‘We’ve changed the way SriLankan looks at business’

Peter Hill, CEO, SriLankan Airlines, talks to SHAFQUAT ALI about the rising fortunes of the international carrier
‘Over the last six years, we’ve not taken a single dollar from the government’

FROM an ailing national carrier with ageing Lockheed Tristars and a negative net worth to an award-winning international airline with a rebranded Airbus fleet posting increase in profits for three years in a row, SriLankan Airlines has bounced back in a big way.

It all began when Air Lanka was privatised in 1998 following the establishment of a strategic partnership with Emirates, which bought a 43.6 per cent share of the airline and took over the management on a ten-year contract. A new name, new livery, new aircraft, more cost-effective strategies reflecting Emirates’ own and state-of-the-art technology all contributed in transforming the fortunes of the airline and, positioning SriLankan Airline as an upmarket product.
Equally, there’s no denying, much of the credit for this amazing turnaround goes to the man who has steered the airline out of turbulent weather: CEO Peter Hill.
He has ably lead the SriLankan team and overcome some extremely tough hurdles – like the bomb blast on the Bandaranaike International Airport at Katunayake in 2001, when nearly half the airline’s fleet was wiped out. Over the years, Hill has spearheaded the changes, achieved results many thought near-impossible and metamorphosed SriLankan Airlines.
In a candid interview with TTN, he spoke about expanding IT capabilities, airport facilities and catering and cargo divisions, as well as bringing in additional capacity in SriLankan Airlines’ fleet and adding new destinations. Excerpts from the interview:

The last two years have been very good for SriLankan Airlines. Given the rising fuel charges and the post-tsunami crisis, how do you see 2005 turning out?
2003-2004 has been our best year ever. Even though we have not published our results for 2004-2005 yet, it’s going to be nothing as successful as the year earlier, what with the tsunami and fuel prices hitting us hard.

What are the challenges before you?
Of course, 2005-2006 is going to be a very challenging year. Fuel is going to be the biggest driver here. In our most successful year fuel was 94 cents a gallon, last year we saw fuel average $1.32 per gallon. This year, we budgeted at $1.54 and the price at the end of April was $1.76 and every cent increase per gallon equates to over $1 million on our bottom line per annum.
We have recently put in quite substantial fuel surcharges and that is probably going to impact negatively on the number of passengers we carry. The tsunami has not helped matters either. However, we are putting together special deals to win people back.
Post-tsunami, we have to get tourists to start re-visiting Sri Lanka and telling their friends about their experiences. Eighty per cent of the country was totally unaffected and by now many of the remaining coastal areas visited by tourists are functioning normally.

Yes, but unlike other countries like Thailand, there hasn’t been any major campaign to promote Sri Lanka after the tsunami…
It’s true that the Thai tourism authorities have been very active post-tsunami and you can make your own judgements from that. But we will also be coming out with an international ad campaign in the middle of this month to promote the country. A $4.1 million programme entitled ‘Rediscover Sri Lanka’ funded by all the key stakeholders in Sri Lankan tourism, will feature television, media and internet for an initial period of three months. This campaign will be supported additionally by SriLankan Airlines who will be offering some very attractive holiday offers.

Looking back, the airline has undergone a thorough overhaul since Emirates took over, ushering in a whole new approach to its operations. Was the transition, according to you, a smooth one?
In 1998, we were viewed by many as a regional airline – Air Lanka – with an ageing fleet and inconsistent levels of performance. Emirates introduced a new business plan, acquired new aircraft and gave the airline a complete makeover, renaming it SriLankan Airlines.
We have overhauled the network to focus on Colombo as a strategic hub for South Asia, brought in new equipment and did everything possible to build up the reputation of the airline. Along the way, we’ve won quite a few awards reinforcing the fact that our service and product is up to international standards.
Needless to say, we’ve done all that, made money in four out of six years despite huge challenges and we are fairly well positioned to move forward. So, I think, we’ve been quite successful in doing what we set out to achieve.
But still, there is a long way to go. Among others, we want to take advantage of our proximity to India and now the Indian skies have opened up, we are keen to take maximum advantage of that. As a matter of fact, SriLankan is the largest foreign carrier into India – we have over 90 flights a week to 11 destinations.
When I joined, probably less than 15 per cent of air traffic was transiting through Colombo, now more than 40 per cent is. So we’ve become a network carrier rather than a point-to-point carrier.

