As he takes his seat in the boardroom, SriLankan Airlines chief executive officer Peter Hill has a request: that he is not quoted verbatim. His request comes from bitter experience. Earlier this year, a local newspaper, backed by a SriLankan opposition party, printed a full transcript of an interview which included every hesitation, cough and stutter in a deliberate attempt to make him look foolish.
A British national, Hill took over as chief executive in February this year, seconded from Emirates, which completed its deal to buy into SirLankan (formerly Air Lanka) early in 1998. And he has had a tough time ever since, not just from aggressive interviews.
He and a handful of other Emirates employees seconded to SriLankan have not only been ridiculed by the local media, but blamed for the first pilots strike in the airline's 20-year history and faced with opposition at virtually every move. Andrew Gray, the first chief executive selected by Emirates, resigned after less than a year in the job.
Hill, who is jovial and friendly, admits to have become more thick-skinned as a result but says opposition to Emirates running the show is diminishing. Employees are even starting to like the new name and corporate identity, which were introduced in July this year.
"It has been a challenging time," admits Hill, with a chuckle. "A number of the staff - some of whom have been here since the Air Ceylon days (Air Lanka's predecessor) - don't want to adapt to the changes. But we are getting there."
Under the Emirates buy-in 26% of the airline was purchased in April 1998 for $45 million with the remaining 14% to be acquired for $25 million by the end of 2000. The deal marked the conclusion to a long-running search by the Sri Lankan Government to find a partner to take on its ailing flagcarrier.
Partner search
The process began in 1995, when the Ministry of Finance announced a restructuring of the carrier ahead of a sale. A financial advisory group was formed and in June 1996 a worldwide hunt began.
Emirates was among a group of four short-listed companies. That also included Continental Airlines (together with the Texas Pacific Group) and two Malaysian hopefuls:Malaysia Airlines (MAS) and tiny AirAsia. MAS dropped out early in mid-1997 and by early last year, Emirates was declared the sole remaining bidder. The resulting deal left the government with the right to appoint a chairman and four board members, but in exchange it agreed to hand over full management control and three board seats to the Dubai-based carrier for 10 years.
The sale was immediately blasted by the opposition United National Party (UNP), which said it "reeked of corruption". The UNP charged that the stake was handed to Emirates at a give-away price and even went so far as to accuse Emirates of accepting $60 million in commissions from engine-maker Rolls-Royce as part of a related aircraft order.
Both Emirates and the government denied the charges. Ministers mounted a vigorous defence in the Sri Lankan Parliament, saying the national carrier would have "crumbled and would have been history" had the deal not gone through. The airline, which has been heavily in debt for years, had claimed to be making excellent profits but many are sceptical of its figures.
While the UNP has been quiet recently, it frequently re-states threats to scrap the Emirates deal and cancel aircraft orders if it is returned to power. Elections are due on 21 December. Emirates says it is unconcerned by such threats and has embarked upon a major turnaround programme for SriLankan, the first overseas airline it has ever bought into.
Hill, a founder member of the management team at Emirates, says that despite the difficulties, SriLankan is already beating financial forecasts. He adds that a business plan formulated by Emirates has already been revised once, "and we've only been here 18 months". He adds that the target is to turn the airline around to a "seriously break-even position" within the space of three years. "We're well on target to do that," he claims.
The first step in the change process has been an ambitious fleet revamp. Nine Airbus A330s started arriving late in October and will give SriLankan's fleet strong commonality with that of Emirates, allowing for similar product and service standards.
While the two carriers will retain separate identities, Hill says he is working to build an airline that he feels comfortable having Emirates' passengers travelling on. He adds that SriLankan shares Emirates' views on global alliances. "We don't want to get into any alliance with any major grouping at the moment. We will go for route-specific code-shares. Once you are in an alliance with one grouping, you can't be in one with another. That gives me concerns." Route-specific code-shares currently include those with Emirates, Indian Airlines, Malaysia Airlines and Royal Jordanian Airlines.
Europe is a major focus for the carrier. New code-shares with Emirates are to start later in the year, covering services to Munich and Stockholm, while additional services to Germany, Italy and the UK are anticipated. SriLankan increased its London service to daily frequency at the start of the summer and Hill says flights are full.
New code-shares with Emirates come in addition to SriLankan's own impending services to Sydney, and to Lebanon via Kuwait. The carrier has also ventured into dedicated freight operations for the first time through a block-space agreement on Emirates' cargo flights.
Despite their shared opposition to global alliances, in many ways Emirates and SriLankan have a true alliance of their own, says Hill. They have already been jointly purchasing items , resulting in cost-savings for both carriers; and they are also able to launch joint services to points "where the two carriers don't see a justification for starting services on their own".
"We have been able to get enormous discounts based on joint purchasing," he says. "Even things like the insurance we have been able to get down - we've been able to place the insurance cover at basically the same rates. The total saving in purchasing has been 33% for SriLankan."
While Hill believes SriLankan would have survived without the Emirates deal, he says it would have struggled to compete, partly because it could not have financed a badly needed fleet upgrade. "It certainly wouldn't have grown," Hill says. "The government hadn't invested enough in the way of equipment, and the company had been stumbling along. Boards kept changing - they came and went - and there was no long-term strategic plan. To say it would not have survived is perhaps an overstatement but it probably wouldn't have been able to grow the way it needed to."
