SriLankan says re-fleeting strategy to improve cost structure, profitability

SriLankan Airlines says the planned re-fleeting strategy will improve its cost structure and profitability.

The national carrier emphasised the benefits of the re-fleeting program with a Request for Proposals (RfP) for 21 aircraft leases which was published last week and drew widespread criticism amidst the Government’s decision to temporarily suspend servicing of all external debt. 

In its clarification, SriLankan Airlines said reviewing the airline’s fleet of aircraft in terms of leasing costs and operating efficiency is a key pillar within a broader cost restructuring plan embarked upon by the airline since the onset of the pandemic in 2020. Other restructuring initiatives have thus far resulted in the airline ceasing to rely on Government funding since the second quarter of 2021, and returning a profit since December 2021 – the most profitable month on record.  

The initiation of the re-fleeting RfP is primarily prompted by the impending expiry of aircraft leases for over 50% of the current fleet. The airline recognises that the current global market for aircraft leasing presents an attractive pricing environment which would maximise the cost savings which can be achieved via the timely execution of a re-fleeting strategy. 

The combination into a single RfP of replacement aircraft (expiring leases) with growth needs over the ensuing period, captures benefits of scale. A single procurement exercise also avails optionality in terms of selecting the optimum fleet structure in terms of operating efficiency, aircraft type and aircraft age. 

All aircraft leases will be funded through the airline’s current existing cashflows, and the re-fleeting is expected to significantly reduce the airline’s cost structure going forward. The re-fleeting exercise will alongside other strategic initiatives help the airline increase its operating margins and further elevate its operating cash flows which will support the timely paying down of long-term debt to the Government and other lenders. 

The promising turnaround in the airline’s financials have accrued both from cost restructuring as well as from selective growth initiatives in terms of expansion of the route network to include new destinations, and exploitation of growth opportunities in the cargo sector. Forward looking plans of the airline will be closely aligned to the growth aspirations of Sri Lanka’s tourism sector which is one of the country’s largest foreign exchange contributors.  

SriLankan Airlines said it is presently a net foreign exchange earner for the country. Cognisant of the broader macroeconomic environment locally and globally, the airline will continue to take a measured and calibrated approach to growth with primary focus being applied to maintaining self-funded, profitable and sustainable operations.

Last week SriLankan Airlines issued four requests for proposal (RfPs) to lease up to 21 aircraft to support its long-term business strategy. This includes two RfPs covering existing fleet types (320 and 330 family aircraft) and two parallel RfPs to compare with alternative aircraft types. Roughly 60% of the planned aircraft will be for fleet replacement, and the remainder will be to support the airline’s expansion strategy and meet the growing demand for air travel between Sri Lanka and the world. 

Prior to the pandemic, in 2019, SriLankan had an all-Airbus fleet of 27 wide and narrow-bodied aircraft to service its short and long-haul operations. During COVID, there were no replacements for three aircraft that left the fleet. The airline currently has 24 aircraft to operate to 40 destinations in 25 countries. 

SriLankan said it is planning for measured growth in the next three years through frequency increases and the addition of new destinations as international travel is in a trajectory of recovery from the pandemic. The business plan of the airline necessitates a 35-aircraft-strong fleet by 2025. 

Additionally, it is critical to lease replacement aircraft when existing aircraft leases expire to sustain operations. Considering these factors, SriLankan plans to lease up to 21 aircraft from the forthcoming RfP process.