The government interventions and other features are affecting competition in the sector, maintained the report. The interventions can be classified according to their effects on the market, namely whether they: (i) restrict entry or reinforce dominance; (ii) facilitate collusion or limit firms’ choice of strategic variables; or (iii) protect vested interests or provide an undue advantage to certain players. As such, CAA oversees safety matters in Pakistan, ensuring compliance with the International Civil Aviation Organisation (ICAO). While Pakistan Civil Aviation Authority is entrusted with the technical regulation of civil aviation activities, it is also the owner and operator of all civilian airports (except Sialkot) and air navigation services in the country. This is contrary to ICAO guidelines, advocating separating regulatory and operational functions in the sector.
Pakistan’s Commercial Air Transport Market is still Underdeveloped: Report
In its role of the economic regulator, CAA is mandated with the oversight of monopolistic services pricing. At the same time, CAA, as a ‘dominant undertaking’, is the provider of such services, setting charges to recover its costs (plus a return). This concentration of functions leaves users of infrastructure services unprotected (airlines and passengers) in the presence of such conflict of interest, in terms of prices charged and quality rendered. The report states that Pakistan’s commercial air transport market is still underdeveloped. Despite robust traffic growth seen at the beginning of the decade, the market expanded only at a fraction of what other economies in the region experienced, as is the case of Bhutan, Sri Lanka, India and Bangladesh. Moreover, only international services that have really funnelled passenger traffic growth, whilst domestic services have remained stagnant over the years. The report recommended considering eliminating Pakistan State Oil’s exclusive rights to supply fuel to certain airports attributed and clarify access rules to catering services. The government should evaluate adopting international standards to guide licensing criteria so as to limit discretion and ensure that financial fitness tests are equally applicable to carriers, including PIA. Market concentration in international air travel in Pakistan has decreased significantly since the year 2000, directly associated with the loss of market share of Pakistan International Airlines (PIA). A common indicator of market concentration is the Hirschmann-Herfindhal Index (HHI). Overall, a commonly accepted guideline is to consider markets with HHI between 1,500 and 2,500 to be moderately concentrated, and highly concentrated above 2,500. Markets below 1,500 are considered to be deconcentrated. Despite negative financial and operational outcomes in the recent years, PIA still holds the largest international capacity share (20 percent of all seats in international flights). The two other local carriers, Shaheen (before suspending operations in 2018) and Airblue, held 7 percent of the seats each. On the other hand, Gulf carriers such as Emirates (14%), Saudia (12%), Qatar (8%), FlyDubai (5%), Air Arabia (5%), and Etihad (4%) account for 48 percent of the overall international capacity, when combined. Other airlines hold a minor share. Carriers undergo financial fitness tests to maintain the validity of their AOC (Air Operator Certificate). This is relevant for consumer protection purposes (e.g. risk of passenger losses in case of bankruptcy) and safety reasons (e.g. possible neglect of safety-relevant areas of the airline). In Pakistan, the following financial requirements shall be mandatory: (i) Paid-up capital shall be free of losses and reviewed periodically by PCAA Board; (ii) Owner’s equity (net worth) shall not be negative at any point in time; (iii) Minimum Equity (net worth) to Assets Ratio should be at least 5%, gradually increasing by at least 1% per annum up to a minimum of 10% over a period of next five years report maintained. Whereas all the mentioned criteria are strictly imposed on private owned carriers, the government has dispensed PIA from complying with such norms. To the extent possible, public and private businesses should conduct their activities under the same regulatory environment in order to avoid regulatory advantages for State-Owned Enterprises (SOEs) that distort competition in the marketplace. The lack of equal footing when implementing such rules violates principles of competitive neutrality, putting private sector airlines at a disadvantage vis-à-vis the national carrier, the report added. Also Read: FBR Collects Over Rs 5 Billion By Registering 44 Million Phones
