BrazilLinus Benjamin Bauer joins high-profile German delegation to Pakistan
A German business delegation consisting of high-profile leaders from the public and private sector in MENA visited Pakistan last week with the aim of advising the country on futureproofing and restructuring some of its key sectors, including aviation.
Organised by the German Emirati Joint Council for Industry & Commerce, the Embassy of the Federal Republic Germany Islamabad and the Germany Consulate General Karachi, the delegation included senior MENA-based officials and business leaders including Oliver Oehms (CEO of the German Emirati Joint Council for Industry & Commerce), Serkan Guerguen (Senior Director MENA & Turkey at Lufthansa), Nadia Petri (General Manager GCC & Pakistan at Lufthansa) and Heena Nazir (Director at Germany Trade & Invest).
The delegation further included Pakistan-based leaders of major German corporations, such as Saquib Ahmad (the Managing Director of SAP in Pakistan), Haris Ali (Managing Director at Rohde & Schwarz in Pakistan) and Markus Strohmaier (Managing Director of Siemens in Pakistan).
Among the delegation was also Linus Benjamin Bauer, the founder and managing director of Bauer Aviation Advisory, an award-winning UAE-headquartered strategy and management consulting firm that specialises in the aviation sector.
Linus, to start off with, why was Bauer Aviation Advisory selected to participate in the delegation?
Within a year of launching, Bauer Aviation Advisory has become a serious and successful player in the aviation consulting landscape in the MENA region. Various companies and organisations have been following our journey closely to date.
Our growing profile has opened up opportunities to our firm, such as becoming a corporate member of the German Emirati Joint Council for Industry & Commerce and being invited to join the business delegation visiting Pakistan focused on representing the aviation sector – along with Lufthansa from Germany.
What are some of the specific challenges the Pakistani aviation sector is facing?
The Pakistani aviation sector has been dealing with a large set of specific challenges to date: Political instability, security situation, inadequate infrastructure, poor safety culture and records, inconsistency in state policy, inconsistent tax laws (for example heavy taxes on air tickets), chronic lack of profitability due to operational inefficiencies, weak economic growth, poor access to investments and funds, lack of structural reforms, and unsupportive economic policies.
Additionally, the process to set-up an airline operating in Pakistan differs from other regions across the globe. For instance, the Pakistani Civil Aviation Authority issues two different licenses – RPT License and Air Operator Certificate. The first one is only a permission to develop an organisation on ground. It is not considered a permission to operate an aircraft for which an airline must obtain an Air Operator Certificate from the Pakistani Civil Aviation Authority.
The PCAA has certain conditions in place that an airline needs to meet before it can start flying domestically. A fleet of minimum three aircraft is the first such requirement for initiating passenger flights while one aircraft is needed for cargo operations. In order to receive an Air Operator Certificate, a company must register its fleet in Pakistan, as well.
Coupled with a lack of financial transparency, the administrative complexity and thus operational inflexibility in the country deters potential (foreign) investors from setting up local airlines and investing in the broader Pakistani aviation sector.
Who did the delegation (and yourself) meet during the visit?
During the visit in Karachi and Islamabad, we spoke to the Government of Pakistan (for example: the Minister of Finance Shaukat Tareen), the Pakistan Board of Investment (General Secretary Fareena Mazhar), the State Bank of Pakistan (Deputy Governor Murtaza Syed), the Pakistan Business Council (President Ehsan Malik), as well as with leaders from Habib Bank (Pakistan’s largest investment bank) and several Chambers of Commerce & Industry like the Overseas Investors Chamber of Commerce & Industry (Secretary General Abdul Aleem).
In one of your discussions, you described the Pakistan’s aviation sector as a ‘large sleeping giant’. What do you mean with that?
Pakistan is the second largest economy in South Asia with over 220 million inhabitants and a constantly growing middle class. The economic structure has changed dramatically over the past few decades. Despite being the 5th most populous country across the globe, the country’s domestic air travel market for instance performs poorly in terms of available domestic seats divided by the population. Pakistan has about 0.03 seats per person – in comparison with India (0.16), Nepal (0.11), and Bangladesh (0.04).
Prior to the pandemic, the air transport sector of Pakistan was forecasted to grow by over 180% in the next 20 years. Despite manifold challenges over the last two decades, the economy of Pakistan has been moving progressively on higher and sustainable growth path. Today, only 1.3% of the GDP of Pakistan is supported by inputs to the aviation sector and foreign tourists arriving by air.
When it comes to the total market share of low-cost carriers in Pakistan, there is plenty of room to grow for airlines. Their share is much smaller than some of Pakistan’s neighbour countries like India. In pre Covid-19 times, there were fewer than 1.3 million low-cost seats departing from Pakistan (12.6% of the total capacity offered in the Pakistani market). In comparison, in India low-cost carriers account for about 34% of all international seats.
Before the pandemic, only three of Pakistan’s top 10 international routes by capacity offered had a presence of at least one low-cost carrier. The route between Pakistan and the Gulf with highest low-cost share by capacity offered is Dubai – Karachi with 21%. The low-cost share on the majority of the routes between Pakistan and the Gulf cities are poorly below 6%.
Across the globe, travelling by plane usually costs more than either a bus or train ride for domestic commute. However, it does not legitimise what passengers in Pakistan are charged for domestic flights in the wake of feeble local competition. A one-way trip from Karachi to Islamabad for instance costs roughly US$45, translating into US$0.064 per mile for a domestic flight in Pakistan. By looking over to India, an inexpensive Delhi-Mumbai ticket is priced at US$55 and around US$0.049 per mile.
Much of this large difference in fare per-mile stems from heavy taxes on air tickets.
Hence, the Pakistani aviation sector can be described as a ‘large sleeping giant’ which needs to wake up, emerge from the pandemic and capitalise on opportunities. Air Arabia‘s recent joint venture with the Lakson Group (the setup of low-cost carrier Fly Jinnah) paves the way for a better, sustainable future for the Pakistani aviation sector.
Despite the bottlenecks, the investment climate in Pakistan has improved in recent years. Factors including the high proportion of young people in the population (15 to 33 year olds represent 63% of the population), the growing middle class, real GDP growth of around 4% in 2020 and 2021 and the government’s growing awareness about the importance of the aviation industry to a country lay down a foundation for a better future for the Pakistani aviation sector.
Finally, what kind of contribution could Bauer Aviation Advisory provide to advance Pakistan’s aviation industry?
Together with our internationally renowned team of experts, our experience in organisational restructuring and strategic turnaround management brings a large portion of added value to the Pakistani aviation sector, serving both airlines and airports. Furthermore, our unrivalled and award-winning strategic management expertise can direct and support supports the sector’s recovery and sustainable growth.
