29 November, 2020

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What Ails Our National Carrier – II

By Rajeewa Jayaweera

Rajeewa Jayaweera

Rajeewa Jayaweera

The writer wrote some weeks ago urging the government and national carrier to consider withdrawing from its European routes. The main purpose of my essay was to high light the contradiction in government policy of pouring millions of dollars into a national carrier on the one hand and following an ‘open skies’ aviation policy since 2001 resulting in the massive injection of capacity by Middle Eastern carriers on the other hand thus undermining the government’s own investment. From some of the comments observed, I felt that further expansion on the subject would help better understand the current situation.

The national carrier is unable to compete with carriers from the Middle East on its European routes. Even large carriers such as US carriers, British Airways, Lufthansa, Air France to name a few are being gradually eased out of some of their traditional markets. Agence France-Presse (AFP) recently carried the following news item. It was also published in one of the local leading dailies.

Quote;

Three top US airlines groups called on the US government and urged changes to the bilateral commercial aviation agreements between the United States of America and Qatar and the United Arab Emirates.

According to the groups, $42 billion was given to UAE and Qatar based airlines, including Qatar Airways, Etihad Airways, and Emirates to push US carriers out of this lucrative market, and make competing impossible.

The US carriers together with workers’ groups issued a 55 page report detailing how “unfair” subsidies given to Gulf rivals Qatar Airways, Etihad Airways and Emirates have allowed them to wrest market share from the US industry.

Airlines from the United States are escalating their rhetoric against Emirates, Etihad Airways and Qatar Airways, even suggesting the near unprecedented action of rescinding open skies agreements, which the US has with the UAE and Qatar. The refrain is loud and echoes much of the European airline resistance – but US airlines cannot seem to agree on their target.

United CEO Jeff Smisek at one time said Gulf airlines are not subsidised, but then said they are “heavily subsidised”. American Airlines CEO Doug Parker said they are “perhaps” subsidised. Delta CEO Richard Anderson bemoans the role of state-owned airlines despite having many national carriers (Saudia, China Eastern etc.) as partners in SkyTeam.

“The multi-billion dollar subsidies… have allowed Qatar Airways, Etihad Airways and Emirates to rapidly expand their fleets and international routes, distorting the commercial marketplace to the severe detriment of US employment, the US economy and the US airline industry,” the US group said.

American Airlines, Delta Airlines and United Airlines along with US pilot and airline labour groups said the three Gulf fliers have benefitted unfairly from huge interest-free loans, subsidized airport charges, government protection on fuel losses, and below-market labour costs that are considered unfair subsidies under the World Trade Organization.

The report said that, with the backing of state support, the Gulf airlines are targeting more international traffic to the United States on the back of the US “Open Skies” aviation agreements with Qatar and UAE.

It noted their huge share of orders for wide body aircraft, representing about one-quarter of the entire global fleet of wide body aircraft.

“Because the Gulf carriers are adding this new capacity at rates that substantially exceed global GDP growth — which drives growth in demand for air transport services — the only way to accomplish this feat is to continue taking passengers from other countries’ carriers,” they said.

They called on the US government to open new talks over the air agreements to address what they said are violations of those pacts, and pressed for changes.

“The Open Skies agreements conferred enormous benefits on Qatar and the UAE by opening the most lucrative market in the world to their airlines,” the group accused.

If Qatar and UAE refuse to address the problems, they recommended the US should move to terminate the agreements and negotiate new deals based on “principles of comity and reciprocity,” the US group said.

Unquote

United Airlines, Delta Airlines and American Airlines are all private US carriers funded by shareholders. However, they receive government bailout packages when in financial difficulty. As readers can observe, they are feeling threatened due to unfair competition by Emirates, Qatar Airways and Etihad and are suggesting the unprecedented step of renegotiating or abrogating air services agreements. Some countries have recently begun declining further traffic rights to UAE and Qatar. The Indian government recently turned down a request from UAE for further traffic rights. Emirates already operate 186 and Air Arabia 113 weekly flights between Dubai and India. China has informed both Emirates and Qatar Airways of the need to operate flights to remote cities for every additional flight to cities having high demand.

