PAKISTAN S EXPERIENCE

P

AKISTAN

’

S

EXPERIENCE

FOSTERING

C

OMPETITION

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, 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

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

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)

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

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

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

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)

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 Sundays

Dammam – Islamabad 4 Flights Tues/Thurs/Sat/Sundays Dammam- Karachi 2 Flighs Mon/Sats

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

North South CCP Took Notice Four years later same price

Dollar – Rupee Parity Chart

Effect of competition on Hajj

Fares in US Dollars

Hajj Fares in US$

North South

Subsidy of PKR26.4B Given to PIA

by Government from 2002 to 2011

Equity contributed by GOP (Rs million)

Note: bars highlighted in yellow represent profitable years for PIA whereas purple bars represent loss making years

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