Friday, April 6, 2018

Aviation Boom in India and Pakistan

Aviation market in South Asia is among the fastest growing in the world. It is soaring in terms of both domestic and international travel. Last year, the Indian commercial aviation market grew to 176 million passengers and Pakistan's reached 22 million. A total of 22 million passengers (7.2 million domestic, 14.6 million international) flew commercial airlines in Pakistan in 2016-17, up 5.11% from 20.7 million (6.95 million domestic, 13.76 million international) in 2015-16, according to Civil Aviation Authority (CAA). While Pakistan's international aviation market as a percentage of its population is bigger than India's, the Indian domestic market is far outpacing Pakistan's mainly due to greater competition and significantly lower airfares.

Pakistan International Aviation Market in 2016-17. Data Source: CAAP
International Travel:  

Nearly 15 million international passengers flew in and out of Pakistan in fiscal year 2016-17. This number is about a quarter of the 59 million international passengers who flew to and from India in roughly the same period, according to data available from the aviation authorities of the two South Asian countries. India's population is about six and a half times larger than Pakistan's.

Pakistan's state-owned PIA carries 3.2 million international passengers giving it only 22% market in the country's international aviation market. Other major international carriers flying in and out of Pakistan are Emirates (2.2 million),  Shaheen (1.57 million), Air Blue (1.4 million), Saudi Arabian and Qatar (1.1 million each).

Domestic Aviation:

The difference in domestic air traffic between the two countries is far bigger compared to the ratio for international traffic. India has seen its domestic air travel market soar to 117 million passengers versus Pakistan's 7.2 million in 2017.  India's combined aviation market for both domestic and international travel is 176 million versus Pakistan's 22 million passengers. 
Pakistan Domestic Aviation Market in 2016-17. Data Source: CAAP

The other difference in terms of domestic markets of the two nations is that the state-owned Pakistan International Airlines (PIA) enjoys massive 67.2% market share while the state-owned Air India has only 14.2% India's domestic market share and the rest of the market is divided among IndiGo (38.2%), Jet Airways(15.4%), Spice Jet(13.8%) and other smaller domestic airlines.

In Pakistan,  Shaheen (1.17 million), Air Blue (797,628) and Serene (386,970) have the remainder of the domestic market.

Fares and Competition:

As to the reason for India's domestic market being 16 times larger than Pakistan's, let me quote the UK's Financial Times as an explanation:  "A highly competitive domestic aviation market (in India) means that a passenger looking to fly from Delhi to Mumbai on July 1 this year, for example, can pay as little as $35. In Pakistan, someone wanting to do the roughly equivalent trip from Islamabad to Karachi will probably have to fly with the government-controlled Pakistan International Airlines and pay at least $100 to do so".

 Given the basic price-demand elasticity, it makes sense that Pakistan's domestic airfares being three times higher than India's reduce air travel demand to a mere 3.5% of Pakistan's population versus India's 8% of its population.

Level of Service:

Higher airfares in Pakistan do get you better service, according to Kiran Stacey of Financial Times. Here's how he sees it:

"Flying in Pakistan is unlike anywhere else I have been — and the polar opposite to flying in India, where I live. Departing from any of the three major Pakistani cities is the closest a modern traveller is likely to get to experiencing what flying was like in the 1950s. Checking in is effortless and there are no queues at security. At Islamabad airport, you do not even have to go to your gate: you can sit in the cafĂ© until your flight is called and then leave via a downstairs door that takes you straight on to the tarmac and a waiting minibus. Just hours earlier, I had suffered the regular indignity of catching a flight from Delhi airport. It took 20 minutes of disorganised queueing to check in, and another 30 to get through security. Getting on the aeroplane, as usual, reminded me of warfare at the Sino-Indian border, where troops are unarmed and so fight by jostling each other using only their torsos".

Highly Competitive Business:

Commercial aviation business has become much more cut-throat in recent years. It all began to fundamentally change with the passage of the 1978 US Airline Deregulation Act that made it easier for low-cost airlines to enter the market.  Regulations mandating minimum fares no long applied.

