Cablegate: Sri Lanka's Very Ambitious Plans to Expand

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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

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