Aviation —
New airlines,
Airports, Low-Cost
Carriers

The past year has seen a rapid acceleration in what is being described as a process of fundamental change under way in the Thai aviation industry.

The ownership and administrative structure of Thailand’s international airports and national airline are facing a revamp, new airlines are being allowed to operate freely and route competition is being liberalised.

The government sees liberalised air transport as further cementing the strong link between tourism and regional economic progress, capitalising on the gradually emerging inter-modal web of road, rail, air and sea transportation networks that will criss-cross Thailand and the Mekong countries by 2006.

Says Thai Airways International (THAI)'s Executive Vice President Tassnai Sudasna, “Because tourism relies on air linkages to generate 84% of visitor arrivals, the sustainable growth of tourism depends on air service Iiberalisation, including liberalisation of traffic rights and deregulation of domestic air services.

“As a country with a ratio of 1:10 between outbound and inbound tourists, Thailand has no choice except to progressively open more market access for foreign carriers in order to sustain the tourism growth.”
Although Thailand has been liberalising the airline industry progressively since 1988, it is only recently that the momentum has gained further impetus.

International non-scheduled flights and passengers at international airports

All private Thai airlines have been allowed to operate all domestic routes as of September 2000, and international routes as of September 2001. Today, besides THAI, six private airlines are in operation and further deregulation is expected to allow more airlines to emerge.

Those airlines operating only domestic routes are seeking to expand their international networks to include routes previously operated only by THAI and foreign airlines. However, their ability to operate international flights will depend on their financial resources and operating capability, as well as the availability of traffic rights under bilateral air service agreements.
While the opening of Suvarnabhumi, Bangkok’s new international airport, will further grow the Thai capital’s role as a major regional aviation hub and international gateway, the government is placing much emphasis on growing Chiang Mai and Phuket, whose economies also heavily depend on tourism.

Phuket Airport presently has an apron capacity of six B747s, five Airbus 300s and 14 ATR400s. Its single runway is 3,000 metres long, and the passenger terminal can handle 5.1 million passengers per year.
Chiang Mai Airport has an apron capacity of four B747s, eight B737s and seven ATR40s. Its lone runway is also 3,000 metres long and the passenger terminal facilities can take 3.2 million annually.

As per a study conducted by the government in 2002/03, both airports are to be expanded into regional aviation hubs.
Indeed, both are figuring prominently in a plan by THAI to set up a low-cost airline, possibly within the next year or so. THAI says it could use these regional aviation hubs to feed traffic to points in nearby countries, such as Chiang Mai-Hanoi, Chiang Mai-Kunming or Phuket-Colombo. Such routes could help a future low-cost airline increase aircraft utilisation.
After having studied and adapted the models of low-cost airlines in Europe, North America and Australia, THAI plans to create low-cost distribution channels, such as Internet sales or call centres to gain a cost advantage.

Interestingly, it is THAI which is now calling on the government to create a regulatory environment that is totally favourable in terms of market access or no route restrictions.
As plans to set up this low-cost airline are awaiting approval by THAI’s board, the further privatisation of THAI is coming closer.

Under a plan approved by the Cabinet on 20 August 2002, THAI is to float 300 million new shares and 100 million existing shares from the Ministry of Finance on The Stock Exchange of Thailand, reducing the government’s stake from 93% to 70%.

This was to have been done in the second half of 2003 but has been postponed to the first half of 2004 due to the financial slump caused by the SARS crisis and the war in Iraq.

A much wider privatisation plan is unfolding for the country’s airports.
Following Cabinet approval on 11 June 2002, the Airports Authority of Thailand (AAT), which controls Bangkok International Airport and the four international airports at Phuket, Chiang Mai, Chiang Rai and Hat Yai, was corporatised into a public limited company, with the Ministry of Finance (MOF) holding all of the shares.

This was done on 30 September 2002, when AAT was renamed the Airports of Thailand Plc (AOT).
In the first quarter of 2004, AOT will float 30% of its shares to the public and its employees via an Initial Public Offering on the Thai stock market. AOT is expecting to raise 12-15 billion baht, all of which will be used to finance the new Bangkok's international airport, Suvarnabhumi, along with loans of up to 70 billion baht from the Japan Bank for International Cooperation.

Construction of Suvarnabhumi Airport is being handled by the New Bangkok International Airport Co., Ltd. (NBIA), set up in February 1996 as a limited company. The Cabinet agreed in principle on 10 September 2002 that when Suvarnabhumi Airport is completed, NBIA will be liquidated and all its assets, liabilities, rights, obligations, staff and businesses will be transferred to AOT.

Suvarnabhumi Airport will become an independent business unit under AOT, along with the airports in Chiang Mai, Chiang Rai, Hat Yai and Phuket.

The Ministry of Transport is also preparing guidelines for changing the administration structure of 26 regional airports under the Department of Civil Aviation. This is as per a Cabinet resolution in January 2001, allowing the private sector’s involvement in administering or operating some or all of these airports. The precise nature of the private sector’s involvement is now being identified.

According to Deputy Transport Minister Pichate Satirachaval, aviation is just one element of an overall plan to revamp the Thai transportation infrastructure, which is vital to the country’s economic growth.

The major objectives of the revamp are to link the air, sea, road and rail networks; rationalise policy, planning, regulation and operation; promote private sector participation in their development; raise capital for infrastructure investment; and enhance safety standards and quality of transport services provided to the public, at reasonable prices.

Over time, the revamp is expected to do away with the old way of doing things, especially the air transport subsector, which, for years, has been operated and regulated by government agencies and state-owned enterprises.

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