Srilankan-airline-The situation in Sri Lanka is much more critical. Sri Lanka’s national carrier is a small airline with a daily flight only to London in the west. As I explained in my previous article, 20 flights from four gateways (London, Frankfurt, Paris and Rome) in three European countries and UK is not in a position to compete with the three giants operating 438 flights from fourteen gateways (5 in UK, 4 in Germany, 2 in France and 3 in Italy) besides four other medium sized carriers. For example, there is no earthly reason for a German living in Munich to travel to Frankfurt by train or car during four days of the week for the pleasure of flying our national carrier when they have a choice of five daily flights offered by EK, QR and EY from Munich to Sri Lanka via their respective hubs. The advantage of a “non-stop “ flight does not exist for passengers living in cities other than Frankfurt due to transport involved in reaching Frankfurt to fly the national carrier.

Given below are some figures related to Capacity, Market Size and Market Share for an eleven months period 01 April 2014 to 28 February 2015. While not being 100% accurate, the writer can vouch for an accuracy rating of around 90% which should suffice for purpose of ascertaining trends. Figures of UL, EK, QR and EY are given separately while figures of Oman Air, Kuwait Airways, Saudia and Jetair have been combined as ‘Others’. Data has been obtained from a data base named MIDT which is an analytical tool used by airlines for planning and evaluation purposes. Data given are ticketed reservations relevant to Point of Sales (POS) UK, Germany, France and Italy only. UL Capacity has been calculated based on 275 seats per flight in 20 weekly flights for 48 weeks, 10 seats per flight on EK, QR and EY flights in 438 weekly flights for 48 weeks departing from relevant cities with a stopover of less than 4 hours in their respective hubs and 20 seats per flight in 51 weekly flights of Oman Air, Kuwait Airways, Saudia, Turkish Airlines and Jetair flights for 48 weeks departing from relevant cities with a stopover of less than 4 hours in their respective hubs. Majority of traffic consist of Tourists, VFR and business traffic.

Air

  • UL’s market share in its primary route i.e. to Colombo notwithstanding “non-stop” flights is below 50% in UK and mid 30%s in Germany, France and Italy.
  • EK, QR and EY between themselves enjoy market share of 34% out of UK, 49% out of Germany, 34% out of France, 36% out of Italy and a combined market share of 38% .
  • Other carriers enjoy a sizable market share ranging from 18% to 34% in the said countries and a combined market share of 22%.
  • Market Share in the four countries is split 40% to UL, 38% to EK, QR and WY and 22% amongst other carriers.
  • Excess capacity exists from each of the four countries which will invariably lead to fare wars especially during low and shoulder seasons. Resulting fare wars will compel the national carrier to reduce fares to remain competitive and defend market share.

Some 12- 15 years ago, UL enjoyed market share of over 60% in UK and Europe. Current market share levels indicate a drastic erosion – the main reason being the increase in capacity given by GoSL to foreign carriers. Lack of Route Profitability is also partially attributed to being a small airline with single gateways in each country, small networks and limited frequencies. European POS are overly dependent on sales to Colombo and less than half a dozen other destinations. It does not enable a good Revenue Mix. POS of our competitors with large networks could sell from 75 destinations upwards which gives them greater flexibility in their sales strategies and a far better Revenue Mix. The writer is of the opinion that the national carrier has long passed the point whereby it would have a reasonable chance of competing with Middle Eastern carriers in the European and UK markets. Therefore, the more meaningful course of action would be a planned withdrawal from its European routes.

