Leadership Change In Pakistan Airlines

8/6/2019 Leadership Change In Pakistan Airlines

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Master of Business Administration

Managing Change

Leadership Change in Pakistan Airlines PIA



Contents

Contents ................................................................................................................ 2

INTRODUCTION ...................................................................................................... 5

1.1 Drivers for change ........................................................................................ 6

1.2 Internal Driver .............................................................................................. 6

1.2.1 Employees& Trade Union ....................................................................... 6

1.2.2 Top level Management ........................................................................... 6

1.2.3 Quality .................................................................................................... 7

1.2.4 Consistent loss ....................................................................................... 7

1.2.5 Corruption .............................................................................................. 8

1.3 External Driver .............................................................................................. 8



2.1.2 Network development ......................................................................... 12

2.13 Fuel and Currency Hedging ................................................................... 13

2.2 Planning for Strategic Risk .......................................................................... 14

2.2.1 Globalisation and Competition .............................................................. 14

2.2.2 Trade union and ethnic groups ............................................................. 15

2.2.3 Branding .............................................................................................. 15

2.3 Operational Risk ......................................................................................... 15

2.3.1 IT & Marketing ...................................................................................... 15

2.32 Employee and Key Suppliers Relationship .............................................15

2.4 Hazard Risk ................................................................................................ 16

2.4.1 Network Disruption and CO2 Emission ................................................. 16

How Change was managed? ............................................................................... 16

3.1 Financial Plan Changes and Resistance ...................................................... 16

3 1 1 Fuel Foreign Exchange Hedging and Resistance 17



4.3 Failure Areas ............................................................................................... 21

4.4 Actions to be taken ..................................................................................... 21

References ........................................................................................................... 22

6. Appendices ...................................................................................................... 23

6.1 Literature .................................................................................................... 23

6.2 Background ................................................................................................ 25

6.2.1 History ................................................................................................ 25

6.2.2 Figure 1 Region wise Sales for PIA ........................................................ 26

6.2.3 Figure 2 Capacity VS Utilization in Millions ...........................................27

6.2.4 Figure 3 Seat Factor for PIA .................................................................. 27

6.2.5 Figure 4 Revenue by Segment in Millions .............................................28

6.2.6 Figure 5 External & Internal Environment of PIA ......................................28

6.2.7 Table 1 PIA Financial Position for Three years .........................................29

6 2 8 Table 2 Techniques Used/Not used/ should have used 31





some corruption scandal highlighted by public accounts committee. The pressure from the

people, employees, trade unions, competition and increasing loss has forced the government

and management to make a major change in the top level management and its policies.

1.1 Drivers for changeDrivers for the change are prioritised by their significance, rate of change and their

impact on organisation if change would not have been taken.

1.2 Internal Driver

1.2.1 Employees& Trade Union

The employees and trade union including the crew members, pilots and other staff

are very strong in the PIA, and they go for strike very happily when they feel anything

against them. These results in cancellation of domestic and international flights and add

h l t th St ik b il t d ll ti f 500 d ti d



cost. The government and the management decided to reduce the number of directors in

governing body. By decreasing the number of executives and directors company could

have save lot of money.

1.2.3 QualityThe quality issues related to ticket booking, customer care service, in flight service

and EU restriction to some plane due to safety issues forced the management to go for

major change. In order to regain its reputation and recover loss, it was very important to

invest in new technology by introducing e-ticketing, online customer services, in flight

entertainment services, up gradation of the fleets etc.

The quality related issue effected company image at international level after

restriction by EU and PIA lost its number of flights at domestic and international level



Dollar and sign hedging agreement for fuel, if they want to be in business or they die by

continuous loss.

1.2.5 Corruption

The corruption scandals in purchasing new aircraft and recruitment of the employees

caused huge anger in general public and media and resulted in public account committee

enquiry.

