SriLankan Airlines looks to boost fleet as privatisation effort gains momentum
SriLankan Airlines will be better placed to make major long term investments in its fleet after its privatisation is completed, but in the short term the airline is looking to grow with more leased aircraft.
The airline has had more market turbulence than most in recent years. It suffered from a loss of tourist traffic due to terrorist attacks in Sri Lanka in Apr-2019, and before it recovered from that, the COVID-19 pandemic emerged to decimate demand further.
Other challenges include the rapid growth of Indian LCCs in its neighbouring market, and competition from Gulf airlines.
The SriLankan government has been attempting to divest the financially troubled airline for some time, and finally appears to be making progress towards this goal.
Although SriLankan has limited options while the privatisation process is under way, it is doing what it can to increase capacity. It is also having to contend with engine availability issues that have caused many of its narrowbodies to be grounded.
- Sri Lanka's government has selected three potential buyers in SriLankan Airlines planned privatisation.
- The airline’s capacity has reached 72.9% of 2019 levels, but growth has slowed in recent years.
- India is SriLankan’s major overseas market, although it faces competition from the Indian airlines.
- The airline has 22 aircraft now versus 27 before the COVID pandemic, and is aiming for 25 by year end.
- Market prospects could support 35 aircraft in the medium term, and eventually nearly 50.
Despite timetable slips, the government is moving closer towards selecting a buyer for the airline
The SriLankan government identified six bidders for the flag carrier. In May-2024 it narrowed the list down to three candidates.
These are believed to include AirAsia Consulting, which is a company within the AirAsia Aviation Group tasked with reviewing new airline partnerships, franchise opportunities and providing airline consulting services.
Other bidders are a consortium led by Sherisha Technologies and Supreme Global Corporation, and Hayleys PLC, which is one of Sri Lanka's largest conglomerates.
When the expressions of interest notice was first announced on 31-Oct-2023, the government expected to select a preferred bidder in Apr-2024 and complete the deal by the end of Jun-2024. However, the process has been delayed, and the timetable target dates have slipped.
SriLankan's international growth has plateaued over past few years, although it has ambitions to expand
The chart below shows that SriLankan's international capacity (which is also its system capacity) was at 72.9% of 2019 levels for the week of 17-Jun-2024.
Seat capacity has remained in a reasonably narrow range over the past few years.
SriLankan Airlines: international capacity, as measured in weekly seats, 2019-2024
The airline's top international market is India, by a large margin.
Nearby, the Maldives is second, with Australia third.
SriLankan Airlines: top international markets, as measured by seats for the week of 17-Jun-2024
SriLankan is the leading airline in the country's international market, with a 41.5% share of weekly seats.
However, this also means that foreign airlines have a greater share collectively than the home-based airline.
Sri Lanka's international capacity by airline, as measured in seats for the week of 17-Jun-2024
While the airline is gradually rebuilding its fleet, engine-related groundings are not helping
CEO Richard Nuttall updated Aviation Week Network on the airline's fleet plans at the IATA AGM in Dubai on 3-Jun-2024.
SriLankan currently has a fleet of 22 aircraft, and hopes to boost this to 25 by the end of 2024. This will take the airline closer to its pre-pandemic fleet size of 27 aircraft.
The airline has nine Airbus A330s in its widebody fleet, following the return of three to lessors over the past 12 months. However, the airline is talking to two lessors with the aim of adding three A330s by the end of this year.
The airline operates 12 narrowbodies, with a 13th joining the fleet in July. Its narrowbody fleet is split between Airbus A320neo family aircraft and A320ceos.
Only seven of the airline's narrowbodies were in service, as of early Jun-2024. It has three -neos grounded due to engine availability issues, and some of the A320ceos are undergoing heavy maintenance. SriLankan's -neos are powered by CFM LEAP 1A engines.
The airline intends to have 10-11 narrowbodies in service by Jul-2024, and all of them flying by the fourth quarter of 2024.
* An earlier version of this analysis incorrectly identified the engine supplier for SriLankan's A320neo-family aircraft. It was corrected on 25-Jun-2024.
The airline will look to grow with leased aircraft through about 2030, then may have new deliveries arriving
Over the next 4-5 months of 2024 the airline intends to issue a request for proposals aimed at adding more leased used narrowbodies and widebody aircraft, Mr Nuttall said.
The airline would like to boost its fleet closer to 35 aircraft in the medium term. In the much longer term, the airline could operate a fleet double its current size based on the potential of its markets, said Mr Nuttall.
Many of the airline's current leases are due to expire around the end of this decade. So its longer-term plan will be to order new replacement aircraft to arrive around that time.
However, any such major order would occur after SriLankan's restructuring is settled.
SriLankan holds promise for potential investors, and fleet growth will help it compete in key markets
The privatisation of SriLankan appears to finally be gaining some traction, after being under discussion for years.
Despite its financial woes, this is garnering notable interest from prospective investors. The government's decision to absorb some of the airline's debt no doubt helps.
From a market perspective, Sri Lanka is an attractive tourist destination with growth potential.
And although the airline's proximity to the large Indian airlines is a competitive challenge, having such a massive market next door also presents opportunities. The airline believes it can benefit from being a connecting point for some Indian traffic flows.
While there are other airlines around the world that are seeking new owners, SriLankan appears to be one of those likely to succeed in this pursuit.
In terms of fleet, SriLankan probably does need more aircraft to get a more efficient scale and to support its strategy. This would also help it compete against its rivals in India.
The airline's options for placing orders are limited while the privatisation process is under way, so attempting to add incremental lift via the lease market is its best alternative for growth. And presumably, any new owner will want to invest in longer-term upgrades.