PIA: No big surprises

Historically Pakistan International Airlines is quite capable of churning gargantuan losses on its own. In the outgoing quarter, the national flag carrier piled up Rs4.2 billion in losses, a whopping 68 percent more than the same period last year.
But contrary to prior periods, this loss is largely attributable to rising fuel costs. In 1QCY11, aircraft fuel expenses surged 55 percent over the same period last year to a towering tally of Rs13 billion.
This surge in the cost of fuel overshadowed some promising improvements on other accounts. Sales improved by 15 percent against 1QCY10 in the period under review to stand at Rs26 billion.
Cost cutting measures that began in 2008 appear to be reaping some fruit for the company. In the outgoing quarter, distribution expenses remained almost stagnant.
Administrative expenses, which have long been considered one of the biggest drains on PIA, actually receded by 6 percent during the period. As a percentage of sales, both administrative expenses and distribution costs slid a percentage each, to 6 percent of sales each.
The companys treasury department has also earned a pat on the back by improving currency gains by 118 percent over the same period last year.
On the other hand, finance costs continued their role as a dampener just as in other public sector enterprises.
Company officials expect sales revenues to increase in the ongoing quarter on account of traffic from Umrah travellers. "The Umrah routes are especially beneficial because once a routine is established, occupancy rates tend to be higher on outbound and inbound flights," said a company official.
However, less optimism prevails on the expected impact of fuel costs on PIAs profitability. Innumerable bureaucratic hurdles and the mushrooming inter-corporate debt in the countrys energy sector are two huge impediments between PIA and a fuel-stocking initiative.
Knowing that international prices of oil are not expected to drop significantly in the foreseeable future, PIA appears caught between a rock and a hard place when it comes to shaving off losses.

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PAKISTAN INTERNATIONAL AIRLINES

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(Rs mn)                   1QCY11   1QCY10     chg

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Sales                    26,182   22,848      15%

Aircraft fuel            13,107    8,476      55%

Other costs of services  12,273   11,636       5%

Gross profit                803    2,736     -71%

Gross margin                  3%      12%    -74%

Distribution costs        1,604    1,607       0%

Administrative expenses   1,496    1,599      -6%

Exchange gain               730      335     118%

Finance cost              2,393    2,295       4%

Loss                      4,244    2,529      68%

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Source: KSE notice