“One of the biggest issues with Sri Lankan Airlines has been the chronic political interference and mismanagement. Instead of focusing on profitability and sustainability, decisions were often made to serve political interests, which ultimately undermined the airline’s ability to operate efficiently.”

— Peter Hill, Former CEO of Sri Lankan Airlines, The Sunday Times (Sri Lanka), 2007.

What went wrong all these years?

Sri Lankan Airlines, originally founded as Air Lanka in 1977, has experienced a tumultuous financial history characterized by a series of strategic missteps, leadership failures, and external political pressures. Over the years, various boards overseeing the airline made commercially detrimental decisions that have left it burdened with debt and unable to fully capitalize on its potential in the global aviation market. From fleet mismanagement to route overexpansion, the inability to adapt to changing market trends, and the damaging influence of political interference, these factors have all played a significant role in Sri Lankan Airlines’ decline.

A key area where Sri Lankan Airlines’ various boards went wrong was in the mismanagement of its fleet and procurement strategy. From the early days as Air Lanka, the airline faced difficulties in properly managing its fleet composition. Instead of focusing on standardizing its aircraft to ensure operational efficiency, the airline procured a variety of different models, leading to increased maintenance costs, training complexities for pilots and staff, and logistical challenges in managing parts and repairs.

The diversity in the fleet, while providing flexibility in certain markets, increased the overall operational complexity and cost structure, as each aircraft type required specialized attention. Standardizing the fleet could have enabled the airline to significantly cut down on maintenance costs and streamline operations. However, under successive boards, the airline continued to diversify its fleet rather than taking steps to simplify and reduce costs.

This issue was compounded by poorly structured aircraft lease agreements. Successive boards entered into expensive leasing contracts, often paying inflated prices or engaging in agreements that provided little to no financial flexibility. In many cases, the airline leased aircraft at high rates without proper analysis of their return on investment, which led to financial strain as leasing costs consumed a large percentage of the airline’s revenue. A more prudent strategy would have been to purchase aircraft outright or negotiate more favorable terms to allow for long-term cost savings. Instead, these poor leasing decisions weighed heavily on the airline’s balance sheet.

One notable example of this mismanagement occurred in the early 2000s, when the airline acquired long-haul aircraft that, while appropriate for international travel, were not fuel-efficient. The aircraft choices were poorly suited to the airline’s network and operational cost structure, leading to higher fuel consumption and increased operational costs. With rising global fuel prices during this period, the impact of these decisions became even more severe, contributing to significant financial losses.

In addition to poor fleet management, Sri Lankan Airlines repeatedly expanded its route network without proper market research or strategic planning. The boards focused on expanding into numerous international markets, often for reasons that were politically motivated rather than commercially viable. As a result, the airline found itself operating a large number of unprofitable routes, which drained resources and increased debt.

Many of these routes were established to meet political or diplomatic objectives, rather than being driven by passenger demand or profitability. For example, certain destinations were added to the airline’s route network simply to maintain diplomatic relations with other countries or to appease local interest groups. These decisions had little to no basis in sound commercial strategy, and the airline was forced to operate flights on these loss-making routes despite low passenger demand and minimal revenue generation.

Instead of focusing on high-demand routes that could guarantee profitability, Sri Lankan Airlines’ boards chose to expand the airline’s global footprint without sufficient consideration for the long-term financial implications. This contrasts sharply with the strategies adopted by more successful airlines like Emirates and Qatar Airways, which focused on building efficient hub-and-spoke networks to maximize profitability. Sri Lankan Airlines’ direct-flight strategy to numerous destinations, many of which were unprofitable, stretched its resources thin and led to higher operating costs.

Throughout its history, Sri Lankan Airlines has also struggled to keep pace with changing market dynamics. In the 1980s and early 2000s, the rise of low-cost carriers (LCCs) began to reshape the aviation landscape, particularly in the South Asian and Southeast Asian markets. However, Sri Lankan Airlines failed to recognize the importance of this trend and did not adapt its business model to compete with budget airlines that were increasingly capturing market share.

While airlines around the world adjusted their business models to cater to budget-conscious passengers by offering no-frills services and cost-effective regional flights, Sri Lankan Airlines remained committed to operating as a full-service carrier, maintaining high operating costs in an increasingly competitive environment. This failure to embrace the low-cost carrier model left the airline vulnerable to competition, as it could not compete on price or efficiency.

In addition to failing to compete with LCCs, the airline also lagged behind in enhancing its customer experience. Global trends in passenger preferences shifted toward better in-flight services, advanced technology, and attractive loyalty programs. While other airlines invested in upgrading their fleets with modern, fuel-efficient aircraft and state-of-the-art in-flight amenities, Sri Lankan Airlines remained behind the curve. The airline’s aging fleet and limited service offerings made it less appealing to international travelers, further diminishing its ability to compete effectively.

