With last year’s flooding only the latest challenge to Thai Airways’ bottom line, the carrier is pressing ahead with plans to set up a new regional unit and to modernise its fleet, writes Andrzej Jeziorski. It has not been an easy couple of years for airlines in Thailand, which have had to face not only a global recession, but a political crisis that hurt tourist demand and closed airports, then – more recently – months of heavy rainfall that caused widespread flooding and shut down Bangkok’s secondary airport, Don Muang.
20th Jan 2012
Thai Airways plans new unit, modernises fleet
With last year’s flooding only the latest challenge to Thai Airways’ bottom line, the carrier is pressing ahead with plans to set up a new regional unit and to modernise its fleet, writes Andrzej Jeziorski.
It has not been an easy couple of years for airlines in Thailand, which have had to face not only a global recession, but a political crisis that hurt tourist demand and closed airports, then – more recently – months of heavy rainfall that caused widespread flooding and shut down Bangkok’s secondary airport, Don Muang.
In 2008, flag carrier Thai Airways International recorded its first loss ever, with a deficit of about 21 billion baht (US$660 million), citing high costs and the country’s political troubles. The carrier returned to profitability in the second quarter of 2009, reporting quarterly net income of 2.5 billion baht. The turnaround came in the wake of a number of restructuring moves – including a two-year deferral of the delivery of its Airbus A380 ‘Superjumbos’, the first of which is now scheduled for delivery in the third quarter of this year.
But now, Thai Airways President Piyasvasti Amranand has said the carrier may face a net loss for 2011 as fuel prices escalate and the flooding takes its toll. The floods, which affected 61 of Thailand’s 77 provinces, had a serious impact on travel demand, cutting the flag carrier’s revenue by 3 billion baht. In addition, fuel costs rose 40 percent in the first 11 months of 2011.
The carrier reported a third-quarter profit of 2.45 billion baht for the July-September period, reversing a loss of 15 million baht a year earlier. But that still left the carrier with a nine-month net loss of 4.8 billion baht for the first nine months of the year, compared with a year-earlier profit of 11.96 billion.
The airline’s cabin factor averaged 70.6 percent in the January-November period last year, down 3.9 percentage points from a year earlier. The company plans to sell five-year bonds worth 2 billion baht to raise funds for modernization and expansion.
The past few months has also seen the collapse of plans for a joint venture low-cost carrier (LCC), just as plans for a regional subsidiary have begun to solidify.
In August 2010, Thai Airways and Singapore-based low-cost carrier Tiger Airways announced that they had signed a Memorandum of Understanding (MoU) to form a new budget carrier to be called Thai Tiger Airways.
“The new airline will operate the same low-fare, low-cost model as the other airlines in the Tiger Airways Group, and is expected to comment operations in the first quarter of 2011, pending regulatory approvals,” the partners said at the time.
The new airline was to be based in Bangkok, operating international and domestic flights from Suvarnabhumi International Airport. It was to serve routes of up to five hours’ flight time.
Piyasvasti had high hopes for the partnership, enthusing that Tiger’s “disciplined approach to the low-cost model” would allow it to compete effectively in Asia’s expanding low-fare market, currently dominated by Malaysia-based AirAsia – which also has a Thai affiliate, Thai AirAsia. The Thai Airways president enthused that the new venture would stimulate tourism and employment by making cheap, point-to-point air travel available to more people than ever in the region.
Thai and another local partner were to hold a 51 percent stake in the company, while Tiger Airways would own 49 percent.
“We believe that this move will provide revenue opportunities for Thai and allow Thai to be more competitive in the region with the anticipated growth in the low-cost market as a result of continued ASEAN air liberalization policies by 2015, which we expect will lead to growth in air travel in the Asian market,” the companies said in a joint statement.
But the required Thai government approvals for the venture were not forthcoming – the plan faced strong political opposition in the Thai transport ministry – and the would-be partners finally threw in the towel on 7 December. That day, Thai issued a formal statement, saying: “As the company was unable to facilitate the establishment of the joint venture company within the timeframe limit according to MoU, the company and the joint-venture partners [have] decided not to proceed with the incorporation of Thai Tiger.”
The imminent death of the Thai Tiger plan was hinted at in May last year, when Thai Airways unveiled its own plans to create a “lower-cost” airline dubbed Thai Wings. The creation of the new entity was announced in August, with a plan to begin operations in July 2012. The new carrier has since been renamed Thai Smile Air.
