“No airline will invest in SriLankan Airlines unless the balance sheet is cleaned up first” – BT poll
View(s):There was a free flow of comments and constructive criticism of SriLankan Airlines in the Business Times poll conducted this week. Here are some of the responses:
On whether SriLankan Airlines (SLA) should reduce routes to cut losses?
- Reduce only unprofitable routes
- Yes, but some routes that are strategic to Sri Lanka like London, Frankfurt, Paris and Rome should not be cut. Perhaps a reduction in frequency to these destinations may be a temporary measure.
Should SLA be re-launched as a regional airline only?
- No, use the One World Alliance to cater to unprofitable, long haul flights if necessary.
- Maybe yes. There is no point in being a high profile airline if you are in the red at taxpayers cost.
- I disagree. Such a move would reflect badly on the country, this being the flagship carrier. Mihin Air could be the regional airline and branded so.
- There may be a case for a regional airline but even here the competition is high and the market is determined by what is called fifth freedom rights which countries like to deny to foreign airlines. So we can only be sure of the first and second freedom rights which have to be shared with the airlines of the other bilateral country. If we restrict fifth freedom rights no international airline will call over here at all, since our first and second freedom business is small. It is better to charge for such fifth freedom rights rather than seek to run our own airline.
Should SLA be managed by a foreign airline like the earlier arrangement with Emirates (and partly with Singapore Airlines in the 1980s’)?
- Yes if SLA wants to become a high profile airline and run at a profit.
- Yes. No doubt about it. It is a proven fact that governments don’t understand the essence of business.
- More than a foreign airline we need competent management and if necessary hire them.
- No. Such arrangements are nothing more than the sale of traffic rights to another airline. It is however better than running our own airline since our political leaders use the airline as a milch cow and there is no way we can stop such practices. The nexus between ownership and management is essential for management. This is not possible in a public enterprise.
Should SLA be managed by a foreign airline which would also invest and hold a stake in the airline, not only as a management partner?
- Yes, if this would reduce the wastage which is happening currently.
- Yes, much needed funds would be provided as equity.
- Depends on the conditions of equity partnership. The ultimate control should be with Sri Lanka.
- No, this would be detrimental to the long term future of the national carrier.
- No foreign airline will invest in Sri Lankan unless the balance sheet is cleaned up. What should be done is state support should be offered at least in the form of guarantees; hire a top airline industry turnaround team with attractive incentives offered to specified outcomes. After the airline is returned to profitability there will be many suitors.
- Answers to C and D are dependent on too many variables. Firstly, unless an airline can see a clear advantage (eg like Emirates did when they sought to share/exploit our route network/bi-lateral access…which are UL’s most cherished treasures!), they will not ‘buy into SLA. Secondly the SIA/UL tie up in the late 80s had more than a hint of generosity between Lee Kwan Yu and J.R. Jayewardene. SIA undertook to establish an airline for us and to their credit they did a great job! UL was the pride of the region on all fronts except financial! The Singaporeans were not totally to blame for this. Sri Lankans should know how to run their ship!
Should SLA continue to be managed and controlled by the Sri Lankan government?
- SLA should be kept away from all political influences and control, whatever government in power.
- Certain government interventions will be necessary; however no government intervention should be permitted in operational aspects. It should strictly run like a private company.
- (No): Oh my gosh NEVER!
- Management by a foreign airline should be on the basis where the Government has the majority stake.
- No. As one foreigner told me our government cannot even collect the garbage efficiently.
- NO, the Sri Lankan government is not at all competent to manage and control any commercial activity, let alone an airline.
General
- Governments cannot run businesses. The objectives of a government (welfare of the people) and business (profits) clashes with each other.
- Sri Lankan Airlines should be scrapped altogether.
- Running an airline today is least understood by politicians and most people of this country. It is a capital intensive business and a recent IATA study shows that VERY FEW of the world’s airlines are ‘stand alone profitable’. Those who have adopted backward/forward integration are the best survivors…eg Emirates makes money from DNATA (Ground handling company) and when running UL they ‘persuaded’ us to ditch our Reservations system for the Mercator model (a Swissair product) which they were running, citing economies of scale, if both UL and EK bought into the same platform. Emirates, on its airline operations alone are a loss making venture! Most West Asian airlines are heavily subsidized by ‘oil rich’ Governments.
Airlines are the least profitable of all other stakeholders – airports, Global Distribution Systems, Avionics…even Air Traffic Control! Airline margins across the board are around 1 – 2 per cent and woefully inadequate to withstand any sort of financial/commercial shock.
So, what do we do about UL? Does Sri Lanka need an international airline? If so, of what scope and scale? Is an open skies policy feasible? (I say not entirely…because whichever airline makes use of our ‘free invitation to come’ does so purely for commercial purposes. If they lose money on Sri Lankan operations, you won’t see them for dust!!…and you will then be minus international air access to the rest of the world).
- SLA should be very cautious about partnerships with other airlines. Partnerships should bring-in synergies and should be a win – win and not one like the Emirates partnership where Emirates used Srilankan as a subsidiary to feed its long range flights.
- Air travel is growing and new models like budget carriers have emerged. Even the hub concept is changing with new long range aircrafts coming into service. Except for the high cost carriers from the US and Europe those which are poorly managed, all other airlines are making money. So all Srilankan has to do is to follow the success stories.
There are five key things that should be done in SLA;
- Head-hunt professionals for the key positions with proven records – this should include board positions.
- Reduce staff immediately to acceptable limits without looking at political repercussions.
- Stop political interference totally – the only way to do it will be a PPP (public-private partnership).
- Explore benefits that could be derived from a partnership with another airline (which can offer synergies only) and/or from alliances like One World.
- If Airbus has overcharged SLA for the aircrafts, take them to the European Courts for corruption. If aircrafts which can fly nonstop to the US have been ordered when there was no plan to fly to the US, take the persons who did the purchase to courts.
- The first step should be a reorganization of the airline. Unnecessary, unsuitable and inexperienced staff should be got rid of. SLA need not be a regional airline. It could fly to some European destinations and to the Far East and Australia and partner with an airline to North America (eg Air Canada). It should cut the uneconomic routes to Seychelles and several European points.
There should be a code of conduct for the management and the Board and extravagant perks cut. Once this reorganisation is done, it could be privatised with investors both local and foreign. Some of the local corporates who should be encouraged to invest are those in the tourist industry (JKH, Aitkin Spence, Jetwing, etc). It should then be listed on the stock market.
- Having worked in an airline – Air Ceylon, I like to state that our staff do not have the discipline required to run an airline. Our Air Hostesses think they are God’s gift to mankind. They hold up the staff transport to powder themselves and disrupt the entire transport trip to collect them for the flights. As a foreigner once remarked we do not have the discipline required to run an international airline in a competitive market. Similarly our pilots are also an undisciplined lot who are not amenable to discipline.
Each time the airline runs at a loss it is consuming the scarce capital of the people. It is therefore an economic crime to run an airline at a loss given the foreign exchange scarcity. The returns even on the general airline business is not high. So we should use our scarce resources to run a business where we are more adept and can earn better returns than the airline business.