Since the day in July 2001 when half of SriLankan's fleet was damaged or destroyed by anti-government troops, the carrier's management team has effected an impressive turnaround
For most of the world's airline chief executives, 11 September 2001 was the day they will never forget. But for SriLankan Airlines chief Peter Hill, the defining moment came two months earlier, on 24 July. That was the day an attack by anti-government rebels at Colombo airport damaged or destroyed 50% of his carrier's 12 aircraft, forcing it to downsize rapidly after three years of aggressive growth. Some even thought it would be the airline's downfall.
But SriLankan Airlines, which is 40% owned by Emirates, is a remarkable turnaround story. Only one year after that terrible day in July, it was back to strength, albeit with fewer aircraft and a smaller route network. In July 2002, it recorded its first profit at airline level, rather than group level, and that was followed by more black ink in August.
A ceasefire agreement signed in February 2002 with the separatist Liberation Tigers of Tamil Eelam (LTTE) brought stability to Sri Lanka after 19 years of civil war, and the national carrier is now more optimistic about its future than ever before.
"There have been some pretty dark days," a now-jovial and relaxed Hill said in a late-October interview. "I think if you go back 15 months it was probably the darkest day in my career. That was a body blow to the airline and to everybody who had been working so hard to raise the profile and to build a new airline out of the old Air Lanka. We were achieving quite a success story.
"There were quite a few people at that time who didn't give us much hope, particularly six weeks or so later, when September was upon us and it was pretty much doom and gloom everywhere in the industry. Of course, with the problems we already had to face, the prospects looked decidedly bleak.
"But at the time I felt that the only thing to do was to look forward and continue - basically be a serious optimist... You've got to look forward. You've got to find ways of getting everybody focused again to start the climb uphill."
With business so depressed in the months after the airport attack, SriLankan was forced to downsize. It launched a voluntary retirement scheme and cut employee numbers 20% to around 4,000. With its smaller fleet and many government advisories warning against travel to Sri Lanka, the carrier was forced to slash its schedule. Its biggest challenge, though, was to find ways to get passengers back to its aircraft.
One way it managed to do this was to launch non-stop services from the Maldives to London, Tokyo and Zurich. It already carried passengers to and from the Maldives via Colombo but business on connecting routes fell, as many would-be travellers opted against flying via Sri Lanka. "The Maldives launch really did help a lot - not phenomenally in terms of the bottom line, but it helped fill some empty seats, it helped in getting SriLankan Airlines talked about positively again, it boosted staff morale and it showed that we were not down and out," says Hill.
"That's when things started to turn a little bit. Then there was a change of government here, but it was the peace process that brought Sri Lanka back to life again. All the international press started talking positively about Sri Lanka and then one thing led to another. We started seeing January bookings picking up dramatically and we started to get enquiries from overseas Sri Lankans."
Aggressive marketing
SriLankan also focused hard on India, its biggest market for visitors, by expanding services and being aggressive with marketing activities there. It is now looking at taking things further in India, if it wins additional operating rights, and maybe further afield to new destinations in Europe and Asia.
Hill says SriLankan is considering leasing at least one more Airbus A320 for Indian services, as well as one or two additional A340-300s for longer-haul routes that are being studied for possible launch in 2003. The addition of another A340 will depend on whether the carrier relaunches services to Italy, either to Milan or Rome. Also under consideration are services to China, although Hill stresses that studies are still at the early stages.
Saying that any further expansion will be conducted in a cautious fashion, the carrier recently returned to Frankfurt and has launched seasonal services to Bodh Gaya in India. It currently operates four A330s, three A340s and two A320s, having recently leased from Orix the second A320 to replace one that was destroyed in the attack.
SriLankan has in recent months been performing better than it ever has. If peace remains, Hill says, the airline - which currently accounts for around 4% of Sri Lanka's gross domestic product - should be in an even stronger financial position in 2003.
The carrier expects to make its first "real" full-year profit at an airline rather than group level (which includes non-airline operations) as early as next year. SriLankan managed to post a modest net profit for the year ended March 2002, but only because of one-off gains from insurance payments.
"Next year we will at least break even if not make a profit as an airline, which will mean that we have turned it around from a loss of $70 million to a profit in just two years. In the current situation that's not bad," says Hill. "That's our target and if we don't achieve it I will be really upset, after all that we have put into it. And it's time everyone started getting a return on their investment."
Hill says Emirates and Sri Lanka's government are, meanwhile, close to signing a memorandum of understanding on changes to the 1998 agreement in which the UAE carrier invested in Air Lanka, which was rebranded SriLankan in mid-1999. Emirates acquired its stake for $70 million in two stages - an immediate payment in April 1998 of $45 million for 26% and late in 2000 a final payment for 14% more.
Emirates accepted a 10-year management contract at the time of the deal and secured certain guarantees, including that SriLankan would hold exclusive rights to key air routes for a set time. Emirates and SriLankan forged strong codeshare ties and their aircraft share the same specifications and in-flight entertainment systems, allowing them to offer compatible in-flight products.
But in December 2001 a new government came into power, led by the United National Party (UNP). The UNP was in opposition at the time of the sale to Emirates and has long been an opponent of the 1998 deal. It said after its election victory that it would review the deal to determine whether it provides unfair protection.
Necessary change
Since then Emirates and the government have held talks aimed at settling their dispute and Hill says a deal is near "that makes some concessions on both sides. I think both sides have been big enough to recognise that some sort of change is necessary to the agreement in order to continue," he says. "No doubt about it, we need to be able to work with the government - after all they are 51% shareholder."
Hill took the helm at SriLankan early in 1999. He had earlier left Emirates, where he was a member of the founding management team, to invest in a pub in the UK, and only accepted the top job at SriLankan after much convincing. Having been through such troubles since then, one might expect Hill to have wished he remained in charge of his simple pub. But he claims no regrets.
"I have loved every minute of it," Hill says. "Some of the black times I wouldn't like to go through again, but we got through them, and you just have to take the challenges as they come and find a solution. That's what I'm here for, that's what the management team is here for and that's what we said we would do: manage the business.
"We have managed it through some of the rockiest times that I could have ever hoped to have been through, but we survived and more than survived. I think the future is looking remarkably good at the moment."
REPORT BY NICHOLAS IONIDES IN COLOMBO
Source: Airline Business
