SriLankan targets competitiveness to become profitable by 2016
Thursday, 8 August 2013 00:33
By Uditha Jayasinghe
Defending losses, national carrier SriLankan Airlines yesterday made a determined play at countering fuel prices, providing better service and improving competitiveness to become profitable by financial year 2016/2017.
SriLankan Airlines CEO Kapila Chandrasena addresses a media forum yesterday - Pic by Lasantha Kumara
The debt-burdened airline, which operates 21 aircraft to 32 destinations, has been struggling to beat competition, admitted SriLankan Chief Executive Officer Kapila Chandrasena during a press conference.
Attempting to explain the company’s losses of US$ 190 million last year, which come on top of earlier debt, Chandrasena insisted that related services to the island’s tourism industry have to be considered.
“What we see in the airline industry is that it is an industry that gives a lot of value to the country, passengers, partners and support services, but it doesn’t give sufficient returns to its own business. But that is something we are seeing and if you look at the capital investment of the past 40 years, returns are 2-3%. So that is the reason for a lot of the criticism that SriLankan is not making profits.”
He pointed out that SriLankan has had to manage with $ 500 million approved by Cabinet in 2011 (first time in a decade) but only given over five years.
SriLankan provided transport to nearly half a million tourists in 2012, which is the post-war economy’s most thriving market. It hopes to increase passenger traffic by 8% over the next five years with focus on China that is expected to increase by 72%.
“As a State-owned entity we must remember the larger services that we provide to the economy. Our largest loss-making routes are to Europe but if we were to stop those, then the tourism industry would suffer,” he argued.
Cash strapped, the airline has struggled to finance high oil costs that add up to 47% of overheads and lost out to competitive airlines, particularly from the Middle East.
“I think we are quite competitive in cost but we need to invest more. If you look at our aircraft, they are fuel inefficient and give lesser range compared to other airlines,” he said.
Chandrasena was cagey about disclosing the cost of the Airbus deal that will replace its ageing fleet with more fuel efficient aircraft but earlier reports indicated that it would be at least US$ 1.3 billion.
“We see huge opportunity in passenger volume and we project 5 or 6% compound annual growth for traffic and this is basically championed by the Asia Pacific region. Sri Lanka is optimally placed to exploit that growth. What we plan to do is have the right network and the right fleet so that we as a country gain the benefit,” he added.
SriLankan recently came under fire from the Committee on Public Enterprises (COPE), which is a Parliamentary watchdog, for mismanagement and corruption. COPE blamed SriLankan and its budget carrier Mihin for consistent losses. The latter has lost $ 6.9 million since its launch five years ago.
But Chandrasena defended Mihin as assisting SriLankan’s competitiveness and pointed out that the carrier was making profits in services to Jakarta, Dhaka and breaking even to some destinations in India. Responding to questions on whether there was a necessity for Mihin in the first place, Chandrasena conceded that the decision was out of his hands.
The CEO also said there was no loss in operating flights to Mattala largely carrying transit passengers to Maldives from China and the Middle East and stressed that this was to relieve the congestion at the Bandaranaike Airport.