1.3 External Driver

1.3.1 Globalisation

PIA was flying to different destination including Europe, Asia, Middle East, USA and

Canada. Majority of its jet planes were old and after the restrictions posed by EU the

company faced a loss of Rs 3.9 billion in 2007 first quarter. The increasing competition

d l b li ti d t iti i USA d C d f d th t



1.4 Key Management Objectives in making change

1.4.1 Strategic Objectives

Increase Profitability 5 % up-to 1 billion 2008-2009

For increasing the revenue and profit the company decided to

• Cut the management position from 12 to 8

• Investing in US dollar (after exchange loss of Rs 24 billion 2007)

• Fuel Hedging agreement (after the loss of Rs 15.5 billion in 2007)

1.4.2 Regain the Brand Image

• Selling Old fleet

• Adding new plane to fleetB777s six new



1.5.2 Cost and Speed

• Online Customer support, reservation, cancellation etc

• Getting rid of old fleets causing $18 million on overhauling and consuming more

oil.

1.5.3 Dependability and effectiveness

2. How Managers Planned things?

The change in the PIA leadership was a forced change (like McKinsey’s practice

“pull or out”) initiated by defence committee (government hold 86% of company share) so

when the new management took over they were facing some crucial issues which needed to

be addressed on priority basis; like the fuel prices, exchange loss which caused the company

to bear Rs 15 billion and 24.4 billion respectively in 2007, along with issues related to fleet

modernisation, revised marketing strategy, with adoption of new technology and employee





2.1.1 Economic Condition

The company was facing continuous loss and the threats of bankruptcy after it losses

reached Rs 35.8 billion. The management of the company decided to cut down the executive

level position from 12 to 8.

2.1.2 Network development

International Network

PIA’s was facing the restriction from the EU so they decided to modernise their fleet.

The restriction posed by the EU forced the company to think in new way and made new

opportunities for the company. The company Planned to start its flights on USA and Canada

routes. They proposed the flight from New York to Pakistan as non stop using B777 with

efficient service and reducing time for journey. After negotiating with EU restriction were

removed after 6- 8 months. PIA management planned another non stop services to



On the other hand the management also proposed its new flights for 2009 to following

destination which are as follow:

• Islamabad to Stansted Via Dubai

• Two More Flights to London per week in summer

• Non Stop flight to Barcelona Spain in Summer from Lahore and Islamabad

• Two flights a week to Dubai and Abu Dhabi Via Dera Ismail Khan and Rahim Yar Khan

• Paris and Milan

• Non stop flight between Islamabad and Kathmandu

•

I l b d t K l L



40% for future. The management also decided to have USD Vs Rupee financing due to very

high rate at the end of 2007 and 2008 which cost the company up to 24 billion rupees.

The company proposed to sign agreement for purchasing new fleets with ABN

AMRO with US EXIM cover, also the company signed an agreement with State bank of

Pakistan for proper remittance from overseas through PIA and also the purchase of the

ticketing outside country can bring foreign pool of fund. The management also planned to

have reduction of LIBOR and fleet insurance on the $1 billion long term debts availed at

different times for leasing fleet.

2.2 Planning for Strategic Risk

2.2.1 Globalisation and Competition

The new management of PIA decided to add B777s six new Boeing 777 family



2.2.2 Trade union and ethnic groups

The trade union and ethnic groups were very strong in PIA, the new management

after six month decided to arrange new election, and in new election the management

supported representative and groups were elected.

2.2.3 Branding

PIA brand image was hit very hard with EU restrictions. The company after getting

lease of new planes and complying with EU safety standard got certificate for EU aviation

and IATA and came up with revised incentive program for its customers.

2.3 Operational Risk

2.3.1 IT & Marketing

PIA’s 60% of the reservation was done by the agencies or offline. The management

realised the importance of the IT and started investing in the IT project to enhance its



owned lot of debt to be paid to PSO, so they have singed new agreements for the settlement

of the old debt and issued some quick instalment to boast confidence.

