Srilankan Airlines maintains profits despite conflict

SriLanka Airlines this week announced profits for the 2006/07 year despite the internal strife that the country is going through but the profits were 50 percent down from the previous financial year.

The national carrier said in a statement that the airline and the SriLankan Airlines Group both achieved significant profits during the last financial year, despite a sharp downturn in Sri Lanka's tourism industry and a steep rise in the price of aviation fuel.

It said tourist arrivals slowed down as foreign governments issued travel advisories against visiting Sri Lanka, following the escalation of hostilities in the country's internal conflict which placed the country and its capital under security threats.

Separately rising fuel prices seriously affected operations. The average price of jet fuel reached US$82 per barrel in 2006, as against US$71 in 2005. As a result, the annual fuel bill of the company increased to US$224.9 million from US$190.5 million in the previous year, an increase of US$34.4 million or 18%.

The airline group achieved a post-tax profit of Rs 862.18 million for the financial year 2006/07, down 50% from the previous year. It was the fifth year in succession that the Group, which consists of SriLankan Airlines Ltd and its fully owned subsidiary SriLankan Catering(Private) Ltd, recorded a profit. The company, SriLankan Airlines Ltd made a profit of Rs 568.04 million, up Rs 91.51 million over the previous year's Rs 476.53 million rupees.

The airline is facing major problems, one of which was referred to in the airline statement. It said the uncertainty surrounding the management of the airline is affecting SriLankan’s ability to implement future growth plans, as well as casting a cloud over the job security of its staff.

Emirates' 10-year management contract is due to end on March 31, 2008, and discussions are continuing with the Sri Lanka government. According to industry officials, the government wants a bigger role in the management of the airline which Emirates is unwilling to agree to. The Dubai-based carrier has full control of the airline in addition to a near 50 percent stake.

The other issue which is expected to eat into the airline profits for the 2007/08 financial is the launch of a new budget carrier, Mihin Lanka, by the Sri Lankan government which is offering far lower rates to some Middle East sectors, Bangkok and some Indian routes, all of which have been lucrative routes for SriLankan Airlines.

Sri Lankan Airlines Chairman Harry Jayawardena said the financial performance was made possible by the tireless efforts of the management and staff of SriLankan Airlines and SriLankan Catering to mitigate the impact of adverse factors through innovative and efficient business strategies and stringent control of costs. The financial year under review was so far the most challenging year for the airline in its 27-year old history, he said.

Tim Clark, Managing Director, said: "The largest single factor that affected the airline's bottom-line was the return to hostilities in Sri Lanka's internal conflict. The resultant travel advisories against visiting Sri Lanka brought very serious consequences on traditional markets such as Japan, the United Kingdom, Germany and France."