Of foremost importance are two key questions – a) does the nation need a state funded airline. The government should undertake a careful study and establish the nation’s long term needs and priorities. If the decision is that this country does not need a state funded airline, the matter ends there and all that remains is to wind up operations of the national carrier. b) does the state have the competence to own and the will to professionally manage an airline. Judging by some of the types appointed to the Board of Directors in the past and present, the answer in the writer’s opinion is an emphatic NO.

Should the government decide in favour of a state funded airline, the next decision would be as to what type of airline is required. A Regional airline operating within SAARC region would be a non-starter due to non-existence of sufficient traffic to sustain flights operating from point to point within our region. Our geographical location would prevent passengers from any SAARC nation other than Maldives from flying to any destination via Colombo. That would leave the option of a carrier operating to the Middle East, SAARC region and selected Far Eastern destinations. It may be an ‘all frills carrier; or a ‘no frills’ carrier. Transforming the national carrier from its present status to such a carrier would involve the careful evaluation of the most lucrative routes and future growth potential based on projected traffic growth. Downsizing of the current fleet and redeploying available aircraft time in the identified routes for the new carrier would follow.

In the opinion of the writer, the government must ponder over the role to be played by the government. If the new carrier is to be managed by a Board appointed by the government, it will be a repetition of the two eras 1948 -1978 with Air Ceylon and 1979 – to date with Air Lanka / SriLankan Airlines. It is absolutely essential that government involvement be that of a minority shareholder with no option of a Golden Share. Their investment could be by way of transfer of all remaining assets to the new carrier as done by the British government at the time of privatizing British Airways. The majority holding must essentially be held by private investors both local and foreign who also should have control of the Board of Directors. That should give the new carrier a more than reasonable chance of success.

*The writer worked for SriLanakn Airlines and Qatar Airways for over 20 years

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Latest comments

  • 1
    2

    Does Sri Lanka need a national airline at all?
    President Sirisena probably travels by commercial airlines touching Colombo.
    It is evident that we cannot run an airline profitably.
    When a percentage of citizens live below the poverty line with many unable even to obtain Samurdhi benefits, is it not a crime to run a loosing national carrier?

    • 0
      1

      You are a complete idiot . change you avatar from justice to idiot.

      • 1
        0

        Abhaya,
        Please give reasons for your opinion.

        • 0
          1

          a Nation without a national carrier will be completely at the mercy of our Arab friends . There is more to Sri Lankan than profits from selling flights . there are hundreds of thousands living on the tourist industry alone

          • 1
            0

            Chartered aircraft are available for occasions of travel by the president and senior ministers. Others can use commercial carriers passing through Katunayake.
            Former president took large entourages with him on his travels as
            a reward for henchmen, and hence the two airlines were misused, and lost, and are still loosing billions annually.
            Offices of these airlines, in many capitals, actually providing sinecures for favourites, could be done away with.
            We will be saving tens of billions annually, which could be channeled for health care, education and social services.
            A nation’s prestige does not depend on airlines.

  • 0
    0

    Mr.Jayaweera,

    There are a million pieces in the jig-zaw we call the National carrier.
    Most of them have no place in the puzzle.

    US carriers are crying about ME govt’s investing in their airlines whilst they milked the public coffers over the last 10 years.

    Soon after 9-11 they got massive infusion of funding from the US govt under a variety of lobbyist-written rules. They were considered essential services.

    Then, a few year after they all played the bankruptcy game and pretty much wiped out the share-holders and employee pensions. The US govt was left holding the bag, for billions in pensions.

    When they need to buy equipment, again the US GOVT steps in thru the Export Import bank and provides back-door funding so Boeing can compete with ‘little’ Airbus of Europe.

    They only ‘bitch’ about things they cannot control. This is one instance, even the US govt will not touch with a barge pole because the geo-politics are more important than US airlines market share.

    Sri Lankan on the other hand, is like the ‘permanent’ virgin. Everyone is looking for a free ride!

