Mihin Lanka : "Profit Anytime Soon?"
byon 16-09-2014 at 06:33 AM (17452 Views)
Mihin Lanka – Profit any time soon?
The airline has been plagued by financial losses, debt, waste, corruption and other irregularities since its inception in 2007 is this a profitable venture? I think not as it is the taxpayer’s money put in to use for yet another prestige project. Mihin being yet another “White Elephant” which served no purpose since the country already had a national airline and it was also in a severe financial mess.
Mihin Lanka (MJ) was incorporated in October 2006 and began international flights in April the flowing year with a fleet of two wet leased Airbus A320-200 aircraft from the Bulgarian company BH Air was set to operate as a low cost model as a subsidiary of the national carrier SriLankan Airlines.
The aim of Mihin Lanka was to give an opportunity to foreign job seekers and pilgrims to fly to their destinations at a much lower cost, initially flying to scheduled destinations in South India and the Middle East, connecting its main base of operations Colombo Bandaranaike International Airport with Dubai, Trichy, Trivandrum followed by Singapore and Bangkok following the arrival of their 3rd aircraft which was a wet-leased Airbus A321-100 from the Turkish operator Best Air.
In December 2007 Mihin was forced to ground the A320-200 serving India as the airline had not settled its lease payments. SriLankan also withdrew its ground handling facilities for non-payment forcing Mihin to manually pushback its aircraft before takeoff.
In February 2008 Mihin lost one of its aircraft, an Airbus A321-100 (registered as TC-TUB), after its Turkish owners Best Air revoked it for non-payment of lease. In April 2008 came the biggest shock for the state owned airline as Mihin it lost its other two remaining Airbus A320-200 aircraft, after BH Air, its Bulgarian owners took them back for non-payment of lease. Having lost all its aircraft the company was forced to suspend all operations and crash landed as a whole in April 2008.
Mihin made losses of LKR 5877 million according to Official government figures during the time period between 2007 and 2010 and the losses continued to grow despite cutting its workforce from by a third and changing from Wet lease to dry lease. This was mainly due to a poor load factor on flights such as to destinations like Trivandrum in South India as well as to Dubai in the Middle East.
As of an article published “The Sunday Leader” on 18th January 2009 two flights to Trivandrum had flown empty from Colombo which was on the 14th of January 2008 as well as the inbound flight from Trivandrum suffering a similar fate of a zero percent load factor.
Trivandrum flights from the 9th to the 16th of January had a total turnover of only 54 passengers in bound to Colombo and 39 outbound to Trivandrum and with the Airbus A320-200 clocking 10 flying hours.
The current fleet of Mihin comprises of 1 Airbus A320-200 and 2 Airbus A321-200 aircraft (4R-MRC, 4R-MRD and 4R-MRE).
As of July 2014 Mihin has active scheduled flights from Colombo to Medan, Jakarta, Madurai, Dubai, Bahrain, Sharjah, Seychelles, Dhaka and Delhi. Since 2010 Mihin began having a new strategy to cater to “Premium secondary routes” which SriLankan Airlines do not have frequencies to. Dhaka and Jakarta were launched in December 2010, at the same time SriLankan and Mihin began code sharing. Sharjah was added in October 2011, followed by Bahrain in September 2012 which was operated for nearly 4 decades under SriLankan Airlines and thereafter transferred to Mihin because the management of SriLankan thought that the LCC model would be more suitable on this route. Madurai in South India followed soon after in December 2013, Medan (Indonesia) in May 2013 and, most recently Mahe (Seychelles) in November 2013.
Almost all Mihin’s new routes have no competition at all except Sharjah and Madurai which are served by to other LCC namely AirArabia and SpiceJet. Thereby the future looks good for the Low Cost Carrier.
However yet another blunder was made in the first quarter of 2014 where Mihin planned to add Business Class seats and also to re-fleet and switch to Boeing 737-800 aircraft. For a small airline such as Mihin, re-fleeting would be pointless as they would not only have to bear the cost of leasing and redesigning the new aircraft but they would also need to hire pilots capable of flying the new aircraft and training their cabin crew as well let alone finding engineers and maintenance staff which are currently done by SriLankan. All this would be additional expenditure to the airline and would stifle its growth even further.
Business class layout is yet another fantasy as low cost carriers mainly focus on a no frills policy to bring down the cost of operations but what Mihin is attempting to do is the complete opposite. Also for a fact that Mihin is one of the only budget carriers who give free food on board and that too being an additional cost to the airline.
A transition to 737’s would make it potentially harder for a merger with the state Carrier SriLankan Airlines .Therefore the government should re think its strategy and consider the merger of Mihin with SriLankan which would be a far better decision and would undoubtedly improve the outlook of the sate carrier. Another option would be for Mihin to sell its stake to budget carriers such as Air Asia and Jet Star which would end up in the airline being able to generate profit in future.
However at the rate things are going it would be more practical if Mihin shuts down due to heavy annual losses made. And the question remains…”Does SriLanka really need two government owned airlines?”
Profit & Loss [LKR Million]
2007 2008 2009 2010
Revenue - 2570 373 1700
Expenditure 195 4970 1080 2488
Gross Profit/(Loss) (195) (2400) (707)(728)
Net Profit/(Loss) Before Tax (195)(3161)(1300)(1221)
Mihin Lanka Fleet Details and History:
Facts and Figures:
Annual Report 2008/2009/2010, Ministry of Finance and Planning (SriLanka)
Performance Report 2007, Department of Public enterprises (SriLanka)
The Above Article was published in "The Colombo Telegraph" about a month ago.