Financial Analysis of Pakistan International Airlines

Topics: Generally Accepted Accounting Principles, Pakistan International Airlines, Airline Pages: 15 (2848 words) Published: December 20, 2010
Submitted by Chemical Engineer Adnan Khalid
Submitted to : Dr rashid Ahmed
Institute Of Business and Management, UET, Lahore.


Back ground and History
Airline Industry General Environmental Analysis The airline industry is very stable and unlikely to change in the near future. There are many reasons for this. Air travel continues to grow and will continue in this fashion as long as the economy stays in an upward trend. US domestic air traffic grew 2.3% in 1999 and 3.5% in the first six months of 2000 according to Air Transportation Association. The percentage of flyers has increased an average of 2% each year and the percentage of people who have ever flown before increased from 73% in 1993 to 81% in 1997. (Airport Transport Association, Internet). The top three reasons that people fly are business trips (47%), visiting relatives (38%) and going on vacation (13%). Most airline revenues are gained from the fares they charge these passengers, but they also earn ancillary revenues from transporting mail, shipping freight, selling in-flight services and from serving alcoholic beverages (Airport Transportation Association, Internet). The primary target market of airline passengers today is the business traveler because business trips account for the majority (47%) of airline flights. Airline industry has been subject of intense price competition since it was deregulated, and the result has been a number of new carriers which specialize in regional service and no-frills operations. These carriers typically purchase older aircraft and often operate outside the industry-wide computerized reservations system. In exchange for these inconveniences, passengers receive low fares relative to the industry as a whole. This research examines two low fare air carriers, ValuJet and Southwest Airlines. By investigating these air carriers, we can better understand the economic impacts of price versus service in the airline industry as a whole, as well as, the impacts on passenger and investor confidence. Until 1978, air transport rates were approved by the government, which meant that price was not a primary competitive factor. Instead, airlines would compete on service and image. The airline industry was dominated by giants (American, United, and TWA) which offered nationwide and some international service, and by regional carriers, such as Southwest, which offered short trips between airports not served by the nationals.


MARKET INFORMAITON DIRECTOR'S REPORT TO THE SHAREHOLDERS The Directors are pleased to report that the airline has earned a pre-tax profit of Rs. 1.5 billion in the first quarter of 2003 as against a profit of 1.1 billion in the first quarter of 2002. Total revenue for the quarter amount 13.05 billion as against Rs. 1197 billion in the corresponding quarter showing an over all increase of 9% over the same period last year. Expenses for the current quarter amounting to Rs. 11.07 billion indicate an increase of 8% over Rs. 10.2 billion expenditure last year. This is mainly due to increase in fuel prices in the international markets and an ad hoc provision for increase in employees' salaries and allowances. Issue of Term Finance Certificates (TFCs) As reported in the Annual Report 2004 the airline launched Term Finance Certificates (TFCs) for Rs. 15.14 billion in February 2004. The issue was the largest in the history of Pakistan financial market. Despite the size, the issue was over subscribed up to the extent of 40% showing confidence in the policies followed by the airline Management. The airline has utilized the money wised through TFCs to pay off bridge financing of Rs. 7.73 billion borrowed earlier. The airline has also liquidated its liabilities towards employees fund over due creditors amounting to Rs. 4.27 billion

Market Development
In the first quarter the airline has increased passenger capacity by 10% over same...
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