FLUG REVUE June 2006: Sri Lankan Airlines - Interview with Peter Hill

June 2006

VIP Interview

PETER HILL

CEO SriLankan Airlines

FLUG REVUE: The contract under which Emirates manages Sri Lankan will expire in two years' time. What are the chances that it will be extended?

Peter Hill: The ten-year contract runs to 31 March 2008. Emirates has indicated that they would be happy to renew the contract and has asked the new government of Sri Lanka for a decision. The terms will have to be renegotiated. Discussions are already under way, but they will last another three to six months.

FR: Could Sri Lankan Airlines manage without Emirates?

Hill: Emirates is the major shareholder with a 43.5 percent holding. As long as it is a major shareholder, it will be represented on the supervisory board. Over the last ten years we have not cost the government a single dollar. In the business year 2003/2004, the Group made its highest profit in its 25-year history, and for the first time the airline itself also made a profit. If the arrangements were not continued, we would have to take over full management of the airline ourselves. In any event we need a decision soon so that we can plan our business model beyond 2008.

FR: The buoyant air travel market has raised the aspirations of your pilots, who are asking for a significant pay rise. 30 pilots are even said to have handed in their notice to take up better paid jobs in the Middle East.

Hill: The 30 pilots have left over a period of two years. We now have 230 pilots and we are always hiring new ones. We need another 20. Our old collective pay agreement expired on 1 January 2006. We now need a new one for the next three to five years. We have offered a rise, but not as much as they are asking for. The two sides are still some way apart. Over the last few weeks we have twice had “sick-outs”, that is, warning strikes due to alleged illness. Quite by chance, our reserve crews were also ill at the same time.

FR: Why are you unwilling to pay more?

Hill: Our company is fighting a running battle with the aftermath of the tsunami disaster, the hike in the price of oil and tough competition from the Middle East. Emirates publishes audited annual reports, but have you ever seen an annual report for Qatar Airways or Etihad? They “buy” their market share, and we have to ensure that this isn't at our expense.

FR: After civil war, a terrorist attack on parked aircraft and SARS, you are now having to cope with the effects of the tsunami. How have you responded?

Hill: We have reinvented ourselves. A working group had predicted that the tourists would only return after two years. They suggested that we should build up Colombo as our new hub for flights to Asia. With nine destinations in India, we are now the biggest foreign airline there and we offer 88 flights per week. We have built eight new gates complete with passenger walkways in Colombo, opened a new Business Class lounge and established duty-free shopping opportunities. And if you spend more than eight hours here, we even pay for your overnight accommodation.

FR: Your official results for 2005/2006 are not yet available. What are you expecting them to show?

Hill: The Group as a whole will have made a profit, but the airline on its own is in the red. The repercussions of the tsunami and the high price of oil are responsible for this. But when we compare ourselves with the industry as a whole, our results are above-average.

FR: What plans do you have for Germany?

Hill: Last year we were forced to temporarily cut back our flights to Paris and Frankfurt. Now that demand has recovered we are offering 17 percent more seat capacity for Frankfort and four non-stop flights a week. Codeshare services with Emirates are offered to Frankfurt, Munich and Düsseldorf. We plan to start by expanding Frankfurt to a daily service, ahead of the other destinations.

FR: What are your plans for your fleet?

Hill: Our newest aircraft the A330 are becoming six years old this year. Between now and 2013, we want to grow the fleet from its present 14 to 25 aircraft, with new routes to Australia and southern and eastern Africa, and we plan to modernise and simplify our fleet. We are looking at the 777 and 787 and also at the A340-600 and A350. It is all a matter of price. A move to a different manufacturer is even possible. If the peace process continues here, nothing can stand in the way of our growing. The most important question is: How soon can we get a decision regarding the management of the business beyound 2008?

Sebastian Steinke was asking the questions.

From page 19 of FLUG REVUE 6/2006

Last updated 10 May 2006

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