rlying the Failure of Organizations: A Focus on Pakistan International Airlines.

Identification of the problems that

Factors Underlying the Failure of Organizations: A Focus on Pakistan

International Airlines

Fatima Zahra
RMBA-FAL12-048
Ayesha Masood
RMBA-FAL12-070
Sehrish Zahoor
RMBA-FAL12-042

Institute of Business & Management, UET Lahore

Abstract
The current research is done to recognize about the present situation of PIA and the factors
primary the poor Performance of the organization. Favoritism, lack of management, poor facility
supplies are some of the factors identified through this part of research which form the support of
the decreasing performance of Pakistan International Airlines. The present research paper
investigates the reasons of bad image prevailing in airline industry of Pakistan specific to a case
study of PIA. Airline industry is a service industry and services' quality is not easily to measure.
A service can have many attributes including cost, value for money, customer services. In airline
services the in-flight services, customer services, food quality, crew members' attitude, fare rates
and fight delays are important attributes so that's why they are selected for the study. The study is
based on both the primary and secondary data. Primary data collection includes Interviews and
discussion with the respondents. A questionnaire based on some attributes was designed so as to
know what image of PIAs customer has in his/her mind. The source of secondary data was
articles, journals, broachers and annual reports. It was found in the research that some common
problems which were creating badly image in the minds of the customers are lack of quality
ambience in an aircraft, non-cooperative crew members, and unjustifiable fare rates etc. This
research would mostly be focusing the frequent flyers and the study would be conducted in
Lahore market only.

Introduction

The research is conducted to know about the image and collapse of organizational structure of
Pakistan International Airlines in the mind of its customers and customer satisfaction. Airline
industry is a service industry and services' quality is not easily to measure. A service can have
many attributes including cost, value for money, customer services. In airline services the inflight services, customer services, food quality, crew members' attitude, fare rates and fight
delays are important attributes so that's why they are selected for the study. Only frequent flyers
group has been selected for the study because only those people have a clear idea of the service
quality of an airline. Pakistan International Airlines is having most of the market share in the
aviation industry. Though its quality experienced variations but still it is the market leader in
Pakistan. A basic research has been carried out to find if there are any problems with the service
quality of PIA and after reaching getting a conclusion, some possible recommendations will be
given to solve the problem.
Pakistan International is the national flag carrier and a state-owned enterprise of the Government
of Pakistan. Headquartered at Jinnah International Airport in Karachi it operates scheduled
services to 23 domestic destinations and 30 international destinations in 27 countries across Asia,
Europe and North America. Its main bases are at Karachi, Lahore and Islamabad/Rawalpindi.
Secondary bases include Peshawar, Faisalabad, Quetta, Sialkot and Multan. PIA has a long
history of milestones in aviation, such as being the first Asian airline to operate a jet aircraft and
Boeing 737 aircraft; It today remains by far Pakistan's largest airline with a fleet of 30 airplanes
and at least 14 more on order. Furthermore, PIA was the launch customer to operate the 777200LR model. PIA is currently going through a procedure of privatisation to shift management
from government to private sector it employed nearly 19,000 people as of July 2014.
PIA or Pakistan International Airline is the first airline of Pakistan. It is also one of the earliest
airlines of South Asia operating since 1955. It has been a popular airline in the past and so it is at
least domestically. Some of the achievements of PIA are as under.

First airline from an Asian country to fly the Super Constellation.

First Asian airline to operate a jet aircraft.
First Asian airline to be granted maintenance approval by the US Federal Aviation
Administration (FAA) and the Air Registration Board, predecessor of the British
Civil Aviation Authority (CAA).
First non-communist airline to fly to the People's Republic of China, and operate
a service between Asia and Europe via Moscow.
First airline in Asia to induct the new technology Boeing 737-300 aircraft.
An IBM 1401, the first computer in Pakistan, was installed in PIA.
First airline in the world to operate scheduled helicopter services.
First airline to show in-flight movies on international routes.
PIA set up Pakistan's first planetarium at Karachi.
The first airline in South Asia to introduce auto-ticketing facility.
The first airline in the world to fly to Tashkent, capital of the newly independent
state of Uzbekistan.

First airline in the world to start Air Safari with jet aircraft.
First Asian airline to start flights to Oslo, the capital city of Norway.
First airline in the world to induct Boeing 777-200LR, the world's longest range
commercial airliner.
First airline in the world to take delivery of the Boeing 777-200LR Worldliner
(Longer Range Variant).
Pakistan International Airlines Flight Services Department was awarded the ISO
9001:2000 certification award during May 2006.
First airline in the south east region to offer seat reservations through mobile
communications.
First airline in Pakistan to operate a flight with an all
Female crew at command and serving in the cabin.