Hill says aircraft financiers are "queuing up" to provide funding for SriLankan's A330s, a situation which he says would have been "unthinkable 18 months ago". At that time, he adds "there was nervousness in dealing with companies like SriLankan.
IT revamped
Another area in which SriLankan badly needed help was information technology, in particular fighting the millennium bug. Hill says that planning for the 2000 date-change was "non-existent" when Emirates arrived. As a result the Dubai-based carrier had to spend more time than it expected in this area. "It would not have made Y2K," confirms Hill. The comment is echoed by SirLankan head of information technology, Nigel O'Shea, who has been seconded from Emirates. "The company had made virtually no preparation for the Y2K problem. There was no plan - there was nothing in-house."
"We came down," adds O'Shea, "and we were astounded that they actually achieved as much as they did without any technology. Nothing was Y2K-compliant, everything was on old platforms, there were thousands of 8 inch floppy disks everywhere. We've had a major replacement programme."
The IT upgrade has involved a move over to systems used by Emirates, such as the Mercator Airline Reservations System (MARS) and the Mercator Airport Control System (MACS). O'Shea says the changes have led to efficiency gains. MARS, a system developed by Atraxis, the IT arm of Swissair, and marketed in a joint venture with Emirates' IT unit, Mercator, has been particularly helpful in facilitating codesharing with Emirates. SriLankan now also uses other Mercator products, including a revenue accounting system known as RAPID and a station accounting system dubbed COMET.
While the position is improving, SriLankan remains overstaffed. Its employee base stands at around 5,000, which translates into around 500 workers per aircraft, which is more than double the ratio of the world's most efficient airlines. Admittedly the number is distorted because of the security situation in Sri Lanka which has left the airline with a higher-than-usual tally of airport employees. But the numbers are clearly too high and from 1 October most employees were offered a voluntary retirement package.
Staffing is "a little bit over the top, to say the least" says Hill, adding that a reduction of around 15-20% "sounds about right" albeit a little conservative. "When we came in we gave this undertaking, which was that there would be no lay-offs. We said our intention was to grow the business, and we would absorb the surplus workforce," Hill says. "We are growing the business, we are investing in better business practices, and we have a major responsibility to honour that commitment to the government. But if we can give people an incentive to go we will do that."
It may prove challenging. Early this year, a local pilots' strike led to increased wages for most employees. It came just months after a work slowdown by staff at Air Lanka Catering Services. Hill says "there were wrongs on both sides" in the pilots' dispute but "we came up with a very good agreement for them. We've not been unkind. The wage bill has gone up considerably. We used to be known as the best training ground in South Asia and now we pay an international wage relative to the market."
"The culture here when we arrived was that if you don't have to take a decision, don't take it, because you might be suspended and possibly fired," he adds. "We have obviously worked very hard to try and change that. We have made employees accountable for their jobs and paid them accordingly."
Entering the domestic market
Hill plans to expand into new areas, such as domestic services, which are currently banned for security reasons. A move to domestic flights is likely to spark opposition from the country's only two domestic passenger operators, however, because they have been grounded by the government since September last year. The carriers, Lionair and Monara Air, were ordered to halt operations on the only route they served - Colombo-Jaffna - after a crash involving a Lionair-operated Antonov An-24 that is presumed to have killed all 55 on board.
The An-24 went missing shortly after take-off from Jaffna, in the north, and there are fears it was sabotaged - possibly shot down - by the Liberation Tigers of Tamil Eelam, or LTTE. The well-armed group has been fighting for a separate homeland in the north and east of the country since the early 1980s.
However, Hill says that if cost studies indicate the move is worthwhile and regulatory approval is obtained, SriLankan will operate Western-built turboprops out of Colombo's Bandaranaike International Airport, primarily carrying transit passengers to resort destinations in the south of the country.
"One of the big problems we have in raising the profile of Sri Lanka is that tourists coming in from Europe, for example, have come 10 or 11 hours and maybe more. In most cases they have been up for the best part of a day before they get here. Many, who are staying at hotels in the south, are then looking at a four- or five-hour coach ride," he says.
"If services were started with 50-seat twin turboprops, the ATR or Dash 8, we could reduce the continued journey time to probably less than an hour. The airfields are there, the aircraft are available. If you go back 15 years, of course, there were domestic services here. We're doing route studies and are probably going to enter the domestic market sooner rather than later."
Colombo to expand
Hill says domestic flights will help the airline promote Sri Lanka - both as a tourist destination and as an "east-west hub". However, he admits that attracting connecting traffic first requires major improvements to Colombo's airport.
In May last year, a government-appointed infrastructure committee approved an expansion of the airport, costing in excess of $100 million. Construction has barely begun, partly because of differences in traffic growth forecasts between the airport's operator and by SriLankan.
Given the long list of problems, such as the country's security situation, the airline's years of mismanagement and corruption allegations, its lack of focus and the infrastructure shortfalls, why did Emirates even consider taking a stake?
"Although the airline had been in business for 19 years as Air Lanka, a considerable portion of its traffic rights were not being utilised," says Hill. "Emirates saw a strategic position in Sri Lanka - the fact that Sri Lanka had enormous potential as a tourist destination. They also saw an opportunity to buy into an up-and-coming airline."
Hill quickly adds that he and Emirates are very much aware that more challenges will be faced in the years ahead. "We are willing to adapt along the way," he says. "When we came in we gave the government a 10-year business plan, but that is really meant to show the way forward in general terms. It wasn't meant to be the Bible."
Source: Airline Business
