FLUG REVUE May 2004: Sri Lankan back from the ashes

SRILANKAN RISING FROM THE ASHES

By Sebastian Steinke

More than a few airline stories these days read like the pages of a thriller. But if you wanted to pick out the airlines with the most dramatic recent histories, you could hardly ignore the claims of SriLankan Airlines: first, a civil war lasting many years claims tens of thousands of victims and ruins the highly promising tourism industry on this idyllic island in the Indian Ocean, then the airline's brand new fleet, recently modernised with the help of Emirates, finds itself in the firing line. A terrorist attack in the summer of 2001 destroyed half of the fleet on the ground.

Airbus A340

Which makes the latest news from Colombo all the more pleasing: while the parties to the civil war, following a ceasefire, have embarked down the long road towards a peace agreement and elections in April are set to stabilise the political system, the airline is continuing its programme of modernisation, replacing what it lost and already starting a new programme of expansion. A long-hoped-for enhanced air transport agreement with India has opened up new potential in the huge market of its neighbour.

“Looking back, you can see that for a long time we were not growing as we wanted to,” Peter Hill, chief executive officer of SriLankan Airlines, admitted to FLUG REVUE at ITB Berlin, the international tourism fair. “The terms of the peace treaty have not yet been finally negotiated, but at least they are no longer shooting at each other. And people get used to peace very quickly. While all this has been going on, we have been continuing with our modernisation programme over the last two years, and now that the traffic rights to India are in place, we are ready to get going. As far as Europe is concerned, our immediate aim is to be flying from the four most important departure airports, our gateways, in London, Paris, Zurich and Frankfurt at least once a day. In the case of London, we plan to increase the number of departures from the current twelve a week to two a day by the end of the year.”

The expanded fleet now consists of five A340-300s, four A330-200s and four A320s. A fifth A320 is scheduled to go into service in the summer. “The A320 improves our links to the Indian subcontinent, to Madras, for example,” explains Hill. “The A340-300 is also just right for us, so we are looking for used planes at a good price. When there is a bargain to be had, we go for it. We have a good credit rating.”

In spite of his relief at the company's greatly improved prospects, Hill remains a cautious investor: “We are keeping the costs down. Following the attack on 24 July 2001 and 11 September, we cut our staff numbers by 25 percent, from 5000 to under 4000. Because the fleet has grown again in the meantime, we now have more pilots and cabin staff, but the trick is to keep administration staff to a minimum and, through good organisation, to ensure that fewer people can deal with a greater volume of work.”

To keep the staff cutbacks as painless as possible, Hill relied entirely on union-coordinated voluntary redundancies, which were made palatable to the staff by compensation packages. SriLankan also paid for training and helped them find jobs, a strategy now emulated by other Sri Lankan companies in other industries. “We responded within four weeks. Other companies are now using the same model,” says Hill. He wants to continue to expand his fleet, but without taking on too many new staff. Instead, he is putting his faith in more IT, better administration procedures and higher skill levels. “When I started here in 1998, we had 102 PCs for around 5000 staff. Now we have 3000 computers for around 4000 staff.”

Hill, who is British, worked for Emirates from 1995 and became the new boss in Colombo when the Dubai-based airline took a 40 percent share in SriLankan and signed a ten-year management contract. SriLankan thus not only gained access to Emirates' managerial expertise but was also able, through code-share flights with Emirates via Dubai, to increase the number of flights it offered – to Germany, for example – by a factor of ten. In addition to serving Sri Lanka, the airline with the code “UL” now also sometimes stops off in the Maldives in order to serve additional tourist markets. And in late summer, a new code-share flight to New York via Dubai will be added.

The prospects on the Indian market are reminiscent of a gold rush. Previously, both the number of seats available per week and the number of Indian destinations were limited. “It was always full,” says Peter Hill. “People wanted to fly, but we weren't allowed to expand. Yet the Indian airlines didn't even fill their contingents; they simply wasted them.” Not until Sri Lanka's prime minister held discussions with his Indian counterpart was a new agreement reached. The airline can now serve five major destinations, including New Delhi, Mumbai and Madras, on a daily basis using aircraft of any size. A further 15 destinations were opened up with no restrictions. In return, more Indian airlines were permitted to fly to Sri Lanka.

