In 2007 SriLankan's fuel bill had increased 27 percent to 30.1 billion rupees with the average price of jet fuel reaching 101.8 US dollars per barrel from 87.09 a barrel in the previous year, the airline said.

The airline had earned a 5.48 billion rupee profit on the sale and leaseback of three airbus A340 aircraft allowing it to end the year with a 4,899 million rupee profit, up from 862 million a year earlier.

Chief executive Manoj Gunawardena told shareholders it is not sustainable to suffer losses on core operations and a turnaround plan is being implemented to cut costs in core operations.

The carrier has been traditionally able to lose money because of its highly profitable ground handling business.

Gunawardena said SriLankan had negotiated to continue contracts for computer services, financiers and suppliers "on the same or similar terms" after the exit of Dubai-based Emirates airlines from the management of the airline.

Emirates hold 43 percent of equity, the Sri Lanka government 51.05 percent and employees 5.32 percent.

The airlines' fuel hedging contracts had brought in 1.1 billion rupees. Gunawardena told LBO that fuel hedging is continuing after the end of the management deal with Emirates with about 20 percent of the volume being hedged.

Though fuel prices are now heading down, Gunawardena says that it may take several months for its effects to be seen. Even a fuel surcharge which was effective from July is yet to show its full results, as a large part of tickets are pre-sold.

Gunawardena said the past two months were probably the worst for the airline with fuel costs touching 50 percent of operational expenses. In the first quarter operations had lost about 54 million US dollars.

In the 2007/2008 financial year revenues increased to 80 billion rupees from 68 billion in the year to March 2008. Passenger revenues had increased to 63.8 billion rupees (from 53.8 billion rupees) and cargo to 10.6 billion rupees (from 9.3 billion rupees).

Most of the revenue (29.5 billion rupees) had come from Asian routes, with the airline flying more than 100 times a week to India, with Europe and Africa bringing in 18.7 billion rupees, Middle East 12.9 billion rupees and the Americas 2.1 billion rupees.

Gunawardena says the airline carried 3.196 million passengers, up 0.65 percent, and cargo carriage also rose.

Passenger load factor increased to 77.73 percent from 77.05 percent and overall load factor also increased to 70.80 percent from 67.86 percent making better use of capacity.

But Gunawardena told sharelolders higher fuel costs drove break even load factor to 76.18 percent from the previous year's 72.34 percent.

The airline was planning to replace its A320 aircraft, and refurbish A330 and A340 aircraft. It operates a 14 aircraft fleet made up of five A320s, four A330s and five A340s with cash generated from the leaseback of A340 aircraft.