  • 5
    0

    Just a silly question really…If you look at the UK market 48% travel on UL and one will have to assume that this a mix of tourist (as in Europeans) travelling to Sri Lanka as well as the ethnic Sri Lankan passengers. If by your standards, if UL is not to operate to Sri Lanka from UK, then can the Gulf carriers fill these 48%? Given capacity constraints, I doubt very much whether they’ll do this.

    On the other hand,given the lack of capacity, the European traffic which originates from the UK will look at alternate destinations in SE Asia to fly into, in order to enjoy their annual or bi annual holiday. One would have to then quite clearly assume, given that scenario, that Sri Lanka’s tourism will suffer along with the people who prop up the industry.

    One way or the other, UL contributes immensely to Sri Lanka’s GDP and the hospitality industry, which the author quite conveniently forgets to convey. What needs doing is an effective restructuring process in the company, re-evaluate it’s financial standing in order to consolidate the future funds and focus on profitability. It’s always possible. It only takes a few good men with exceptional leadership qualities to deliver this.

    • 1
      2

      Do not believe lack of a “national carrier “‘ will anyway effect either the Tourist Industry or the GDP of the country as such.If there is going to be so much demand for travel to Sri Lanka obviously the carriers who are currently operating to/from Sri Lanka will add more capacity(Demand/Supply)

      As for your comments on “”few good men with exceptional leadership qualities”” that is where we have the problem.Just look at the new Chairman/Board members

  • 0
    2

    We should get out of Europe and concentrate on Mddle East and South Asia and East Asia.

    Our monthly loss is Ra 2 billion. Last 5 years loss is Rs 100 billion +

  • 5
    0

    This is what ails Sri Lankan Airlines. FRCS.

    SriLankan handed over for cronies’ joyrides!

    Details Created On Saturday, 07 March 2015 06:19 Category: Exclusive
    From a local Website”

    SL airline The Ranil-Maithri ‘Yaha Paalana’ regime has handed over the now fast-sinking SriLankan Airlines to a group of Ranil’s cronies in order to speed up its death, reports say.

    Functioning under the finance ministry, (Really Aviation Ministry under Mustafa and Aruna Ranatunge the former cricket Captain and now Attanagalla Organizer – Bandaranayake electorate for 101 years) the airline has Ranil’s classmate at Royal College Ajith Dias as the chairman, while the directors are Rakhitha Jayawardena, Mahinda Haridas and Neranjan Deva.

    Most of these directors live in the air. Chairman Dias is a cricket enthusiast, and it is part of his daily routine to watch cricket matches. That is not confined only to matches involving Sri Lanka. Up to now, Ajith had to buy airtickets, spending from his own pocket. Now, his classmate, prime minister Ranil Wickremesinghe, has done him a big favour.

    The other, Rakhitha Jayawardena, who lives in London, travels to Colombo at least once a week on business purposes.

    Mahinda Haridas has business dealings between Sri Lanka and New Zealand, where he is based, and travels between the two countries weekly or biweekly.

    Neranjan Deva is an MP of the European parliament. An original UNPer, he parachuted from Mahinda Rajapaksa’s bosom to ‘Yaha Paalanaya’ in the early hours of January 09th morning.

    As said before, they all live mostly in the air. Previosly, they had to pay the entire airfare. But now, courtesy their Royal college colleague, they now have to pay only 10 per cent of the fare. All of them are wealthy businessmen, and travel in the business class or first class. Their business brains are such that they now buy economic class tickets only, at a discount rate of 10 pc. Later, those tickets are upgraded to business class, citing priority. How’s that for some brains?

    Kapila Chandrasena too, benefits, courtesy Ajith Dias!

    SriLankan Airline’s CEO Kapila Chandrasena, who was to go home, has benefited courtesy his new chairman Ajith Dias. That has come through his brother-in-law, former Test cricketer Aravinda de Silva. Kapila is married to Usha, the younger sister of Aravinda’s wife Anusha.