The airline has gone out of its way to stress that Thai Smile will not be a typical LCC, but a “light-premium” airline operating as a sub-brand of its parent airline, retaining its TG code, while will own 100 percent of the new carrier. Managing director Woranate Laprabang has been cited in the press saying the carrier is targeting annual profit of about 5 billion baht in 2013.
The new airline will also not compete with Bangkok-based LCC Nok Air, in which Thai holds a 49 percent stake – increased from 39 percent last October. Nok only operates to domestic destinations out of Don Muang airport, Thai Airways said, while Thai Smile will operate from the larger hub of Suvarnabhumi, allowing passengers more connections to international flights. Thai Smile will also serve destinations not covered by Nok, including Chiang Rai and Khon Kaen.
Thai Smile will operate a hybrid business model somewhere between Thai Airways’ full-service and the strict LCC model of carriers such as AirAsia and Tiger. Complimentary meals and drinks will be offered, as will a baggage allowance of 15-20kg along with other features more typical of legacy carriers than LCCs.
The airline will operate a fleet of 174-seat Airbus A320 single-aisle twinjets, numbering 11 aircraft by 2013. By that time, the carrier will be serving a network that will cover most ASEAN countries, as well as destinations in India and China.
At the same time, Thai Airways has been pursuing its own fleet modernisation programme, announcing plans in mid-2011 to acquire 15 aircraft and lease 22 more from 2011-2017.
The airline said it would order six Boeing 777-300ER widebody twinjets, for delivery from May 2014 to September 2015. Rival manufacturer Airbus would supply four of its new A350-900 twinjets, to arrive from the second quarter of 2016 to the third quarter of 2017, while five single-aisle A320-200s would be delivered from 2014 to 2015.
The leased aircraft would include eight of Boeing’s new 787 ‘Dreamliners’, eight A350s and six A320s. These aircraft would be taken up on 12-year operating leases, with deliveries scheduled for 2014-2017, 2016-2017 and 2012-2013, respectively.
Thai valued the acquisition of the 37 aircraft at about 118.6 billion baht.
Alongside the latest fleet acquisitions, Thai also has outstanding orders for six Airbus A380-800s – the world’s largest airliner – which it ordered in 2006. The first of these aircraft entered Airbus’s final assembly line in Toulouse in late November in preparation for delivery in October this year.
Also on order by Thai since 2009 are eight A330-300 twinjets, the first two of which were delivered in 2011, with three more scheduled to arrive this year and the final three in 2013.
Thai’s decision to acquire single-aisle A320s as replacements for its Boeing 737-400s has raised some eyebrows, since the carrier had also evaluated the Next-Generation 737-800.
As it acquires new aircraft, Thai is also enhancing its product by refurbishing its existing fleet. The company has been installing new seats in its 12 747-400 jetliners, a programme which is expected to be completed by the second quarter of 2013.
Thai Airways chairman Ampon Kittiampon said in a statement that the carrier is confident the new aircraft will yield substantial savings in fuel and maintenance costs. The fleet modernisation will also help the carrier meet new, stricter European Union policies on emissions.
[Subhead:] Scaled-down plan
The latest fleet acquisition is a scaled-down version of a previous plan, which envisaged buying or leasing a total of 75 aircraft in two phases, with the final 37 scheduled to arrive between 2018 and 2022. The earlier plan was rejected by the company’s board.
With Thailand’s latest change of government in July last year, which saw Yingluck Shinawatra become prime minister, some industry observers had questioned whether the new administration would allow Piyasvasti to remain at the helm of Thai Airways. The company president was formerly energy minister of the former Thai Democrat government.
Piyasvasti publicly dug in his heels after the 2011 election, saying that any move to unseat him would have to comply with stock exchange rules. Previously, it was usual for the heads of state enterprises such as Thai to step down after a regime change, but this time it has not happened, allowing the airline to retain continuity of management at this challenging time.
Although the government holds a 51 percent stake in Thai Airways, the remaining 49 percent are owned by the private sector, which Piyasvasti insisted prevents the government from taking such action unilaterally.
So he remains in his post, determined to finish the job he started – to return the national carrier of a country that, despite everything, retains its powerful allure as an Asian tourist destination, to financial health.