SriLankan Airlines recently made the largest loss in its history, a reversal from the $49m profit in the year ago period. If SriLankan is set to succeed, this would be their last chance to take quick and bold action to ensure the survival of the airline.
What are the main inefficiencies of SriLankan ?
In-efficient route network
Unnecessary expenditure
Over-staffing
SriLankan has a workforce of 6000 to serve a fleet of 12 aircraft . This means as much as 500 workers per aircraft whereas the industry standard is 100 workers per aircraft. This horrendous rate of overstaffing leads to an extremely low rate of labor productivity and is almost unaffordable for an airline of SriLankan’s scale.
Inefficient route network
I really respect SriLankan CEO Mr. Manoj as an expert and for trying to do his best for the airline. But I really do not understand why they keep creating more and more inefficient routes day by day.
Check these out:
CMB-CDG-MXP-CMB
CMB-FRA-MXP-CMB
SriLankan does not have 5th Freedom rights for any of the above intermediate sectors ( CDG-FCO, CDG-MXP, FRA-MXP ), this leaves the operation of these routes involving with high operating costs. Secondly, all of these routes are operated no more than twice weekly, which makes the flights less attractive for business and transit traffic. Third, you will be carrying your passengers some extra miles than they would originally need and pay for. On the other hand, passengers who want to fly to Milan will have to go to either Paris or Frankfurt and return. This will only help to increase the aircraft’s weight.
Unnecessary expenditure
Even while SriLankan is experiencing a $100m loss, the management has decided to change the airline’s uniform at a massive cost. Refreshing the brand is not a bad thing, but why would this become an unnecessary expenditure ?
1. There is no other rebranding effort being carried out
2. The airline is running on a loss and every single cent is important to keep the airline running
3. The airline’s previous uniform existed for 30 years and was almost an icon of the airline, just like the Singapore Airlines’ uniform. The change will include a colour change and this colour is representing the current government’s official colour. The new uniform is also believed replace the current Monara logo with the current government’s unofficial logo, the lotus. What actually happening is replacing the SriLankan uniform with Mihin Lanka’s uniform. This has received some well heated up criticism from the company’s employees.
A few dollar million loss is natural in airline industry and a $100 million loss is not rare either. But a $100 million loss for an airline of SriLankan’s scale – with just two owned aircraft and a fleet of 12 aircraft – is completely unacceptable.
What Will Happen ?
If the current course continues in this pace, SriLankan will soon run out of cash and will go under. The SriLankan government is in a cash strapped position and will not be able to bail SriLankan out. Emirates certainly will not spend a single cent to help SriLankan run a few extra days. The market is competitive and to stay afloat SriLankan needs to compete.
What Could be Done ?
SriLankan is an airline that is now 30 years old and in this time it has build quite a few strengths .
1. A Loyal and Captive Customer base
Thanks to an excellent service many customers tend to fly with SriLankan again and again and most SriLankans have a suprising loyalty at the airline.
2 . A Highly Trained Flight and Cabin Crew
SriLankan’s pilots are renowned to be the best of the class and SriLankan’s cabin crew has won a great reputation for their genuine smile – a factor that brought the airline many accolades including “The World’s Friendliest Cabin Crew” for many consecutive years.
3. Strong Other Businesses
a. Strong Technical Skills and MRO
SriLankan’s In-house engineering and maintenance unit is known to be highly skilled and has recently seen many new MRO contracts being handed from the likes of IndiGo and AirBlue.
b. Catering and Ground Handling
SriLankan has a profitable catering unit and it also is the sole airline catering provider at CMB. SriLankan is also the largest and dominant ground handler at CMB.
4. A Local Market Monopoly
Due to various political reasons, Sri Lanka has never allowed a single local player to enter the international passenger market and thankfully this has helped SriLankan to have a monopoly.
5. Low Labour Costs
Although SriLankan has a large workforce, being a third world country and one which has an extremely low wage rate, SriLankan enjoys substantially low labour costs. This will help SriLankan to have a very low ASK once they rightsize the workforce.
