Capacity building at Mattala International Airport

6 May 2013 06:30 pm - 0 - {{hitsCtrl.values.hits}}

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By Sugath Rajapakse
While the opportunities are being created to optimize the utilization of the new airport through Free Trade Zone, Industrial Park, Convention Centre etc. it is also necessary to look at what could be done from the existing opportunities both to the west and east of Sri Lanka in the immediate term.

Here it must be stated that the facilities available at an airport, that of runway, parking bays, aerobridges, arrival & departure areas and other peripheral facilities are perishable assets related to time. If opportunities are not created then on that particular day or period, the inventory would have perished. Since the MRI Airport is looking at building capacity, the relevant inventory should be looked at from the probability of utilization. In other words it should be looked at from the incremental marginal cost till such time sufficient business can be created. Here one needs to look at the expected marginal revenue (EMR) of the next unit of inventory and create packages to induce new airlines to utilize the new airport.

The airport has a strategic location in terms of the air passenger movements between Australia/New Zealand and the western world. Direct operation via MRI Airport will result in cutting down the total elapsed time when compared to routes via points in the Far East. In the case of MRI Airport, it is a new product and in need of getting existing markets to use the airport facility, and thus the need for product development. Following product development measures are opportunities that could be immediately available for the new MRI Airport.

To seek the feasibility of national carrier operations to Istanbul (IST) in Turkey, Athens (ATH) in Greece.
To convince an iconic airline like British Airways (BA) to fly from UK via MRI Airport to points in Australia.
Use the existing hospitality industry plant to build Passenger Charter traffic business.

BA feasibility via MRI airport
British Airways currently operates via Singapore to points in Australia with Qantas, and with Cathay Pacific via Hong Kong. To induce BA to operate via MRI Airport, it is necessary to study the business case and demonstrate that by operating via MRI Airport they stand to gain both in terms of passenger numbers as well as revenue, reduced costs, and with elapsed time is shorter than flying via Singapore.

Termination of the agreement British Airways had for nearly 17 years with Qantas due to the Qantas & Emirates new strategic alliance leaves British Airways in a difficult situation. Already the effects are seen with fares tumbling down on the Australia-UK routes. Further, British Airways market share between Singapore and points in Australia is marginal. Passengers connecting via Hong Kong and Singapore with Qantas to British airways may no longer have the same privileges even though both airlines are oneworld members.

With SriLankan Airlines joining oneworld alliance in late 2013, and British Airways being already an oneworld member there are opportunities to induce BA to operate via MRI Airport to Australia and vvest.

Strategic approach
The need arises to look in depth at the business case on the routes from UK to Australia, both 3rd 4th freedom carriers as well as 6th freedom carriers.
For British Airways to shift flights to at least one or two destinations in Australia via Singapore or Hong Kong to MRI Airport there must be a business case that is convincing enough for them to take to the new route. The national carrier while complimenting the fellow oneworld member, it too will gain access to new important lucrative destinations which will beef up its revenue. Should BA be enticed to use MRI Airport on its Trans Australian/UK routes BA also would be in a position to garner far more traffic than what it now enjoys via Singapore and Hong Kong. SriLankan Airlines too will benefit by securing online destinations in Australia and with its network in South Asia and the traffic from Sri Lanka can easily generate incremental business via MRI Airport.

The total critical mass of the Australia South Asia passenger numbers for 2012 is nearly 400,000 air passengers, most of who are to Sydney and Melbourne. Indeed 207,000 tourists from South Asia, of whom 159,200 are Indian tourists, have visited Australia in 2012. Sri Lanka too has generated many tourists to Australia, mainly VFR visitor category. Detail analysis about the breakup of statistical base as regards origin & destination would shed more light on actual numbers. (MIDT or PaxIS PLUS data). Currently airlines in Far East are the most benefited from this mass of business to and from Australia. The routes from South Asia to Australia are dominated by the likes of Singapore Airlines, Malaysian, Cathay Pacific and Thai International. Part of these South Asian passengers (including those from Sri Lanka) could be induced to travel direct from MRI airport to either Melbourne or Sydney where the percentage of South Asian Diaspora is higher than in the other states. It may also be noted that UK generated 593,000 tourists to Australia in 2012.

Also British Airways will take delivery of the first Airbus A380 Jumbo jet in the course of this year and MRI Airport has the facility, runway capacity to land A380 Jumbo jets. Should BA be convinced to operate via MRI Airport then there is possibility of them operating this aircraft via MRI Airport to Australia.

Opportunity for SriLankan Airlines
Also currently there is an opportunity for the national carrier SriLankan Airlines to seek new destinations through such an operation to Australia via MRI Airport. Destinations that stand out are operations to Istanbul in Turkey and Athens Greece. The Greek Diaspora in Australia is in excess of 600,000, 42.8% in Victoria and 33.5% in New South Wales. Operations from MRI Airport to Istanbul and/or Athens will allow SriLankan Airlines to capture share of existing market between Australia and Turkey and Australia and Greece.

