Skies of Opportunity or Turbulence for PIA?

Pakistan adopted its Open Sky Policy in 1990 to liberalize its aviation market, allowing foreign airlines to operate more freely within its airspace. The policy was implemented at key airports, including Lahore, Islamabad, and Peshawar, and involved air service agreements with 91 countries. The intention was to boost competition, lower fares, and attract investment in aviation infrastructure. However, the policy’s implementation favored foreign carriers, particularly those from Gulf Cooperation Council (GCC) countries, leading to significant challenges for domestic airlines, especially PIA.

Negative Impacts on Pakistani Airlines:

Loss of Market Share.

The Open Sky Policy enabled foreign airlines, particularly Gulf carriers like Emirates, Etihad, and Qatar Airways, to dominate Pakistan’s aviation market. A fact-finding committee report presented to the National Assembly in 2025 noted that PIA’s market share plummeted from 50% to 20% due to the influx of foreign carriers. In 2017, Emirates held a 15% market share compared to PIA’s 22%, with plans to increase capacity by deploying larger aircraft like the Airbus A380 on routes such as Dubai-Islamabad. The number of weekly flights by Gulf carriers surged from 90 in 2006 to 395 in 2015, while Pakistani airlines operated only 55 weekly flights to the UAE in 2015, highlighting the imbalance in market access.

Financial Losses

The policy resulted in substantial financial losses for Pakistan’s aviation sector and the national exchequer. A Senate report in 2020 revealed that the Open Sky Policy cost the exchequer Rs107 billion in 2017 alone due to liberal traffic rights granted to foreign airlines (Rs107bn Loss). PIA’s financial health deteriorated significantly, with its liabilities exceeding Rs740 billion, including vendor dues, fuel charges, and government-backed loans. Although PIA’s deficit decreased from Rs32 billion in 2018 to Rs11 billion in 2019, the airline continued to face financial strain due to the policy’s impact, compounded by debt, fuel price increases, and currency devaluation.

Competitive Disadvantages

PIA struggled to compete with foreign airlines that benefited from government subsidies and lower operational costs. Gulf carriers, supported by their governments, could offer lower fares and superior services, putting PIA at a disadvantage. The policy allowed foreign airlines to operate extensively in Pakistan, with Emirates permitted to serve 11 cities, while Pakistani airlines were restricted to a single destination in countries like the UAE (Rs107bn Loss). This imbalance enabled foreign carriers to capture high-yield traffic to destinations like the UK, Europe, and North America, which were traditionally PIA’s revenue sources.

Decline in Passenger Traffic

PIA’s international passenger traffic declined by 0.8% annually from 2007 to 2017, and by 2024, the airline carried 26% fewer passengers compared to 2000. In contrast, private Pakistani airlines like Air Blue saw growth rates of 22.7% and 18.8% annually during the same period. The increased capacity of Gulf carriers, such as Emirates operating Boeing 777s, forced PIA to lower fares, reducing yields on lucrative routes like Islamabad to Europe and the UK.

Ineffective Air Service Agreements (ASAs)

The Pakistan Civil Aviation Authority faced criticism for failing to negotiate equitable ASAs. For example, Turkey withdrew PIA’s 5th freedom rights in 2013 and increased Turkish Airlines’ flights from 7 to 47 weekly. Japan denied PIA additional capacity on the Beijing-Tokyo route, and Germany and the UK imposed restrictions on PIA’s operations. These limitations, combined with the Open Sky Policy, hindered PIA’s ability to expand its international network.

Policy Flaws and Lack of Reciprocity

The Open Sky Policy, adopted in 1992 at Jinnah International Airport, lacked commercial reciprocity, allowing foreign airlines to exploit Pakistan’s large population and diaspora without offering equivalent opportunities to PIA . For instance, GCC countries with small populations (e.g., UAE with less than 1 million citizens, Qatar with 250,000) provided minimal passenger traffic to PIA, while their airlines accessed multiple Pakistani cities, siphoning off sixth freedom traffic to Europe and North America.

Benefits of the Open Sky Policy

Despite its negative impacts, the policy brought some benefits to Pakistan’s aviation sector:

• Increased Passenger Traffic: Domestic routes like Karachi-Islamabad and Karachi-Lahore saw significant growth due to lower fares, with the overall aviation market expanding by 4.4% annually from 2007 to 2017 (Open Skies Trouble).
• Cargo Sector Growth: The “open sky” rule for cargo flights led to a substantial increase in cargo operations, benefiting the logistics sector (Open Skies Essay).
• Investment Opportunities: The policy opened up investment in airport infrastructure, attracting private sector involvement (Open Skies Essay).
• Private Airlines: The entry of private airlines like Aero Asia, Bhoja, and Shaheen Air Lines fostered competition and expanded domestic and international routes (Open Skies Essay).

However, these benefits primarily supported foreign airlines and private Pakistani carriers, while PIA struggled to capitalize on them due to its operational and financial challenges.

Comparison with Other Countries

India’s approach to open skies provides a contrast. India restricted its open skies policy for airports within 5,000 km, forcing GCC airlines into code-sharing agreements with Indian carriers, splitting revenues (Financial Disaster). Pakistan’s failure to adopt similar restrictions exacerbated the negative impact on PIA.

Policy Reversal

Recognizing the policy’s detrimental effects, Pakistan’s cabinet decided in 2019 to reverse the Open Sky Policy to bolster PIA and protect national interests (End Open Skies; Reverse Agreement). The decision aimed to review agreements with foreign carriers and promote a more equitable aviation framework.

Recommendations

To address the challenges faced by Pakistani airlines, future policies should:

• Negotiate balanced ASAs to ensure reciprocal traffic rights.
• Provide financial support and tax exemptions to PIA, similar to international models.
• Invest in modernizing PIA’s fleet and stabilizing its management.
• Implement restrictions on foreign carriers’ access to Pakistani markets to protect domestic airlines.

Pakistan’s Open Sky Policy, while intended to liberalize and grow the aviation sector, significantly harmed PIA by enabling foreign airlines to dominate the market, erode market share, and cause substantial financial losses. The policy’s lack of reciprocity and failure to protect domestic carriers led to its reversal in 2019. While it increased passenger traffic and cargo operations, these benefits were insufficient to offset the damage to PIA and the national exchequer. Future aviation policies must prioritize a level playing field to ensure the sustainability of Pakistani airlines while fostering competion and growth.