It was sometime in the middle of 2022, and SriLankan Airlines – like many of its peers – saw signs of a travel market emerging from the depths of the coronarivus pandemic.
As airline chief Richard Nuttall puts it: “We were coming out of Covid, and things were on the up and up. We were expected to have a good year.”
Then, the economy collapsed, leaving the debt-laden country unable to pay for imports including fuel and - more crucially - jet fuel.
For SriLankan Airlines, the news – and the resulting political chaos – all but upended its recovery momentum. Nuttall says the airline had to alter operations. Staff worked longer shifts because there was no fuel to get them to and from the airport.
Several months later, things are looking up for the Colombo-headquartered carrier.
For one, Nuttall, who took helm of the airline in April 2022, discloses that the airline is going to break even in the current financial year, which ends 31 March. The airline also put out a Request for Proposal (RFP) for 10 additional aircraft on lease, and is working through the bids it has received.
Nuttall says the airline hopes to return to its 27-aircraft fleet by the middle of 2024, as it had cut aircraft during the pandemic amid the decline in travel demand. According to Cirium fleets data, the airline has 19 in-service aircraft, comprising Airbus A320 family jets, as well as A330s.
The crisis has put SriLankan on a “cautious” mode in its fleet strategy, with Nuttall acknowledging that while the “ideal” fleet size for the airline would be 35 jets, much of it depends on aircraft availability and – equally as important – operating conditions in the mid-term.
“We’re looking to … get back what [had] left and then after that we’ll look about whether we can get more [aircraft], but the reality is that, in the last couple of months, I think everybody has started looking for aircraft.”
“The availability of the right aircraft…the right configuration…[and] the right engines is becoming much tougher. So I think time will tell whether we can actually get up to 35 [aircraft] in two or three years,” says Nuttall.
RESTRUCTURING AND PRIVATISATION
Despite hope that recovery will improve now that the domestic situation has stabilised, Nuttall says the airline intends to restructure its balance sheet.
In a management presentation dated 12 January, the airline makes the case for restructuring, noting that “despite tangible improvements in its operating performance and significant efforts to mitigate the effects of the crisis, a restructuring…is necessary.”
“[SriLankan Airlines] struggles to break even after interest charges, faces increasing challenges in meeting its payment obligations, and has no access to capital, owing to the country’s precarious economic situation,” the presentation adds.
Nuttall says that while operating conditions are on the up, the airline is “tempered by its financial situation, and has got limited flexibility there”.
As a state-owned enterprise the airline’s fate is linked to that of the Sri Lankan government, itself working through hefty debts.
A longer-term goal is to privatise the carrier. Nuttall says the government has appointed a restructuring unit, which works with various state-owned companies to restructure debt and “privatise where necessary”.
Still, Nuttall notes that the priority will be to restructure SriLankan’s balance sheet.
“[If] we can restructure the balance sheet, I think the airline can be successful whether it’s privatised or whether it’s [still] state-owned,” he says.
GEOGRAPHICAL ADVANTAGE
While the gears of restructuring slowly kick in, the airline is focusing on its post-pandemic network. While the airline previously focused on west-bound connections – from the Indian subcontinent to the Gulf and Europe – Nuttall says SriLankan is “gradually shifting” eastwards to North and Southeast Asia, as well as the Pacific.
“Australia, for example, is becoming [a] bigger and bigger [market] for us. We have just started flying to [Seoul] Incheon…[and are restarting] to China. We have for a long time been successful [flying] to Thailand, Malaysia, Singapore, Indonesia,” he adds.
With a full fleet of 27 aircraft in the near future, Nuttall says the priority will be on restoring frequencies, as opposed to expanding its existing network.
That India – a “sizeable market” with over a billion people – is its nearest neighbour also presents opportunities.
“If you look at India, the major international hubs are more toward the north and the west. So if you look at the secondary cities in India and the cities going south and east, we are a natural feeder,” says Nuttall.
He downplays any concerns of competition from recent changes to the Indian aviation market – including the ongoing consolidation of a newly-privatised Air India, and the emergence of new players – noting that India has a large population and “many cities that are getting bigger…and growing more affluent”.
Pre-pandemic, India accounted for about 20% of airline revenues, underscoring the significance of the market for SriLankan. Nuttall says the proportion has dropped to “just above” 10% since the pandemic, but notes that “this is the real longer term opportunity”.
“[India] is a massive market, and it’s becoming more and more affluent. It’s always been incredibly cost conscious…but there are more and more people now who are more interested in experience and product. India will be a major opportunity in the years to come.”
‘NIMBLE’
Nuttall says the airline’s advantage against its peers is its size – allowing it to be “nimble” in its strategy.
“The opportunity will be to be nimble, particularly we are quite small…and to cash in on those markets…[that are] really profitable markets,” he says.
China’s border reopening is another opportunity for the airline, except that Nuttall is “concerned” about a potential lack of capacity amid supply chain issues.
“[The] challenge is to make sure that we are trying to meet the needs of all of our long term strategic markets, and we need to meet the needs of our diaspora in Europe and the tourism markets from there…we need to remain a major player in India, that’s really important, and we need to keep serving all of the route network that we have.”
Asked what his longer-term plans are for the carrier, Nuttall echoes a sentiment of many airline chiefs: “One thing Covid-19 has taught us is that forecasting is a mug’s game.”
Still, he says: “I think there’s a lot of growth opportunity to be had around [our operating] model. And if we can do it well, it’s something we can defend, and we can be a major player.”
