PIA: still a loss, but hey, it’s not as bad as before

Just how bad is Pakistan International Airlines (PIA) doing? Let us see. For a company that has the word ‘international’ in its name, the national carrier is not exactly doing any international flying. As of  time of writing, the airline has been banned from its EU, US and UK operations, as the Pakistan Civil Aviation Authority (PCAA) is yet to meet the safety standards of the International Civil Aviation Organization (ICAO) and European Union Aviation Safety Agency (EASA). That's pretty much the entire western world off limits to the airline. According to one report, 35% of PIA’s revenue comes from those three markets.

And yet, there is one bright spot in this sad tale. On April 7, the company released its financials to the Pakistan Stock Exchange (PSX) for the year ending December 31, 2020. And yes, revenue did fall - sharply in fact, from Rs147.5 billion to roughly Rs95 billion. But here is something surprising: PIA actually managed to lower both its costs, and its loss for the year. The operating expenses fell from Rs140 billion, to Rs93 billion. And net loss stood at Rs53 billion in 2019, or the second biggest loss in the last 20 years. This has finally been curtailed to a net loss of Rs35 billion this year. Put another way, that is the smallest loss of the last five years. 

Of course, this is still nothing to celebrate. As everyone at this point knows, the company has been struggling for quite some time And as everyone else also knows, it was not always so. The airline was started in 1951, shortly after independence, when Pakistan decided it needed a national carrier. Its first flight was in June 1954, between Karachi and Dhaka, in what is now Bangladesh. And in 1955, PIA flew its first international service, between Karachi and London via Cairo. It was also the year that PIA formally took over the assets and routes of another Pakistani operator, Orient Airways, which had in effect been part of PIA since 1953. 

The following decades were a series of firsts: PIA was the first airline from an Asian land country to fly the Super Constellation (a type of plane in the 1950s). It was the first Asian airline to be granted maintenance approval by the US Federal Aviation Administration (FAA) and the Air Registration Board, predecessor of the British Civil Aviation Authority (CAA). In 1960, PIA was the first Asian airline to operate a jet aircraft (a Boeing 707-321). In 1964, it became the first non-communist airline to operate a service in China (it flew to Shanghai). It was the first airline in the world to fly to Tashkent, Uzbekistan; and also, the first Asian airline to start flights to Oslo, Norway. It was also the first airline in the world to induct the Boeing 777-200LR, the world's longest range commercial airliner. 

Unfortunately, the company has done miserably in the last 20 years (the period for which financials are publically available). Between 2000 and 2012, the company’s revenue rose from Rs39 billion, to Rs112 billion. It then fell, rising to Rs147 billion in 2019, before falling again to Rs95 billion in 2020. 

Still the expenses also climbed during that same period. In fact, between 2000, and 2020, the company’s operating expenses have exceeded operating revenue in 14 years. And that is also why the company has only recorded three years of profit in 2002, 2003, and 2004. The rest have all been losses. The years of loss were particularly deep in the latter half of the 2010s, from Rs 31,744 million in 2014, to Rs67,327 million in 2018, and finally to Rs55,451 million in 2019.

Did things improve in 2020? Not quite. According to the company’s half yearly report for the six month period ending June 2020, the company’s revenue stood at Rs51,471 million, compared to Rs65,924 million for the same six month period during 2019. Additionally, the company’s loss before taxation stood at Rs36,896 million, around the same as 2019’s Rs37,563 million. 

Then, according to the company’s latest financials for the period ending September 2020, revenue had only climbed to Rs74,362 million, compared to 2019’s Rs107,339 million.

What happened? According to PIA, the outbreak of Covid-19 pandemic in 2020 resulted in a crushing blow to the airline industry. (It is really saying something that the worst year in aviation history simply looks like a normal year when it comes to PIA’s financials.) The company’s core passenger and cargo revenue fell by 44% because of reduced passenger capacity. The charter revenue of the company increased by 98.7 % due to special cargo planes. On the bright side, because of reduced capacity, fuel costs fell by 52.9%, mostly due to the lack of flights. Similarly, direct expenses by 34.1%. 

So, what happened this year? Turns out, if you don’t fly as much, your costs also fall. The company was also helped significantly by other income of Rs11.2 billion, which did not exist in 2019, and significantly helped reduce the size of the loss. But the airline is still nowhere in the clear. And if the ban continues, then it may be some time before the company's revenues can rise again.