Question

Recently, number of PIA pilots were banned from operating aircrafts nationally and
internationally due to fake licenses. PIA was established in 1946 and has been
operating in the country as one of the largest company. The performance of PIA is
rapidly decreasing in past years and the company is under a lot of criticism from
public as well as government bodies. [15]
a. Please identify, explain and justify the market structure of the company and the
industry structure in which the company is operating.
b. In your opinion, what is the role of PIA since its inception in economic growth of
the company (Please link the answer of this part with part ‘a’)
c. Based on answer ‘a’, do you see the role of government in aviation industry. Please
justify your answer.

Answer 1

a. Market structure of the company is monopoly as it is the major carrier, generating the most revenue out of the three major airlines in the country. As it is the oldest carrier with government backing, it has the most number of fleet size and is the most revenue generating airline. Thus as the counterparts are only few, the industry structure is not that competitive and the company holds majority of the market presence with greater concentration and less competition.

b. Role of PIA is to increase the presence of Pakistan in the international airline space. As it is a monopoly it is the main driver of growth of the airline industry in Pakistan and has increased dominance in the domestic economy.

c. Role of government is prevalent in the Pakistan aviation industry but it should be as minimal as possible in the aviation industry as costs keep mounting and the profitability is lower because government backed airlines are not able to charge exorbitant rates, otherwise they face backlash. Additionally, effective private players are forced to play a smaller role in the industry as they are not able to raise airfares. This reduces the entry of competitive players in the industry as private players are often not propelled by the government. Thus the role of the government should be as limited as possible because it limits competition in the industry, increases the concentration power of the government backed airline and reduces efficiency.