PAKISTAN’S EXPERIENCE
FOSTERING COMPETITION IN
AIR TRANSPORTATION
Dr. Joseph Wilson
Member, Competition Commission of Pakistan
2013 Pre-ICN Forum on Competition and Development
Warsaw, Poland, 23 April 2013
Challenge : Dominant SOE
 One reason for forming SOEs is that they are expected to
behave differently from what private entities might.
 For example in the case of transportation:
 To serve socio-economic routes
 To ply on un-economic routes in order to serve Universal
Service Obligation (USO)
 The question, then, is whether the state’s objectives can be
pursued in a manner that does not impair the competitive
landscape.
Competition Law in Pakistan:
History
 Monopolies and Restrictive Trade Practices (Control
and Prevention) Ordinance, 1970

Section 25 exempted state-owned enterprises from the
application of the MRTPO.
 In October 2007, a new competition regime was
introduced through the Competition Ordinance, which
took away the exemption granted to SOEs from the
application of competition Law.

In October 2010, the ordinance was enacted as the
Competition Act of 2010.
Competition Act, 2010
 Competition Act, 2010
 The Competition Act seeks




to provide for free competition in all spheres of
commercial and economic activity
to enhance economic efficiency [Economic
Efficiency of the industry through competitive
process ] and
to protect consumers from anti-competitive
behaviour.”
Further, section 1(3) of the Act states that the
Act “shall apply to all undertaking and all
actions or matters that take place in and
distort competition within Pakistan.”
Competition Act, 2010:
 29 Competition advocacy – The Commission
shall promote competition through advocacy
which, among other, shall include:
 (a) creating awareness and imparting training about
competition issues and taking such other actions as
may be necessary for the promotion of a competition
culture.
 (b) reviewing policy frameworks for fostering
competition and making suitable recommendations
for amendments to this Act and any other law that
affect competition in Pakistan to the Federal
Government and Provincial Governments;
Aviation Sector in Pakistan
 Market Players

Pakistan International Airline (formed in 1955 90% State Owned)




40% market share for international travel by
Pakistani
75 % market share of domestic traffic
Shaheen Air International (formed in 1993 –
Privately owned)
Air Blue (formed in 2004 – Privately owned)
Bilateral Air Services Agreements
 Pakistan has signed 53 Bilateral Air Services
Agreements
 In 11 instances, Pakistan exchanges the right
to designate two or more airlines on
international routes, rather than upholding the
single designation flag bearing airline
paradigm.
WTO : Air Liberalization Index
(ALI)
 In 2006, the World Trade Organization -pursuant to its mandate
to review air transportation under the General Agreement on
Trade in Services – developed an Air Liberalization Index (ALI),
 ALI assesses the relative liberalness of air transportation
agreements taking into consideration elements such as:
 the pricing regime applicable,
 the degree of governmental control of capacity,
 restrictions on the number of operators that can fly between
country-pairs,
 the traffic rights exchanged, and
 foreign ownership restriction on designated airlines
 ALI ranges from 0 to 50, where 50 means most liberal.
Pakistan BASAs : ALI Score
 Of the 53, 31 agreements have highly restrictive




terms, with an ALI of between 0-6
17 agreements can be found to have limited liberal
terms with ALI of 6-12
4 agreements –the UK, Macao, Singapore, and Iran can be considered to contain multiple liberal terms,
as they have an ALI of between 13 and 20.
1 agreement – with the US -contained advanced,
open skies type clauses, and rated 28 points
The average ALI of Pakistan’s bilateral agreements is
7.2
Cases Related to State-owned Airline Dealt
by the Commission
 PIA Hajj fares case (§§ 3 & 4 )
 PIA ticket cancellation charges case (Abuse
of dominance)
PIA Hajj Fares Case
 The Commission took notice of media reports that
PIA was charging exorbitant Hajj fares. In 2008, rates
were increased almost by 100 percent. From Rs.
38,500 in 2007 to Rs. 70,000 for the South and from
Rs. 46,200 to Rs. 85,000 for North sectors –
infringing section 3 (abuse of dominance)
 The Inquiry Report also noted that quota sharing
agreement between PIA and Saudi Arabian Airline
[through their respective governments] – Infringing
section 4 (Prohibited Agreement)
PIA Hajj Fares Case: Decision
(November 2009)
 For section 3 violation restitution was ordered
 For section 4, the Commission issued a policy
note to the government for modifying the
Bilateral Air Services Agreement (BASA) with
Saudi Arabia.
 The Government of Pakistan changed BASA
from single designation airline to two
designations in March 2010.
Fostering Entry
 One airline each from Pakistan and Saudi
Arabia was allowed to fly direct between
Pakistan and Saudi Arabia


Shaheen Air (Pakistan)
Nas Air (Saudi Arabia)
Increased Choice for Passengers
Shaheen Air Flight Schedule for direct flights to Saudi
Arabia
Route
Frequency
Riyadh – Lahore
2 Flights Wednesday/Saturday
Riyadh-- Peshawar
2 Flights Tues/Fridays
Riyadh – Islamabad
1 Flight
Dammam – Islamabad
4 Flights Tues/Thurs/Sat/Sundays
Dammam- Karachi
2 Flighs
Total flights
11 Flights/ per week were added
Sundays
Mon/Sats
Hajj Flights: Shaheen Air
NAS Air Flight Schedule
 19 flights per week from Riyadh to various
points in Pakistan
Route
Frequency
Riyadh -- Islamabad
7 Flights per week
Riyadh -- Lahore
7 Flights per week
Riyadh – Peshawar
5 Flights per week
Total
19 Flights per week
Effect of competition on Hajj
Fares
Hajj Fares in Pak Rupees
120000
Four years
later same
price
CCP Took
Notice
100000
PKR
80000
North
60000
South
40000
20000
0
2007
2008
2009
2010
2011
2012
2013
Dollar – Rupee Parity Chart
Dollar vs. PKR
120
100
PKR
80
60
Dollar
40
20
0
2007
2008
2009
2010
2011
2012
2013
Effect of competition on Hajj
Fares in US Dollars
Hajj Fares in US$
1400
1200
US Dollars
1000
800
North
South
600
400
200
0
2007
2008
2009
2010
2011
2012
2013
Subsidy of PKR26.4B Given to PIA
by Government from 2002 to 2011
Equity contributed by GOP (Rs million)
4928
Note: bars highlighted in yellow represent profitable years
for PIA whereas purple bars represent loss making years
4999
3433
2866
2101
1529
1405
891
933
FY 2008
FY 2009
500
FY 2002
FY 2003
FY 2004
FY 2005
FY 2006
FY 2007
FY 2010
FY 2011
Instances of Undue Advantages
Given to State-owned Airline
 50% rebate in turnover tax as compared to
private airlines
 Allowed to fly even license fee long overdue
 Employees given free and preferred access
to airport as compared to those of private
airlines
 Policy notes issued by the Commission to
remove these distortions.
Concluding Remarks
 Level-playing field is a sine quo non for the new
entrants to grow and to compete effectively with the
local State-owned airline and other international
airlines.
 Advocacy is an important tool available to
Competition agencies to promote competitive
neutrality, and to enhance economic efficiency in the
economy. Advocacy is an inherent function of
competition agencies regardless whether such
function is assigned in the parent statute or not.
THANK YOU
FOR YOUR ATTENTION
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Pakistan's Experience Fostering Competition in Air Transportation