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National
carrier's long march to profitability SriLankan CEO Peter Hill has described the performance as "outstanding" in the current state of the airline industry when much bigger and more famous carriers have either gone bankrupt or are struggling under the burden of heavy losses. At a time when many other airlines are announcing staff cuts, SriLankan has embarked on a recruitment campaign in line with the aggressive expansion of its fleet and operating frequencies. For an airline that lost half its fleet in a Tamil Tiger terrorist suicide attack just three years ago and had to cope with not only that shock, the repercussions of which helped send the economy into recession that year, but also the 9/11 attacks on the United States two months later that affected the global travel industry, SriLankan Airlines has made a remarkable recovery. The recovery is significant because SriLankan is facing the same difficulties as other airlines, particularly soaring fuel costs, and is no longer getting government subsidies. Hill made it a point, at last week's news conference, to emphasise the fact that the airline has not got a cent from the government since it was privatised in 1998, which would obviously be good news to tax payers, and that it has paid a handsome dividend to the government. These are the sorts of dividends and returns that this government expects from what it has called strategic enterprises - those state-owned entities whose importance to the economy has been deemed too important for them to be privatised. These are the organisations that are being revamped under the Strategic Enterprises Management Agency and the national carrier too would have been among them had it not been privatised. Treasury Secretary P. B. Jayasundera has said the government expects these enterprises to deliver enough returns in lieu of the privatisation proceeds that have now been forgone. After its privatisation, with Emirates taking an equity stake and management control, SriLankan Airlines was placed in the unenviable position of having to operate as a commercially viable enterprise without government support and compete against other airlines in a heavily competitive industry, while at the same time being expected to support 'national interests' such as ensuring adequate connections to tourist generating markets. Sometimes the two objectives are incompatible. Its decision to withdraw from certain loss-making routes following the terrorist attack in July 2001 and the launch of direct flights to the Maldives as a survival tactic to cope with the sudden loss of traffic into Sri Lanka, which was then shunned by tourists, was heavily criticised at the time. But these were among the decisions that helped ensure its survival during what was undoubtedly a difficult time. Another criticism that it has been subject to, ever since it was privatised, is the monopoly on catering and ground handling, which have traditionally been its key profit centres. These are said to be preventing competition and high ground handling charges discouraging more airlines from flying here. SriLankan's management has defended itself by saying that Emirates has paid for the privilege and that the ground handling costs do not appear to be a deterrent given the increase in the number of foreign carriers coming here. The SriLankan Airlines case appears to be a good example of successful privatisation although at that time it was heavily criticised for being more advantageous to Emirates and for damaging the interests of the tourist industry. Whether these concerns are still valid remains to be seen. |
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