SriLankan Airlines appointed agents flouting rules, paid excessive commissions: witness
ECONOMYNEXT – State-run SriLankan Airlines’ top management had paid excessive commissions flouting operating rules and had appointed sales agents by-passing competitive procurement, without advertising in some cases, a commission of inquiry was told.
Under ex-Chairman Nishantha Wickremsinghe, then-Chief Executive Kapila Chandrasena had approved commissions as high as 6 percent for some agents, when a ceiling of 3.0 percent had been set, a witness said.
Some of the actions had continued under a new management appointed after 2015.
Industry Affairs Manager Shiromi Cooray testified at a Presidential Commission of Inquiry into irregularities at the national carrier and Mihin Lanka, a failed budget carrier from 2006 to 2018.
She said that selecting a general sales agent (GSA) and setting their commissions on ticket sales were stipulated in a 2009 procedure manual approved by the board of directors.
But on several instances, Wickramasinghe and Chandrasena had involved themselves in the selection of a GSA, which was not the procedure set out in the 2009 manual.
She said that duo had also changed the 2009 manual without the required board approval.
Even after a change of management in 2015, the airline had signed an unusual memorandum of understanding (MOU) to pay the Dubai-based GSA additional fees, the commission heard.
Cooray said the airline has not conducted quarterly reviews on GSAs.
The violations of the 2009 manual had occurred between 2012 and 2013, according to Cooray.
In 2013, without a required market survey, SriLankan had appointed Vision Voyages Pty Ltd as the offline Seychelles GSA for code share purposes, she said.
She said the reasoning for this appointment was Mihin Lanka, the state’s budget carrier, was planning to use Vision Voyages as an online GSA (for direct flights), and this would create synergies for the two airlines.
The advertisement for GSA applications had only attracted Vision Voyages, which had only submitted a proposal and not an application, Cooray said.
She said that if only one application is received for a GSA advertisement, the airline is supposed to re-advertise, or get in touch with local travel associations until more applications are received.
However, she said that without legal or financial approval from the relevant departments of the airline, Chandrasena had appointed Vision Voyages as the Seychelles GSA.
She said that this appointment was made under a new panel made up of the chairman, chief executive and the chief commercial officer, which was in violation of the 2009 manual, as the creation of such a panel not board approved.
Under the manual, a majority decision of a panel made up of regional managers, the industrial affairs manager and the international relations manager.
Cooray said the Seychelles GSA was given a passenger ticket commission of 5 percent, cargo sales commission of 3 percent and 1 percent commission on Seychelles’ online sales through SriLankan’s website.
Under the 2009 manual, offline passenger GSAs can be given 3 percent commission, and online GSAs can be given 2.5 percent commission, while online sales are not considered, Cooray said.
Higher commissions can be paid in exceptional circumstances, where a GSA’s sales growth is higher than
expected or the GSA incurs higher cost on behalf of SriLankan, she said.
However, she said no such reasoning was provided in giving the Seychelles GSA a higher commission.
After Mihin Lanka was absorbed into SriLankan, Vision Voyages continues to be SriLankan’s Seychelles GSA, now in an online capacity, she said.
She said in 2013, the GSA for UAE, based in Dubai was appointed without an advertisement in order to expedite the process, according to a board paper. She said 10 applications were received from recommendations of officials and proposals sent by GSAs.
She said regional manager Lal Perera had recommended Trident Travel LLC and Chandrasena had appointed Trident Travel without a financial or legal review.
Cooray said the Dubai GSA received 6 percent passenger sales commission and 1 percent commission on web sales. The online sales commission was a violation of the agreement with Trident Travel, she said.
In addition, SriLankan later started paying the Dubai GSA a fuel surcharge, which according to the 2009 manual should be included in the passenger sales commission, she said.
In 2016, when the GSA was changed to Sharaf Travels LLC, SriLankan had signed an memorandum of understanting with the GSA to pay 6,000 Emirati dirhams (around 260,000 rupees) per GSA employee released for duty with SriLankan per annum until 2019, Cooray said.
She said she could not find board approval for the MOU, which was signed by then Commercial Operations General Manager Dimuthu Tennakoon against the new 2015 guidelines.
She said SriLankan does not make such payments to any other GSAs.
The selection of the Thailand GSA in 2013 also had skipped the advertising process for expediency, Cooray said.
Chandrasena had approved VIT AIR (Thailand) Co. LTD as the GSA, with 3 percent passenger commission and 3 percent cargo commission.
The agreement was amended before it came into effect with an increase of the passenger commission to 5 percent without justifying the higher rates, Cooray said.
The passenger commission was increased to 6 percent, and a 1 percent online sales commission was added later, she said.
Worldwide Aviation Services (Pte) Ltd was appointed Singapore GSA without an advertisement, Cooray said.
She said the Singapore SriLankan office was converted to a GSA without any cost-benefit analysis.
Worldwide Aviation Services had been offered 6 percent passenger commission for sales below 8 million Singapore dollars, and 7 percent for sales above 8 million Singapore dollars. She said the financial review had said it is not able to give clearance for the deal.
She said the company resigned as the Singapore GSA, and Citiair & Holidays (Pte) Ltd was appointed GSA without a financial review.
Citiair & Holidays had received a commission of 6 percent for sales below 2.4 million Singapore dollars, and 7 percent for sales above this target. She said the commissions are now 5 percent on passenger ticket sales and 2.5 percent from online sales.
Cooray said TCB Aviation Pvt Ltd was appointed the Pakistan GSA in 2012 without any advertisement.
Chandrasena had approved the removal of the mandatory advertisement, saying that advertising is costly, and many Pakistani travel agents will apply for the GSA role and attempt to influence the selection process, Cooray said, reading out a board information paper.
She said no legal review or financial reviews have been documented, and that TCB Aviation had scored the third lowest marks during the panel evaluation stage.
She said TCB was approved 3 percent commission on ticket sales and 2.5 percent commission on cargo sales.
The commission is expected to hear anomalies in appointing GSAs in nearly 10 more countries in the coming days. The financial losses to the airline from the high commissions will be deliberated on a future date. (COLOMBO, 21 August, 2018)