Peter Hill is forming plans for new routes going beyond India to the neighbouring countries. In addition to Pakistan, Nepal, Bangladesh and the Maldives, he even has his sights on China. “This winter we are offering 45 flights, in the summer it will be 60 and in a year's time it will be around 100. India is the number one for us in terms of passenger numbers, destinations and share of profits. As of October we will be extending three Bangkok flights to China, which is a huge market. But we are also looking at Australia and South Africa. And at eight to ten hours' flying time from Japan, we are in a very favourable geographical position.”

The original contract signed with Emirates in 1998 had a term of ten years, but with an option to extend. Will Emirates extend it in 2008? “Emirates has a 43 percent holding, and we are making a good profit,” says Hill. “The prospects for continued profitability are good. And the government, which has a 51 percent holding, is also behind us. Regardless of who wins the elections in April, we can work well with either party. So there is no reason not to extend the management contract.” Hill is keen to emphasise that SriLankan has not received subsidies of any kind from the government since 1998. “For a time we were on the point of asking them because our cash holdings had reached such a low level, but in the end we managed to finance everything ourselves after all.”

The relatively high level of luxury and the full service offered on board make an important contribution to capacity utilisation. “I recently flew business class with a large German airline from Frankfurt to Berlin in a big Airbus,” says Peter Hill. “And there wasn't much in the way of either space or service. I can tell you that we offer more luxury than that even in the A320.” At SriLankan there are only six seats in a row in business class (2-2-2), whereas Emirates, for instance, puts one more seat in each row. “Our on-board product is now five years old,” continues Hill. “We may well soon improve the long-haul seats to allow passengers to lie back; London to Colombo is an eleven and a half hour flight, after all.”

Punctuality is something Peter Hill is particularly passionate about: “We take punctuality very seriously. Every day at midday we have a punctuality conference at which every flight is evaluated. When I started, our code “UL”, which originally belonged to our predecessor Air Lanka, which was founded in 1978, was still said to stand for “usually late”. Today we are one of the most punctual airlines in Asia. It used to be something of a mentality problem, a bit of tropical-island thinking along the lines of “what does half an hour matter?” Today we complete some of our turnarounds in an hour, achieving excellent utilisation figures of 16 hours a day for the A340, nearly 15 hours a day for the A330 and nearly ten hours for the A320.” Today SriLankan plans maintenance activities around its flight schedule.

99 percent of the staff come from Sri Lanka, which Peter Hill praises for its high standards of education and low rate of illiteracy. In the financial year 2002/2003, the airline earned revenue of $16 million, a figure which is likely to at least double in the current financial year of 2003/2004.

The combination of the expanding route network and the spacious, wide-body fuselages of the Airbus-only fleet make air freight an attractive add-on business. This is why SriLankan has leased two Antonow An-12 freighters, complete with crews, from Air Sofia in Bulgaria. These are used on regional routes to southern India, the Maldives and Bangkok. “They are very reasonably priced and, being specialists, very well organised. They offer up to 20 tonnes of freight capacity and are as reliable as our own fleet. We are very satisfied with them,” enthuses Hill. Nevertheless, he is already thinking about larger aircraft for the future for the growing freight market to Vietnam and Cambodia: “The A300 or A310 would be good.”

The airline boss is planning a rather exotic attraction for the air taxi market: an entire fleet of small seaplanes for domestic routes to tourist destinations. “If you have just arrived from Europe after a ten-hour flight, the last thing you want is to spend the next seven hours bouncing along on bad roads to your destination when the same journey by plane takes only 25 minutes. Roads are a problem in Sri Lanka. In the future we will need only a river or lake with a minimum depth of two metres, a few divers to remove any obstacles and a small landing stage.”

SriLankan Air Taxi, the airline's new subsidiary, has already begun service with a nine-seater Cessna Caravan with floats. At the end of 2004, two to three 15-seater Turbo Otters or 19-seater Twin Otters from Canada are due to be added. From autumn onwards these will be able to land in the lagoon at the airport in Colombo. Hill believes a fleet of 20 seaplanes is a realistic aim within five years. In one to two years he can also imagine adding a landplane like the Dash 8-100.

By that time Colombo's international airport, Bandaranaike, will have undergone a major programme of expansion. There will be a new freight terminal for up to 100,000 tonnes of freight a year, and the passenger apron is to be doubled in size. New piers with passenger gangways are to be added within 18 months. CEO Peter Hill's future plans also include additional departure airports in Germany. “Once we have a daily service in Frankfurt, we can start to think about coming to Berlin again one day.”

From page 20 of FLUG REVUE 5/2004

Last updated 15 April 2004

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