COLOMBO — The national carrier, SriLankan Airlines (UL), posted an operating loss of Rs. 5.2 billion in its core air-transportation business for the first quarter of the 2025/26 financial year. This loss marks a sharp deterioration from the Sri Lanka Rupees (LKR) 3.5 billion loss recorded last year.

The carrier registered passenger revenue of LKR 51.7 billion, up by LKR 1.5 billion as traffic grew by 23 % and the airline carried over one million passengers. The load factor improved to 82.3 % from 74.8 % in the prior year.

SriLankan’s Revenue Decline Offsets Gains

The airline’s improved performance in its passenger business is clear. Passenger numbers surged and the load factor climbed significantly, signalling strong demand. Nonetheless, the uplift in passenger revenue was offset by weakness elsewhere across the business.

Cargo revenue fell by 13 % to LKR 7.1 billion, and other revenue dropped 28 % to LKR 3.8 billion. As a result, net traffic revenue declined slightly to Rs. 62.7 billion compared with LKR 63.8 billion in the prior period, reported Daily Mirror.

The combined effect of shifts in revenue mix and cost pressures eroded what would otherwise have been a promising operational quarter.

Sri Lankan Airlines’ Costs and Balance-Sheet Pressures

Total operating expenses edged up to LKR 67.8 billion, largely driven by aircraft‐maintenance costs, despite savings from lower aircraft fuel and lease expenditures.

Meanwhile, at the group level the net loss narrowed to LKR 10.7 billion from LKR 12.9 billion in the previous year’s comparable quarter.

The group recorded a modest operating profit of LKR 1.1 billion before finance costs (LKR 6.4 billion) and exchange losses (LKR 4.9 billion), helped in part by subsidy from subsidiaries such as SriLankan Catering.

On the balance sheet front, SriLankan Airlines’ accumulated losses stood at LKR 628.3 billion at end-June 2025, with shareholder equity in negative territory at LKR 415.2 billion.

Total liabilities of LKR 606.7 billion far exceed assets of LKR 191.5 billion, underscoring the deep underlying financial stress.

The Cabinet has approved a restructuring plan to address legacy loans of US$210 million and LKR 31.4 billion, with the General Treasury stepping in via equity injection.

Outlook and Strategic Implications

While the rebound in passenger demand is encouraging, the airline’s heavy dependence on its passenger business leaves it vulnerable when other revenue sources decline.

With cargo and ancillary revenues falling, SriLankan Airlines must stabilise and diversify its revenue base if it is to turn the corner.

At the same time, its high debt service burden and negative equity position suggest that operational improvement alone may not suffice; meaningful restructuring and cost realignment remain essential.

Reforming aircraft-maintenance practices, optimising route networks to reduce unprofitable sectors, and building ancillary revenue streams are likely to be priorities.

The government’s decision to retain full ownership while focusing on restructuring rather than privatisation emphasises the strategic importance of the carrier to the country’s tourism and connectivity ambitions.

Bottom Line

Despite a robust recovery in passenger numbers and improved load factors, the operating loss at SriLankan Airlines widened to LKR 5.2 billion in Q1 2025/26.

Declining cargo and other revenue, combined with high maintenance costs and a deeply negative equity base, continue to weigh on the national carrier’s financial health.

The airline’s path to sustainable profitability will depend on effective cost control, diversification of revenue and managing its substantial debt burden.

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