Literature review
CHALLENGES IN PAKISTAN AVIATION INDUSTRY :While the coming together of satellite
communication and information technology has made mass communication affordable and
efficient for many people, air travel continues to remain an important and integral requirement of
all societies since it is an essential part of present day lifestyle, Hafeez Ud Din (Marketing
Forces January 2007). According to him, though just about one hundred years old, the
commercial airline industry has come a long way towards providing efficient, comfortable and
affordable means of travel and trade. It has successfully shrunk the world into a global village'.
GLOBAL TRENDS (Marketing Forces January 2007 Vol.2 No. 4).

Too many costs; the charges of the monopoly suppliers, e.g., airport charges,
navigation charges, fuel prices, are beyond the control of the airlines
Labor is another big cost item between 18 and 38 % of operating costs. It is
controllable but experience shows how stubbornly difficult labor costs can be.
Competition is intense
More aircraft are entering the industry
Low fare competition is now global

It has been widely recognized that business growth and survival, success or failure depend both
on external and internal factors. While most of the challenges which a business will face may be
foreseeable, some will be completely unpredictable. However, if a business is to succeed,
management must be mindful to all matters which are likely to have a material impact on its
viability, and must then demonstrate skills both in exploiting opportunities and mitigating threats
(FEE, 2004). There is a vast literature review on business failure, mostly on the prediction of
failure by using financial models, but in this paper, we focus on the causes of business failure.
Definition: The Oxford English Dictionary defines the term failure as to become deficient, to
be inadequate. In general, many different terminologies are related to business failure, such as
firm closures, entrepreneurial exit, dissolution, discontinuance, insolvency, organizational
mortality and bankruptcy. Normally, entrepreneurial failure is referred to as the cease of an
operation for financial reasons. Since we examined nascent entrepreneurs during the firms

gestation process, one type of entrepreneurial failure is the discontinuance of venturing efforts by
entrepreneurs (Liao et al., 2009), but business failure can be defined as wanting or needing to sell
or liquidate, to avoid losses or to pay off creditors, or the general inability to make a profitable
go of the business (Gaskill et al., 1993). Pretorius, at the end of his review of business failure
definition, proposed a universal definition for the failure phenomenon - a venture fails when it
involuntarily becomes unable to attract new debt or equity funding to reverse decline;
consequently, it cannot continue to operate under the current ownership and management. Failure
is the endpoint at discontinuance (bankruptcy) and when it is reached, operations cease and
judicial proceedings take effect (Pretorius, 2009).
There are problems relating to the use of various terms involved in research in business failure.
In particular, definitions of business disappearance, closure, exit, and failure are
confused and often overlapping. Disappearance of a business may occur because the business
failed, or because the business was acquired by or merged into another company, or because the
owners voluntarily closed it (Cardozo and Borchert, 2004). Closure can be categorized as the
inability of a business to survive and thus represents a discontinuation of a business. Exit refers
to several different meanings; it can refer to the exit of a business from trading in a specific
market or from producing a particular product. It also refers to the end of the owners
participation in the business, as in the search for exit routes by entrepreneurs wishing to sell or
exit from a business (Stokes and Blackburn, 2002). Failure is generally regarded as the
discontinuance of the business due to the lack of adequate financial resources (Everet and
Watson, 1998), cessation of operations with loss to creditors (Cardozoand Borchert, 2004),
cessation of operations, and exit from business population because it is no longer a viable
concern (Bickerdyke et al., 2000).
Causes of business failure: The causes of business failure are many and varied, and may stem
both from the external environment as well as from factors internal to the business. Internal
causes of business failure may in many cases be capable of being foreseen in advance, while on
the other hand some external causes are not so predictable. In most cases, a complex mixture of
causes contribute to business failure; it is very rare for one single factor to be involved (FEE,
2004).
Earliest empirical studies on business failure examined the role of various owners and firm
characteristics to explain business failures. The numerous characteristics shared by failed firms,
are directly related to personal decision-based characteristics of the owner (lack of insight,
inflexibility, emphasis on technical skills, etc.), managerial deficiencies (lack of management
skills and appropriate managerial training, etc. and financial shortcomings (no accounting
background, cash flow analysis, financial records, etc.). Many aspects of poor management are
reported to be connected to several related issues, such as poor financial circumstances,
inadequate accounting records, limited access to necessary information, and lack of good
managerial advice (Gaskill et al., 1993). Some studies focused more on the managerial causes of
failure and listed some 25 causes and categorized them simply as poor management, and
concluded that poor management combined with the personality traits of the owner-manager, and
external factors cause business failure (Berryman, 1983). A business failure may happen as a
result of poor management skills, insufficient marketing, and lack of ability to compete with
other similar businesses. It can also be the result of a domino effect caused by business failures

