Dubai: Will one of the UAE or Gulf airlines fly to Sri Lankan’s rescue?
Talks about a possible privatisation of Sri Lanka’s flagship carrier – and the proceeds that will flow to the cash-strapped government from selling it – are again making the rounds. The Emirates Group had managed the carrier for years until the contract ended just after the 2008-09 Global Financial Crisis broke out.
For now, SriLankan is facing another crisis. The country is facing its worst economic crisis since independence with severe food and fuel shortages. The state-owned carrier sparked public criticism in April when it announced a plan to lease nearly two-dozen aircraft to replace planes whose leases expire in December 2022.
The airline is operating at slightly over 70 per cent of its pre-pandemic capacity, thanks to a new strategy that has the SriLankan relying less on direct inbound traffic, according to Dimuthu Tennakoon, Head of Worldwide Sales and Distribution. “These days we carry a lot of ‘Sixth Freedom' traffic and passengers are travelling to India and Maldives via Sri Lanka – there’s no risk when they are transiting,” said Tennakoon. “I am sure this period will also pass, and Sri Lanka will start having international passengers soon.” (Sixth Freedom relates to travel rights to fly from a foreign country to another while stopping in one's own country for non-technical reasons.)
The airline, which received some bids from aircraft leasing firms, said it has put the process on hold for now. “It was announced to just check the market pulse – we have discussed with the owner and delayed it by three months,” said Tennakoon. “I am sure we should be able to replace the aircraft before they leave the fleet.”
Middle East is key
Tennakoon said that the Middle East’s share in the airline’s revenue had grown to 30 per cent from 20-25 per cent. Overall, the airline’s financial fortunes have rebounded significantly with SriLankan reporting its first profitable fourth quarter since 2006 in April.
“We anticipate some headwinds in the first-half of this financial year with high fuel prices and a short-term dip in demand to Sri Lanka,” said Richard Nuttall, acting CEO of SriLankan Airlines, in a statement. “We have factored in these challenges and are working towards minimizing the impact with a strong business plan and a sound turnaround strategy to return to full-year profitability. Traffic is expected to recover fully by the end of the year as travel restrictions are eased further.”
Fuel prices, which make up for around 30-40 per cent of an airline’s operating costs, have surged in recent months due to the Russia-Ukraine conflict. This will hit all airlines, particularly those from oil import dependent countries in Asia and Europe.
SriLankan is managing to offset the impact of the prices with the help of high ticket yields. Passengers who had postponed or cut down on flying due to the travel restrictions are again making travel plans and this has resulted in airfares being 25 per cent higher than normal levels in some parts of the world.
“Oil cost is the highest cost for every airline, but right now we are still managing it – I hope prices settle down soon,” said Tennakoon.
Tourists not affected
While protests rage on in parts of the country, Sri Lanka’s tourist spots are largely unaffected, said Tennakoon. The tourism sector contributes 12 per cent to Sri Lanka’s GDP and is the fifth largest source of foreign revenue in the country. “If you look at the resorts or hotels where the tourists stay, there’s no issue at all – the (Sri Lankan) people also understand that tourism is very important to the country,” said Tennakoon.