SriLankan Minimises Losses, Unveils Ambitious Expansion Plans

SriLankan Airlines had minimized losses to the year ending 31st March 2010 and unveiled ambitious expansion plans, at the carrier’s 31st Anniversary held at Colombo Bandaranaike airport yesterday.
The carrier’s losses to the period ending 31st March were LKR 6.06b ( USD53.7 million ), compared to LKR 9.99b an year ago.
Revenue had fallen to LKR63.36 billions ( USD562 million ) from LKR74.26 billion an year ago, mainly due to slashing of the network.
Fuel costs were down by 35%, maintenance by 19%, landing costs by 13%, overflying charges by 16%, airport handling costs by 7% and catering costs by 3%.
Operating expenses fell to LKR69.2 billion ( USD614 million ) from LKR84.4 billion an year ago and unit cost had come down to LKR43.37 ( USD 38 cents ) tonne/km from LKR50.71 on the year ago.
Load factor ( pax ) had surged 5.08% to 77.93% from 72.85% an year earlier. Overall load factor, including cargo, had risen to 66.72% from 65.12% an year ago.

In an ambitious expansion plan, the carrier is to take delivery of seven aircraft next year, and relaunch its domestic floatplane services.

SriLankan 4R-ALG | SriLankan FY2010/11 outlook
SriLankan has started adding Visit Sri Lanka decals to its fleet, seen here on 4R-ALG, newest addition to fleet.

The seven aircraft will consist of five Airbus A320s and two Twin Otters. Three of the A320s will be brand new, and will be the first brand new aircraft SriLankan takes delivery of in 10 years. These A320s will also be fitted with AVOD IFE systems.
The floatplane service will likely launch during this year.
The carrier will also refurbish its Airbus A330 and A340 aircraft with flat bed seats. Of the five A330 aircraft SriLankan operates, one aircraft has flat bed seats.
The airline had previously also announced plans to launch flights to Moscow, Russia and Guangzhou, China before February 2011.
SriLankan was bought back by the government of Sri Lanka during July this year. The airline also remarked that its engineering unit, SriLankan MRO, is likely to secure its largest ever contract, from a regional airline soon. SriLankan currently services fleets of a number of regional carriers, including India based LCCs IndiGo and GoAir.
SriLankan Catering, a profitable subsidiary of SriLankan, recently took over a hotel at airport premises owned by the airport authority. The airline is also in the process of setting up a full flight simulator at Colombo Bandaranaike ( CMB ) Airport.
SriLankan as an airline is currently unprofitable, while at group level all of its subsidiaries ( MRO, Catering ) are profitable. The government has been mulling on diversifying the carrier, which has been constantly unprofitable ever since Emirates Airline ended the management contract. SriLankan’s Chairman is the brother-in-law of the President, who is also the Chairman of the other state owned airline, Mihin Lanka. Mihin’s financial data were not published.

REVIEW

SriLankan seems to be making some progress, while the current positive global market outlook might have helped them.
It appears that SriLankan is planning to embark a regional expansion activity with addition of five A320s. It is likely that the brand new aircraft are coming from lessors, as the carrier currently has no outstanding orders with Airbus.
The decision to fit these aircraft with AVOD might be appreciated by passengers, as SriLankan’s current fleet of three A320s do not have any personal IFE system. However, it needs to be questioned whether an AVOD system is a necessity as SriLankan’s key catchment areas of South Asia and its markets are increasingly being threatened by LCCs. It is not clear whether any of these A320s will replace the existing A320s, of which one’s leasing contract is due to expire in 2011.
Although it is a very important, and a necessary, move to refurbish the carrier’s A330 aircraft, the rationale behind upgrading A340 aircraft is not clear. The five A340-300s, of which three are the first delivered to Asia, are already too old for economical operation by an overstaffed carrier like SriLankan. The fact that these are leased aircraft makes the matter much worse for them. The replacement choices of A340s makes an interesting case for SriLankan. On this regard, the all-Airbus-carrier currently has two choices
i. Make a move to Boeing, train employees, and lease some Boeing 777-200ERs which might be available at attractive rates.
ii. Lease a few Airbus A330-300 aircraft for medium haul operations, and utilize the existing Airbus A330-200 aircraft on long haul sectors, even at a sacrifice of capacity.
The reviving of floatplane services can be expected to be profitable with tourist arrivals to Sri Lanka rapidly improving after end of the war. It is believed that the floatplane operation was highly successful, before it was ceased over security concerns.
SriLankan’s MRO unit has made steady progress in the last few years, and expanding the MRO operation could prove to be a success for SriLankan.
SriLankan added one new destination, Milan, in the last financial year. During this financial year, SriLankan has so far launched flights into Shanghai, which is reportedly experiencing very good loads. The decisions to add Moscow and Guangzhou to the network turns out only natural with Sri Lanka’s trade with Russia and China improving. It must be noted that SriLankan has made commendable progress regarding network development during this year.
Rather than diversifying SriLankan’s units, perhaps the best thing the government can do, is to merge the state owned LCC, Mihin Lanka, with SriLankan. Which could become not only very helpful yields-wise but also an important strategical move for SriLankan’s future.
With so many things happening, SriLankan’s future sure would be an interesting one to watch.

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