Financial Times

SriLankan Airlines gets more aircraft, to expand in India
SriLankan Airlines, the national carrier in which Emirates has a 40 percent stake, is expanding its fleet of Airbus and amphibious aircraft and plans to increase flights to India in a big way.

Its CEO Peter Hill said the airline intends to branch out into destination management in future, as well as get into hotels given the shortage of rooms following the revival of tourism on the island.

The airline's group profit in 2004 is expected to be better than last year, while the stand-alone airline operation, which had been losing heavily when Emirates took over management in 1998, hopes to break even this year, Hill said.

Historically the airline's profits have come from ground handling and catering in which it has a monopoly. SriLankan Airlines has just acquired its fourth Airbus A-320 and intends to get two more A-320s and an A-340 at the start of the winter season when it opens a new route to China, Hill said.

The carrier is also just about to buy two more amphibious aircraft for its domestic air taxi fleet, which is growing in popularity among tourists as it has cut travel time from the Bandaranaike International Airport to resorts.

"It takes 10 hours to travel from Europe to Colombo but to get to some internal destinations (by road) takes longer," Hill said in a speech to corporate executives at the recent Lanka Business Report (LBR-LBO) CEO Forum.

The two new amphibious aircraft would be more capable with more seats than the existing Cessna Caravan floatplane. The amphibious aircraft fleet could expand in the next few years to 20-30 aircraft like in the Maldives, opening up Sri Lanka and catering to the upper end of the market, Hill said.

SriLankan's fleet now includes five long-haul A340s, four A330s, one Cessna Caravan floatplane, and two Antonov AN-12 freighter aircraft. The recently launched domestic air taxi service, using an amphibious Cessna Caravan floatplane, flies to six destinations on the island.

The amphibious aircraft provided a "quick fix" given the island's variety of lakes and waterways near many tourist spots and the experience of 40-60 years ago when travelers came in flying boats.

Hill said revenue had gone up over the last few years and that the airline had bounced back from the loss in 2001 when it lost half its fleet in a Tamil Tiger terrorist suicide attack on the BIA.

The money the airline received from insurance on the lost aircraft had helped fund future expansion plans. Hill said the company expects this year's profits to be better than last year with productivity of employees being three times what it was six years ago and that passenger yields were constantly going up.

This growth has come following the restructuring of the airline after the terrorist attack in July 2001. Hill also said SriLankan Airlines plans to expand in India in a big way building on its network of 66 flights a week to 10 destinations there and have 100 services a week in the next 12 months.

India has been identified as "a huge market for us," Hill said. "We're now the largest foreign carrier in India in terms of destinations and frequencies." SriLankan Airlines will also branch out into destination management in future, following the example set by its managing and equity partner Emirates in Dubai.

There is an urgent need for more hotel rooms and SriLankan Airlines has plans for it "if existing hoteliers don't do something about it." Hill also said the airline supported a restricted 'open skies' policy rather than a totally liberalized one and that it faced unfair competition from subsidized foreign carriers.

"We're faced with low cost carriers which we see as low price carriers - our costs are lower. And we do not get one dollar from the government. We can't compete with subsidized carriers from very rich countries.

"We welcome Indian private airlines. They operate the same way as we do. Our Far East competitors - we're happy to compete with them. But we're a little reluctant to go along with Middle Eastern carriers which want to dump seats."

Hill rejected suggestions that there was a potential conflict of interest with Emirates flying the same routes as SriLankan Airlines, saying both airlines benefit from the partnership and were codesharing on these routes and offering passengers greater frequencies.

"Emirates supplies more business to SriLankan Airlines than any other carrier." Asked whether SriLankan would give up its exclusive rights that came with privatization, Hill said the monopoly on airport ground handling was in the shareholders agreement and 10 year business plan.

It was like asking the airline to give away an area of considerable revenue contribution, he said adding that the airline had "paid for the privilege. The investor would ask why should we give it up?"

Hill said other airports such as Dubai and Hong Kong have one ground operator and that he doubted whether a second operator in ground handling at the BIA would find it profitable. This was because SriLankan and Emirates account for 70 percent of movements out of the BIA, leaving any new operator only 30 percent of business.

Hill acknowledged there was some criticism of SriLankan Airlines' pricing but added "we're not out of kilter on prices - Indian prices are the same or higher."

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