of suppliers or customers (Wu, 2010). In the annual report of GEM, financial problems were
cited as the reason for quitting the business by no more than 55% of all respondents; it was cited
more often by respondents in the factor- and efficiency-driven economies (just over 50%) than
innovation-driven countries (just over 40%) (Bosman et al., 2009).
The effect of the environment depends upon the time period, geographic area, and market sector
in which the firm operates (Burns, 2001). Government and government-related policies is also an
important factor affecting business failures, and is discussed in some studies. The scholars found
that failure rates increased due to the heavy burden of taxation and regulation, while the growth
in money supply (higher growth decreased the failure rate) and the volume of bank lending
(higher volume of bank lending reduced the rate of business failures) are significant factors
(Gaskill et al., 1993; Burns, 2001; Oparanma et al., 2010). They discussed the negative internal
and external environmental factors including pressure from competitors or new entrants, poor
improvement in modern technology and poor sales, the outbreak of pests, and farm diseases etc
(Oparanma et al. 2010).
A conceptual failure model was presented by Ooghe and Waeyaert in 2004 expounding the
causes of failure and mutual relations between the general and immediate environment of the
company as external causes, and the companys management and policy as internal causes of
failure (Ooghe and De Prijcker, 2008). In this model, the causes of failure can be grouped into
five interactive aspects. These include general environment (economics, technology, foreign
countries, politics, and social factors), immediate environment (customers, suppliers,
competitors, banks and credit institutions, stockholders, and misadventure),
management/entrepreneur characteristics (motivation, qualities, skills, and personal
characteristics), corporate policy (strategy and investments, commercial, operational, personnel,
finance and administration, corporate governance), and company characteristics (size, maturity,
industry, and flexibility) (Ooghe and Waeyaert, 2004). Liao (2004) also mentioned the effects of
four groups of factors-individual characteristics of the founder, resources, structural
characteristics and strategies of the firm, and environmental conditions in which a firm operates
on business failure. The European Federation of Accountants has identified the following internal
and external causes of business failure. Accordingly, internal causes include poor management,
deficit in accounting, poor cash flow management, inappropriate sources of finance, dependency
on customers or suppliers, impending bad debt, fraud/collusion and external causes of business
failure are economy, catastrophic unpredictable events, governmental measures and international
developments, environmental protection and other regulatory requirements, and the bankruptcy
of main customer or supplier (FEE, 2004).

METHODOLOGY
PIA deals with the large number of employees who are placed at various
stations located in different cities of Pakistan. It is therefore very difficult to

collect data from the entire network because of time, access and cost
constraints. Owing to constraints mentioned in the previous lines, Karachi i.e.
head office, Multan, Lahore, Peshawar and Islamabad stations are chosen for
the present study. We will get the data from primary as well as secondary sources. In
secondary sources we get most of the data from internet and newspapers also providing sufficient
information about current situation of the organization. Information is taken from internet by
using several search engines such as Google, yahoo, msn, answers etc. We have constructed a
questionnaire which will be filled from PIAs employees at Lahore airport. Structured interviews
will be conducted using the questionnaire. Also the complaint data will be seen to view the
complaints of the customers using the services of Pakistan International Airlines.

Sampling
In this research random sampling will be used. This technique involves classifying the
population into various respective subgroups and afterwards random sampling is done within
each subgroup. The formula presented by T Yamane (1967) to calculate sample size is used for
this research. The following calculations are done:n = N / 1+N * e
Where n = sample size, e = error term= 0.1 and N= total population = 18330
Hence n = 18330/1+18330(0.1)2 = 99
The sample will be distributed in such a way that 61 respondents will be taken from Lahore, 12
are taken from Islamabad, 11 are considered from Karachi, 8 are from taken from Peshawar and
7 from Multan.

Variables
A questionnaire which is developed to conduct the survey contained structured close ended
questions to obtain the required information from the respondents and to have more precise
findings in the end. The questionnaire contains 18 questions, 3 questions for each variable are
asked to get responses on 6 variables. The first two questions are designed to know the actual
experience of the employees of PIA in relation to the specific variable and the last question is
asked to get information about turnover intention of the employees in relation to same variable.

