SriLankan Airlines: Tumultuous landing and proper PPP take-off

By a Special Correspondent



SriLankan Airlines is presently evaluating offers for investment/partnership and Super Group Partners Company Ltd. [a joint venture between Trans Maldivian Airways and SATS (Singapore Airport Terminal Services)] is reported to be the leading best offer (the Sunday Times 27 November). 

They may not be capable of doing even what Singapore Airlines amd Emirates did for Air Lanka/SriLankan – they can offer no management expertise, synergies or provide critical mass for SriLankan. Singapore Airlines and Emirates used it for their benefit ignoring the role SriLankan is expected to play as the National Carrier of Sri Lanka. 

The history of all our partnerships has had disastrous endings purely because we latched onto something rather than selecting a partner best suited for our National Airline with the right synergies. Partnerships with British Airways (then B.O.A.C.) and UTA, etc. were different as they only provided the long-haul flights for Air Ceylon. The ideal partner should be one who will help SriLankan with economies of scale in negotiating with suppliers, etc., provide management expertise and generate critical mass in the routes operated by SriLankan now and routes it may operate in the future.

The SriLankan Airlines CEO has stated in a recent interview that they have got expert advice which states that the airline should be converted into a regional short-haul airline. While it is hoped that those experts have studied and advised the SriLankan Airlines management on the impact such a decision would have on the whole objective and mission of maintaining a National Airline as well as on the business and tourist traffic to and from Sri Lanka, the load factor of transit passengers (who changed to and from long haul flights) in the current regional short-haul flights used to be 50% and has now dropped to about 35%. 

Can the SriLankan management tell the taxpayers their forecasted load factor of transit passengers after the long-haul flights are terminated and if there is a drop, how they are going to make the short-haul flights viable? How is SriLankan planning to fill up that vacuum when that load factors are lost after long-haul flights are withdrawn? Then, can the short haul strategy be sustained?

SriLankan Airlines has to explain a fundamental issue – that is, how can Middle Eastern airlines like Emirates, Qatar and Etihad operate to same European destinations from the Middle East and make profits? Most of the time their fares are lower to the European destinations than SriLankan Airlines.

The history of all our partnerships has had disastrous endings purely because we latched onto something rather than selecting a partner best suited for our National Airline with the right synergies

While the industry norm of the global full service airlines is to have around 175 employees per air craft on average, SriLankan Airlines has more than double that number of staff. With this excess staff, SriLankan Airlines has to bear the other associated additional costs like office space, utilities, staff welfare, etc. The Middle Eastern airlines are keeping their staff levels even below 175 and sometimes at around 150.

When aircraft are given away and destinations are reduced, there will be more excess staff. Can the SriLankan management tell the taxpayers how many staff are being retrenched when aircraft and destinations are being reduced or instead are they expecting the taxpayers to subsidise that excess staff as well?

The SriLankan Airlines operational hub, which is the Colombo Airport, Katunayake, has one of the highest charges for fuel in the world, charged by a Government entity. The charges for airport services by Airport & Aviation Authority are also very high. The terminal services charges paid at the Colombo Airport, Katunayake (monopoly held by SriLankan Airlines but a separate cost centre) are also exorbitant. The Middle Eastern airlines benefit from much lower and more competitive charges.

Obviously SriLankan Airlines is suffering from the domino effects from all these negative factors and that is why SriLankan Airlines is making losses on European routes while other airlines make profits.

Instead of reducing the fleet and leasing three aircraft to the PIA, the sensible strategy would have been to use those aircraft to increase destinations and frequencies and earn more revenue. Of course this requires new route planning and aggressive marketing and sales. The choice of SriLankan Airlines seems to be to go backwards and cover up their inability to market and sell. SriLankan Airlines gave up three aircraft and chose to reduce revenue generation. It is obvious that SriLankan Airlines is not interested in becoming aggressive in marketing and sales and increasing revenue and yield.

It is believed that the yield per passenger to Frankfurt and Paris is about $ cents 6.5 per passenger. With the current fuel prices and the increase of tourist traffic, this yield should be adequate, only if SriLankan has the guts to reduce staff and radically reduce overhead costs.

The Middle Eastern carriers get a better yield, purely because of the passenger mix. They have a higher percentage of high-paying business travellers. Business travellers choose those airlines due to the superior service quality and most importantly, the frequency. Emirates has four flights daily from Paris. SriLankan had four flights a week and the majority of the passengers therefore are ethnic and holiday category who generate a lower yield. The Middle Eastern carriers also get critical mass. So if SriLankan wants to increase yield it has to improve service quality and that cannot be done by giving away the aircraft it has.

The Srilankan management strategy is clearly shown when they are reportedly planning to deploy the three new Airbus 320 to destinations like Hong Kong. How is SriLankan planning to compete with other airlines which have deployed A330s with flatbed seats on the same route?

"SriLankan Airlines owes an explanation to the taxpayers as to why they chose to reduce the number of aircraft, withdraw from prestigious destinations and lose revenue but did not bother to retrench even a single staff member or to reduce their overhead costs

The decision to wind-up Mihin Air is also another questionable decision. Mihin Air lost money and failed because they did not know where to position themselves. It was started as a budget/low-cost airline but then they got confused down the line and began shifting towards a full service airline and were neither here nor there"

Another important decision of SriLankan is to cancel the A350s and pay colossal cancellation charges. Did SriLankan have a business plan for the 350s when they were ordered and if so haven’t the external factors got very favourable since then – like fuel costs and growth in passenger numbers, especially tourists, to Sri Lanka? Can the SriLankan management explain whether they looked at a fresh business plan and the feasibility of operating the 350s before they ask the taxpayers to pay unprecedented cancellation charges?

The decision to wind-up Mihin Air is also another questionable decision. Mihin Air lost money and failed because they did not know where to position themselves. It was started as a budget/low cost airline but then they got confused down the line and began shifting towards a full service airline and were neither here nor there. 

When Mihin did not serve meals on board, passengers were yelling and the management caved in and started serving lousy meals. Their fares were higher than full service carriers. A clear formula for disaster. Most major airlines have their own budget carriers while other low cost carriers operate as independents serving a totally different market segment – a highly-successful business strategy, examples being Ryan Air, Air Asia, Fly Dubai, etc. 

Air France just announced that it sees 20% year-on-year growth in passenger numbers from India. SriLankan does not seem to be interested in such a growing market.

When SriLankan Airlines withdraws from Frankfurt and Paris, this could lower load factors in the regional flights, which generated transit passengers to those destinations and on the next stage those regional routes also will begin to make losses as explained above.

SriLankan Airlines owes an explanation to the taxpayers as to why they chose to reduce the number of aircraft, withdraw from prestigious destinations and lose revenue but did not bother to retrench even a single staff member or to reduce their overhead costs.

Can SriLankan Airlines tell the taxpayers whether they have an intention to reduce the staff close to the global norm of 175 per aircraft and if so, when are they planning to achieve it?

The path SriLankan Airlines has chosen to tread is to make further losses and reduce the competitiveness of SriLankan Airlines in the global airline market. The product standards are being compromised.

Obviously any investor/airline which comes into SriLankan as a partner and invests money would not be pleased with the current management strategy and vision.