obtain by dividing
total No. of passengers by total No. of flight in one year.
3.2.5 Procedure for testing hypothesis:
The Regression analysis is a statistical method used to describe the nature of the
relationship between variables, that is, positive or negative, linear or nonlinear.
Applications of regression analysis exist in almost every field. In economics,
I will be using regression analysis for the purpose of hypothesis Testing. The
dependent variable will be an Profitability of the Airline and the independent
variables will be the Operating Cost, Flight per Aircraft, Exp. Per Flight and
Passengers per Flight and other factors that would affect the air lines expenditure
patterns.
III. Factors Affecting Profitability of Airline Industry of Pakistan 13
4.0.0 Data Analysis & Interpretation of Results.
In this chapter, the collected data from different sources Such as :-
(a) Data recorded by P.C.A.A. (Pakistan Civil Aviation Authority )
(b) Annual Financial Reports of different Airlines.
(c) Internet
(d) Articles & Journals has been calculated in average through statistical
tools.
The values of variables including, Net Profit, Operating Cost, Flights per Aircraft,
Exp. Per Flight and Pax. Per Flight have been separately calculated .
In his study, we wil l use quantitative approaches. Best analysis tool for the
study is Regression because It shows the relationship b/w the variables in a
better way.
4.1.0 RESEARCH VARIABLES.
Following are the research variables which are used in this study :-
a) Net Profit ( Dependent Variable )
b) Operating Cost ( Independent Variable )
c) Flights per Aircraft ( Independent Variable )
d) Exp. Per Flight ( Independent Variable )
e) Pax. Per Flight ( Independent Variable )
4.2.0 General Description of data :
Variables Means MedianStandard Deviation
Standard Error Range Min Max
Net Profit -4754.55 82.88 8402.82 4851.37 14570.02 -14455.27 114.75Operating Cost 16870.41 875.95 28144.51 16249.24 48999.86 361.71 49367.57Flts. Per Aircraft 119 1071 447.53 258.38 871 814 1685Exp. Per Flt 1042 627 779.32 449.94 1383 558 1941Pax. Per Flt. 170.47 187.6 48.62 28.07 92.6 115.6 208.2
This table gives the descriptive statistics of Airline Industry of Pakistan for the period
III. Factors Affecting Profitability of Airline Industry of Pakistan 14
of five years from 2005–09. The table state that the average value of Net Profit is
( 4754.55) million and the standard deviation is 8402.82. the minimum and maximum
values of Net Profit is (14455.27) million and 114.75 million respectively. The average
value of Operating Cost is 16870.41 million and the minimum and maximum value
of Operating Cost is 361.71 million and 49367.57 million. The average No. of Flights
per Aircraft is 119 and the minimum and maximum No. of Flights per Aircraft is
814 and 1685 and the standard deviation of Flights per Aircraft is 447.53% this
mean that No. of Flights can deviate from mean to both sides by 447.53%.
Information from the descriptive statistics also indicate that the mean of Exp. Per
Flight is 1042 ( thousand ), the standard deviation is 449.94% which means that the
Exp. Per Flight can deviate from mean to the both sides by 449.94% and the
minimum and maximum value of Exp. Per Flight is 558( thousand ) and
1941(thousand). The average No. of Pax. Per Flight mean is 170.47 passengers,
standard deviation is 48.62 which means that No. of Passengers per Flight can
deviate from mean to the both sides by 48.62% and the minimum No. of Passengers
per Flight is 115.6 and maximum No. of passenger per flight is 208.2
4.3.0 Data Presentation
Net ProfitAir Line 2009 2008 2007 2006 2005
PIA -5822431000 -35880157000 -13398706000 -12763420000 -4411657000
Airblue 361013000 51917000 89914000 152994000 -82067000
SAI 93223288 60313536 173518880 67403616 19943304
III. Factors Affecting Profitability of Airline Industry of Pakistan 15
2009 2008 2007 2006 2005
-40,000,000,000
-35,000,000,000
-30,000,000,000
-25,000,000,000
-20,000,000,000
-15,000,000,000
-10,000,000,000
-5,000,000,000
0
5,000,000,000
-5822431000.0
0
-35880157000.