2.4 Hazard Risk

2.4.1 Network Disruption and CO2 EmissionThese issues were solved by modernisation of fleet.

Other technique could be used by mangers for planning change like (PIA’s balance

score card and McKinney’s 7s for planning change put table 3 and figure 6 here).

(For some related literature and practices used/did not used during change see appendix 1 and

table 2)

How Change was managed?

The change process at PIA was bit similar to Kotter’s 8 steps of change. When the





3.2 Strategic Changes and Resistance

3.2.1 Executive level Change and Resistance

The reduction in executive level positions and leadership change was initiated by the

government after the drivers which forced for the change. Reducing the number of directors

from 12 to 8 and then merging and downsizing the departments, by consulting the

management in PIA. The new management did not faced any resistance in this area, because

there was no point for 12 executives as company bearing Rs 35.8 billion loss and these

executive could not work for reduction of losses.

Secondly the leadership change which welcomed by the staff and trade union.

Because they were not happy with the past management, they were expecting the new

management will safeguard their interest and will listen to them. Another important fact is

that in 2008 government in the country was changed, so the new government like always



3.3 Operational Changes & Resistance

3.3.1 IT / Marketing Changes and Resistance

PIA implemented the change in very good way in IT and marketing department.

Obviously there was resistance as 60% of the offline working was shifted to the IT, however

it was necessary and no option was left, so company provided training to employees and

incentives as well. They also revised strict rules for the agents to comply with new online

booking, reservation and ticketing services.

3.3.2 Employees, Supplier Changes and Resistance

The employees benefit and training program were welcomed by staff, however in case

of major supplier the company agreed to pay arrears in increased instalment, as PIA was

having no option to run its flights fuel requirements.

3.3.3 Hazard Changes & Resistance



4.1.2 Hedging

PIA saved successfully Rs 500 million due to fuel hedging in2009 and hedging limit

was increased to 40% for 2010. The exchange loss was reduced to Rs 4409 million in 2010

because of USD financing. PIA was successful in negotiating with National bank and ABN

AMRO for leasing of new planned fleet and up to 2010 all the mentioned plane above were

part of PIA family. PIA successfully used old plane for cargo and saved $18 million

overhauling charge for old planes along with reduction of 9.2 % in fuel bills after induction

of new planes.

PIA was successful in negotiating with EU after getting new plane and certificates

form IATA and European Aviation Safety agency, which helped in regaining the brand image

of company, resulted in increased revenue and improved seat factor. PIA also signed the

agreement with EU-SAARC program for training of employee related to health and safety.



4.2 Operational Objectives Success

The tension amongst the employees and management was reduced after the take over

of new leadership. The airline was very much successful in providing training and benefits to

employees as per promised due to which the company in three year earned a profit of Rs 720

million. After the induction of new planes and IT system the cost was reduced and operations

were speed up, the new planed reduced 20 minutes to every flight and resulting in time, fuel

and money saving. After the adapting of new IT system the company done survey and 97%

of its customers were happy while 3% made complaints.

4.3 Failure Areas

The management was unable to cope with the power of trade union although they settled

down the issue. The operations were running efficiently and company gained profit, however

in 2011 due to selling of air routes to Turkish airlines the strikes started again which last for

h d d d i h i i f i di h l



score card and 7s which clearly set to the company situation. Its change was related to

revision of structure, strategy, staff, skills and style.

The company could have got better result if they implemented 7s for managing change in

doing so they could have accomplish and manage the knowledge management as well. There

is huge difference between the PIA capacity function and utilization (put figure 2 here). In

order to sustainable and profitable organisation the company need to minimise the gap. PIA

needs to invest in cargo sector as it contributes only 1 % of revenue. The company huge

reliance on the passenger revenue can be threat in future as it suffered many time due to

strikes and also volcanic eruption in Europe caused huge loss to company due to flight

cancellation.

References

http://www.cipd.co.uk/



<http://www.piac.com.pk/pia_about/pia-about_corpreport.asp>, [Accessed 14 March 2011].

