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Friday Nov 15, 2024
Monday, 9 February 2015 00:00 - - {{hitsCtrl.values.hits}}
Interim relief and provisional course corrections were the objectives of the supplementary budget proposals framed in 20 days. One of the course corrections proposed was the merger of the two loss-making airlines – the flag carrier Sri Lankan Airlines and the budget carrier Mihin Lanka. The rationale for the merger was to cut losses and improve productivity. The Minister of Finance has also cautiously pointed out that it was necessary to determine if Sri Lankan Airlines is a going concern. This writer can only wish him well in his quest for improved productivity and the search for financial prudence in the merger of the two airlines.
A company is a going concern when it is considered to be able to pay its debts. By that yardstick Sri Lankan Airlines is not a going concern. Unless some drastic measures are adopted, it is most unlikely to be a going concern.
Restructuring it as a regional carrier confining its operations to Middle East, Indian subcontinent and some points in East Asia is the immediate option that makes economic sense. It should decisively withdraw its operations to Europe. The futile attempt it has made over decades to make a presence in Europe is no longer sustainable. Keeping up with the Joneses in the skies is plain lunacy.
Sri Lanka should allow other carriers to connect Colombo with Europe, permitting them to regulate capacity according to seasonal demand. The same flexibility of operating scheduled services should be offered to carriers connecting Colombo with Australasia. The withdrawal from Europe will help rationalise the operations to points in the Middle East by reducing the burden of carrying thru traffic to Europe at fares lower than what the house maids pay to mid points.
A joint venture with a mega carrier capable of underwriting the commercial risks of the trimmed down network and servicing the debts incurred in the re-fleeting exercise is the way forward. Usually re-fleeting with brand new equipment is undertaken by managements supremely confident of balancing the risks and exploiting the opportunities of massive debt. There is no reason to suppose that the earlier management or the earlier Minister of Finance were exceptions to this rule. Therefore it is assumed that commitments to the manufacturer – Airbus Industries have heavy penalty clauses should the new management attempt a rethink.
A fortnight earlier in the columns of Daily FT this writer urged the new Government to immediately set up a Presidential Commission to determine whether the Government has any business to remain in the airline business. The Government should indeed review its entire aviation policy. A casual reading of the ‘corporate plan of the Ministry of Aviation would suffice to explain why such a review is an absolute national imperative.
The ministry overview begins with a startling discovery ‘The strategic geographical location of Sri Lanka is an advantage of its proximity to populous nations in the world in it’s to become an air line hub’ (www.aviationmin.gov.lk). Our Civil Aviation Policy is frozen in time of Ibn Batuta while we contend with gulf based mega carriers!
Airlines today are a global business where connectivity is pivotal to their success. The sorry truth is that Sri Lanka in the 21st century cannot remain on the aviation silk route if it persists with its obsession of a national airline engaged in international air transport.
A five years old IATA report made in 2010 describes the problem faced by all national airlines in South Asia. “Airlines are presently facing a challenging scenario that is translated in a return on capital insufficient to afford the cost of capital.” In the case of our own national carrier the malaise has turned from acute to chronic.
Success in this industry needs much more than re fleeting. The creative strategies with which airlines respond to the new world are more important than ever before. Competing while cooperating is the rationale for airline alliances which keep legacy airlines in air in varying degrees of successes.
The vision statement of Sri Lankan airlines begins with a blunt admission – ‘We are in the air transportation business’. The Raison d’être follows. “We meet shareholder expectations by profitably marketing Sri Lanka and contributing towards the well-being of society. We are a competent, proactive and diligent team. Our contribution is recognised and rewarded.”
Marketing Sri Lanka is the prerogative of the Tourism Development Authority and all its affiliated bodies including the vociferously assertive Hoteliers Association and tour operators promoting destination Sri Lanka. Well-being of society is the ideal of the Salvation Army and other likeminded bodies.
The Government involvement in the airline industry is due to some quirk in our post 1977 free market policies. We seem to have decided that we should build hotels and also undertake to fill them with foreigners. That is not surprising. In miracle country we now build airports and then go hunting for airlines that are willing to have peacocks in the cockpits.
No wonder that the vision statement of Sri Lankan Airlines is a slight variant of the epitaph that the Duke of Austerlitz – son of Napoleon wanted on his grave. ‘Between my birth and death there remains a great null’.
It is obvious that Sri Lankan Airlines is not in the international air transport business. If it knew anything about today’s international air transportation, it would not be ‘Marketing Sri Lanka’. In the second decade of the 21st century airlines market a service that moves passengers from ‘anywhere to anywhere’ air transportation is not a patriotic business. Minding its balance sheet perhaps is patriotic.
Sri Lankan Airlines is engaged in an impossible task. It is attempting something it cannot do. It operates to Europe to bring leisure travellers to Sri Lanka. It does not make sense. It cannot compete with Emirates, Qatar Airways and Etihad, neither Europe or Australasia. It might as well try to push back the high tide of the Indian Ocean with a housewife’s mop.