00
-13398706000.
00
-12763420000.
00
-4411657000.0
0
361013000.00 51917000.00 89914000.00 152994000.00-82067000.00
93223288.00 60313536.00 173518880.00 67403616.00 19943304.00
PIAAirblueSAI
My data analysis shows that in case of PIA, net profit is decreasing day by day due to
certain decisions taken by the government as it is semi government airline. PIA has
faced great loss during 2007-08 due to excessive operating cost, fuel crises and over
employment.
As far as air blue is concerned, air blue is maintaining its net profit. Air blue
came into existence in 2005, the net profit of that year was in negative however data
analysis revealed that later on they have maintained their fleet well and gradually
increased their net profit. The results show that they are in progress and maintaining
profit.
Operating CostAir Line 2009 2008 2007 2006 2005
PIA 98628760000 72084990000 71764150000 7916437000067075580000
Airblue 581351000 411805000 417902000 286319000 141149000
SAI 1267179000 1049809000 772820000 712312000 577630000
III. Factors Affecting Profitability of Airline Industry of Pakistan 16
2009 2008 2007 2006 20050
20000
40000
60000
80000
100000
120000
98628.76
72084.99 71764.1579164.37
67075.58
581.350999999997 411.805
417.901999999997 286.319 141.1491267.179 1049.809 772.82
712.311999999998 577.63
OPERATING CHARGES
PIAAirblueSAI
Operating cost of PIA is excessively increasing from the day one due to over
employment, not using resources properly, less fuel hedging. PIA has also inducted
12 new ATRS in place of Fokkers .
AIR blue and Shaheen airlines have also faced increase in operating cost however it
is manageable.
Flights per AircraftAir Line 2009 2008 2007 2006 2005
PIA 1028 927 693 698 724
Airblue 1775 1598 1820 1453 1781
SAI 1007 1015 1049 1186 1098
III. Factors Affecting Profitability of Airline Industry of Pakistan 17
2009 2008 2007 2006 20050
200
400
600
800
1000
1200
1400
1600
1800
2000
1028927
693 698 724
17751598
1820
1453
1781
637 643 679816
728
PIAAirblueSAI
In case of flight per aircraft, Airblue is maintaining high efficiency due to proper use of fleets, maintaining proper schedules and selective routes.
While in this case PIA is in average position whereas Shaheen airline is facing problems.
Expenditure per FlightAir Line 2009 2008 2007 2006 2005PIA 1912 2244 2079 1963 1508Airblue 858 801 564 404 163SAI 699 664 625 593 553
2009 2008 2007 2006 20050
500
1000
1500
2000
2500
1912
22442079
1963
1508
858 801564
404163
399 364 325 293 253
PIAAirblueSAI
III. Factors Affecting Profitability of Airline Industry of Pakistan 18
In case of PIA, expenditure per flight is very high as some of the routes are made
mandatory by government whether the routes are unprofitable or not.
In case of air blue and shaheen as they are private airline, they have very selective
routes especially in coastal areas. As a result they have lower rate of expenditure per
flight. As compare to PIA.
Passengers Per Flight
Air Line 2009 2008 2007 2006 2005
PIA 107 112 127 118 114
Airblue 217 220 210 216 178
SAI 156 169 212 208 193
2009 2008 2007 2006 20050
50
100
150
200
250
107 112127
118 114
217 220210 216
178156
169
212 208193
PIAAirblueSAI
Air blue passenger per flight ratio is very attractive as they have maintained
attractive and economical prices, better services, time schedules.
35 % of PIA s’ fleet based on ATR this is the main reason that their passenger per
flight ratio is low. Results also show that Shaheen airline has not been able to
manage their fleet properly and their flight cancellation is also very high.
