SriLankan airlines in bid to ground rising fuel expenditure

Channa Kasturisinghe

AVIATION INDUSTRY: Despite various cost cutting initiatives adopted by the global airline industry airlines are struggling to minimise losses caused by skyrocketing oil prices.

With the annual industry fuel bill expected to touch US$ 112 billion in 2006 airlines globally are adopting fuel risk management strategies and fuel efficiency programs to stay ahead of increasing fuel prices.

Despite efficiency gains and strong revenue the industry is expected to make considerable losses and airlines have found it increasingly challenging not to pass a part of the rising fuel cost to the customers.

Although, the net profits increased by a staggering 43 percent during the financial year 2005 our national carrier SriLankan Airlines is no exception.

Its Chief Financial Officer Vipula Gunatilleka told the Daily News that the airline's fuel bill at present is about 35 percent the direct operating cost and therefore the airline was compelled to further increase the fuel surcharge levied on the passengers. "Since 2001 the average fuel price has gone up by 280 percent.

Our fuel bill increased by US$ 18 million during April to July this year compared to the same period the previous year. We expect the total fuel bill to reach US$ 250 million by the end of the current financial year," Gunatilleka said.

To meet the rising oil bill SriLankan Airlines increased the fuel surcharge within a range of US$ 5 to US$ 10 in February this year.

It further increased the surcharge in May within the range of US$15 to US$30. Guantilleka said the surcharge is likely to further increased shortly by another US$ 10 to US$ 20.

"Global jet fuel prices climbed to nearly US$ 85 per barrel in 2005.

This figure is expected to go up and the International Air Transport Association (IATA) predicts that the industry would lose about US$ 3 billion this year as a result. Therefore, all the international airlines would have to increase fuel surcharges to minimise losses," Gunatilleka said.

He said levying a fuel surcharge which would increase travel cost of passengers is the last resort and the airline has taken various other measures to face the challenge of rising fuel prices.

"One is the hedging strategy. We have adopted a comprehensive jet fuel risk management strategy using hedging instruments to minimise effect of fuel price increases," he said.

According to the Company's latest annual report its Fuel Risk Management Program minimised the impact of volatile aviation fuel prices, resulting in a net saving of US$ 11.49 million.

Gunatilleka said that the airlines Engineering Division initiated a fuel efficiency program on its wide-body fleet in November 2004, to face the increasing fuel cost.

This two fold effort was to reduce weight carried onboard while increasing the airframe and engine performance.

He said such measures are promoted by IATA globally and that has helped the global airline industry to improve fuel efficiency by a remarkable 5 percent over the past two years.