Arguably, one of the most damaging aspects of Sri Lankan Airlines’ history has been the extent to which political influence has undermined the airline’s ability to operate as a commercially viable entity. Successive governments have used the airline as a tool for fulfilling political objectives, leading to the appointment of individuals with political connections rather than industry expertise to key leadership positions.

The politicization of the airline’s leadership has resulted in poor decision-making, as individuals without sufficient aviation industry experience were tasked with navigating complex market challenges. This lack of expertise at the helm led to misguided investments, unsustainable growth plans, and the continued operation of loss-making routes. Political interference prevented the airline from making the necessary adjustments to address its operational inefficiencies and reduce its debt burden.

Moreover, government influence extended to financial management. Instead of allowing the airline to operate with the independence and flexibility required to make sound commercial decisions, government intervention often dictated unwise investments and expansion plans. For example, politically motivated decisions to expand the airline’s route network to unprofitable destinations placed immense financial strain on the airline and prevented it from focusing on profitability.

In 1998, Sri Lanka’s government attempted to address some of the airline’s challenges by entering into a strategic partnership with Emirates Airlines, selling a 40% stake in the national carrier to Emirates. Under this arrangement, Emirates managed the operations of the newly branded Sri Lankan Airlines, introducing a number of reforms that temporarily improved the airline’s financial performance.

However, political tensions and conflicts between the Sri Lankan government and Emirates ultimately led to the dissolution of the partnership in 2008. After Emirates withdrew from the management agreement, Sri Lankan Airlines quickly returned to its previous pattern of poor management and government interference. Without the expertise and oversight provided by Emirates, the airline struggled to maintain the operational improvements that had been introduced, and its financial condition rapidly deteriorated.

The decision to terminate the Emirates partnership without a clear recovery plan in place was a significant misstep by both the board and the government. Instead of learning from the experience and building on the progress made under Emirates’ management, Sri Lankan Airlines reverted to its old ways, and the airline’s financial struggles deepened.

A Way Forward?

The choices made by this leadership could either deepen the airline’s financial distress or guide it toward a path of recovery, sustainability, and future profitability. The following points, some of which have already been included in the process of reform,  lay out a strategy for addressing the core issues facing the airline, emphasizing aspects such as government reforms, privatization, fleet decisions, route optimization, and increasing overall efficiency. If these areas are effectively tackled, the airline and the government can collaborate to create a more streamlined, competitive, and ultimately profitable national carrier.

The Sri Lankan government has always played a crucial role in the operations of the airline, with varying degrees of involvement over the years. It is impossible to address the airline’s problems without substantial policy reforms from the government. One of the most effective policy steps would be to allow the airline to operate in a more market-driven and competitive framework.

One possible approach is to consider a Public-Private Partnership (PPP). While full privatization could raise concerns about national control and ownership, a PPP model offers a middle ground. This would allow the government to retain partial ownership while tapping into private-sector expertise to drive improvements. Several national carriers, such as those in Singapore and Qatar, have adopted this model with success, benefiting from both governmental backing and private-sector efficiency.

Additionally, the government should look at debt restructuring options. This could involve negotiating with creditors for longer repayment terms, reduced interest rates, or even partial forgiveness of debt. Any financial support from the government must come with strict performance conditions, ensuring that the airline achieves specific benchmarks in profitability and efficiency. Other potential government interventions could include offering temporary tax relief, lowering airport fees, or providing easier access to credit for fleet modernization, which could give the airline breathing room to stabilize before moving toward more stringent operating standards.

The question of full privatization remains a topic of ongoing debate. Privatization brings the promise of improved efficiency, reduced political interference, and access to private capital, but it also carries risks, such as job losses and the reduction of services on less profitable but strategically essential routes.

There are clear advantages to privatization. First, private ownership typically leads to better operational efficiency, as the primary focus is on profitability. This can result in leaner operations, lower overhead costs, and improved customer service. Second, a private company can access capital markets, making it easier to secure funds for new aircraft or route expansion, without relying on government support. Third, private management usually brings more experienced leadership, which could help drive a successful turnaround for the airline.

On the other hand, full privatization has its downsides. For example, the government could lose control over key national interests, like maintaining essential but less profitable routes that connect Sri Lanka to the world or safeguarding jobs for the country’s citizens. Privatization could also lead to significant workforce reductions, which might provoke political and social resistance from labor unions. Therefore, a hybrid model like a PPP may strike a better balance, allowing the airline to leverage private-sector capabilities while preserving essential government oversight.

Another pressing issue for Sri Lankan Airlines is its route network. Historically, the airline has flown many routes that are not profitable, often due to political or diplomatic reasons. This has drained resources and contributes to its financial losses. The airline must carefully reassess its route network, identifying underperforming routes and either eliminating them or restructuring them to improve profitability. The airline should prioritize high-demand, high-revenue routes that connect Sri Lanka to key markets like South Asia, Europe, the Middle East, and Southeast Asia.