III. Factors Affecting Profitability of Airline Industry of Pakistan 19
4.4.0 Results of Hypothesis
1: HYPOTHESIS FOR OPERATING COST AND NET PROFIT
H-O: There is significant relationship b/w Operational cost and profitability of the airline.(β = 0)H-1: There is no significant relationship b/w Operational cost and profitability of the airlines. (β ≠ 0)
Statistically:
H0:β1=0
HA: β1 ≠ 0
SUMMARY OUTPUT
Regression Statistics
Multiple R 1.00
R Square 1.00 Adjusted R Square 1.00
Standard Error 84.76
Observations 3.00
ANOVA
df SS MS F Significance
F
Regression 1.00 141,207,583.44 141,207,583.44 19,654.38
0.00454
Residual 1.00 7,184.53 7,184.53
Total 2.00 141,214,767.97
Coefficient
s Standard Error t Stat P-value Lower 95% Upper
95%
Intercept 284.15 60.71 4.68 0.13 (487.23)
1,055.53
operating Cost (0.30) 0.00213 (140.19)
0.0045 (0.33)
(0.27)
Dependent Variable: Net ProfitIndependent Variable: Operating Cost.
Y = a + bX
After putting the values of the result the equation will become as under:-Net Profit = 284.15 – 0.30x
III. Factors Affecting Profitability of Airline Industry of Pakistan 20
Interpretation of the Result: The regression analysis shows, the correlation b/w
the Net Profit and Operating Cost is 100% and there is 100% of variation in Net
Profit ( dependent variable ) is explained by the Operating Cost ( independent
variable ) which shows the relationship b/w Net Profit and Operating Cost is very
strong. The F value of the regression model is found statistically significant ,
because F- value 19654.38 is greater than the significant value of 0.00454.
The slope of the Operating Cost is negative it means when the operating cost will
increase ,the Net profit will decrease. The coefficient of Operating cost is (0.30)
which means that the amount of as change in the predicted value of the Net Profit
associated with a one unit change in the value of the Operating Cost . P-value is
0.0045 which is less than 0.05 it means that p-value lies in the rejection area so we
will reject the Null Hypothesis.
2: HYPOTHESIS FOR FLIGHTS PER AIRCRAFT AND NET PROFIT
H-O: There is significant relationship b/w FLIGHTS PER AIRCRAFT and profitability of the airlines.(β = 0)H-A: There is no significant relationship b/w FLIGHTS PER AIRCRAFT and profitability of the airlines. (β ≠ 0)
Statistically:
H0:β2=0
HA: β2 ≠ 0
SUMMARY OUTPUT
Regression Statistics
Multiple R 0.73
R Square 0.53
Adjusted R Square 0.06
Standard Error 8,135.48
Observations 3.00
III. Factors Affecting Profitability of Airline Industry of Pakistan 21
ANOVA
df SS MS F Significance F
Regression 1.00 75,028,685.30 75,028,685.30 1.13 0.48
Residual 1.00 66,186,082.67 66,186,082.67
Total 2.00 141,214,767.97
Coefficients Standard Error t Stat P-value Lower 95% Upper 95%
Intercept (21,038.97 16,001.52 (1.31) 0.41 (224,356.66) 182,278.71
Flts per A/C 13.69 12.85 1.06 0.48 (149.64) 177.01
Dependent Variable: Net ProfitIndependent Variable: FLIGHTS PER AIRCRAFT
Y = a + bX
After putting the values of the result the equation will become as under:-
Net Profit = - 21084.97 + 13.69x
Interpretation of the Result: The regression analysis shows, the correlation b/w
the Net Profit and Flights per Aircraft is 73% and there is 53% of variation in Net
Profit ( dependent variable ) is explained by the Flights per Aircraft ( independent
variable ) which shows the relationship b/w Net Profit and Flights per Aircraft is not
strong. The F value of the regression model is found statistically significant ,
because F- value 1013 is greater than the significant value of 0.48
Beta is 13.69. It means that the slope of independent variable (Flights per Aircraft )
is positive, when the Flights per Aircraft will increase the Net Profit will also increase.
P-value is 0.48 which is > then 0.05 it means that p-value lies in the accept ion area
so we will accept the Null Hypothesis.
