Monday, 27 January 2020 07:00

Govt. to halt Rs. 250 m SriLankan Catering expansion

The Government has decided not to proceed with a Rs. 250 million SriLankan Airlines flight kitchen expansion project, a top Minister confirmed.

The new strategy aims to maximise existing capacity and improve productivity to be competitive pricewise.

“We have decided not to go ahead with the SriLankan Airlines Catering flight kitchen expansion after much observations from employees and experts in the field,” Tourism Minister Prasanna Ranatunga told the Daily FT.

The national carrier’s profitable catering arm received Cabinet approval in August last year to go ahead with what would be its first major expansion, worth Rs. 250 million.

Minister Ranatunga was of the view that SriLankan Airlines Catering Ltd. still had sufficient capacity, manpower and machinery to improve its productivity levels to cater to current demand.

SriLankan Catering Ltd. prepares meals for airlines at the Bandaranaike International Airport (BIA), which currently serves 23,000 meals daily, and the expansion was proposed to increase servings to 40,000. The total size of the catering unit is 18,348 M2, with 68 cold rooms, 12 freezer rooms and 2,965 M2 in bonded storage capacity. It also caters to 37,726 flights per year.

“I personally visited the facility soon after I took office and many of the employees opined that SriLankan Catering had managed to boost the number of meals served via small changes to the facility at different times. They are confident of the capability to improve the capacity by continuous improvements in productivity levels. We also observed that going for an expansion could impact the current business as the project was likely to take about two to three years to complete at the existing building,” Ranatunga said.

The Minister also claimed that SriLankan Catering was expensive and trying to create a monopoly. “Some of the airlines that are operating to Colombo aren’t customers of SriLankan Catering as it is expensive. They are acting like a monopoly and if we continue to do business this way, I have no doubt that we’d have to shut down this company,” he stressed.

Ranatunga suggested that the idea was to cater to all airlines operating to Sri Lanka in order to make them competitive.

Clients of SriLankan Catering Ltd. at present include Qatar Airways, Saudia, Malaysia Airlines, Oman Air, Tui Fly Nordic, Cathay Pacific, Turkish Airlines, Ukraine International Airlines, Royal Flight Airmens, Thomson, Azur Air, Himalaya Airlines, KLM, Japan Airlines, Vista Jet, Air Culinaire Worldwide, IndiGo, TAG Aviation, Emirates Airline, Areoflot Russian Airlines, Rossiya and Chongqing Airlines.

SriLankan Airlines Catering has seen a year-on-year growth of 7-8% in passenger arrivals to BIA. In FY19, total meal production saw a marginal 5% dip to 5.54 million meals. However, financial performance was impressive. The company’s revenue rose by 13.4% in FY19 to Rs. 9.75 billion and gross profit rose by 16.6% to Rs. 7.72 billion with the gross profit margin improving from 77.1% to 79.2% mainly due to an increase in average meal price, new airline customers and stringent controls over the cost of raw materials. The company’s net profit increased by 44% to Rs. 5.6 billion in FY19, with the net profit margin increasing from 45.2% to 57.5%.

(FT)

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