SRI LANKA'S VERY AMBITIOUS PLANS TO EXPAND

UNCLAS SECTION 01 OF 02 COLOMBO 001007 SIPDIS DEPARTMENT FOR SCA/INSB E.O. 12958: N/A TAGS: CE ECON ETRD EINV EAIR ELTN SUBJECT: SRI LANKA'S VERY AMBITIOUS PLANS TO EXPAND AIRPORTS TO LURE TOURISTS ¶1. (SBU) SUMMARY: As part of Sri Lanka's overall plan to boost tourist arrivals from nearly 500,000 currently to 2.5 million by 2016, Sri Lanka has embarked on a very ambitious plan to expand its airport facilities. Sri Lanka's only international airport in Colombo, Bandaranaike International Airport (BIA),is at the heart of plans to reshape the airport landscape. Sri Lanka plans to expand BIA by constructing a new international arrivals and departures terminal, widening its current runway to accommodate the Airbus A380, and building an additional runway to expand international arrivals and departures. A number of additional foreign carriers are interested in establishing a presence in Sri Lanka. Near-term impediments to success do exist. Tenders for airport projects have not yet been floated despite a 2013 target date for overall project completion. Another issue is travel within Sri Lanka, which was prohibited during the recently ended war against the Tamil Tigers. If tourists could fly within the country it would greatly enhance Sri Lanka's attractiveness as a destination. However, although several DOMESTIC airlines have applied for routes, they do not have planes. End Summary. PLANS FOR AIRPORT EXPANSION ¶2. (SBU) Bandaranaike International Airport (BIA),situated just north of Colombo, is poised to see significant expansion over the next 2-4 years. Current airport capacity is 6 million passengers per year, although BIA only received 4.8 million passengers in 2008. Aviation and Airport Services (Sri Lanka) Ltd. (AASL),the government owned developer and operator of airports in Sri Lanka, plans to increase capacity over the next several years to 12 million passengers per year. This expansion will include constructing a new international arrivals and departures terminal, widening BIA's current runway to accommodate the Airbus A380 airliner, and building an additional runway to accommodate more international arrival and departure traffic. The AASL intends to have all projects completed by early 2013. ¶3. (SBU) Despite ambitious plans for airport expansion and the delineation of target dates for completion, AASL admits its has not yet floated tenders for its new terminal or runway expansion/construction. This apparent disconnect may make 2013 an unobtainable target. BIA and AASL will need to identify, possibly with the assistance of the Government of Sri Lanka, ways to attract significantly more travelers to meet existing and planned capacity levels. However, with the end of the 26 year war, it seems a reasonable bet that Sri Lanka will have many more tourists. INCREASES IN AIRPORT CARGO BUSINESS ¶4. (SBU) AASL would like to see BIA become an air cargo hub for South Asia. According to AASL, the airport has seen a recent increase in cargo traffic; however, it remains to be seen whether the increases will be significant enough to position the airport as a cargo hub. BIA currently handles about 150,000 tons of cargo per year. All major airlines traveling to Sri Lanka contribute to this overall total. Currently, Sri Lankan Airlines (SLA) has a monopoly on cargo handling services, which allows it to set handling rates based on its own needs rather than based on competition in the market place. Two secondary cargo handlers operate at BIA although they handle only cargo which has been designated for their handling by specific customers. The two private operators account for a small percentage of BIA's overall cargo business. With SLA's current monopoly over cargo handling services and associated ability to set rates at will with relative impunity, it may prove difficult to position BIA as a potential air cargo hub given a lack of both competition and transparency in pricing. Additionally, BIA and SLA don't seem to have the existing facilities to support this plan. AASL ATTEMPTING TO ATTRACT ADDITIONAL AIR CARRIERS COLOMBO 00001007 002 OF 002 ¶5. (U) AASL has embarked on an aggressive marketing campaign to attract additional foreign carriers to BIA. A number of major international brands including British Airways, China Eastern Airlines, Air China Airlines, Garuda Airlines, and Al-Etihad Airlines have expressed interest in establishing or expanding service to Sri Lanka. Additionally, budget carriers Air Arabia and Air India Express are interested in joining Air Asia as a low cost option into and out of Sri Lanka. AASL would like to attract U.S. flagship carriers to Sri Lanka and would be interested in a U.S. carrier making BIA a regional hub or connection hub. If AASL is successful at wooing some of the interested carriers to the country, this would be a major public relations coup and validation of the positive economic atmosphere generated with the May 2009 defeat of the LTTE. The AASL is optimistic enough about adding additional carriers to Sri Lanka that it has begun exploring plans to turn its existing airport in Ratmalana, on the southern outskirts of Colombo, into a DOMESTIC hub. REFURBISHMENT OF DOMESTIC INFRASTRUCTURE ¶6. (SBU) With 13 DOMESTIC airports scattered throughout the country, AASL plans to begin significant refurbishment and renovation of each over the next several years. The DOMESTIC airport in Pallali, on the Jaffna peninsula, is currently AASL's highest priority. AASL would like to see the Pallali airport reopened for regularly scheduled DOMESTIC travel in the near term. This plan is in line with Sri Lankan efforts to expand options for business and pleasure travelers. AASL hopes to tie refurbishment of DOMESTIC airports to the Sri Lanka's planned increase in tourism over the next several years. A system of operational DOMESTIC airports will ensure tourists have a full range of travel options when visiting the country and will make intra-country travel faster and more convenient. The AASL admits that while a number of private companies have requested permits from the Ministry of Aviation and Air Transport, none have existing staff or airplanes. SLA, the most likely near-term player in the domestic market also does not have a fleet currently designed for short haul intra-island travel. Sri Lankan aviation authorities will need to address the issue of planes and flights to accompany its DOMESTIC renovation plans. ¶7. (SBU) Comment: Plans for airport and airline carrier expansion make sense given the Sri Lankan desire to become the tourist hub of the region. Should current airport terminal and runway expansion plans come to fruition along the timeline envisioned, Sri Lanka will have a first class flagship airport capable of handling a major influx of travelers to the country. Likewise, if the AASL can complete refurbishment of its DOMESTIC network of airports and identify DOMESTIC carriers in which to shuttle passengers to their destinations, this will have a positive effect on the business and tourism markets. Meeting the timeline for current plans will be problematic and will force the AASL and the government to rethink and possibly scale back its efforts in the near term. However, the planned expansion of the aviation sector is emblematic of the GSL plans to expand their economy, with a heavy reliance on government planning and emphasis on the potential of tourism. BUTENIS