3: HYPOTHESIS FOR EXPERDATURE PER FLIGHT AND NET PROFIT
H-O: There is significant relationship b/w EXP. PER FLIGHT and profitability of the airlines.(β = 0)H-1: There is no significant relationship b/w EXP. PER FLIGHT and profitability of the airlines. (β ≠ 0)
III. Factors Affecting Profitability of Airline Industry of Pakistan 22
Statistically:
H0:β3=0
HA: β3 ≠ 0
SUMMARY OUTPUT
Regression Statistics
Multiple R 1.00
R Square 1.00
Adjusted R Square 1.00
Standard Error 501.92
Observations 3.00
ANOVA
df SS MS F Significance F
Regression 1.00 140,962,847.91 140,962,847.91 559.55 0.03
Residual 1.00 251,920.06 251,920.06
Total 2.00 141,214,767.97
Coefficients Standard Error t Stat P-value Lower 95% Upper 95%
Intercept 6,470.09 555.93 11.64 0.05 (593.65) 13,533.83
Exp. Per Flt (0.01) 0.00 (23.65) 0.03 (0.02) (0.00)
Dependent Variable: Net ProfitIndependent Variable: EXP. PER FLIGHT
Y = a + bX
After putting the values of the result the equation will become as under:-
Net Profit = 6470.09 - 0.01x
Interpretation of the Result: The regression analysis shows, the correlation b/w
the Net Profit and Exp. Per Flight is 100% and there is 100% of variation in Net Profit
( dependent variable ) is explained by the Exp. Per Flight ( independent variable )
which shows the relationship b/w Net Profit and Exp. Per Flight is very powerful.
The F value of the regression model is found statistically significant , because F-
value 559.55 is greater than the significant value of 0.03.
The slope of the Exp. Per Flight is negative it means when the Exp. Per Flight will
increase ,the Net profit will decrease. The coefficient of Exp. Per Flight is (0.01)
III. Factors Affecting Profitability of Airline Industry of Pakistan 23
which means that the amount of as change in the predicted value of the Net Profit
associated with a one unit change in the value of the Exp. Per Flight. P-value is
0.03 which is less than 0.05 it means that p-value lies in the rejection area so we will
reject the Null Hypothesis.
4: HYPOTHESIS FOR PASSENGER PER FLIGHT AND NET PROFIT
H-O: There is significant relationship b/w PAX. PER FLIGHT and profitability of the airlines.(β = 0)H-A: There is no significant relationship b/w PAX. PER FLIGHT and profitability of the airlines. (β ≠ 0)
Statistically:
H0:β4=0
HA: β4 ≠ 0
SUMMARY OUTPUT
Regression Statistics
Multiple R 0.98
R Square 0.96
Adjusted R Square 0.91
Standard Error 2,495.46
Observations 3.00
ANOVA
df SS MS F Significance F
Regression 1.00 134,987,461.21 134,987,461.21 21.68 0.13
Residual 1.00 6,227,306.76 6,227,306.76
Total 2.00 141,214,767.97
Coefficients Standard Error t Stat P-value Lower 95% Upper 95%
Intercept (33,557.09) 6,352.32 (5.28) 0.12 (114,270.61) 47,156.43
Pax. Per Flt 168.97 36.29 4.66 0.13 (292.17) 630.12
Dependent Variable: Net ProfitIndependent Variable: PAX. PER FLIGHT
Y = a + bX
After putting the values of the result the equation will become as under:-
III. Factors Affecting Profitability of Airline Industry of Pakistan 24
Net Profit = -33557.09 + 168.79x
Interpretation of the Result: The regression analysis shows, the correlation b/w
the Net Profit and Pax. Per Flight is 98% and there is 96% of variation in Net Profit
( dependent variable ) is explained by the Pax. Per Flight ( independent variable )
which shows the relationship b/w Net Profit and Pax. Per Flight is very strong. The
F value of the regression model is found statistically significant , because F- value
21.68 is greater than the significant value of 0.13.
