Economic Pillar

Economic sustainability refers to practices that support the long-term economic development of a company while protecting ecological, social, and cultural elements. Economic sustainability involves making sure that the business makes a profit, but companies cannot earn profits at the expense of worker exploitation or irresponsible and criminal exploitation of the environment. Thus, to be economically sustainable, businesses must effectively allocate and equitably distribute resources and ensure that overall business operations do not result in social or environmental concerns that jeopardize the company's long-term success.

 

Focusing on United Nations Sustainable Development Goals 

SRILANKAN AIRLINES FINANCIAL VIABILITY

 

SriLankan Airlines believes that they have the inherent potential of turning around as a profitable enterprise with a vision of taking the airline to new heights, playing a key role in the Nation’s development. Despite recent economic challenges, identifying sustainability as a critical component for the future success of the business, the SriLankan Group has taken measures to restructure with the introduction of stringent cost curtailment initiatives and effective revenue optimization strategies. Furthermore, “Revenue enhancement through effective capacity deployment, revenue management, and expenditure reduction strategies will continue to be the focus of the management to direct the airline towards sustainable financial viability in accordance with the business plan,” says SriLankan.

 

The following highlighted figures and facts derived from SriLankan Airlines' financial reports for 2018, 2019, and 2020 represent the airline's financial viability.

Description: Notwithstanding the unforeseen disruptions to operations on the back of Easter Sunday incidents and the ongoing Covid-19 pandemic, the Airline was able to grow revenue by 11.7% in 2019 compared to 2018, and in 2020 they only had to endure a 0.1% drop when compared to 2019. Passenger and cargo revenue, which are the major contributors to the Airline's income, have been rising since 2018 and have only made a slight reduction in 2020 due to the primary reason, flight cancellation with covid-19. Aircraft fuel cost, which is the largest element of operating costs, rose from 2018 to 2019 and has fallen by 2020 owing to sustainable cost-saving techniques, and flight cancellations. As a result, total operating expenses have decreased by 9.9%. Furthermore, over the last three years, employee spending (including wages, allowances, perks, etc.) have progressively increased. This evidences that SriLankan has invested more capital in developing a productive and competent workforce. Moreover, despite global challenges, they have also made donations throughout the aforementioned years. 

Net cash flow from operating activities has improved since 2018, proving that the core business activities of the company are thriving. The Airline recorded a positive EBITDAR (Earnings Before Interest, Taxes, Depreciation, Amortization, and Rent costs) of LKR10,528Mn in 2020, against an EBITDAR of LKR 3,114Mn in the previous year, which shows an improvement of 238.14%. This reveals that SriLankan has saved more cash to reinvest into their business, allowing them to capitalize on new opportunities, explore new revenue streams, and attract new customers.

 

COST REDUCTION TECHNIQUES AND SAVINGS 

Implementing a Flight Dispatch Centre (FDC)

(FDC) monitors the global fuel prices to reap the cost advantage by uplifting fuel from cheaper locations to save on fuel cost, thereby reducing the operating cost.

Inflight Services cost-saving methods

Procuring pre-packed products directly from the manufacturer and reduction in fuel burn by re-organizing the loading of catering equipment and certain dry stores, focusing on the onboard services. 

All inflight manuals were converted into electronic format and made easily accessible via crew portal to save cost incurred in printing same for 1,100 cabin crew members.

In-house manufacturing

SriLankan Engineering division began in-house manufacturing of aircraft seat covers, achieving a significant saving on the cost that would have otherwise been spent on overseas suppliers.

Returning Aircrafts

The 19-year-old Airbus A330 aircraft was returned to its lessor. This activity helped the Airline minimize its maintenance cost, avoid cash outflow on several major maintenance events that were due later in the financial year and improve the reliability by accelerating its move towards a younger aircraft fleet.

Adoption of 'more for less' motto

Logistics and Properties Division came up with further innovative ways of curtailing costs and minimizing wastage without a dilution in the service levels. This enabled a reduction in overall operating costs by 24% amounting to LKR 270 million.

Regeneration of sealed batteries

This project brings on annual savings around LKR 9 million to the Airline.

Introducing Solatube System

The introduction of the Solatube System to light the Engine Module Shop enabled SriLankan to save around LKR. 800,000 per annum.

Introducing Energy Efficient Lighting

The initiation of Energy Efficient Lighting with one-to-one replacement of 12W LED bulbs brings an annual saving of LKR.13.6 million.