In the last two decades, the Gulf carriers – Emirates from Dubai, Etihad from Abu Dhabi and Doha-based Qatar Airways have virtually taken over the skies.
Today, Europe regards the Persian Gulf the most easterly hub. For Asia the Gulf is the most westerly hub. In this modern cartography of the 21st Century, Sri Lanka is not in the silk route in the skies. Nobody has noticed how far old Serendib has drifted away from the silk route that linked Europe with Cathay through the straits of Hormuz and the straits of Malacca.
Neither the Department of Civil Aviation nor the National Carrier have recognised the ‘complex and uneven geographies of mobility’ structured by the airline industry and its profit and efficiency driven selection of routes.
Tim Clark, CEO of Emirates and Managing Director of Sri Lankan Airlines until 2008 told the New York Times a cold hard truth that many in the business in this part of the world refuse to concede. “The legacy carriers see us as the monster of the Middle East, the bête noir of civil aviation in the 21st century but they won’t accept that the business we are carrying wasn’t theirs anyway. The 21st century is very different from the 20th century.”
With the most modern aircraft in service and most number on order the three airlines Emirates, Etihad and Qatar Airlines offer fiercely competitive prices through hubs that operate 24 hours where transiting is more pleasurable than flying. The unbelievable service excellence on offer includes on board showers and bedrooms. Even the modest traveller in coach class would prefer an aircraft that has onboard showers!
For many years Sri Lankan airlines has been operating to Europe incurring heavy operational losses. Its presence in Europe has been on the imprecise obligation imposed on it by our nation’s tortured history. The purpose of the national carrier is to bring in the hordes of tourists. It is strange that no one insists that ferrying housemaids to Arabia is also its prerogative!
From eighties to mid-nineties Air Lanka was used willy-nilly by an organised cabal of a new variety of travel agents to ferry thousands of Tamils across to safe havens in North America and Europe. It was in effect the proverbial Noah’s ark for a substantial segment of the Tamil diaspora. It helps to look back with no anger. It clears one’s vision to chart the path ahead.
The high spending tourist, the discerning honeymooners, culture buffs and the fastidious golfer who would tee off in Colombo, sip an afternoon beer at Digana and retire with a cigar at the Hill Club were the phantom fads pursued by successive marketers of the national airline. (Yours truly counted amongst them.)
The hard reality is different. Sri Lanka is an attractive but not an exceptionally enticing long-haul destination. It does not make sense to pay a comparatively high air fare to Colombo when there are plenty of beaches and golf courses in mass market destinations in the Adriatic, the Mediterranean, the Persian Gulf and further east up to the Indonesian archipelago. Only mega carriers with saturated frequencies and enormous capacity could offer competitive airfares to Colombo with the new marketing techniques of revenue management precluded by ad hoc scheduling of a small airline with a meagre fleet.
Airlines have funny tariffs. Travelling from Sydney to Colombo via Doha or Dubai is cheaper than flying via Singapore, Malaysia or Hong Kong. It is cheaper, more comfortable and more flexible in itinerary planning to travel Colombo, London via Singapore. Most patriotic Sri Lankans, who abhor targeted taxation even if it is a onetime tax, prefer comfort and flexibility via Singapore, Doha and Dubai. The possibility of winning a brand new automobile in duty-free lotteries while in transit is real.
The foundational myths shaped in the halcyon days of tourism in the late sixties and seventies persist to this day. Those were times when back to back holiday makers were disgorged from chartered aircraft until 1983 hit hard. Air Lanka then stepped in to rescue a threatened industry and took comfort in the false notion that it was a national endeavour where profit was not a priority. Next to foreign policy aviation had the highest number of experts in the watering holes of Colombo until the Colombo Stock Exchange made its debut. Today it has come full circle.
Sri Lankan Airlines has no way of linking Europe on its own in this competitive climate. If the hoteliers and the tourism industry need Sri Lankan airlines to operate to Europe they will have to underwrite the cost of operations.
The solution is staring at any dispassionate observer. Sri Lankan Airlines is not the preferred carrier in any of the European markets it operates to. This inescapable reality cannot be wished away by any number of marketing platitudes. Dull and dreary selective statistics are not substitutes for demonstrated performance.
The national carriers should immediately stop operations to Europe. If it can take this bold decision it should then sell the slots it holds at these European choke points in sought after airports to the highest bidder or offer them to a possible mega carrier partner. The airline has no choice but to either use or lose the historical slots it holds in Europe. The haemorrhaging cannot be stopped with a tourniquet. Amputation is the only rational alternative.
The crew cost is the second highest expense after fuel costs of an airline. Since profit is the difference between revenue and cost, efficient crew planning is a must for an ailing airline. Rationalisation of routes will automatically result in rationalising crew numbers.
Sri Lankan airlines must reach an accord with airline crew in reducing costs. They need to be told that the choice is either remaining in air or on ground.
(Sarath De Alwis is a former journalist and a retired professional in leisure and aviation industries.)