Currently Turkish Airlines operate 5 frequencies per week via Male to Colombo from Istanbul with 5th freedom traffic rights Male to Colombo as well. SriLankan Airlines could study the feasibility of an operation to Istanbul or Athens where it can promote new business from a new destination and at the same time market 6th freedom business to Australia and vice versa via MRI Airport with British Airways. In the initial phase SriLankan Airlines could look at operating via Dubai with 5th freedom rights Dubai to Istanbul and vv and Dubai Athens vv. (subject to traffic rights). Such an operation should be possible as Sri Lanka and UAE has a liberal managed open skies policy between the two countries. Also Sri Lanka has already given 5th freedom rights to Turkish Airlines on Colombo Male vv. route.

At present the British Airways uplift from Singapore to points in Australia is significantly low when compared to those of Singapore Airlines and Qantas. Having ended the 17 year old agreement with Qantas due to the new Qantas and Emirates alliance British Airways is already seeking new partners for future support. With SriLankan Airlines joining oneworld alliance in late October the time is ripe for SriLankan Airlines to forge an alliance with British Airways which will be a win/win partnership and persuade them to operate via MRI Airport to either Melbourne or Sydney initially, and which can expand later.

Diaspora in Australia
The current estimates of Turkish and Turkish Cypriot and Greek Diaspora are,

Opportunities for national carrier
For the period January to October 2012, 1138 Turkish Tourists visited Sri Lanka. Direct air links by SriLankan Airlines will greatly boost the numbers. With such an operation, coupled with possible British airways operation to MRI Airport SriLankan Airlines will also have access to the Turkey Australia traffic which is currently around 60,000 passengers.

Also in 2012, 51,614 Australians tourists visited Sri Lanka (source SLTDA) via points mainly in Far East. Many of these passengers too can use direct code-share operations with British Airways. In fact most Australians used to travel to Arugam Bay in the 1980 for surfing purposes and are in close proximity to MRI Airport.

Driving hospitality industry agenda
Despite registering an increase in tourist arrivals in 2012, the occupancy in hotels has registered a decrease when compared to 2011. For the period January to November, the occupancy in 2012 was 76.2% while in 2011 it was 90.3%. The number of foreign guest nights too has registered a decrease when compared to 2011. Therefore in the drive towards 2.5 Million tourists by 2016, MRI Airport can be a catalyst to enhance the passenger charter traffic business.

The existing hotel plant barring few properties are not known to focus on RevPAR (Revenue Per Available ROOM) or TrevPAR (Total Revenue Per Available Room) and instead use ADR (Average Daily Rate) or ARR (Average Room Rate) in managing the revenue and occupancy. The ADR and ARR measures do not take into account the EMR (Expected Marginal Revenue) of the next unit of inventory which is otherwise unoccupied.

In selling that next unit the incremental costs would be marginal while the property achieves substantial revenue increase. Here the charter segment of the market can support the industry to increase occupancy and revenue and use other market segments to enhance revenue performance and substantially increase occupancy.
Additionally with hotels in south of Galle having ample room inventory, package tours for destination Sri Lanka as well as those who wish to take a stopover holidays can be marketed to boost tourist arrivals. The occupancy of hotels south of Galle in 2012 up to November is around 72.3% (source SLTDA). Thus there is ample opportunity to promote more tourist traffic and beef up occupancy and overall revenue for the hotel properties based on the principle EMR.

Conclusion
Detail route analysis need to be carried out using traffic movement data (MIDT and PaxIS PLUS) and creation of incremental numbers. Qantas is already reaping harvest from the new alliance with Emirates by increasing their sales volumes between Australia and UK/Europe. Increased competition due to new alliance can be a catalyst to persuade British Airways to operate via MRI Airport where the costs will be much less than those in Singapore Changi Airport with opportunity to secure incremental revenue.

Other opportunities such as operations to Manila too could be studied. There is a large population of Philippine workers in Middle East and some of this traffic could be tapped via MRI Airport and augment the already existing traffic from Sri Lanka to Middle East. It is most necessary therefore to think of new strategies on how to build capacity at MRI Airport to utilize this new airport for the benefit of this country.

(The writer joined Air Lanka in 1980 and worked in many positions- Manager Overseas Liaison, Manager Sri Lanka and Maldives, Manager India and Nepal and Manager Singapore and Malaysia. He also functioned as Senior Manager Marketing Services and later posted as Manager UK and Ireland in 1996. On his return to Sri Lanka, he was appointed Manager Revenue Optimization at SriLankan Airlines and then sent to India as Regional Manager. In 2001, he was posted as Regional Manager Middle East, Europe and the USA based in head office. Some years after his retirement in 2003, Sugath joined Mihin Lanka and GMG Airlines Bangladesh for brief stints. Currently, he works as Consultant for Air India GSA in Sri Lanka. He can be contacted by email, consulting52@yahoo.com or sugath_ras@sltnet.lk)

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Capacity building at Mattala International Airport

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