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Tussle over ‘Open Skies’ policy

By FS

(April 19,Colombo, Sri Lanka Guardian) President Mahinda Rajapaksa recently raised a nagging issue in the country’s tourism and travel trade circuits: the ‘Open Skies’ policy. Hitting out at the opposition United National Party, the President, speaking at the launch of the Central Bank’s annual report for 2009 said the open skies policy duringthe then-UNP government (in the years the party ruled the country) had eroded the viability of national carrier, SriLankan Airlines and this has become a financial problem to the state.

The national carrier is snowed in debt – though making operational profits. Part of the losses is due to the global financial crisis that affected the airline industry across the world, an issue that cannot be blamed on the Sri Lankan airline alone. The cost of restructuring after Emirates quit as a management partner some years back, is also taking its toll with the recovery period taking longer than expected. Additionally, SriLankan is seen as a big brother to loss-making, budget airline Mihin Air. SriLankan Airlines has been sharing some of its losses, according to industry sources.

But the point the government and Rajapaksa is making is that allowing foreign airlines with too many frequencies, is eating into SriLankan Airlines’ profitability and threatening its very existence.
In a way, that is true because SriLankan’s operational costs are not as affordable than for example any of the Middle East carriers – Emirates, Qatar Airways, Etihad, Saudi Air or Oman Air – which are profitable or are subsidised by oil-rich countries. With high budget deficits and lower revenues, countries like Sri Lanka cannot afford to subsidise state institutions including national carrier – though that would continue to happen, at huge cost however to the taxpayer.

More flights for foreign carriers would affect the national carrier and place a higher burden on the exchequer to keep the airline running. Furthermore, the taxpayer is paying a huge price in the subsidy given to Mihin Air.

However, if the government is targetting 2.5 million tourists by the year 2016, there is no way the national carrier can accommodate even half this number, as it does now: carrying half the number of 500,000 tourists visiting Sri Lanka annually. The 500,000-figure is also doubtful as the data collection of arrivals include those visiting on business, NGO workers and overseas Sri Lankans.

In this context could Sri Lanka afford a protectionist policy? On one side, the country is trying to raise the number of tourist arrivals by over 400% in 16 years and on the other hand, the authorities are pushing ahead with a policy of making sure SriLankan Airlines doesn’t suffer with new airlines coming in and the existing ones, seeking more frequencies.

In our story on the open skies policy, the travel trade – while acknowledging the need to protect the national carrier – says SriLankan Airlines won’t be able to cater to the demand for seats, not only in terms of more tourist arrivals but also more travel by Sri Lankans. The number of Sri Lankans travelling abroad is also on the rise, in addition to tourist arrivals. In the month of February for example, hotels in and out of Colombo were fully booked and had a problem, for the first time, of overbookings. The same applied to SriLankan Airlines and other carriers.

Times are getting better for a country that is still to savour the fruits of peace and post-conflict economic growth. That would happen this year and the years to come, with the prolonged period of elections over. The appointment of Hiran Cooray, a charismatic leader in the travel industry, as Sri Lanka’s first-ever Chairperson of the Bangkok-headquartered Pacific Asia Travel Association (PATA) at its AGM in Malaysia next week is like a manna from heaven, coming at a time when the country is free from terrorism and ready for a spurt in tourist arrivals. Cooray apart from his duties and obligations towards the entire membership of the Asia-Pacific body, will no doubt use his high office to promote Sri Lanka as a conflict-free, and mystery-filled destination.

Preparing for the surge in tourists leaves us with one question: Is the national carrier capable (capacity-wise) of carrying in excess of over 1.5 million tourists per year, in 16 years time? Its current capacity is far, far below those numbers and the only way out is expansion by buying more aircraft, increasing staff and flying more frequencies which under its current budget constraints is too much to ask. While making a national carrier viable is a priority, the government needs to take a deep look at the local carriers – SriLankan Airlines and Mihin Air – and come up with a gameplan to meet the future demand, and balance national interests while at the same time ensuring more frequencies are allowed to other airlines, to ensure there are enough seats to carry 2.5 million tourists by 2016.

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