Sri Lankan Airlines Case Study

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The Impact on Subsidiaries:
Sri Lankan airlines own several subsidiary companies including Mihin Lanka, a low cost airline that operates a fleet of 4 aircraft, Sri Lankan Catering, Sri Lankan Ground Service and Sri Lankan Engineering.
Sri Lankan Catering offers catering services to airlines arriving in and departing from Colombo, in addition to this Sri Lankan Ground Service also offers ground handling services which includes addressing all the requirements of an airliner from the time it arrives at the airport to when it leaves. Both companies enjoy 100% of the market share as they provide services to all airlines arriving in and departing from the airport.
Sri Lankan Engineering provides maintenance, repair and overhaul services for Sri Lankan Airlines, Mihin Lanka in addition to other airlines
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This will mean that they too lose the protection from the subsidy. Their average costs would increase and they will therefore experience a reduction in disposable income, which would lead to a fall in demand for luxury goods such as airline travel.
In addition to the loss in the subsidy Sri Lanka also charges a 28% corporate income tax on a business’s taxable income. Therefore falling costs and an increasing gross profit mean that SriLankan’s taxable income increases and therefore they will experience a greater tax reduction. Figure 11 outlines the impact of this tax on SriLankan.
The divergent supply curves on figure 11 shows how the amount of tax paid by the airline increases as their revenue increases. This in turn means that the price of tickets increases from P1 to P tax, which also results in a fall in quantity. In addition to this the airline, as the producer, also bears some of the tax ‘burden’ which is represented by a.
Overall the government’s impact on SriLankan is not positive in terms of the benefit they gain from the fall in oil price.
The Impact of

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