PIA, 2009. Annual Report 2009 [online] Available at:<http://www.piac.com.pk/pia_about/pia-about_corpreport.asp>, [Accessed 14 March 2011].

PIA, 2010. Annual Report 2010 [online] Available at:<http://www.piac.com.pk/pia_about/pia-about_corpreport.asp>, [Accessed 14 March 2011].

Sarin, S,.Sego, T,. Kohli, A, K,. Challagalla, G,. (2010) ‘Characteristics that enhance training

effectiveness in implementing technological change in sales strategy: A field based

exploratory study’, Journal of Personal Selling & Sales Management, Vol 30, no. 02, pp 143-

156.

Siegal, W. & Stearn, J (2010) ‘Beat the change management trap: Your organization is more

ready to change than you think’, Leader to Leader, Vol. 2010, no.55, pp37-44.

The irrational side of change management (2009), McKinsey Quarterly, Issue 2, pp100-109



stake holders due to the resistance by employees. Humphrey (2011) stated that people like

change however what they don’t like is consequences of the change. David (2003) argued

that the people resist change due to uncertainty, fear of economic loss, inconvenience,

breakup in social networks. It is very important for the organisation to communicate the

change, its impact and benefits to the employees and other stakeholder along with the proper

training, technical and moral support to staff before, during and after the change process.

Whenever every ten of professional or top level management employee leaves the company it

cost about $1 million to organisation (Fitz_enz, 2007). It is not only the matter of time or

money that organisation has to bear if change fails, it also loses the keep employees and when

organisation loses its key employees, it also loses the expertise and knowledge which can be

used to fulfil the customers needs.



the organisations are shifting to online business due to cost effectiveness, efficiency,

customer’s relationship and supply chain management (Shikhar et al 2010).

6.2 Background

6.2.1 History

Pakistan International Airlines head quarter is based in Karachi. The company operates in

25 countries with 39 destinations across Asia, Europe and North America and 24 at domestic

level with19, 000. Quaid e Azam the founder of Pakistan, was aware of the importance of the

airline career. He ordered M. A Isphani the industrialist to setup a airline career in June 1946,

this was the time of the for the birth of new airline which was registered as pilot project in

Calcutta. This new airline was named as Orient airway Ltd. The company first flight was

between India and Rangoon, soon after the birth of the Orient airways Pakistan came to



achieved another milestone being a first airline to start its service from Karachi to Shanghai.

PIA continued its aggressive attitude toward expanding its fleet and in 1966 two Boeing

720B, two Fokker F-27s Fokker F-27s, and two Boeing 707s were added to the family.

During the same year PIA introduced a new uniform for air hostesses designed by French

designer Pierre Cardin, This move brought storm in aviation industry and made prints of PIA

on international market. PIA got safety management system (SMS) form CAA in 2008.



Figure 1 Source: PIA annual Report 2010

6.2.3 Figure 2 Capacity VS Utilization in Millions

Capacity: Available Seat kilometre ---Utilization: Revenue Passenger Kilometre



6.2.5 Figure 4 Revenue by Segment in Millions

Figure 4: Source PIA 2010

PAC





2010 (8.39) 51.21 NA

0.22

2009 (2.72) 42.57 NA 0.252008 (17.79) 33.29 NA 0.21

Table 1: Source PIA 2010

Customers

• ACT Airlines

• Airbus

• Air Blue

• Air Universal

• Avient Aero

• Edhi Air Ambulance

• Emirates

• General Electric



• Syrian Air

• Tri – Star Airlines

Source: Annual Report 2010

Competitors

Shaheen Airlines

Air blue Airlines

Ethad Airways

Emirates Airlines

Table: 2 Practices used/not used by PIA during Change

6.2.8 Table 2 Techniques Used/Not used/ should have used

Practices/ Techniques used by Management at PIA to manage change

Issue/Problem Practice Used Not Used Should have been used

Why?



