One of the most basic economic principles is the idea of a Monopoly.
Monopoly, or Oligopoly is when one or multiple colluding companies are essentially able to corner the market. When this happens, they become a monolith of unethical racketeering and profiteering that puts up barriers for any competitors (through buyouts, mergers, and predatory pricing) and when they are out of the way, they increase prices for their products/services to squeeze profits out of a suffering market.
One of the biggest evils of the modern capitalistic world, Monopolies and Oligopolies like those of the oil/energy sector are able to lobby and fund their way in the world, influencing global powers with multiple countries being less powerful/less rich than these few companies.
The Pareto principle means that the largest amount of wealth ends up in the least amount of (rich, old, white) hands and the cycle repeats until the earth is strip-mined and the trees are all cut down. As dread inducing as it is, however, this article is not about monopolies as a whole but a look at how certain monopolies are broken and how the consumer, ultimately, can benefit from competition in a healthy market.
Zooming in towards our own country, one of the best cases of this is the country’s airline sector and how new competitors in the sector have changed the way this market functions. Specifically, we will take a look at one of the newest entrants into this industry, AirSial.
Touted by the PM at the time of its launch as the “center for export”, Sialkot and Air Sial had an immense amount of backing in the form of local businessmen that wanted to increase air-service in the manufacturing and business juggernaut of a city often overshadowed by Islamabad and Lahore. Lauded as a welcome entrant into the industry, AirSial is welcomed as a good competition in the domestic market for PIA, AirBlue and Serene Air to serve to reduce ticket prices for the masses.
Air Sial, a licensed airline, is the brainchild of members of the Sialkot Chamber of Commerce and Industry who launched the project after the success of their earlier initiative, the Sialkot International Airport Ltd.
Though the airline serves only the local demand as of now, it is slated to start service from Sialkot to the Middle-East quite soon and begin serving as a way of increasing exports of goods to improve the economic outlook of the region.
PIA had good beginnings and was at one time one of the best airlines in the world. The airline was a source of pride for the nation and served to assist even other countries with their airlines like Yemen, Philippines, and even the UAE. Unfortunately, one of the effects of having a monopoly on the national domestic airways was the problem of inefficiency and incompetence.
Aggravated by political interference and over-staffing, PIA has come down to a level where its pilots are accused of Human trafficking, trying to fly whilst inebriated, and most recently, not flying with legitimate licenses to say the least. Suffering from issues of corruption, fraud and inefficiency, PIA allowed for other players to enter the market. The infamous AirBlue entered in 2004, followed by SereneAir in 2017, and then the topic of today’s discussion-AirSial two years ago in 2020. With Fly Jinnah slated to enter the industry in 2022, the last five years have seen an unprecedented rise in competition when it comes to Domestic airlines in the country.
With a fleet of just three aircraft, AirSial became the third private domestic airline of the country in 2020. Inaugurated by the now deposed PM Imran Khan during a time of severe pandemic related lock-downs, AirSial has had a beginning fraught with turbulence. Though, just a few years ago, any company looking to apply for licenses to operate in the industry was slated to be profitable and successful, a myriad of factors has caused it to be much less so in the years that followed.
In 2016, International Air Transport Association (IATA), a trade body that represents 280 airlines or 83% of the world’s air traffic, projected intra-Pakistan air traffic would grow at almost 10% per annum over the next 20 years. If this projection turns out to be accurate, the local traffic will outpace the global annual growth rate projection by more than 100% during the same period.
These projections were mostly due to the projected economic and infrastructural growth due to the CPEC agreements that came in the years before. China has shown signs of aggressive investment in areas of import in Asia and Africa, and due to the amiable relations and important geo-political state of the country, Pakistan became the ideal place for this investment to happen in the South Asian region.
Thus it made sense that when Chinese investment and labor arrived in the country there would be need for fast domestic travel to cater to the hordes of Chinese and Pakistani engineers and specialized labor. This has shown to be true, as it has become very common to spot Chinese travelers in their full-body hazmat suits to travel between Karachi and Islamabad to and from various spots of import for China.
Unfortunately, the projections have not held true for the domestic carriers (two that arrived, Sarene and Sial and four more projected to follow) as there has been stiff competition on behalf of Gulf carriers like Qatar, Etihad, and Emirates (highly disappointing since these airlines are from nations that were helped in this regard by PIA itself).
These foreign airlines were allowed to operate in the country due to NAP in 2015 and waging price war with the local airlines since they have entered the market. This has caused them to bleed money leading into the pandemic era of 2020-2022 which caused a drop in profit for all airlines internationally. Though heavy hitters like Qatar, and Etihad have been able to take this on the chin and keep on going, it has been very difficult for local operators to function profitably. This is also because the international airlines offer a certain luxury service that is very difficult for local operators to match.
With heightened operating costs due to oil prices and badly implemented government taxation policy along with a low margin (less than 5% nationally) local domestic airlines are suffering tremendously and have been bleeding money for the last five years.