Conceptual Framework

Pakistan International Airlines faces competition with not only international airlines but also with
local airlines on the various routes to the Middle East and the Gulf. Due to fierce competition
and rising oil prices, international aviation industry regulations and some internal factors such as
human resource issues of over recruitment, de-motivated employees, mismanagement of
resources both in case of manpower and other resources, aged fleet, corruption and lack of
accountability PIA is facing a deep financial crisis. It is losing its market share both in
international market and domestic circuit. The present research is done to know about the current
situation of PIA and the factors underlying the poor performance of the organization. Nepotism,
lack of management, poor service provisions are some of the factors identified through this piece
of research which form the backbone of the declining performance of Pakistan International
Airlines.
The present research investigates the reasons of bad image prevailing in airline industry of
Pakistan specific to a case study of PIA. Airline industry is a service industry and services'
quality is not easily to measure. A service can have many attributes including cost, value for
money, customer services. In airline services the in-flight services, customer services, food
quality, crew members' attitude, fare rates and fight delays are important attributes so that's why
they are selected for the study. The study is based on both the primary and secondary data.
Primary data collection includes Interviews and discussion with the respondents. A questionnaire
based on some attributes is designed so as to know what image of PIAs customer has in his/her
mind. The source of secondary data is articles, journals, broachers and annual reports. Common
problems which are creating badly image in the minds of the customers are lack of quality
ambience in an aircraft, non-cooperative crew members, and unjustifiable fare rates etc. This
research would mostly be focusing the frequent flyers and the study would be conducted in
Lahore market only.

Statements of Hypothesis:

Null Hypothesis H0

Poor Quality Service Does Affect the Image of PIA.

Alternate Hypothesis H1

Poor Quality Service Does Not Affect the Image of PIA

The Pakistan International Airlines is suffering from severe financial crisis. It is, in fact, passing
through a critical phase because of poor management, lack of maintenance, aged fleet, nepotism,

corruption and financial issues. There are complaints of terrible service, long delayed flights,
emergency crash landings, cancellation of flights, shortage of planes, unclean toilets that smell
from a distance and non-serious attitude of the administration. These issues create frustration
among the passengers. They feel fear and life risk while travelling through PIA. The Airlines is
at the brink of disaster. It needs exemplary leadership, qualified and merit based staff and
technically strong administration to improve its performance. PIA is facing serious problems.
The major problems faced by PIA are increase in oil prices, overstaffing, devaluation of local
currency, political interference and its weak financial position since the last decade. The bad
governance, poor performance and corruption are the major causes of its failure. PIA has
problem of maintenance and repairs. Unfortunately PIA is functioning with costs higher than
returns. PIA claims that increase in oil prices and devaluation of Pakistani currency are the major
reasons behind its deficit. It needs remarkable effort and money to improve its ranking in the
world airlines.
Pakistan International Airlines has got a lot of potential to be amongst the world top airlines
because there were times when it used to be world's second best airline in earlier 1970's. But
unfortunately they were unable to maintain their image. The research found some common
problems which were creating bad image in the minds of the customers. These problems are lack
of quality ambience in an aircraft, non-cooperative crew members, unjustifiable fare rates etc.
They still have got a lot of market share but they are losing it. In order to get their lost image,
they have to work on the quality of the services they are providing to their customers. Other
things which they have to take care of are as follows:

They have to improve the customer services that start from ticket booking till getting
your luggage on arrival.
When a passenger enters an aircraft, he/she must be exposed to quality ambience.
Quality in-flight services should be provided to the customer.
Food provided to the customers should be of best quality so as to avoid dissatisfaction
of a customer.
Crew member's presentation should be good and their behavior towards the customer
should be polite. Crew members should also be very cooperative in solving the
problems of passengers during the flight.
They should not charge high prices for their ticket fare. If they do so, then they should
justify it by providing quality service to the customer.
PIA should also reduce its overhead costs. They should manage their resources more
effectively, so that with less input, more output can be achieved and the saved
resources can be utilized in other areas such as providing some extra services to get
maximum customer satisfaction.

PIA is a strong organization but has some deficiencies in many areas due to which it has been
facing loss in the past years. If these problems are solved then there is no doubt that PIA can be
successful and become one of the top class airlines of the world. A good management system
will enable PIA to work successfully and ensure the service quality, good image and thus
customer satisfaction in the future.

Research Significance
1.
2.
3.
4.

PIA should not discourage its loyal customers by degrading them with their attitude
Fares should be matched with other competitive airlines if not less
Conditions of airplanes should be improved
Food quality should be improved. Equipments are needed for flight kitchen but PIAs top
management is not supporting it. Equipments should be arranged in order to make flight
kitchen more effective and it will in return increase the reputation of PIA.
5. Frequency of flights should be increased. It will create a huge impact because passengers
are demanding more frequent flights to travel. If they cannot catch one flight so they can
catch another easily.
6. Fleet size should be increased by adding new planes, as thy can attract those passengers
which are not travelling on PIA because of its old fleet.
7. Government influence should not be there as it is also considered as one of the biggest
reason of PIAs downfall and poor image.

Research Objectives

To find out the reasons behind the poor performance of PIA from many years
To know the insights
To get customers idea about PIA
To suggest PIA that how it can improve.
Identify the factors which result in poor performance of organizations.
Give a logical reasoning behind the failure of any organization.