Thursday, 01 January 2009 12:59
Dear Capt Lim,
I am blessed to be able to access such a marvelous site.
I have two questions:-
1. Are aircraft such as the A310, B737-300 and B777 still profitable today? I would like you to explain a bit especially with reference to PIA and Air India. What about the profitability of the A330 and A340-300/500/600?
2. I have read in the news that both PIA and Air India are suffering from a millions of dollars in losses along with many other airlines in the region. After losing so much, why are these airlines still around? Why don’t they go bankrupt? It is as if they are making profits but they don’t seem to meet the goals they have set.
What are the actual financial losses?
1. The newer airplanes such as the Boeing 777 and the Airbus A330/340 are generally more fuel efficient to operate than the older ones. The profitability of the airlines is not based solely on fuel-efficient aircraft alone. There are a lot of other factors as well. The most important is good management with minimum political intervention.
If you have a good leader at the top, he will improve the efficiency, modernized its fleet, optimized the workforce and runs the airlines in the way Singapore Airlines, British Airways or Qantas run their businesses. They all have been profitable airlines except for the recent global financial chaos that have affected most carriers in 2008. If PIA (Pakistan International Airlines) and Air India can emulate them, then there is hope for the airlines to stay afloat and be profitable.
Some good airlines are very proactive to ensure that they continue to maintain profitable even in bad times. This morning when I read the newspapers, Singapore Airlines has started proposing unpaid leave for its cargo pilots for up to 30 months after the global economic slump. This is to deal with an expected surplus of pilots next year and beyond as the company sidelined aircraft in the face of falling demand. (This is not very good news for the pilot community)
2. Remember PIA and Air India are national airlines. Despite theirs losses, the governments are unlikely to let them go bankrupt. However, the story may be different if they are fully privatized because when private funds or investors are unwilling to come in, the government’s intervention may be seen as an unfair bail out and they may have to go bankrupt.
Look at Alitalia - the biggest airline of Italy. It is on the verge of bankruptcy. Yes, the latest jaw-dropper is whether this loss-making, government-funded, battered airline will live to see another year.
The Italian government owns 49.9% stake in it. It loses about US$2.8 million a day and has faced mounting union pressure against layoffs and measures meant to keep it flying. A strong labor union will only expedite the demise of the airline.
I don’t know the actual financial losses of PIA and Air India and if I am not mistaken, they are unlikely to go bankrupt in the right sense of the word!