Since then, many other countries, including emerging economies, have adopted legislation similar to the US airline law.  Some of the big name airlines of yesteryears like Pan Am, TWA and Eastern Airlines have died. Number of airline passengers across the world has increased dramatically as air fares have plummeted.

State-Owned Airlines: 

Deregulation has forced state-owned airlines around the world  to either shut down or seek big government subsidies to stay in business. Running a successful airline business now requires different management skill sets and efficiencies in the current deregulated and highly competitive environment.

Part of it is technology driven transformation that enables minimizing staff and aircraft time on the ground, higher fuel efficiency and dynamic pricing based on demand. Unfortunately, state-owned airlines are finding it extremely difficult to operate in this environment.  Most of them, including PIA and Air India, incur huge losses year after year and require substantial tax-payer subsidies.

Empty Seats Flying on Karachi-Lahore PIA Flight. Credit: Monis Rahman 
I saw an example of poor management of Pakistan International Airline (PIA) a few days ago when a friend posted a picture of nearly empty cabin on a PIA flight from Karachi to Lahore. There were rows and rows of empty seats which is a rare occurrence in the airline business these days. Efficient airlines use yield management software to cut fares dynamically until their flights reach capacity.  Flying even one empty seat is seen as a problem by professional airline managers.

The other serious issue facing PIA and many other state-owned airlines is that their staffs are not recruited based on merit. It is reported that even the senior managers lacks professional experience of running a commercial airline. Instead, the PIA jobs are doled out as part of the political patronage system that gives favors to the supporters of the ruling politicians.

Summary:

Aviation markets in South Asia are growing rapidly in terms of both domestic and international travel. Last year, Indian air travel market grew to 176 million passengers while Pakistan's reached 22 million. While Pakistan's international aviation market as a percentage of its population is bigger than India's, the Indian domestic market is far outpacing Pakistan's mainly due to greater competition and significantly lower airfares.

Pakistan needs to take a page from the Indian playbook to increase competition and lower prices in the aviation market. This will expand the market, create jobs and make air travel more affordable in the country.


Here's Viewpoint From Overseas host Faraz Darvesh discussing the subject with Misbah Azam and Riaz Haq (www.riazhaq.com)

https://youtu.be/hh99nMnueBA




7 comments:

Omer F. said...

It may be bcz of geography and kind of population density. I shuttle btw Faisalabad and Peshawar and there is no flight in btw bcz no demand of it.

Riaz Haq said...

Omer: "It may be bcz of geography and kind of population density. I shuttle btw Faisalabad and Peshawar and there is no flight in btw bcz no demand of it."

Pakistan's 3.5% vs India's 8% population flying may well be partly the physical size of 2 countries accounting for some of difference between India & Pakistan. But I do think the bigger reason for it is Pakistan's domestic air fares being 3X higher than India's for same distance

Andy said...

Additionally, India has many rail corridors throughout tier 1 and tier 2 cities. For example, Shatbdi Express from Ahmedabad to Mumbai, 500km is about 6 hours and very comfortable hassle free in business. I learned that many locals especially families use these corridors because it is cheaper for families than air travel.

-Andy Davidsen

Z Basha Jr said...

With the opening of new Islamabad airport..we are poised to take off..Musharraf's dream come true..

Anonymous said...

" But I do think the bigger reason for it is Pakistan's domestic air fares being 3X higher than India's for same distance"

That is also true for price of car , motorcycle, prescription drugs and practically every middle class item, except may be home rents etc. It is due to economies of scale and the sad part is that it is self full-filling.

Anonymous said...

Not really Pakistan does not have the variety of Indian car market but some cars like Toyota corolla are at par or cheaper in Pakistan than in India.

Chanderhaas said...

India's Civilian Aviation Market Fiscal Year 2017 was 242 million of which 54 million is international. Non transit passengers flying to Nepal and Sri Lanka are classified as domestic.
https://www.ibef.org/industry/indian-aviation.aspx