    Furthermore, Aravinda and Ajith are business partners. Their partnership is named LavAzza (Pvt.) Ltd, which is the local agent for Barista Coffe International. Aravinda owns a 70 per cent share of the business. Due to that business partnership, Kapila is safe under ‘Yaha Paalanaya.’ That security is further strengthened by civil aviation minister and former Test captain Arjuna Ranatunga.
    end:

    Ajit Dias lived in retirement in London who is married to a former Air Hostess of the Class of 72. He was a partner and founder of Brandix who are the leading manufacturers of underwear to the US. (Victoria Secret).

    Brandix recently received millions of dollars from USAID to construct a factory in war torn Killinochchi, like MAS and Hidramani. His experience in Aviation is very limited except traveling. I won’t say more other than he is FRCS and childhood friend and class mate of the Prime Minister.

    Nirj Deva Additya was a good friend of Ranil and was close to him when he was Prime Minister from 2002-2004, when Parliament dissolved by Chandrika out of jealousy and pathetic advise and useless Foreign Minister Lakshman Kadirgamar. His ambition was to become the PM with the support of the JVP and communist/leftist. Nirj, switched his loyalty like a Maradana T………….t, when Rajapakse was installed as President in November 2005, with Mangala Samaraweera as campaign Manager and US citizen Basil Rajapakse in charge of the funds that paid off LTTE acolyte Emilkanthan.

    The unreliable, undependable, and much more other qualities Nirj has been shamelessly appointed as the adviser of the GOSL by Ranil. Nirj worked very hard to defeat Sirisena, Chandrika, and Ranil in the January elections.

    Mahinda Haradasa is another FRCS and an attorney close to Ranil. He lives in New Zealand for many years, and also is a part owner of a distinguished law firm VARNERS LTD. owned by one of the best attorneys Sri Lanka has ever produced late Mr. Ambalavarner, who was a friend of mine. I was also his client. He is the brother of the TULF MP for Kopay, and veteran politician Mr.Kathiravet-Pillai. He has to regularly travel to Colombo and Hong Kong for business where Varners have another office. He too is very close to the PM.

    Rakita Jayawardene is from London and was in the Duty Free business Air Lanka as well when my friend Capt. Rakita Wickramanayake (Wicks) was the Chairman from 1978 when Air Ceylon was closed down by Ranil’s uncle JR, and cousin Ravi J another pilot.

    There is another officer and gentleman from the army now retired like Gothabaya Rajapakse and Field Marshal Sarath Fonseka -Both War Heores and US citizens. He is Sunil Peries, and a Sri Lankan citizen. (No dual or Singapore or US passport).

    Collectively, their knowledge, and experience in Aviation, Travel, or Airlines is rather limited. They has never worked in any airlines or travel related companies or airports. At least the Chairman is a gentleman and honest unlike the former Chairman the first lady Shiranthi’s brother who was corrupt and immoral in every way forcing young air hostesses a free “Night Stop” in his second home in Seeduwa for his extra curricular activities, joined in by a few of his friends including those in the Duty Free business. Shame on this Thomian and the Wickramasinghe (Shiranthi Clan, No relative of Ranil W) and also the Girls who should like Nancy Regan, Just Say NO. Of course that was for drugs and this was for something else, and to maintain or hold on to their jobs and get their promotions.

    The commissions received and demanded were another issue which the Commissioner for Bribery and Corruption should investigate and the Girls should come forward confidentially and make their complaints of the vulgar behavior. This should be a group complain and a class action suit against corrupt airline officials. Sexual Violence in a work place by managers should not be condoned and should be punished.

    The Airline together with Rajapakses creation Mihin Air should be closed down like Air Ceylon and may be a new airline could be created with another private partner. Air Lanka from it’s origin in 1979, created many Pilots, Engineers, Hostesses, and other employees in marketing and sales have done extremely well thanks to their training and experience received from the airlines. But, asking the tax payers and citizens to bear the losses in the Billions is a little too much from our people. That is unfair.