Strengths are Not Enough
Despite all these strengths and all the hard work that has been done to date, it is clear that SriLankan is not strong enough to weather the current storm. In this situation, SriLankan is in a much weaker position than many of its competitors.
SriLankan also experiences a lower yield on most of its routes due to a local market that has less business traffic ( although expected to significantly grow ) and a small premium cabin.
Losses keep mounting and SriLankan is not likely to recover from this downward spiral. This will totally cripple the company’s future and causes serious doubts on how long it will survive.
The Turnaround
To come back to life, SriLankan needs to embark on a serious turnaround programme. The actions will be no less than very tough. SriLankan’s mission needs to be stay profitable and to have a sustainable continuous profitability.
We shall take a look at how to solve the three aforementioned key issues.
1. Overstaffing
It is likely that any Government of Sri Lanka will not allow SriLankan to lay off any of its staff. However, there are certain actions SriLankan can take to overcome this issue.
i. Expanding the airline
SriLankan should expand its network and fleet to an extent that fits the current workforce. This does not mean SriLankan should expand its network fivefold, but instead to a reasonable extent. In contrast to what some may say and think, this is a perfect time for an airline like SriLankan to expand. How to do this will be discussed shortly.
ii. Expanding the MRO
SriLankan’s MRO has a great potential to become the South Asia’s leading MRO . There are a number of LCCs and full fare carriers in the region that will need heavy maintenance in the coming years and this will be an excellent business opportunity for SriLankan.
iii. Adjusting the staff of foreign offices
SriLankan will be able to save some expenditure through negotiating the contracts of the staff in foreign stations and some possible lay offs. This will not be as hard as laying off Sri Lanka based staff.
iv. Laying off expatriate pilots
SriLankan currently employs 35 expatriate pilots although there are enough local pilots available. This has turned into an on-going battle between the airlines’ Pilots Guild and the management. It would be worth replacing the expatriates with locals at least to some extent as locals need lesser wages and less extra expenditure such as accommodation.
2. Inefficient network
SriLankan needs to identify the key markets that it can profit from and create a niche for itself. Currently SriLankan is engaged in a battle to win a share of Europe to South Asia/ South East Asia traffic without having any competitive onboard product. To compensate it, the management is reducing its rates on long-haul routes. On one hand SriLankan simply cannot compete with the likes of Emirates and Qatar Airways in UL’s current situation, on the other hand reducing rates will only harm SriLankan’s yields further.
SriLankan needs to find its niche and focus on building its network on it. I would suggest SriLankan to relinquish its previous plan of becoming the leading airline to South Asia. SriLankan should avoid directly competing with the Middle Eastern carriers, but SriLankan has a direct advantage in many markets and will be able to effectively compete with these carriers and gain a considerable market share. As we discussed in the strengths of SriLankan, its excellent onboard service is a key reason for many passengers, specially Indians, to fly with them instead of the Mid Eastern carriers.
Apart from this SriLankan needs to rationalize its network and sort out the current mess in its European network.
As I have mentioned earlier, SriLankan will certainly not be able to make a profit from flying routes such as CMB-CDG-MXP-CMB, CMB-CDG-FCO-CMB, CMB-FRA-MXP-CMB. As opposed to this, SriLankan should consider a network similar to the following.
CMB-CDG-CMB 3 weekly
CMB-FRA-CMB 3 weekly
CMB-FCO-MXP-CMB 2 weekly
This will not cause any reduction in frequencies or available seats and is achievable from the current fleet.
SriLankan should also launch tactical targeted campaigns to drive increased sales on its current network.
SriLankan needs to consider utilizing its A320 fleet to the maximum and launch increased frequencies to its regional network. In my opinion, slashing a half of its Indian network was not something they should have done as these markets will play an important part in the feeder base.
An overhaul of the current pricing and revenue management streams and strategies will be required to drive increased performance from the current network.
