Troubled SriLankan Airlines which has reported a loss of Rs. 28 billion during the past two years and an accumulated loss of Rs. 135 billion, is now operating daily flights to Melbourne since October 29 as one of the strategies to reduce the loss. While this is certainly good news for the many Sri Lankans [...]

Business Times

SriLankan Airlines flights to Melbourne: Is this the right decision?

Point of View

Troubled SriLankan Airlines which has reported a loss of Rs. 28 billion during the past two years and an accumulated loss of Rs. 135 billion, is now operating daily flights to Melbourne since October 29 as one of the strategies to reduce the loss.

While this is certainly good news for the many Sri Lankans living in Victoria (and their parents living in Sri Lanka) and tour operators promoting tours to Sri Lanka, the question arises as to the viability of this operation since the airline has to fill up to 3500 seats per week. Very challenging indeed.

In deciding to operate to Melbourne, the airline may be considering the following to make it viable: Sri Lankan migrants living in Australia; potential tourists from Australia and onward passengers to other destinations via Colombo.

Sri Lankan migrants
As per the Census (Department of Social Services of Australia) in 2016 there are 150,880 Sri Lankans ancestry living in Australia. Though SriLankan Airlines operates to Melbourne (Victoria), it can be assumed that the carrier is targeting both Melbourne and New South Wales (Sydney) markets. According to the same statistics there are 75595 Sri Lankans living in Victoria and 40,100 living in Sydney.

Considering the number of Sri Lankan migrants living in Australia, and those residing in Victoria, this VFR (Visiting Friends and Relatives) market is not only small in size but has few unique characteristics. Firstly, this market is structured with seasonal travellers – mainly during Christmas holidays and some during winter holidays (July). Apart from these two periods the movement in this market is comparatively low with everyone not travelling to Sri Lanka annually. Another characteristic of this market is its price elasticity with a number of clients being highly price-sensitive that has tipped them to even change their flight decisions based on a mere $10 price advantage.

Furthermore, it would be more challenging to attract passengers from Sydney mainly due to few reasons. Firstly, as SriLankan Airlines will not operate a direct flight to Sydney passengers, but a service with one stop. Secondly, with passengers entering the country required to obtain immigration and customs clearance at the first entry point to Australia (in this case it’s at Melbourne) all passengers travelling to Sydney from Colombo will have to obtain customs clearance, collecting their luggage before they board the next flight. As a result, clearly this market segment will be hardly motivated.

Even though the attractiveness of the airline is high within the Melbourne market – being a direct flight – it is also noteworthy that there are some clients who would like to have a stopover holiday on their way to Sri Lanka for the same airfare with a number destinations including Singapore, Bangkok, Malaysia and Hong Kong gearing their offering day by day. As a result, a direct flight operated by Sri Lankan Airlines may well drop off their check list.

Potential tourists from Australia
As per Australian Bureau of Statistics, there are 9.9 million Australians who move out of the country for short term visits, out of which the highest number comes from Sydney followed by Melbourne. Direct flights are certainly a plus point for these arrivals to Sri Lanka, especially in this case for tourists from Melbourne. On the other hand, the above explained hurdles would still apply for Sydney – the city that generates the most number of tourists – but may have a positive impact.

As per figures, Sri Lanka received 83,195 Australian tourists in 2016 and this figure includes Sri Lankans living in Australia holding Australian passports. Even though direct flights may have a positive impact on this market it is always important to note that Australia is a comparatively small market, population of Australia hardly exceeds 24 million to whom Sri Lanka certainly is a long-haul destination. Other than their traditional European long-haul destinations, Australians are renowned to be great domestic and regional travellers for exotic experiences and they mainly do regional travelling to destinations such as Bali, Fiji, Thailand and Malaysia. As per my research they will be able to obtain a 5-day holiday package for these destinations (including air fare + accommodation) for something below $1000, a figure that would simply add to the airfare alone of Sri Lankan Airlines.

If the main intention of Sri Lankan Airlines is to target tourism destination to fill their flights, I personally believe that one flight covering Frankfurt and Paris would have been a much better option than Australia mainly due to the larger volume of tourist arrivals to Sri Lanka from Germany and France which is much higher than arrivals from Australia. In 2016, 139,997 tourist arrivals came from Germany and 107,703 from France to Sri Lanka with at least 90 per cent of such arrivals featuring actual tourists. Furthermore,if one analyzes the market size and the population of Australia it is evident that the market itself has less potential compared to Germany and France that come with a population of 82 million and 67 million, respectively.

I do not expect SriLankan to operate to Germany and France at the expense of Melbourne. On the other hand, I do not believe that SriLankan Airlines should solely pick destinations to support tourism. Rather the national carrier should be interested in more profitable ventures given its present debt situation. SriLankan Airlines and the Sri Lanka Tourism Promotion Bureau should jointly identify a potential tourist destination and work out a long term plan with heavy promotional campaign to promote Sri Lanka as well as the airline.

Onward passengers to other destinations via Colombo

Certainly the airline may have taken the potential of servicing onward destinations via Colombo, especially with the airline being a part of the ‘One World’ carrier. However, in the given context Europe will hardly be attractive as the airline operates only to UK in the European market while passengers from Melbourne to UK may have many other favourable options such as Qantas which has direct flights to UK. On the other hand, passengers are already presented with choices of Emirates, Etihad, Qatar Airways and Cathay Pacific that fly to UK via preferred transit ports extending from West Asia to Singapore and Hong Kong.

Even though SriLankan operates to five destinations in China and six destinations in West Asia, it is unwise to consider Sri Lanka as a top transit destination for Chinese and West Asian clients, especially considering options that are already in place for such destinations.

When analysing the connections to onward destinations India is an opportunity for SriLankan Airlines to capitalise following their operation to 13 cities in India out of which daily flights are operated to eight cities. However, with brands such as Singapore Airlines, Malaysian Airlines, Thai Airways, Emirates, Air India and Etihad Airways already servicing these 13 destinations – with one stop –the distinct advantage SriLankan Airlines would gain is limited. That is of course, unless the airline tries to compete based on price and connection time.

Thus in my view, it is evident that filling 3500 seats a week to Melbourne is not going to be easy task. Sri Lankan Airlines tried operations to Australia twice before which bitterly failed.

However, that itself cannot be taken as a factor towards a possible failure of the operation which is about to resume. But remember that the airline failed previously after operating to both Sydney and Melbourne just few days a week. Making the situation more difficult for SriLankan Airlines is that Emirates and Singapore Airlines have already slashed prices to Colombo gearing up for a possible price-war.

In this context, it is hard to justify this move by SriLankan Airlines to operate daily flight to only to Melbourne.

While operating daily flights to a destination is a global airline strategy and having daily flight is certainly an advantage for an airline, the benefit will be realised only if this strategy is practiced in the longer run. Given the current financial position of the airline and huge losses that it carry, this long term option is not the best solution.

(The writer is an academic and COO of a travel company in Sri Lanka and CEO of Bliss Travels Melbourne and Sri Lanka).

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