Restructuring

Restructuring,

Kaizen

activities

requirescontinuousimprovementand changesaccordingly

Hazardous/

Ethical

Restructuring Kaizen Kaizen Continuesimprovement to

protect environment

Table 2: Techniques Used/Not used/ should have used

6.2.9 Table 3 Proposed Balance Score Card for PIA



Vision/Strategy Performance

Measures

Targets

Initiatives

Financial • MarketShare/Revenue

• Seat Factor

•

New Planes lease• Fuel Hedging

• F-Exchange

5 % Per Year

3-5 % per year 3-5 per year 20% for 200940% for 2010$500 millioninvestment

Optimise RoutesFleet ModernisationMarketing/ Better ServicesInvestment in USDHedging

Customers • On time flights

• Customer Ranking

• Non-Stop Flights

• Complaints

100% till 20101st up to 2010 inPakistan5 RoutesReduce it to 1 %

TQM New plane reduced time, ontime flights

New Marketing CampaignSigning new routesBetter Service and training to

employees

Internal On ground timeOn time flightBetter Relationshipwith Customer andEmployees

<20 %83%

No strike, Improvedseat factor

Crew and staff trainingPromotional flyer, points ,extra baggage etcEmployee stock option,training and development

Learning & Growth New TechnologyInnovationAligningCrew/training

100 % online sale till2010

New fleet till 2010/Customer ServicesIT section staff

Training

E-solution adaptationLeasing 6 B777 and other Jets in companyTraining and development

Sustainability Low OperatingExpensesBetter Revenue/Market share

New

9% as compared to previous year 5 % increase to

previous year Canada, USA, Africa

Cost Cut downFleet modernization

New and improvedtechnology/ servicesGetting routes permit for new

33

Increase

Profitability

Fuel

Hedging

Lower

Cost

F-Exchange

Investment

On Time

Flights

More

Cusomer

s

Lower

Cost

Low

Pices

Non –stop

Flights

Training &

Developme

nt

Relationship

Managemen

t

Improved

Timing

Innovatio

n

Continuous

Improveme

nt

Aligning

the Crew

Low

Cost

Improve

d

Services

New

Routes



opportunities/Routes

countries

Brand Image EU RoutesPromotions

6 months to regainFlyer, points, baggage

New planes, health andsafety standards

New marketing programlaunched

Globalisation & Competition Market leader in PK

Non Stop Services

70 % market Share

2 per week

Fleet modernisation, newmarketing program

Non stop services on longroutes

Employees & Stake Holders No StrikesTraining andDevelopmentContract Renewal

Smooth operationTraining, Shareoptions30% payments this

year

New election, RepresentativeShare offered to employeesTraining givenRenewal of agreements with

partial payments

Ethics No Corruption ScandalMerit basedRecruitmentsCO2 EmissionHealth & Safety

Fair DealingsEqual employment

New Planes

Strict rules setFair selection procedure

New fleet

Table 3: Suggested Balanced Score Card for PIA

Source: Adapted From Kaplan & Norton (1994)

34

EU Routes

Regain

Promotio

nal offers

Excellent

Services

Unique

offersCompetitive

advantage

Confidenc

e building

Compensati

on &

Reward

Training

and

Developme

nt

No

Corruption

Equal

employmentEnvironmen

t Friendly



6.3.0 Figure 6: Suggested 7s Model for PIA’s Change

35

Strategy

Cost Cut down, E-solution,

Fleet Modernisation,Hedging, Relationship

Management, Training &

Development

Structure

Down sizing,

Executive 12-8 and

level and Director

Level 67-45, Opem

communication

System

Revenue Management,

Global Distributor

Reservation System, IT, E-

Solution,

Shared Values

Customers Expectations,

Service, Innovation,

Cohesiveness, Integrity,

Reliability, Safety and CSR



36

Skills

Innovative, Team

players, Technical and

planning, Learning

Style

Democratic, Employees

empowerment, encouraging

employee participation,

leading from front

Staff

Non stop flights,

Technical and planning,

Learning, New Routes

Documents

Leadership Change In Pakistan Airlines