SriLankan Airlines improves performance

• Shows resilience despite rising fuel prices, high interest expenses and currency depreciation
  
   

The national carrier, SriLankan Airlines, recorded a significant improvement in its performance for the nine months ended 31 December 2018 against the corresponding period in the previous year.Notable improvements were recorded in deployment of capacity, passenger and cargo revenue, market yield and unit cost. Year 2018 was a challenging year for the Airline due to the adverse impact of rising global fuel prices, rapid depreciation of local and regional currencies and political instability. However the airline showed a great resilience by executing effective strategies to curb the impact of such adverse external environmental factors. 

During this period, SriLankan’s net traffic revenue from core airline operations increased to $ 746 million (Rs. 120 billion) with a year on year growth of 8%. Overall seat capacity or Available Seat Kilometres (ASKs) was improved by 6.5% through effective deployment of the aircraft fleet to profitable markets by way of frequency optimisation and utilising right aircraft types.  

Effective and timely management of aircraft deployment and flight frequencies on the basis of market dynamics allowed the airline to optimise revenue amidst the increased competitive climate. Flight frequencies to markets such as London, Melbourne, Dubai, Abu Dhabi, Doha and Delhi were increased to meet the seasonal demand and it proved to be an effective strategy as the performance of these routes improved significantly. 

SriLankan reaffirmed its commitment to growth of tourism by continuing with daily operations to Melbourne – Australia that saw Australia rising to the fifth highest tourist generator of 2018 ahead of some of the traditional tourist markets. In fact, Australian tourist arrivals grew by 36% in first 12 months since launch of SriLankan’s direct flight to Melbourne. 

SriLankan Airlines’ online direct sales channel www.srilankan.com achieved a significant milestone by recording an overall penetration of 14% of the total network passenger revenue. This reflected the airline’s consistent investment and commitment in optimising non-traditional direct sales channels to drive the revenue up at lower incremental cost. The airline expects to double the online direct sales contribution in two years. 

Increase in passenger revenue would have been much higher if not for the depreciation of key revenue generating currencies which amounted to $ 9 million during the period under review.

Although a marginal reduction in total number of passengers carried (0.3%) was reported for the nine-month period, overall seat factor (network-wide seat occupation) remained at 82% of the capacity deployed. 

The overall passenger yield which is measured as yield per Revenue Passenger Kilometre improved by nearly 1.6% from previous year. 

Improvement of market yield without deteriorating overall seat factor, considered as a challenging proposition in airline industry, was achieved by SriLankan through implementation of effective pricing initiatives which included timely imposition of fuel surcharges to minimise the impact of rising fuel cost. 

However, improvement in top-line was overshadowed drastically by the increase in operating cost base owing to high fuel prices. At $ 902 million (Rs. 147 billion), the total operating cost recorded an increase of 15% against the previous year.

Impact due to rise in aviation fuel prices was $ 66 million. Further, increase in aircraft maintenance cost and aircraft lease cost due to the addition of one A321 Neo Aircraft was reported during this period.

As most of payments denominated in USD, SriLankan’s exposure to currency depreciation in 2018 was substantially unprecedented and resulted in higher operating costs beyond the initial projections. 

Interest cost for the nine months ended amounted to $ 47 million and the negative impact of the Withholding Taxes on aircraft related payments amounting to $ 23 million further negated the positive results from the operations.

GoSL is currently making arrangements for SriLankan Airlines to be exempted from Withholding Taxes on aircraft related payments. The airline’s commitment to effectively manage controllable costs was well exemplified by overall reduction of overheads in other areas such as, commercial and administration against the previous year. The cumulative unit cost (cost per Available Seat Kilometre – CASK) excluding fuel and interest cost showed a reduction of 3%.

However, the net loss for the nine months ended was $ 135 million (Rs. 40 billion) against the loss for corresponding period of previous year stood at $ 66 million (Rs. 11 billion).

Management of SriLankan Airlines presented a restructuring plan to the Government which focuses on progressive consolidation to bring the airline to a breakeven position in three years. This plan specifies the action required from the Government to reduce finance cost, high fuel processing charges and various initiatives identified by the management to reduce the costs and improve revenue. 

CEO Vipula Gunatilleka said that the year 2019 would be the year of consolidation for the airline and the management initiatives undertaken during the second half of 2018 were expected to show positive results. 

Management will continue to focus on revenue enhancement though effective capacity deployment to enhance revenue and expenditure reduction strategies to direct the airline towards sustainable financial viability.