Sri Lanka: Decaying National Carrier

Sri Lankan Airlines says it has recorded a significant improvement in its performance, for the nine months ending December 2018 against the corresponding period in the previous year.


But, the airline said in a media release on Wednesday, the national carrier’s net loss for this 9-month period was US$135 million (Rs. 40 billion) against a loss of $66 million (Rs. 11 billion) in the corresponding 2017 period, giving various reasons for the losses.

Improvement in topline was overshadowed drastically by the increase in operating cost base owing to high fuel prices. At $902 million (Rs. 147 billion), the total operating cost recorded an increase of 15 per cent against the previous year. The impact due to rise in aviation fuel prices was $66 million.
Further, increase in aircraft maintenance cost and aircraft lease cost due to the addition of one A321 Neo Aircraft was reported during this period.

“As most of payments denominated in USD, SriLankan’s   exposure to currency depreciation in 2018 was substantially unprecedented and resulted in higher operating costs beyond the initial projections. Interest cost for the nine months ended amounted to $47 million and the negative impact of the withholding taxes on aircraft related payments amounting to $23 million further negated the positive results from the operations,” it said.

During this period, SriLankan’s net traffic revenue from core airline operations increased to $746 million (Rs. 120 billion) with a year on year growth of 8 per cent.

Flight frequencies to markets such as London, Melbourne, Dubai, Abu Dhabi, Doha and Delhi were increased to meet the seasonal demand and it proved to be an effective strategy as the performance of these routes improved significantly.

“Increase in passenger revenue would have been much higher if not for the depreciation of key revenue generating currencies which amounted to $9 million during the period under review,” it said.
The overall passenger yield which is measured as yield per Revenue Passenger Kilometer improved by nearly 1.6 per cent from the previous year.

“Improvement of market yield without deteriorating overall seat factor, considered as a challenging proposition in airline industry, was achieved by SriLankan through implementation of effective pricing initiatives which included timely imposition of fuel surcharges to minimize the impact of rising fuel cost,” it added.

The airline said the government is currently making arrangements for SriLankan Airlines to be exempted from Withholding Taxes on aircraft related payments. The airline’s commitment to effectively manage controllable costs was well exemplified by overall reduction of overheads in other areas such as, Commercial and administration against the previous year. The cumulative unit cost (Cost per Available Seat Kilometer – CASK) excluding fuel and interest cost showed a reduction of 3 per cent.

“Management of Sri Lankan Airlines presented a restructuring plan to the government which focuses on progressive consolidation to bring the airline to a breakeven position in three years. This plan specifies the action required from the GoSL to reduce finance cost, high fuel processing charges and various initiatives identified by the management to reduce the costs and improve revenue,” it said.