The adoption of a hub-and-spoke system could also make operations more efficient. By focusing on Colombo as its central hub and routing passengers from smaller regional cities into long-haul flights, the airline can increase passenger load on its international routes, which would boost profitability. The airline must continue its global alliance with One World, offering its passengers access to a wider network of destinations and enhanced benefits such as shared frequent flyer programs, airport lounge access, and seamless travel experiences across the alliance’s member airlines. This continuation  would open doors to new markets without the airline having to operate additional aircraft. Codeshare agreements can also improve connectivity for passengers, making the airline more competitive globally.

The airline’s procurement and leasing policies for aircraft are another area that has contributed to its financial strain. Sri Lankan Airlines has leased a significant number of aircraft at high rates, which has added to its debt. Moving forward, the board must reassess its fleet strategy, focusing on cost-effective and fuel-efficient aircraft.

One major decision the airline must make is whether to lease or buy its aircraft. Leasing offers more flexibility, particularly in uncertain market conditions, but it tends to be more costly over the long term. On the other hand, buying aircraft may require more capital upfront but could save the airline a significant amount over time. A careful cost-benefit analysis is needed to weigh the long-term implications of either choice.

In addition, standardizing the fleet would reduce maintenance costs. Operating a fleet with multiple aircraft types increases operational complexity, training requirements, and maintenance costs. By narrowing down the number of aircraft types, the airline can achieve cost savings through economies of scale in operations, training, and maintenance.

Fuel efficiency is another critical factor in today’s competitive aviation industry. The airline must consider prioritizing the acquisition of more fuel-efficient aircraft,..

Operational efficiency extends beyond fleet and route optimization. The airline needs to streamline its overall operations, reduce waste, and enhance employee productivity. Adopting modern technology solutions, like AI-powered route planning tools and fuel management systems, could help the airline run more efficiently and increase profitability. Digital transformation can also play a key role in enhancing customer service and ensuring the airline remains competitive.

Another vital step is rigorous cost management. The airline needs to renegotiate supplier contracts, optimize its ground handling operations, and reduce administrative overhead without compromising safety or customer experience. Sri Lankan Airlines employs a relatively large workforce compared to its peers, so improving labor productivity is crucial. Workforce optimization can be achieved through a mix of voluntary retirement schemes, better training programs, and increased automation in certain operational areas.

To stay competitive, Sri Lankan Airlines must also focus on improving its customer experience and building a strong brand. Enhancing the in-flight experience with better seating, more entertainment options, and improved catering can set the airline apart from competitors. Premium services, such as upgrades to business class or enhanced frequent flyer programs, should be actively promoted to attract higher-paying customers.

The airline must also collaborate with Sri Lanka’s tourism board to capitalize on the country’s reputation as a popular tourist destination. Joint marketing efforts, attractive holiday packages, and partnerships with hotels and travel agencies could help boost passenger numbers on key routes, particularly those that bring in high numbers of tourists.

My Take

From the inception of Air Lanka in 1977, the boards of Sri Lankan Airlines have consistently made a series of commercially destructive decisions that have left the airline in a precarious financial position. Poor fleet management, overexpansion of unprofitable routes, failure to adapt to changing market trends, and excessive government interference have all played a role in the airline’s decline. These errors have created a legacy of debt and inefficiency that the airline’s current leadership must now address if Sri Lankan Airlines is to have any hope of returning to profitability and becoming a competitive player in the global aviation market.

Although the challenges facing Sri Lankan Airlines are substantial, the new leadership has a real opportunity to turn the airline’s fortunes around. By pursuing a combination of governmental policy reforms, operational improvements, and targeted investments, the airline can reduce its debt and ultimately become a profitable, competitive player in the global market. The government’s support, whether through debt restructuring, a public-private partnership model, or regulatory relief, will be crucial in this endeavor. In tandem, the airline must continue to refine its fleet strategy, streamline operations, and enhance the overall customer experience. With a thoughtful and well-executed plan, Sri Lankan Airlines can not only overcome its financial troubles but also emerge as a symbol of national pride and economic stability.

The financial troubles that plague Sri Lankan Airlines are by no means recent. For years, the airline has been carrying a substantial debt load, resulting from factors such as inefficient operations, poor management, and external factors like global downturns in tourism and the impacts of the COVID-19 pandemic. The debt has surpassed USD 1 billion, creating an immense strain on the national economy. A significant part of this debt comes from mismanagement of its fleet, operations on unprofitable routes, and high costs related to leasing and purchasing aircraft. The immediate priority for the new board must be a comprehensive financial review to identify the root causes of this debt and implement focused measures for improvement as suggested above.

What is critically needed is a leadership that truly understand the esoteric nature of the air transport industry.  Unfortunately, may of the boards, if not all previous ones did not, comprising members from various other industries who desperately tried to learn on the job. If there is one lesson to be learnt from this historic debacle, the one true brief time in the airline’s history that it did well was under management of Emirates which truly understood the business and the market.

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