SriLankan Airlines to transform into a leaner, profitable entity within five years under a new restructuring plan, which includes route rationalization, fleet optimization, and public listings of minority stakes in its profitable and monopolistic business units.
The strategy, outlined in a five-year business plan developed by a global aviation advisor and former London-based investment banker Sanjana Fernando, emphasizes discontinuing unprofitable routes, transitioning to an all-wide-body fleet, and listing a 49 percent minority stake in three key subsidiaries—ground-handling, catering, and engineering—on the Colombo Stock Exchange (CSE).
The listings aim to raise $150 million, which could somewhat soften the financial burden on the Treasury, given the Airline’s severe working capital shortage, $179 million worth of unpaid invoices, and unsustainable debt, which stood at Rs. 177 billion as of March 2024.
SriLankan Airlines reported a $72.1 million loss in FY2024 on 38 of its 52 routes, with Frankfurt, Madurai, and Karachi among the worst performers. In contrast, Melbourne, London, and Singapore routes generated $45 million in profits. The airline plans to eliminate loss-making routes, particularly its 15 unprofitable Indian routes, which cost $24 million annually. This move is projected to save $400 million in direct operating costs (DOC) and $30 million in ancillary expenses yearly.
The carrier will transition to an all-wide-body fleet, phasing out narrow-body aircraft to capitalize on cargo revenue, which correlates strongly with route profitability. This shift is expected to save $90 million in operating costs and $20 million in crew expenses annually.
Despite a projected $31 million loss in the first year due to lease termination-related costs, the Airline is forecasted to earn a profit of $35 million by year two, rising to $55 million by year five.
The revenue is expected to halve to $433 million under the leaner model, down from over $1 billion in FY2024, but profitability margins are targeted at 8-10 percent.
However, the plan hinges on political support to avoid past pitfalls, including the costly cancellation of A350 aircraft orders in 2015, which has cost Rs. 12.6 billion in penalties and interest to date. Hence, overcoming systemic issues—such as political interference, weak strategic decision-making, and a bloated workforce of 5,935 employees—will be critical.
A key strategy involves maximizing cargo capacity on profitable long-haul routes while shifting from a hub-and-spoke network to point-to-point operations. The airline may conduct a sensitivity analysis to assess the impact of Indian passenger traffic on long-distance route viability. India is by far the largest tourism source market for Sri Lanka, and connectivity provided by the National Carrier is considered to be a key facilitator in the growth seen in Indian tourist arrivals over the years. Overall, SriLankan Airlines is responsible for 25.1 percent of Sri Lanka’s tourism arrivals.
The success of this plan requires rigorous expert review and risk modeling; the need for accountability in leadership was in particular stressed.
Based on this plan, a process is underway to develop a detailed Business Plan, and subject to the approval of respective Boards, an implementation team will be appointed to roll out the five-year business plan.