SriLankan Airlines to fly smarter with capital infusion, new biz plan

When the news of the impending change at the top in the national carrier broke, the Daily FT headlined the lead story on 6 May 2011 as ‘Turb-UL-ence,’ with a pun. But for the man in the hot seat of Chief Executive Officer, Kapila Chandrasena, since taking over in August, it has been more of consolidation of recent success and refinement of future plans.

Kapila was originally well-known in the telecom sphere. After some absence, his return to corporate world straightway with the appointment as CEO of Mihin Lanka as well as a Director on the Board of SriLankan Airlines did raise many an eyebrow.

The decision by the Government, which acquired Emirates stake in 2010/11 financial year for $ 53 million thereby making it 95% State owned, to hand over the job of CEO of the national carrier to Kapila replacing industry veteran Manoj Gunawardena was the implied turbulence by the Daily FT headline. However, in quick time, as well as thanks to exposure to Mihin as CEO  and SriLankan via Board presence, Kapila has learned the dynamics of aviation fast.

In his first interview with a newspaper since assuming duties as CEO, Kapila shared some key insights to the future of the national carrier while also defending some of the policy decisions made in the travel and tourism industry of the country, prospects of which he emphasises are great since the end of the conflict in May 2009. Here are excerpts:

Q: How is the national carrier fairing?

A: At present we are doing over 80% cabin factor, which we are confident will improve in tandem with the growth in tourist and business traffic. We are also tweaking the mix of passengers by enhancing the experience of the business traveller by introducing the superior flat bed service.

By May 2012 flat beds will be available in most of our long-haul routes using wide bodied A330 and A340 aircraft. More customers are opting to fly business class, price of which is driven by the market. This upgraded product complemented with the warm SriLankan style of service will enhance revenue for the national carrier.

We are proceeding with the re-fleeting. With the recent delivery of A320, SriLankan has 20 aircraft, up from 16 as at end of 2010/11 financial year. We are in the process of doubling our fleet and more additions will be made in 2012 including the replacement of the older A340s. We are looking at suitable aircraft for this purpose.

Q: What are the future prospects for the national carrier?

A: The Board presented a credible and practical five year business plan and the Government has accepted it. The Cabinet has committed US$ 500 million capital infusion over the next five years. The airline business (Company) has reduced its net losses to Rs. 381.6 million in 2010/11 financial year from Rs. 2.7 billion in the previous year whilst the Group (inclusive of SriLankan Catering) has reduced the loss to Rs. 202 million from Rs. 6 billion in the previous year.

We are confident that the airline business will break even in the 2012/13 financial year. The Company’s revenue had increased to Rs. 77.1 billion from Rs. 62.3 billion in 2009/10 financial year whilst that of the Group rose from Rs. 63.5 billion to Rs. 78.5 billion in 2010/11. As per the Business Plan, we hope to bring the airline operations to a break-even level and profitability from 2012/13 financial year onwards.

Q: What makes SriLankan Airlines confident of returning to profitability?

A: With fresh capital infusion from the Government comes greater responsibility for the airline to improve its performance and deliver value to all its stakeholders – passengers, industry, employees, the State as the shareholder and the country as a whole.

The end of the conflict has resulted in a turnaround in the economy as well as tourism industry. This has provided the national carrier a specific window of opportunity to return to profitability. In the past our growth had been impacted by lack of investments especially on re-fleeting. However given the business plan as well as expressed Government’s support in terms of capital infusion, we are confident of catching the best of the post-war wave of growth in economy and tourism.

The Sri Lankan travel and tourism industry no longer has the overhang of the war and I strongly believe this is the best time for the national carrier to emerge stronger. However volatile oil prices remain a constant concern and with regard to managing the fuel risk we will explore options to properly hedge a considerable part of our exposure.

Furthermore, Asia has become the engine of global travel and tourism and of late we have increasingly focused on maximising from this phenomenon by reorienting some of our services. To further harness the robust growth in Asia, we hope to go double daily Singapore, expand coverage and services to India and South Asia and explore options to fly daily to China. Furthermore new destinations such as Korea as well as tap Australia are among our plans.

Our growing focus on Asia is whilst we consolidate the traditional markets such as Europe within which we will strengthen our offering in select cities. Resuming services to Zurich is one such strategy. The same focus is on the Middle East.

Q: Since assuming office as CEO at SriLankan what internal changes have you done?

A: Several previous good initiatives will be continued with and where necessary we will improve to make them better or introduce new measures all with the objective of making the SriLankan Airlines competitive, profitable and stronger to achieve the carrier’s and the country’s goals. The national carrier is blessed with a highly skilled team of near 5,000 employees who give their 100%. We will improve on our strengths whilst addressing the weaknesses.

Q: Is SriLankan Airlines trying to limit competition so that it can fully reap the post-war boom?

A: The Government maintains an open skies policy though one could argue there are different flavours of open sky policies. Singapore has its own flavour and Sri Lanka has its own. When someone comments on competition, an apples-to-apples comparison is important. On that score SriLankan Airlines certainly welcomes competition and we give value for money or a competitively priced product.

With regard to ground handling, I doubt charges in Colombo are expensive if one compares per service or as a package. There isn’t much disparity within the region I also feel the Government has a right to a fair share of return on its investment undertaken over the years.

Q: Do you think given huge losses made so far Mihin Lanka deserves to exist?

A: Sri Lanka must have a low cost carrier hence Mihin is necessary. After the initial investments for start up, Mihin has improved its performance and will become stronger in the future. Objectives of a full service and budget carriers are different and must be pursued with. Though operated separately, where possible synergies of the two and between them must be maximised. Around 35% of the Sri Lankan market is dominated by low cost carriers hence Mihin Lanka has a role to play and a growing market to serve.

Singapore has four separate airlines to cater to different markets. It has a SIA, Silk Air, Tiger and recently floated a Budget carrier Scoot. I think the Sri Lankan market will grow for all to enjoy a good share. Given the future development strategies, Colombo and Sri Lanka will evolve into a competitive and a mega tourism and aviation hub.