The installation of Bio Gas Plant 

This enables to produce 4500kg of gas per annum and SriLankan have replaced a 5 kWhr boiler which will save nearly LKR. 600,000 per annum.

Relocation of offices

Colombo-based office staff to Katunayake. This has resulted in financial savings of LKR. 54 million and operational efficiencies.

Voluntary Retirement Scheme (VRS)

It reduces the company’s overall costs due to a reduced payroll, thereby saving money to invest in productivity-based activities.

Internal restructuring plan

This plan identified a number of critical initiatives related to revenue enhancement and cost reduction that are expected to make significant positive contribution to the bottom line progressively.

Lean transformation program with six sigma concept 

It emphasized driving each individual of the company to achieve a competitive advantage by reducing cost, reducing lead times, and improving quality.

 

NEW MARKET DEVELOPMENT

Virtual Reality Cinema 

SriLankan became the first Airline in South Asia to introduce Virtual Reality (VR) Cinema in partnership with Skylights at their exclusive Serendib Business Class lounge.

Muscle Recovery Tool - 'Spryng'

SriLankan features the “World's most advanced muscle recovery tool”, 'Spryng' in partner with Twinery, the innovation arm of MAS Holdings. This wearable technology stimulates blood flow and reduces blood pooling in passengers' feet, making them rejuvenated before a long flight.

Promoting Local Cuisines 

For long-haul flights, imported chocolates are replaced by a range of local sweetmeats to give passengers a sense of Sri Lanka and to promote local cuisines.

 

CONTRIBUTION TOWARDS DOMESTIC AND INTERNATIONAL ECONOMIES 

As per IATA 2018 statistics, the air transport sector has provided nearly 703,000 jobs for Sri Lankans. Inputs to the air transport sector and foreign tourists arriving by air have accounted for 8.9% of the country's GDP, which is USD 7.9 billion. Also, the air transport industry has carried around USD 20.3 billion exports from Sri Lanka during 2018.

SriLankan liaised with the career guidance units of the universities to ensure a talent pipeline ready for recruitment. And also, introduced a new scheme, ‘pay as you earn’ to obtain professional qualifications, particularly aiming at attracting young and potential talent and support them with the necessary skills to best fit Airlines' job requirements.

Further to that, from 2020 to 2021, more than 60% of the uplifted capacity from SriLankan Airlines was allocated to local exports to ensure a continuous foreign currency inflow to Sri Lanka in the hope of strengthening the domestic export segment.

So far in 2021, cargo flights have carried a tonnage of 77M Kgs to help the national economy. Also, SriLankan has recently converted a wide-body passenger aircraft into a dedicated cargo aircraft, with a total payload of 45 metric tons to support Sri Lanka’s export industries and to keep the country connected with the global economy during the pandemic. (The Island Online, 2021)

• To assist a local poor community as part of a corporate social responsibility project, SriLankan Airline's Inflight Services commenced reusing linen as a cleaning material which also provided a cost-saving to the company.

• SriLankan operated 3,039 scheduled flights and 165 cargo charters/ non-scheduled operations for uplifting Personal Protection Equipment (PPE) and essential goods connecting the Far East, Africa, the Indian Subcontinent, Europe, and the Middle East since the onset of the Covid-19 pandemic from April 2020 to June 2021.

• As said by IATA, air transport in Sri Lanka is forecasted to grow by 143% in the next 17 years under the “current trends” scenario. This would result in an additional 7.6 million passenger departures by 2038. If met, this increased demand would support approximately USD 19 billion of GDP and around 732,000 jobs. (IATA, 2018)

 

THE RIPPLE EFFECTOF BEING ECONOMICALLY SUSTAINABLE 

 

As a responsible company, Sri Lankans have the power to nurture a more cohesive community and contribute to a more sustainable economic system. It has had a beneficial impact on the economy since it has offered meaningful employment opportunities for all citizens, allowing them to fulfill their fundamental needs while also providing the required job training and education to assist the workforce in adjusting to future demands. It has also helped the local poor communities by providing them the chance to involve in various commercial operations such as raw material sourcing. And created a diverse and financially viable economic base.

 

As a result, Sri Lankan has built greater trust and strengthen its relationships with its stakeholders on every level, including its consumers, employees, investors, and the communities it operates in, which generates greater value over time. Adopting viable business methods has also supported them in lowering costs, increasing savings and revenue, and driving innovation, all of which have a positive impact on the bottom line. Furthermore, it has enabled the company to invest more in R&D and create access to more capital (SriLankan Airlines, 2019), (SriLankan Airlines, 2020), (SriLankan Airlines, 2018).