PIA: alarming administrative, distribution expenses

Pakistan International Airline (PIA) posted a loss of Rs 5.39 billion in the half year ended June, as the firms overstaffed establishment and excess number of employees continued to take a toll on its bottom line - eroding the positive impact of falling fuel cost.
Despite some serious attempts to revamp the system and corporate culture by present management, PIA continues, more or less, on its lurching bureaucratic structure. Administrative and Distribution expenses for the half year have been 14 percent of the total revenue, an extremely high figure compared to other sectors.
Following the massive losses in 2005 blamed on rising fuel costs, the board approved hedging fuel prices in 2006, but the slow decision making process delayed any actions. The company paid the price for its late actions when fuel prices went through the roof in 2008 resulting in even more losses.
The effect of fuel prices on the companys bottom line is evident from the current half year result, loss per share decreased to Rs 2.5 from Rs 8.6 in the corresponding period last year. The decrease in loss can be attributed mainly to sliding fuel prices that averaged approximately $60 per barrel compared to $100 per barrel in 1HCY08.
This helped lower PIAs cost of aircraft fuel to Rs 12.3 billion in the current period, from Rs 19.6 billion in the year ago period. Rising interest payments on debts for financing fuel continued to be a massive drain on PIAs operational effort. Finance costs jumped 29 percent during the period due to an increase in the current portion of its long-term financing.
But on a positive note, this is a spot of sunlight on an otherwise dark quarter as it implies that the company has paid off a significant portion of its long term debts and future financial costs may be lower as a result. The company reported much lower exchange loss of Rs 2.99 billion, compared with Rs 8.848 billion in the corresponding period last year, when PIA was under pressure due to its hedging mishap.
With fuel costs playing a major role in determining PIAs bottom line, the firm has been lucky during the current fiscal year so far, but if a mechanism is not put in place to control the effects of oil prices on the company, PIA could be put into a delicate position yet again.

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PIA P&L

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RS (MN)                  2QCY09    2QCY08    (+/-)%  1HCY09    1HCY08    (+/-)%

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Revenue                  20,673   1 9,736       5%  41 ,921    37,562       12%

Costof services         (17,498)  (19,903)    -12%  (34,152)  (37,507)      -9%

AircraftFuel             (6,528)  (10,976)    -41%  (12,381)   (19625)     -37%

Others                  (10,970)   (8,927)     23%  (21,771)  (17,882)      22%

Gross Profit, Loss        3,175      (167)     na     7,769        55    14056%

Distribution Costs       (1,212)   (1,001)     21%   (2,611)   (2,193)      19%

Administrative Expenses  (2,174)   (1,566)     39%   (3,352)   (2,570)      30%

Exchange loss            (1,149)   (7,098)    -84%   (3,000)   (8,848)     -66%

Loss from Operations     (1,420)  (10,796)    -87%   (1,054)  (14,289)     -93%

Finance Costs            (2,370)   (1,806)     31%   (4,784)   (3,710)      29%

Loss before taxation     (3,790)  (12,601)    -70%   (5,839)  (17,999)     -68%

Loss for the period      (3,347)  (12,601)    -73%   (5,395)  (17,999)     -70%

Loss per share             1.56      6.00              2.52      8.60

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