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Attempts To Minimize Skyrocketing Fuel Prices

SriLankan Airlines tackles impact of high fuel prices

eTN  Jul 23, 2008

SriLankan Airlines is moving swiftly to minimize the impact of skyrocketing fuel prices with a series of decisive actions throughout the airline.

The price of a barrel of crude oil has surged 85% during the last 12 months, and is now averaging USD 143 from last year’s USD 75. SriLankan is projecting a fuel bill of USD 500 million for the current year at present prices, which accounts for approximately 50% of its overall costs.

The airline is not passing the full impact of the increase in the fuel bill to its passengers. At the same time, the National Carrier does not intend to become a burden on the Treasury and the country’s taxpayers and has already put into action several measures to mitigate the impact of fuel price increases. It will continue to do more in the coming months.

Just a year ago, the International Air Transport Association (IATA) predicted a record profit for the global airline industry in 2008 of USD 9.6 billion, but has been rapidly downgrading this in recent months, and its forecast in June predicts net losses in 2008 of between USD 2.3 and USD 6.1 billion. The major increases in fuel prices have come since January 2008, with prices surging by 50%. The government of Sri Lanka took over management of the airline last April, when the decade-long management contract with Emirates Airline ended.

The airline is already implementing several measures recommended by a panel of experts from IATA to reduce fuel consumption by 3% by the end of this financial year, and up to 5% shortly afterwards.

The Airline has slashed budgets across the board and is reducing expenses and minimizing wastage. Its management is working on reducing the impact of its top ten cost items, and most of the company’s Colombo offices are being moved to Katunayake to save on high levels of rent.

The airline recently introduced a fuel surcharge, as many other international carriers have done, and will soon be temporarily reducing capacity on some routes in its network of 41 destinations in 22 countries in Europe, the Middle East and Asia. This is nothing unusual – many airlines around the world have already announced similar reductions in flight schedules. The new schedule is already updated in the reservation systems.

The airline has ensured that these reductions will not affect its passengers and has taken into consideration the needs of Sri Lanka’s tourism industry, the migrant workers in the Middle East, and the strategic requirements of the government and the country. Every one of its destinations will continue to be served by a sufficient number of flights, and those where flights are being reduced, flights will, for the most part, have just one flight less per week.

At the same time, the airline is moving ahead with its plans for the future, which include acquiring four more Airbus A320 aircraft to replace four ageing aircraft in the fleet by the end of 2008, which is likely to be followed by refurbishment of passenger cabins on its widebody fleet of A330’s and A340’s.

Discussions have been held to keep informed the Ministry of Ports & Aviation, Civil Aviation Authority and other stakeholders, and the approval of the Airline’s board of directors obtained for these initiatives.

The price of fuel is not expected to come down, and the entire global air transport industry is preparing for even tougher times ahead. Pricing in the air travel industry reacts slowly, and it is not possible to immediately pass on the increased costs to the traveling public, hence the necessity for capacity reduction to bring about an immediate reduction in costs.

SriLankan Airlines tackles impact of high fuel prices

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