Grounded in reality

Grounded in reality

Airlines are pinning hopes on state-led financial aid until good times return

A closed airline counter at Don Mueang airport. Pornprom Satrabhaya
A closed airline counter at Don Mueang airport. Pornprom Satrabhaya

This year will be the first in the history of Thai tourism that the high and low seasons are rendered indistinct as fear of coronavirus infection keeps people at home.

The skies are expected to remain clear for the near term, even with the high season less than two months away.

The Civil Aviation Authority of Thailand reported that over 249,000 flights, both domestic and international, were cancelled during the summer schedule.

Domestic travel -- the remaining hope for aviation -- might gradually revive from a rock bottom in April of 2,000 flights, having jumped to 13,900 flights in June.

Sky traffic is still far below levels in January, when 47,200 domestic flights took to the air.

Most airlines have had to shrink fleet size by almost 50% and reduce workforce to streamline fixed costs, while waiting for the green light to fly international routes that typically make higher profits for airlines.

The unprecedented crisis has forced the first giant, Thai Airways International (THAI), to falter, followed by its affiliate Nok Air, which is going to enter business rehabilitation.

THAI and Vietjet Air planes sit on the tarmac at Suvarnabhumi airport. Wichan Charoenkiatpakul

IATA'S TAKE

According to Conrad Clifford, regional vice-president for Asia-Pacific at the International Air Transport Association (IATA), passenger demand in Thailand is expected to fall 53% in 2020 compared with 2019, resulting in a revenue impact of US$8.4 billion for the entire Thai market.

The worldwide airline market is expected to take a $84-billion loss, with global demand unlikely to recover to 2019 levels until 2024.

"Imagine a business where you have lost more than 90% of your international revenue since April, and some governments are signalling that international air passenger travel will not be allowed to restart until next year," Mr Clifford said. "The Thai airline industry is only able to generate limited revenues from domestic passenger travel and air cargo; the longer international passenger travel continues to be constrained by border closures, the more casualties we can expect to see."

He said the best actions the government can take are to continue financial assistance in ways that do not increase debt levels for airlines, extend wage subsidies and corporate taxation relief measures, and waive or reduce all charges and fees.

"The government's plan to provide soft loans should be rolled out quickly and the government should implement the International Civil Aviation Organization's take-off guidance so that borders can be opened safely and international travel can resume," Mr Clifford said.

"This is not the time to discuss which airlines should or should not be receiving assistance. Airlines are in this situation because passenger demand has fallen off the cliff as a result of government decisions to close their borders. The priority for the government should be to ensure that there is still an airline industry to support the economic recovery after the pandemic has subsided."

Nok Air chief executive Wutthiphum Jurangkool said the low-cost carrier's board of directors gave the nod for the company to file a business rehabilitation request with the Central Bankruptcy court, following in THAI's footsteps.

He said the decision was made to secure Nok Air's financial status, as all domestic routes can now help retrieve passengers back at only 30% of the pre-pandemic number.

Mr Wutthiphum acknowledged that the airline still faces losses on a monthly basis as it relies on domestic routes as the single source of revenue.

And though Nok Air's average load factor has hit 70%, this is soft when compared with 2019, when it closed at 87%.

Mr Wutthiphum insisted that the rehabilitation plan would not affect the business strategy and that his family, as the major shareholder of the company, still has ambitions to keep the airline under a Thai owner amid the influx of airlines that have foreign shareholding in the country.

"Airlines still need support from the government, particularly for soft loans, which we've requested for months but haven't received any feedback," he said.

Mr Wutthiphum said the airline had to bear a cost burden since the government restricted travel activities in April.

Even as other airlines decided to ground entire fleets, Nok Air was the only carrier that did not stop flying domestically, maintaining some schedules for necessary passenger and cargo services.

Tassapon Bijleveld, executive chairman of Asia Aviation (AAV), the largest shareholder of Thai AirAsia (TAA), said there is nothing wrong with an airline choosing to file a request with the Central Bankruptcy court under the current circumstances.

"Airlines have to lower fixed costs as much as we can, particularly on debt burden," he said. "Filing rehabilitation requests is another way to compound the debt with creditors and help airlines run their businesses a little farther."

Mr Tassapon said that while TAA sees this choice as an option, it may refrain from following those two airlines to court as long as it has sufficient cash to keep running.

"Of course we're still running losses every month, but flying domestic flights can help us stabilise our financial status partially," he said.

Bangkok's Don Mueang airport is nearly empty these days. Arnun Chonmahatrakool

AUTUMN LEAVES

Thai aviation has seen an influx of layoffs during the summer void, while the next winter schedule is full of uncertainty as Thailand keeps borders closed to tourists.

Between the third and fourth quarters, the aviation industry may have to let go of more people to offload the cost burden.

TAA has reportedly offered employees leave-without-pay from August to December, while pilots were asked to take 15-day leaves every month, resulting in a 50% lower salary, in order to maintain positions for all employees at the company.

Similar cost reduction methods were seen at SET-listed Bangkok Airways when it was reported to introduce an early retirement scheme in June and offer a long term leave-without-pay option for employees.

Mr Tassapon affirmed that letting employees leave the company on a temporary basis is another way to help the whole unit survive, especially for an airline that depends heavily on international flights, such as those on Thai AirAsia X.

Salary cuts are unavoidable because only chartered services, mostly repatriation flights, can operate, amounting to 10 or so flights per month.

"This can be compared to a flower garden: after a heavy storm the sun parts through the clouds. Some flowers wilt or die, but some survived to blooming and new flowers push through," said Nguyen Thi Thuy Binh, chairwoman of Thai Vietjet (TVJ).

She believes that the airline industry will be rejuvenated after many old airlines undergo rehabilitation. Young and strong airlines will keep growing, while new airlines can be born.

Amid predictions of airlines following THAI and Nok Air's path, TVJ is making an effort to avoid considering bankruptcy as a way out.

Ms Binh said airlines are facing the most difficulty from the pandemic, and TVJ is no exception.

An information board at Suvarnabhumi airport shows international flights cancelled because of air travel restrictions. Varuth Hirunyatheb

STAY HUMBLE

At present, TVJ has no lay-off plans for its 600 employees; instead it's shifting to new methods to find more revenue.

Before the pandemic, TVJ operated just five domestic routes, as it mostly extended international routes to Vietnam and China to carry inbound travellers to Thailand.

Ms Binh said the revenue ratio between domestic and international operation during that period was 60:40.

During the outbreak, international flights are only maintained for cargo transport and repatriation flights between Thailand and Vietnam and China. TVJ will use its 11-aircraft fleet to open more domestic routes.

Nuntaporn Komonsittivate, head of commercial operations at Thai Lion Air (TLA), dismissed any speculation about filing with the Central Bankruptcy court.

"At this moment, we still don't have a concrete plan to follow Nok Air," she said. "A solution needs a lot of study beforehand, but we're focusing on seeking more revenue rather than other things.

"But we cannot answer for the future."

TLA has made cost reductions as well, particularly regarding manpower, to scale down to a smaller fleet.

Ms Nuntaporn said TLA has reduced fixed costs by 50% while maintaining services on existing domestic routes to uphold recurring income.

TLA will not venture out to new aviation hubs and instead will build up the market where it already has a strong network.


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