Fluctuating fortunes hit Thai Airways

Fluctuating fortunes hit Thai Airways

Up in the air: Boeing 777-300ER. (Thai Airways International photo)
Up in the air: Boeing 777-300ER. (Thai Airways International photo)

Thai Airways International Plc (THAI) is now in a final reform phase that looks set to hit turbulence as it goes from red ink to profit.

Although the first quarter was a promising period for the company as it was the high season for the airline business, there is still a long way to go for the business rehabilitation of the national flag carrier.

For the first quarter of this year, the company reported an operating profit of 3.83 billion baht, a 49.4% increase on the same period of last year.

Its increase in revenue was attributed to passenger numbers, excess baggage fees, freight and mail revenue, and revenue from other activities.

However, impairment loss of assets and aircraft at 2.47 billion baht was a major expense that caused a decline of its net profit by 14% from the same period of last year to 2.71 billion baht.

Under the business rehabilitation drive, THAI will finalise its plan to purchase 20 new aircraft and revise its network and fleet management by the first half of this year and in September is due to get a new president.

If all that goes to plan, the company should be well positioned for future growth, analysts say. However, it has to contend with a rapidly changing industry first (see below).

INITIAL HIGH HOPES

When the airline launched its rehab plan in April 2015, it was hoping for a turnaround in fortunes within 12 months.

Kulit Sombatsiri, director-general of the State Enterprise Policy Office, said the plan would start to improve THAI's earnings that year or the next.

The rehab effort, approved by the State Enterprises Policy Commission, also known as the superboard, included divesting ageing planes and non-core assets, scrapping unprofitable routes, lowering the size of its fleet and offering an early retirement programme.

THAI had already suspended flights from Bangkok to Madrid, Moscow and Johannesburg and from Phuket to Seoul to stem losses.

The superboard earlier allowed the national carrier to cut its staff numbers to 20,000 from 25,000, sell 22 ageing aircraft from a combined 102 in its fleet, dispose of non-core businesses such as hotels, delay delivery of new planes and cut its annual capital expenditure to 150 billion baht from 200.

Mr Kulit said the rehabilitation plan would cut operating costs and raise revenue. Tumbling fuel prices would also give a boost to THAI's bottom line.

However, progress was slower in coming than first hoped.

In the second quarter ending in August last year, for example, all four SET-listed airlines suffered strong financial headwinds, with THAI the worst performer in terms of the size of loss.

Fierce competition, higher jet fuel prices, lower fares from cut-price airlines, and increased excise tax on jet fuel used for domestic flights were attributed as key factors for dragging down performance in the quarter, even though overall air traffic through the country kept rising.

The financial performance of those SET-listed airlines, more than 6.4 billion baht in total, was in sharp contrast with the rest of the world.

DESCENDING CURVE

THAI reported losses of 12 billion baht in 2013, 15.6 billion baht in 2014 and 13.1 billion baht in 2015. The company turned a marginal net profit of 15.1 million baht in 2016 but its financial situation retreated again in 2017 when it posted a net loss of 2.1 billion baht.

THAI is a member of one of the world's largest airline networks, the Star Alliance. It has been named in the list of world's top five best airlines among the major carriers. However, the most recent survey by TripAdvisor named Singapore Airlines as world's best airline while THAI has dropped off the list -- it's not even in the top 10.

As it quests to reclaim its reputation, former banker Charamporn Jotikasthira was selected as president in 2014 to lead the rehabilitation effort.

The plan hoped to "stop the bleeding and cut expenses" in the first phrase, followed by "reform and restructure" in the second, and "care for growth" in the final phase.

THAI entered the third phase of rehabilitation last year, focusing on developing a competitive flight network to achieve greater profits as well as streamlining its fleet and increasing overall competitiveness. It hopes to create a corporate culture that supports sustainability and improves staff quality.

After Mr Charamporn ended his term in February last year, an internal successor, Usanee Sangsingkeo, was appointed as acting president to supervise the reforms.

