Financial Times

SriLankan Airlines profit plunges owing to tsunami, fuel costs
SriLankan Airlines Group has announced a net profit after tax of Rs. 1,376.07 million for the 2004/05 financial year, despite multiple shocks like the Asian tsunami and skyrocketing fuel prices, which sharply affected its revenue and expenditure.

Profits, which were affected by a 71 percent increase in fuel costs, was down 75.58 percent from the previous year's Rs. 5,635.51 million and comes at a time when airline industry analysts have said that many carriers are expected to make losses because of soaring fuel prices.

SriLankan Airlines Chief Executive Officer Peter Hill said in a statement they also faced "increased competition from low cost carriers and competitors who are heavily supported by their respective governments, enabling them to price their products below cost."

The airline itself ended up with only a marginal net profit after tax of Rs. 7.66 million, half that of the previous financial year, with operating profit before finance cost and taxation falling 93.22 percent to Rs. 324.20 million. Group profit came mainly from catering and ground handling in which SriLankan has a monopoly at the international airport in Katunayake and is seen as charging high prices.

The statement said SriLankan Catering Services Ltd. continued to expand, and will triple its capacity when its new flight kitchen is commissioned in late 2005.
SriLankan Cargo will also double handling capacity when the new Cargo Centre is completed this year. Tourist arrivals plummeted following the tsunami and had a direct adverse impact on the company's bottom line. SriLankan Airlines' fuel cost increased by 71.49 percent on the back of a 41.36 percent increase in average fuel prices, and a 15.96 percent increase in consumption required by the airline's expansion, the statement said.

In real terms, an increase of one US cent per gallon translates into an added expenditure of US$ 1 million per annum for SriLankan. "This airline has a long-standing tradition of rising to face the challenges that spring up in its path, and the year under review was true to form," Hill said. “Although buffeted by nature’s fury and industry challenges, SriLankan Airlines remained unbowed, and continued to seek opportunities to adapt and expand.”

The Group continued its expansion during the year adding destinations such as Calicut in India where it is the biggest foreign carrier. It also inaugurated services to Beijing while new code share agreements with SriLankan's strategic partner Emirates expanded its network to include daily flights to New York and other important destinations.

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