Since SriLankan Airlines’ metamorphoses has been the result of aggressive, rapid decision-making tempered by prudent risk-taking approach based on Emirates’ model, were there any clash of interests with the mindset of the old school?
We’ve changed the whole way that SriLankan looks at its business. Now we are profit driven; we are a recognised international carrier.
We do have a responsibility to promote Sri Lanka, but we do that alongside our need to make sure that the airline is commercially viable. I think the success of that can be gauged from the fact that, over the last six years, we’ve not taken a single dollar from the government in terms of support whereas before that the airline was constantly being propped up by tax payers’ money.
More to the point, there is always resentment to change in business but what we’ve had to do is convince everybody that this is the way forward and I think we’ve been quite successful in doing that.

How much has this strategic alliance contributed to SriLankan’s success and how has the airline capitalised on its partnership with Emirates?
We use Dubai as a second hub – Colombo is our first. We codeshare with Emirates on many services and, in the last couple of months, we have increased those codeshares to cities like New York. We weren’t there in the US but now we codeshare Emirates flight everyday to New York. I mean it’s a huge opportunity for us and we get recognised in markets that weren’t present before. These are the areas where we take advantage of our joint networks, as well as leverage from the joint purchasing power of both airlines on a whole range of goods and services.

What about plans to resume codeshare services on Indian Airlines flights to provide even more services to India?
That’s only a one-way thing. They codeshare on to us… I don’t know for how long though. They are operating to Colombo from Chennai and several years ago they requested to codeshare with us on the Delhi and Bombay to Colombo routes, due to a lack of aircraft. These arrangements are constantly being reviewed, so we will have to see if this will continue.

Are you suggesting a codeshare arrangement is no longer feasible?
They, Indian Airlines, are currently expanding their fleet and with the much more liberalised air service agreement now in place they may choose to operate themselves in future.

Talking of global airline alliances, why has SriLankan Airlines adopted a very selective approach?
Emirates and SriLankan have a good partnership. We believe that we are stronger working together and both of us don’t believe that global partnerships are the only way in running a business. Both of us want control of the product that we offer our customers which is why we are very choosy as partners.

What, according to you, has contributed to SriLankan’s high level of punctuality which is one of the highest among the world’s airlines?
We have worked very hard on punctuality over the years and it is now built into the culture of the airline. We have a meeting every day to analyse every delay and we take steps to ensure that incidents within our control that have contributed to a delay are not repeated.

Please detail the airline’s plans to expand IT capabilities, airport facilities and catering and cargo divisions and, of course, the fleet expansion...
We are building a completely new flight kitchen which will be completed in October this year, at a cost of $25 million. This will complement the major expansion plans currently being undertaken at Colombo International Airport, which includes improvements to the passenger terminal with the introduction of airbridges and a completely new cargo terminal. The only thing that we are putting a hold on is the expansion of the fleet. As a result of tsunami, we are being a little prudent this year. It’s a year of consolidation so we are trying to do more with what we’ve got rather than bringing new aircrafts.

How do you intend to enhance the quality of services?
We are looking at improving the seating of our aircraft. We are studying the competition and looking at next-generation aircraft seats. However, I don’t want to jump in too early and end up with what somebody else has got today. We will wait a little longer and install new seating that really will make a difference over what’s on offer today.

So, no A380s for you?
No, we don’t have the market for that. Emirates has bought 45 now; we’ll see how they get on. However, I think it’s going to be a world-beating aircraft, no question about that. I’d love to one day maybe sit here and talk to you about us buying an aircraft that size; that will mean that we’ve really moved ahead.

Has the launch of the air taxi service, offering fast and frequent transfers between the airport at Colombo and major tourist destinations, matched expectations?
This year, we expect the air taxi to actually make money. It’s on demand only at the moment but I expect to start serving from some of the destinations as scheduled services this year.
The service can really make a difference with the upmarket tourists. We currently operate in 10 destinations, within the next year we’ll probably be operating to 15 or 20.

How personally involved are you in day-to-day operations?
Very. You’ve got to be hands-on; you can’t write and send emails. You’ve got to talk to people. It’s our hand-on team approach that’s made the difference. For me, it’s not just a job; it’s a passion.

Where do you see SriLankan Airlines five years from now?
As the most preferred airline in Asia.