Beta is 168.97 The slope of PAX. PER FLIGHT is positive when the Pax. Per
Flight will increase the Net Profit will also increase. P-value is 0.13 which is > then
0.05 it means that p-value lies in the accept ion area so we will accept the Null
Hypothesis.
5.0.0 Conclusion and Recommendations
III. Factors Affecting Profitability of Airline Industry of Pakistan 25
Here we had observed major factors affecting the profitability of airline industry. We
had collect and analyze the data for the period of 2005 – 2009. Population of our
study is based on 20 Airlines which are providing their services in Pakistan, out of
which 17 are foreign airlines and 03 are locally operated. So that the data set
analyzed in this study had collected and consider only those airlines which are
operated from Pakistan.
In this section of the project, the following areas are further to be discussed:
1- Discussion: Discussing about summary of findings/ results
2- Implementations: Applied different methods to find out how effectively and
efficiently airlines are managing their Finance, Fleet, Employees & Services
in order to improve/ enhance their profitability.
3- Conclusion: To summarizing the main area covered in the report, further
comments and judgment
4- Recommendations: Giving suggestions to improve the profitability. and study
about what is left for future to be further explored.
5. Suggestion for further studies. :Revenue, operating cost and fleet utilization
must be consider for further study, as far as my project results/study shows
we/Pakistan is lacking in these major areas.
5.1.0 Conclusion:
My research study results reveals that Pakistan is effectively using its resources in
airline industry but lacking behind in some areas where it need more focus for
improving its airline industry s well as its economy as airline industry plays major role
in any country’s economy.
Research shows that factors such as Operating Cost, Flts per Aircraft, Exp. Per
Flt and PAX. Per Flight have strong relationship with the Net Profit of the
Airline Industry of Pakistan. In order to increase their Revenue, the Airlines of
Pakistan should put in their best, minimize their Operating Cost and should utilize
their Aircrafts efficiently.
III. Factors Affecting Profitability of Airline Industry of Pakistan 26
It is revealed that PIA is operating 68.95% of total flights and facilitating 56.30% of
total passengers flying from Pakistani Airlines. It is also revealed that PIA profitability
is effected by the excessive Operating Cost, poor utilization of aircrafts ( fleet ) and
overcrowded employees. Their Average operating cost per Flight is Rs. 20,724,14/=,
Flights per Aircraft is 814(flights), Passengers handling per Employee is
213(passengers), Aircraft handling per Employees are 445(employees),
Passengers per Flight is 115.6(passengers ), profit earned per flight is Rs. –
47114 /= , Lost baggage per flight average is 0.088 and Average Flight cancellation
is 0.76 which are also not good .
Air Blue is operating only 17.63% of the total flights and facilitating 25.94% of the
total passengers flying from Pakistani Airlines. It is viewed that their Average
operating cost per Flight is Rs. 1,379,35/=, Flights per Aircraft is 1685(flight),
Passengers handling per Employee is 1010 (passengers), Aircraft handling per
Employees are 501(employees), Passengers per Flight is 208.2 (passengers ),
profit earned per flight is Rs. 101598 /=, Lost baggage per flight average is 0.049
and Average flight cancellation is 0.027. Air Blue is required to induct more aircrafts
in order to bring good impact on the revenue and profitability. Their Fleet Finance
and Staff utilization is already quite effective.
It is also revealed that Shaheen Air International is operating only 13.42% of the
total flights and facilitating 17.76% of the total passengers flying from Pakistani
Airlines. Their Average operating cost per Flight is Rs. 1,512,54/=, Flights per
Aircraft is 1071(flights), Passengers handling per Employee is 332 (passengers),
Aircraft handling per Employees are 397(employees) and Passengers per Flight
is 187.6 (passengers), profit per flight is Rs. 74437 /=, average flight cancellation is
0.121 which is high in all and their lost baggage per flight is 0.074. Shaheen Air
International have to reduce their Operating Cost. They have to upgrade their fleet
which will not only reduce their maintenance Cost but also improve the fleet
utilization so that their flight cancellation and delay will be reduced and profit /
revenue will increase.