    The Prime Minister and the new Minister of Aviation, the 3rd one in less than 3 months, as well as the so called “Good Governance” claims made by President Sirisena and former President Chandrika, should act in a more professional manner as the airlines are just not to issue Free and heavily discounted airline tickets as “Party Favors” to the directors who are close to them.

    The appointment of GSA’s also have been another dubious activity of the airlines in the past and providing special fares for wholesale agents is another area where problems are ahead or already set in place in these 75 days. But the 3 ministers or Permanent Secretaries obviously have no idea due to their cricketing or other back ground. Negotiating modern aircrafts whether it is leasing or purchasing as well as the type of aircraft/fuel consumption and maintenance are rather sophisticated and professional affairs. This is not like defending criminals or corporate criminals or being carpet baggers.

    Donald Gnanakone
    Retired Airline Pilot (1968-1975).

  • 1
    1

    What Rajeewa has written definitely requires serious attention by the Government Authorities .No longer can we enjoy the luxury of a “national carrier” at the expense of Tax payers money.

    Ground Realities are harsh but one needs to accept them.Looking at the recent appointments to the SriLankan Board one can clearly see where we are heading.

    It is far better some positive action being initiated now rather that wait for the inevitable(collapse) to happen sooner than later

  • 1
    0

    Inefficiency, lack of customer service, management incompetency, financial corruption are some of the woes that the airline industry is facing in a capitalistic democrazy. The growth and success of the Middle East airlines are purely due to good governance and strategic planning cost effective fares and prudent judgement, though they are accused of unfair government financing. The desert Arabs have turned their nation over a short span 30 years in the life of their Airline industry to the largest airport in the world to the busiest transit hub in the world.

    Sri Lankan could have been a part this growth if not for the arrogance of the former ruling family. It’s not too late to model their business plan by financing their development through Islamic ‘sukuk’

  • 2
    0

    What ails the National Carrier is stupidity, bureaucracy, wastage and political appointees.

    The one who cannot dance always complains the floor

  • 0
    1

    When carriers with heavy subsidies from their Governments and under cut
    fare structures of the national carriers of the respective countries is to enforce free Exchangeabilty of tickets between/among all airlines operating in the affected routes. Accounting modalities could be work out through IATA clearing House or Bilaterally

    • 1
      0

      Mr.Kuruppu,

      You seem to have forgotten the fact that SriLankan is 100 % subsidized by the Government of Sri Lanka and therfore it does not make any sense in trying to point a finger at Middle East carriers or their practices.

      What you are proposing on the interchangeability of tickets through legislature is an archaic thought and is not practical in modern times

      All the problems faced by SriLankan are their own making alone.Any outside chance of this Airline surviving in future would depend how professionally it could be run

  • 0
    5

    To Mr Krishan Perera
    UL has 48% market share ex UK. Market share ex Germany, France and Italy are 33%, 32% and 36% respectively. UL’s Market share which was over 60% has declined progressively over the last 10 – 15 years. EK started operations with 2 weekly flights in 1986 and QR with a weekly flight in 1994. Today EK operates over 30 weekly flights and QR 21 weekly flights respectively. Having very small home markets, they and others such as Etihad, Oman Air, Turkish Airlines will move into fill vacant capacity in Sri Lanka and any other country. ‘Lack of capacity’ is some thing Sri Lanka does not need to fear of in this day and age. The hospitality industry does not need a ‘national carrier’. It needs good connectivity between tourism generating markets and Sri Lanka. As I pointed out in my first article, tourism in the Maldives thrives despite lack of a national carrier.
    Rajeewa Jayaweera

  • 1
    0

    “What Ails Our National Carrier “

    The answer is crystal clear. Corruption , political interference and above all, square pegs in round holes. Just like the latest one where a man who knows nothing about the aviation industry is made chairman of the national airline just because he knows how to walk down the crease, bat in hand and tear the hair down of an umpire over a wrong decision. The rot is going to continue.

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