Bigger contribution to economy anticipated:
SriLankan to fly towards profits
By Shirajiv Sirimane
SriLankan Airlines will soon fly towards profits as the airline has
identified its gray areas which are already being addressed. Though it
has being criticised and its image tarnished as a loss-making entity, if
one analyses its objective, one could clearly see that the national
carrier of any country does not necessarily have to bringing roaring
profits.

President Mahinda Rajapaksa and First Lady Shiranthi Rajapaksa
get off the inaugural SriLankan Airlines flight at the launch of
the Mattala Rajapaksa International Airport |
The critics have forgotten and overlooked the service a national
carrier provides to a country and have also not taken in to account the
other major loss-making airlines in the world.
American Airlines has suffered a record USD 1,926 million loss while
Air France had suffered a USD 1,553 million loss. British Airways too
has suffered a USD 1,151 million loss while Air India (USD 949 million)
and Alitalia (USD 370 million) too were among the key loss-making
airlines.
Despite this situation, the aviation industry is a major player in
the world economy as over 3.5 percent of the global GDP relies on
aviation.
If the aviation sector was a country, it would be the 19th largest in
the world
Airlines today are a highly competitive business and to attract more
passengers, prices are compromised. Due to this, throughout the world
aviation has become an industry where returns are comparatively minimal.
The high cost of fuel is a killer for any airline and for SriLankan
too, this is a major issue as 46 percent of its expenses are on fuel!
Aircraft leases comprise 12 percent of its expenditure while staff and
training expenditure is 12 percent.
This clearly shows that the airline is investing on training to be in
line with other airlines and to enhance quality.
 |
SriLankan
Airlines crew |

Some models of SriLankan Airlines aircraft
Pic: Saliya Rupasinghe |
 |
Some of the
students who were treated to an experience of a lifetime at the
Mattala Airport inauguration |
Despite these overheads, the airline had made a significant
contribution to the national economy. It had contributed USD 1.3 billion
a year to the Sri Lankan economy. This is a contribution of 2.2 percent
to the GDP.
Foreign party

CEO SriLankan Airlines,
Kapila Chandrasena |
In the recent past, in a bid to provide a better service, the airline
was leased to a foreign party amid huge controversy and when this lease
was cancelled and the ownership taken back under the Government, the
airline was in a bad state.
The foreign party that ran it had not re-investd a red cent and had
used the maximum resources of the airline to take profits. Its routes
were used by the leased airline to its benefit and the ‘product’ was
left to ‘rust’, which had made the turning around of SriLankan a tall
order.
There was no capital infusion into the airline since 1993 until 2012,
and the business was sustained through sale and lease-back of assets,
and one-off gains. However, after re-branding and other timely measures,
the subsidiaries of SriLankan are now making profits. In 2011, the
Government approved a USD 500 million investment spread over five years,
starting in 2012.
The airline has also formulated a five-year business plan which is
progressing smoothly and is on target.
By not investing in new aircraft, the previous management had put the
airline under tremendous financial pressure. Some of the aircraft that
were handed back were nearly 20 years old and had to be replaced.
These ageing airlines were also gulping more fuel and were becoming a
major financial burden to the airline.
They are now being replaced with modern and brand new A330-300s in
2014 and A350s in 2014.
The introduction of these aircraft, while giving a major boost to the
fuel bill, would also be more economical as they could carry more
passengers and fly further. Jet fuel prices have increased 261 percent
within the last decade. This would help the airline to have more flights
using these aircraft as well and increase the number of destinations.
Financing projects

A SriLankan Airlines pilot |
SriLankan has to borrow money from outside sources to finance these
projects and one of the main points the critics have overlooked is the
interest rates.
One could see that a key to the success of the few profit-making
airlines is the low ratio of interest they receive when they borrow to
reinvest. “Some times, this is around one percent and ours start from
around six percent,” said CEO of SriLankan Kapila Chandrasena.
“With the dawn of peace, we expanded the airline to stimulate tourist
arrivals into Sri Lanka - since this was our responsibility as the
national carrier. Under this program, some destinations were maintained
even amidst a difficult operating environment to support the rebuilding
of tourism.”
“The investment of USD 500 million from the Government will see, not
only the airline growing, but also increasing its contribution to the
economy - whilst continuing to play an active role in facilitating the
tourism and trade growth of Sri Lanka.”
What SriLankan has done so far….(These were achieved despite not
receiving any cash investment)
*Phased introduction of an upgraded Business Class product, to
increase the Business Class load factor
*Business Class passenger numbers increased 44 percent from 2011/12
to 2012/13
*Improving the revenue management function by introducing new
systems, fare-class re-alignment and adopting industry best practices
*Passenger yield increased four percent from 2011/12 to 2012/13
*Investing in better data and tools, to understand the market
developments and to forecast accurately
*Launch of new value added revenue streams, such as Upgrad, to
increase ancillary revenue
*Re-fleeting the narrow-body fleet with younger, more fuel-efficient
aircraft
*Introduction of the latest Amadeus Altea Passenger Service System.
SriLankan is the first airline in the region to adopt this industry
leading technology platform.
*Membership in the oneworld global alliance planned for early 2014
*Introduction of iPad-based EFBs to improve productivity and achieve
weight, and fuel savings
*Operating margin improved to -24 percent in 2012/13, from -30
percent in 2011/12 |