Tuesday, January 15, 2008

Sri Lankan Airlines

Emirates has decided that it will not be renewing its management contract with Sri Lankan Airlines which had been in place for the past 8 years. The DXB based airline also holds a 44% stake in the company. The main reason for the dispute has to do with the denied boarding of the current Sri Lankan President's entourage on a flight from Heathrow to Colombo in December. As a result, the Govt felt that as the majority share holder of the airline, its demands should have been met for which the airline refused to bow down to.

Source :

Analysis :

After the massive turn around that UL has achieved over the last decade under the guidance of EK, one would hope that sensible heads prevail and that whom ever takes charge from April 1st doesn't ruin all the positives that EK brought to this airline. Definitely, UL has more to lose than gain from EK abandoning its management contract renewal which many believe has a lot to do with Mr Peter Hill being thrown out of the country by the current Sri Lankan President. For one, UL's cash reserves and cash flow wont have the backing that EK could have provided it with nor can it now turn to EK to help get from Airbus or Boeing substantial discounts on future plane orders to especially replace its A 343s which are now over 13 years old.The ceasefire abandonment by the Colombo Govt with the Tamil Tigers would also make matters worse as this can have deadly consequences for the airline and the country's tourism industry which is the main target market for UL especially on European and Far East Asia flights. The only positive thing that one sees happening out of all of this is the fact that now UL does not have to be dictated to as to where they can fly and where they shouldn't. UL had been wanting to fly nonstop to MAN and return to Australia for many years but EK's management didn't wantlol that to happen. UL was also interested in launching one stop flights to NYC via Europe/UK with its A 343 but ended up code sharing with EK instead. To be frank, even though SYD / MEL/NYC/YYZ have large Sinhalese/Tamil Communities residing within their city limits ( YYZ alone has approximately 200,000), the passenger data base for CMB from these areas is usually low yielding therefore even though UL may see decent loads on flights bound for the above mentioned 4 cities, they will most likely end up losing money flying to these places due to the extremely high operating costs involved flying a 280 seater A 343 on these routes + strong competition from QR/KU/EK.

It would be best for the time being for UL to stick with what they have got and build up its marketing presence in key markets where they have a strong presence such as LON, UAE & India because the political situation in Sri Lanka right now is very fragile with the ceasefire agreement with the Tamil Tigers being cancelled. UL's management team for 2008 should therefore adopt a "wait and see" approach to view how the political situation unfolds in Sri Lanka before committing any large scale investment of network expansion or fleet expansion in the short term future as the airline's flight loads heavily depend on there being political peace and harmony on the island.

No comments: