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Sri Lanka • Member of Oneworld Alliance

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Sri Lanka • Member of Oneworld Alliance About: SriLankan Airlines • Started operations in 1979 • National carrier of Sri Lanka • Member of oneworld alliance • Fleet of 25 modern Airbus aircraft – with average age below 8 years • Network of 40+ international destinations 2 A unique route network • 3 continents • 41 destinations • Most destinations in India by any foreign airline • Daily Melbourne – Colombo service launching in Winter 3 Air travel demand is closely linked to GDP • World economy has been slowing down … Real GDP Growth 8% 7% 6% 5% 4% 3% 2% 1% 0% 2010 2011 2012 2013 2014 2015 2016 Advanced economies Emerging market and developing economies World 4 … however aircraft deliveries have not 2000 1800 1600 1400 1200 1000 800 600 400 200 0 2010 2011 2012 2013 2014 2015 2016 Narrow-body Jets Wide-body Jets RJs Turboprops Source: Flight Fleets Analyzer 5 Case Study: Sri Lanka market Sri Lanka has seen a tremendous increase in seat capacity … 14 12 +86% 10 8 6 Seats - Millions 4 2 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 SriLankan Mihin Lanka Other Source: Innovata SRS 9 … much of which was driven by ME carriers 14 12 +155% 3.6M 10 1.4M 8 6 Seats - Millions 4 2 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 SriLankan Mihin Lanka Emirates Etihad flydubai Qatar Airways Other ME Other Source: Innovata SRS 10 Seats vs Passenger Growth • Seats and traffic for 12 months ending May • From Sri Lanka to destination country • For all airlines operating in a given market Passengers with trips Seats on flights originating in Sri Lanka originating in Sri Lanka 2,500,000 and terminating at and terminating at destination destination 2,000,000 1,500,000 1,000,000 500,000 0 Qatar UAE Saudi Arabia Seats - 2016 Pax - 2016 Seats - 2017 Pax - 2017 Source: IATA DDS 11 Sri Lanka – Middle East capacity Flights per week (per way) 14 73 7 7 7 18 7 14 21 5 10 5 Bahrain Kuwait Oman Qatar Saudi Arabia United Arab Emirates Other Airlines SriLankan Source: Innovata 12 Where did all these passengers go? United Arab Emirates 32% • Estimated true destination for passengers on Sri Lanka – UAE Germany 10% flights United Kingdom 8% • 12 months ending May 2017 Qatar 5% 4% • For all airlines in the market Italy Saudi Arabia 4% Russian Federation 3% 68% of passengers traveled France 3% between a city-pair other than United States 3% the route’s main city-pair Switzerland 3% Other 24% Source: IATA DDS 13 The impact was felt elsewhere… Sri Lanka – Paris/ Frankfurt average market fares 600 180,000 160,000 500 514 140,000 400 391 120,000 325 100,000 300 80,000 234 200 280 60,000 O/W Fare, USD O/W 182 40,000 Marketsize,pax 100 20,000 - - 2013 Oct - 2014 Sep 2014 Oct - 2015 Sep 2015 Oct - 2016 Sep CDG - Pax FRA - Pax CDG - Fare, $ FRA - Fare, $ Source: IATA DDS 15 The only rational response left … SriLankan Europe network June 2012 Tourist Arrivals During Origin Month U.K 6,076 Germany 3,054 France 2,267 Russia 780 Switzerland 641 Italy 621 Source: SLTDA 16 The only rational response left … SriLankan Europe network June 2017 Tourist Arrivals During Origin Month U.K 10,424 Germany 7,024 France 3,365 Russia 1,029 Switzerland 1,381 Italy 1,252 Source: SLTDA 17 However, it is not the same for every market … Share of Pax on Share of Pax on Origin Destination Primary O&D Origin Destination Primary O&D Pair Pair Singapore, SIN 54% Melbourne, MEL Singapore, SIN 47% Bangkok, BKK 60% Perth, PER Johannesburg, JNB 74% Kuala Lumpur, KUL 44% Sydney, SYD Bangkok, BKK 57% Colombo, CMB Delhi, DEL 78% Sydney, SYD Taipei, TPE 82% Mumbai, BOM 71% Sydney, SYD Tokyo, TYO 94% Jeddah, JED 65% Auckland, AKL Beijing, PEK 77% 18 Overcapacity is real 2015 2016 2017 F – and a serious Worldwide Average problem 407 363 351 Return Fare (2015, $) Passengers, 3.568 3.773 3.959 billion Source: IATA 19 Who has driven this growth? Leading airline ASK growth, indexed to 100 in 2007 180 World Air Traffic, 166 160 United Airlines, 162 American Airlines, 140 145 SriLankan, 141 120 Air New Zealand, 124 100 Singapore Airlines, 107 80 60 Qantas, 94 40 20 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 World Air Traffic Air New Zealand American Airlines Qantas Singapore Airlines SriLankan United Airlines Source: Innovata SRS 20 Who has driven this growth? Leading airline ASK growth, indexed to 100 in 2007 600 Qatar Airways, 492 500 Etihad Airways, 455 400 Emirates, 327 300 200 World Air Traffic, 166 100 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 World Air Traffic Air New Zealand American Airlines China Southern Airlines Emirates Etihad Airways Qantas Qatar Airways Singapore Airlines SriLankan United Airlines Source: Innovata SRS 21 Who has driven this growth? Leading airline ASK growth, indexed to 100 in 2007 3000 flydubai, 2800 2500 2000 IndiGo, 1560 1500 1000 World Air Traffic, 166 500 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 World Air Traffic Air New Zealand American Airlines China Southern Airlines Emirates Etihad Airways IndiGo Qantas Qatar Airways Singapore Airlines SriLankan United Airlines flydubai Source: Innovata SRS 22 Yet, there is no sign of a slowdown … Current Fleet On Population, Country Airline Fleet Order Millions in Service China 3,091 617 1,379 Australia 662 157 24 Japan 652 220 127 India 509 910 1,324 U.A.E 508 471 9 Qatar 189 213 3 New Zealand 149 36 5 Source: Flight Fleets Analyzer 23 The Vicious Cycle of Overcapacity Attempts to capture market share Overcapacity Airlines seek to offset the lower yields by with more capturing a greater capacity share of the volume – by infusing more capacity Low pricing discipline by airlines drive Downward pressure on yields pressure on during overcapacity yields 24 Why we never get out of this cycle … • Historically, airlines have been a capacity driven business model – rather than demand driven • If others add capacity and you don’t – you lose market share AND revenue • Must add capacity to safeguard revenue • Must add capacity to grow revenue • Irrespective of how good your service is, someone will always add capacity • And you are forced to respond … • WINNERS – Passengers • LOSERS – Aviation Investors • Solution – Capacity discipline 25 .
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