SriLankan Airlines and Mihin Air ready for new phase

SriLankan Airlines, driven by a US$500 million capital infusion from the Government and growing tourism, is raising its fleet to 28 in five years from 17 through a mix of new aircraft and leased ones, and expanding the network to include Seoul and Australia next year, its Director/CEO said.

Kapila Chandrasena, who took over on August 1 and continues as CEO at state-budget carrier Mihin Air, said while in the medium term the airline would be opting for used aircraft and have signed Letters of Intent for two A330s (delivery in 2013-14), long term options are to buy or lease new aircraft.

“This would depend on (1) how affordable they are, and (2) availability. When you buy an aircraft, you have to plan and book ahead – we have a few proposals. (From 2014 onwards) there are proposals from both Boeing and Airbus, encouraging us to look at new aircraft – 3 and 3,” he told the Business Times in a wide-ranging interview which dealt with synergies with Mihin Air, new routes, marketing and promotion strategies connected to a 5-year business plan.

SriLankan plans stepping up frequencies and launching direct flights to China for example where the airline has weekly flights, via Bangkok, to Beijing, Shanghai, Guangzhou and Hong Kong. By November, SriLankan plans to fly direct to at least two of these destinations. There would be more points to India and increased frequencies too, he said.

Mr Chandrasena said that with economic growth rising in Asia, travel also rises and that is where SriLankan’s growth will take place. “For this we need to expand the airline.

Now our primary goal is to transport passengers that are coming to Sri Lanka but Sri Lanka alone doesn’t give us the scale. So what we are looking at is the network—people transiting via Colombo: point to point/ from a destination to Colombo and secondly Asia to the Middle East via Colombo. This will give us the sufficient scale and growth in order to grow this airline. Our entire focus is on this and in order to do this we have a few challenges and our 5-year plan addresses this,” he said.

Under this, the fleet would be increased in five years; new aircraft will replace some of the narrow-body (A320s) ones, while the wide-bodies A340s will be phased on. The airline is also opting for more twin-engine aircraft than 4-engine ones, the latter burns more fuel and has higher operational costs.

“The focus is on Asia – direct flights to China, Singapore and more frequencies,” the SriLankan CEO said, adding that the $500 cash infusion starts coming in 2012 and would be staggered over five years. Part of it would be used for acquisition of aircraft and part for working capital to improve the product. The airline is also investing in expanded ground handling and engineering at Katunayake and at the new Hambantota airport where SriLankan is the handling agent.

On aircraft acquisition, SriLankan planners are looking at a possible blend of 25 % purchase and 75% lease, a decision of which would be made in the next two months.

Asked about the proposed new online visa scheme and processing fee for tourists, Mr Chandrasena said any ‘kind of difficulty is a barrier for rapid growth. With less regulation, there is a better chance of promoting the country. A case in point is that many Chinese go to the Maldives because there are no restrictions.”

While, saying there would be an impact, he added, “Whether it will be significant or not remains to be seen”.

Synergies between two airlines

SriLankan Airlines and Mihin Air, while running as separate brands, would work together using the economies of scale, SriLankan/Mihin Air CEO Kapila Chandrasena said.

“We plan to use economies of scale of both airlines to get a cost benefit. We are looking at back-end integration. It will run as two separate brands and depending on the market conditions, we will use one brand to champion the airlines. Mihin will concentrate on low, cost high volume destinations,” he said.

The budget carrier plans to add two more aircraft in the next two years to its current 2 and add Manila, Sharjah and new locations in India as destinations.

“Low cost travel doesn’t mean old aircraft, cheap food and inexperienced crews. It means giving the traveller the choice of what type of benefits he would like to consume at what price, “ he added.

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