III. Factors Affecting Profitability of Airline Industry of Pakistan 27
5.2.0 Scope for further Studies.
There is a great scope for further studies in Revenue management, operating cost
and fleet utilization. My study results show that Pakistan is lacking behind in these
areas.
It is also revealed through the study that the major areas for further studies are as
under:-
- How to decrease the level of corruption
- How to improve the quality of customer services
- How to overcome overstaffing
- How to overcome the influence of Government officials on rules and
regulations
- The usage of state of art technologies.
- How to motivate crew for good performance
- How to create co-operative environment
- Study of developing safety culture.
These are the major areas which need more importance for further studies.
III. Factors Affecting Profitability of Airline Industry of Pakistan 28
ANNXURES: Total Revenue
I
Air Line 2009 2008 2007 2006 2005 AveragesPIA 94563765000 89201257000 70480734000 70587146000 64074470000 77781474400Airblue 9949219000 8040305000 5941833000 3972082000 1516061000 5883900000SAI 3139178553 2643173007 2390842395 2171619433 1665236226 2402009923
Total ExpenditureAir Line 2009 2008 2007 2006 2005PIA 78629427000 85275811000 66221976000 69882217000 58940836000 71790053400Airblue 9143385000 7683060000 5416284000 3523973000 1452186000 5443777600SAI 3054728897 2572894319 2208871203 2152412536 1837236504 2365228692
Operating ProfitAir Line 2009 2008 2007 2006 2005
PIA -4064996000-
31377642000 -5935076000 -7648148000 -1759442000-
10157060800Airblue 213146000 -54560000 143992000 202188000 -74487000 86055800SAI 168305643 70278688 181971192 19206897 -172000278 53552428.4
Net ProfitAir Line 2009 2008 2007 2006 2005
PIA -5822431000-
35880157000-
13398706000-
12763420000 -4411657000-
14455274200Airblue 361013000 51917000 89914000 152994000 -82067000 114754200SAI 93223288 60313536 173518880 67403616 19943304 82880524.8
No. of PassengersAir Line 2009 2008 2007 2006 2005PIA 4388431 4231288 4037070 4215735 4458388 4266182.4Airblue 2306417 2109969 2016775 1893939 1501218 1965663.6SAI 1191957 1193017 1440281 1533222 1364019 1344499.2
III. Factors Affecting Profitability of Airline Industry of Pakistan 29
No. of FlightsAir Line 2009 2008 2007 2006 2005PIA 41127 38007 31858 35602 39083 37135.4Airblue 10653 9593 9611 8718 8906 9496.2SAI 7647 7075 6791 7345 7275 7226.6
No. of EmployeesAir Line 2009 2008 2007 2006 2005PIA 23163 22036 18149 18282 19263 20178.6Airblue 2471 2286 1979 1643 1468 1969.4SAI 5609 5106 4257 3532 3081 4317
No. of AircraftAir Line 2009 2008 2007 2006 2005PIA 40 41 46 51 54 46.4Airblue 6 6 5 6 5 5.6SAI 12 11 10 9 10 10.4
Revenue per passengerAir Line 2009 2008 2007 2006 2005PIA 21548 21081 17458 16744 14372 18240.6Airblue 4314 3811 2946 2097 1010 2835.6SAI 2634 2216 1660 1416 1221 1829.4
Revenue per FlightAir Line 2009 2008 2007 2006 2005PIA 2299311 2346969 2212340 1982673 1639446 2096147.8Airblue 933936 838143 587018 455618 170229 596988.8SAI 410511 373593 352060 295660 228898 332144.4
III. Factors Affecting Profitability of Airline Industry of Pakistan 30
Expenditure per passengerAir Line 2009 2008 2007 2006 2005PIA 17917 20154 16403 16576 13220 16854Airblue 3964 3641 2686 1860 967 2623.6SAI 2563 2157 1534 1404 1347 1801
