‘Exit from SriLankan will not dent revenues’

The revenues of Dubai-based airline Emirates will not take a beating after it ends its 10-year management contract with SriLankan, a senior executive said.

Emirates ended its contract with SriLankan on January 6, but retained its 43.6 per cent stake in the South Asian carrier. Emirates’ President Tim Clark said the airline is open to selling the stake for an estimated $150 million (Dh550.5m).

“Our exit from SriLankan will not dent our revenues. Emirates never got any huge returns from the Sri Lankan carrier anyway. In fact, we were putting in a lot of systems, technologies and best practices in place for SriLankan on a cost basis,” Clark told Emirates Business by telephone.

The two carriers going separate ways is likely to be a bigger blow for SriLankan.

“I think we might see Emirates increase service on its planes to take up the traffic as SriLankan winds down… as it will. The Colombo-based carrier’s revenues will drop because people will have less confidence in the airline,” said Addison Schonland, a California-based aviation analyst with Innovation Analysis Group.

“The implications are not good for Sri Lanka. Gone will be the talent and guidance. The airline has been run by foreigners for a long time now, and few will take up the mantle given the nature of the country’s heavy hand.

“This is, in short, bad news for Sri Lanka,” he said.

According to media reports in Sri Lanka, the SriLankan Airlines Group achieved a net profit of LKR862.18m (Dh30m) for the financial year 2006-2007, down 50 per cent from the previous year.

The airline made a profit of LKR568.04m, an increase of LKR91.51m over the previous year’s LKR476.53 million. This was the fifth year in succession that the Group, which consists of SriLankan and its fully owned subsidiary SriLankan Catering, recorded a profit.

There have also been reports in the local media of tourist arrivals in Sri Lanka slowing down because of the growing political unrest in the country.

The planned expansion of the use of Colombo as a hub for both passenger and cargo traffic to and from South Asia, saw revenues grow by nine per cent and 17 per cent respectively in 2007 over the previous year. Such improvements, however, were not reflected in the bottom line due to the escalating cost of aviation fuel and a drop in yields.

The airline’s progress in simplifying the business to reduce cost and improve efficiency has progressed well, with e-tickets making up 40 per cent of issues and all online stations with e-ticket capabilities.

Engineering has undertaken a number of third-party maintenance checks, including Emirates aircraft, and is looking forward to build upon this profitable side. SriLankan Catering tripled capacity with a $30 million flight kitchen. SriLankan faces another difficult year ahead and, unless a solution is found to the security situation, there may not be a significant improvement in visitor arrivals to Sri Lanka, which will impact negatively on yields and airline profitability.