SriLankan should also seriously consider re-negotiating some of its codeshare deals, such as the one with Malaysia Airlines ( MAS ) which incurs long connecting times on certain flights.
A more detailed take on how SriLankan’s network should be shaped could be found here .
3. Unnecessary expenditure
SriLankan should completely stop all of its political vanity expenses. These will be of no use to the airline and it would benefit all the nation, the government and of course the management if the management instead opts to bring profits through better and strict financial management.
In SriLankan’s current state it would also be essential to renegotiate certain key supplier contracts and enforce quick reductions in most budgeted expenses.
Fleet
Apart from these efforts, SriLankan should consider maximizing the revenue from its fleet.
SriLankan should consider upgrading its business class product and increase the number of business class seats by at least 50% on selected widebody aircraft. There certainly is enough demand for this and it will help SriLankan immensely to increase the yield.
Although SriLankan needs to replace its long-haul fleet by 2013-4, there doesn’t seem to be any strategy towards it currently. The best choice would be using either the Boeing 787 or Airbus A350 to replace both A330s and A340s. However, with SriLankan’s current financial situation, it would be better for them to wait for sometime before making a large order.
It should also be a consideration to stop offering Airbus A340 aircraft for President’s official travel. Although the President might need an official aircraft for overseas travel and SriLankan has a responsibility as the national career to do so, the national career’s own financial stability should become the first priority at this moment. Any good government will agree with it and if the President still needs an official aircraft, the airline can offer one of the less utilized A320s.
However it will be well worth the investment if SriLankan could lease an A321 and use it to regional high density destinations as this will not only free up widebodies for the long-haul network but also help the airline achieve the maximum out of increasing tourist arrivals to Sri Lanka.
You can read more on how should SriLankan’s future fleet be shaped, here
Apart from these, SriLankan should consider the following actions as quick measures to be taken
This is a key factor for the success of the airline in a context where tourist arrivals to the country are increasing and there seems to be a slack in this section since Emirates left.
Enhancing fee-based revenue streams
Launching effective strategies to compete with the LCCs.
Taking near term cash survival actions and building upon those practices.
Launching new branded fares to sustain yields.
Solving current disputes with the workforce and enabling lean manufacturing methods.
Most of all, SriLankan MUST take the best use of the golden opportunity in front of them – the end of war and increased tourist arrivals coupled with capacity cuts by competitors – and achieve its true potential and the airline’s success.
SriLankan already has many strengths, the most valuable of all an excellent, skilled workforce, and it will not be a hard task to bring it back on to the track.
The management has already done some good steps such as moving headquarters from the Colombo World Trade Center to the airport premises, which should be appreciated.
But they will need a complete business turnaround plan and put it into effect quickly and completely. Tough and fast decisions will be needed, but they will bring a good effect at the end. The government should fully support the airline in achieving its financial goals and avoid it becoming another Air India story. If all the parties take interest in the airline’s succes, it certainly won’t be a hard task.
The full steps needed to bring an airline back to life cannot be written in an article like this. But I hope this gives a brief idea on which changes should take place.
This is solely my opinion . What should be changed or added ? Please leave your comments.
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Man great article and you are not 18 ok i too a pilot but not Srilankan airlines, i too use my nokia 6300 for web access again good plan if others in lankan listens, why anyone wants to change from airbus to boieng it will be extra costly and its not the same unless anyone wants to enjoy the ride, my gut feeling is you are a pro and talk about the stupid entry qualifications like any stream al
Thanks Harsha. I used to use my Nokia 6233 ( same as your platform ) to access the internet earlier although now I’m using an S60.
In fact, A350 is the most logical choice for SriLankan. But moving to the 787 won’t add a heavy cost burden. However since both aircraft are almost identical economic wise, it won’t make a big difference. Whichever the choice might be, UL must opt to replace both A330s and A340s with two variants of the selected type.
You’re an Airbus pilot, aren’t you ?