Expenditure per FlightAir Line 2009 2008 2007 2006 2005PIA 1912 2244 2079 1963 1508 1941.2Airblue 858 801 564 404 163 558SAI 699 664 625 593 553 626.8
Profit per FlightAir Line 2009 2008 2007 2006 2005PIA -41572 -59041 -43576 -48503 -42879 -47114.2Airblue 143888 123412 132355 127549 -19215 101597.8SAI 86191 78525 75551 79177 52742 74437.2
Profit Per PassengerAir Line 2009 2008 2007 2006 2005PIA -388 -527 -343 -411 -376 -409Airblue 663 561 630 591 -108 467.4SAI 552 465 356 381 273 405.4
Revenue per EmployeeAir Line 2009 2008 2007 2006 2005PIA 4082535 4047976 3883450 3861019 3326298 3840255.6Airblue 4026394 3517194 3002442 2417579 1032739 2799269.6SAI 559668 517660 561626 614841 540485 558856
PAX handled per employeesAir Line 2009 2008 2007 2006 2005
III. Factors Affecting Profitability of Airline Industry of Pakistan 31
PIA 189 192 222 230 231 212.8Airblue 933 922 1019 1152 1022 1009.6SAI 213 234 338 434 443 332.4
Aircraft handled per EmpAir Line 2009 2008 2007 2006 2005PIA 579 537 394 358 356 444.8Airblue 412 381 936 411 367 501.4SAI 434 426 425 392 308 397
Passengers Per FlightAir Line 2009 2008 2007 2006 2005PIA 107 112 127 118 114 115.6Airblue 217 220 210 216 178 208.2SAI 156 169 212 208 193 187.6
Flights per AircraftAir Line 2009 2008 2007 2006 2005PIA 1028 927 693 698 724 814Airblue 1775 1598 1820 1453 1781 1685.4SAI 1007 1015 1049 1186 1098 1071
No. of lost Baggage ClaimAir Line 2009 2008 2007 2006 2005PIA 4093 3721 3997 2354 1917 3216.4Airblue 406 468 417 493 518 460.4SAI 641 713 647 779 848 725.6
Lost Baggage per FlightAir Line 2009 2008 2007 2006 2005PIA 0.0995 0.0979 0.1255 0.06612 0.04905 0.087614Airblue 0.0381 0.0487 0.0434 0.0565 0.0582 0.048980SAI 0.0838 0.0707 0.0853 0.07615 0.0516 0.073501
No. of Cancel FlightIII. Factors Affecting Profitability of Airline Industry of Pakistan 32
Air Line 2009 2008 2007 2006 2005PIA 187 239 1087 441 329 456.6Airblue 338 254 183 429 89 258.6SAI 1107 944 897 739 684 874.2
Average Flight CancellationAir Line 2009 2008 2007 2006 2005PIA 0.0995 0.0979 0.1255 0.01239 0.049 0.076858Airblue 0.03173 0.02648 0.01904 0.04921 0.00999 0.02729SAI 0.14476 0.1334 0.13208 0.10061 0.09402 0.120974
Operating CostAir Line 2009 2008 2007 2006 2005PIA 98628760000 72084990000 71764150000 79164370000 67075580000 77743570000Airblue 581351000 411805000 417902000 286319000 141149000 367705200SAI 1267179000 1049809000 772820000 712312000 577630000 875950000
Operating Charges per FlightAir Line 2009 2008 2007 2006 2005PIA 2398151 3170452 2398638 2223593 171234 2072413.6Airblue 154572 142928 143482 132842 115849 137934.6SAI 165709 148383 163801 148979 129399 151254.2
Operating Charges per passengerAir Line 2009 2008 2007 2006 2005PIA 22475 28478 18929 18778 15045 20741Airblue 3252 3195 3207 3151 3094 3179.8SAI 3963 3880 3537 3465 3423 3653.6
III. Factors Affecting Profitability of Airline Industry of Pakistan 33
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www.airblue.com
www.shaheen air international.com
www.secp.com.pk
www.kse.com.pk
www.Google.com
www.airline history.com
III. Factors Affecting Profitability of Airline Industry of Pakistan 35