Turnaround for Sri Lankan Airlines

by Gamini WARUSHAMANA

The National carrier SriLankan Airlines became a total government owned venture from July 1. With the backdrop of the global economic crisis, air line businesses the world over still face a challenge. While the State mechanism is struggling to bring domestic transport institutions such as the CTB and CGR at least to break even level, how does the government run an airline business profitably?

Nishantha Wickramasinghe

In an exclusive interview with the Sunday Observer, Chairman of SriLankan Airlines and the budget airline Mihin Air, Nishantha Wickramasinghe speaks of business plans that make these institutions competitive ventures.

Q. What were the objectives of buying back 43 percent of SriLankan Airlines the shares from Emirates?

A. In 1998 the Government of Sri Lanka sold 43 percent of SriLankan Airline shares to Emirates and also entered into a 10-year management contract, handing over the management of the national carrier to Emirates. After the management contract ended in 2008, the Government decided to manage the airline and since then SriLankan Airlines has had its own management.

However, we faced various issues in management, such as entering into contracts and underwriting agreements, because 43 percent of the shares were owned by Emirates. Therefore the Government decided to buy back the 43 percent shares from Emirates.

Q. Did you get the shares at a reasonable price?

A. Yes, we bought them back at a very reasonable price, after negotiation.

The shares were sold at US$73 million in 2008 and initially Emirates offered them at the same price. But after valuation of the shares the Government said that the maximum price that could be paid was US$ 55 million. After negotiating, we closed the deal at US$ 53 million.

Q. How do you look at the handing over of the management of SriLankan Airlines to one of its main competitors. Was this a reason for its losses in the recent past?

A. Emirates ran the business in its own way. I don’t agree with the argument that says Emirates made money at our cost. Because the majority of the director board was ours.

Q. Do you think SriLankan Airlines can make profits?

A. Yes. We have confidence and we have a business plan that is linked to the overall Government development program. For instance, tourism is a key sector that the Government has targeted to develop, in the post war era.

Tourist arrivals are increasing and we see big prospects for the future. Our business plan is to cater to these new opportunities.

There are airlines that are successfully operated by governments. Malaysian Airline and Singapore Airline are government owned institutions and they earn profits.

Q. But in the past 30 years SriLankan has proven that this is not realistic. Top business people of the country headed this institution but it earned losses continuously?

A. Yes, we run at losses. Especially the last two years were a very difficult period not only to SriLankan Airline.

Many airlines of the world suffered due to the global economic crisis. Though we earned losses still we survive.

It is difficult to earn profit only from an airline business. We have different sections such as catering, cargo handling and engineering services that already earn profit. As well, there are huge opportunities to expand business.

One issue for making losses was that we are not competitive. SriLankan Airline is a small airline and the advantage of economies of scale was not with us. As a result our cost was high. President Mahinda Rajapaksa has a clear plan and he wants to double the fleet by 2015 and make SriLankan Air a competitive airline.

We have already started this expansion and have leased two flights. We are increasing destinations and frequencies.

Our cost will come down and our business volume will increase. On July 01 we started flying to Shanghai, our third destination in China. In the next few months we will start flying to Moscow.

Q. Is political interference a main reason for SriLankan Airlines to run at a loss.

A. Today SriLankan Airlines comes directly under the President and there is no Political interference that adversely affects the business.

We are doing a competitive business. We are privileged because SriLankan Airlines is exempted from some government regulations that are critical to our business.

For instance, all government institutions should insure their properties with Sri Lanka Insurance. But we are exempted from doing so.

Q. Recently the Government started Mihin Air-a budget airline. How does this affect SriLankan Airlines?

A. The budget airline Mihin Air is not a threat to SriLankan and there is no overlapping of business.

I am the Chairman of Mihin Air as well. The two airlines cater to different market segments. A low cost airline is needed to cater to low cost destinations.

Mihin caters to pilgrims with destinations such as Buddhagaya and Vellankanni and the Middle East migrant workers.

Many airlines have low cost partners to cater to this market segment. It is important to be competitive in the industry.

Q. What are the future plans of SriLankan Airlines?

A. SriLankan Airlines already flies to 49 destinations in 31 countries.

SriLankan Airlines sponsored surfing event in Arugam Bay Pix by Sudath Malaweera

Apart from our traditional tourism market in Europe, our main focus is bringing more tourists to Sri Lanka from new markets together with the Sri Lanka Tourist Board (SLTB).

We have identified our markets and SriLankan Airline will increase destinations and frequencies. China is a huge market and we are sure of increasing high spending tourist arrivals from China.

We will open another destination in China this year. Russia is another market we will venture into this year. Middle East is another market where most wealthy people live.

We can promote tourism in India and already we have direct flights to several destinations in India. SLTB should lay the foundation by promoting Sri Lankan tourism in these markets and we can bring them to Sri Lanka.

We jointly organise various sports events in Sri Lanka to promote Sri Lanka and recently we organised a surfing event in Arugambay.

A lot of changes are taking place in the airline and we have changed the dress code of cabin crews and menus recently.

Two new aircraft have been added to the fleet.

In November we will launch a sea plane service from Katunayake to Bentota and Digana.

Catering and engineering services will also expand. SriLankan Engineering is faster becoming a provider of maintenance repair overhaul (MRO) activities in the region with its experience in Airbus aircraft, excellent facilities and experienced engineering personnel.

The Airline training facility will be expanded and it will be another main revenue source of SriLankan Airlines. SriLankan Airlines is constructing a full flight simulator centre at the Colombo airport in partnership with SIM Industries BV of the Netherlands, which is scheduled to be commissioned in early 2011.

Sri Lanka will become a regional hub for pilot training.