Charamporn Jotikasthira Photo: Bangkok post archive

NEW AIRCRAFT FOR FLEET

Krittaphon C Chantalitanon, vice-president of the Alliance and Commercial Strategy Department, said THAI is planning to purchase about 20 new aircraft, comprising 10 each of Airbus and Boeing.

The airline, he said, needs to brace for tough competition and strengthen its network expansion over the next decade.

At the stage, management is working on details on aircraft type, budget, fleet utilities, and business plans. This work needs to be finished by next month.

The airline is hoping to have in its fleet both narrow body type and wide body type aircraft, from both manufacturers.

"THAI is interested in both Airbus and Boeing. We have to look and select which model will match our needs," Mr Krittaphon said.

The narrow body aircraft is generally suited for domestic, short-haul or regional routes. Many major airlines in Europe such as Lufthansa, Air France and British Airways use these aircraft, such as the A321 and A320 family. Boeing, meanwhile, offers its Max model.

THAI has just finished replacing its Boeing 777 with the all-new 20 Airbus A320. This new fleet is set to help boost competitiveness and capacity in the market.

Recently, THAI took delivery of its 12th Airbus A350, mainly for short-haul flights. Wide body aircraft, meanwhile, can be used for either long haul or short haul routes, depending on fleet management.

In the past 3-4 years, THAI has received 28 new aircraft from both Airbus and Boeing, giving it a fleet of 104 planes.

PM BRIEFED WEEKLY

Krittaphon C Chantalitanon Photo: Tawatchai Kemgumnerd

THAI's board of directors has approved in principle the plan to purchase 20 new aircraft, but it still needs final approval by next month.

Mrs Usanee is reporting developments to Prime Minister Gen Prayut Chan-o-cha every week. "Gen Prayut knows all the details about THAI including its future direction.

He delegates THAI matters through the minister of transport or deputy prime minster," Mr Krittaphon said.

"The company is now looking for the next 10 years and beyond," he said.

PLANS GET REJIG

While the airline is undergoing reform, it has been revising its network and fleet management, sales distribution, yield management and onboard services.

In 2017, the airline resumed Bangkok-Vienna flights to meet demand.

In the same year, the airline added Bangkok-Kaohsiung as a new destination in Taiwan in response to a visa exemption initiative.

Kaohsiung is a second-tier city in Taiwan that has high potential for tourism from Thailand. The airline also increased flights to Taipei in Taiwan from two to three flights a day.

The airline already added an additional flight to Tokyo, taking the total to four flights per day.

Additionally, during the final quarter last year, the airline increased flights from Bangkok to Auckland from five flights to seven flights per week.

During the past six months, the airline decided to close the Bangkok-Tehran route in Iran after just one year.

The last flight on this route was in last March. Iran is becoming popular among international tourists, but demand from Thailand is still too small, the airline said.

In the near future, the airline is considering opening a second route in the UK, eying Manchester as a possibility. THAI is now operating 14 flights between Bangkok and London.

Apart from the UK, the airline is looking for more routes in southern Europe, probably Madrid in Spain.

GULF RIVALRY FIERCE

Asked why THAI is not putting on more flights in the Middle East region, it says too many airlines are flying there already. Currently, Gulf carriers are expanding fast because they get financial support from their governments so they can offer attractive fares.

Most airlines in the Middle East are also aged between 20-30 years, and have modern airplanes which appeal to passengers.

Nearly three times younger than THAI, they have been expanding their networks to Thailand and elsewhere with their younger fleets. Currently, Gulf carriers operate to Bangkok, Phuket, Krabi, Chiang Mai as well as U-Tapao in the east coastal province of Rayong.

They carry many passengers from third countries who are travelling between Asia and Europe.

The market in the Middle East itself is not big enough to attract many tourists from Thailand.

Generally, THAI and other airlines operating in and out the Middle East are suffering heavy competition.

BRIGHTER PROSPECTS

While THAI is busy with its rehab plan, the global aviation and air travel market are moving ahead apace. The Asia and Pacific region has the most aviation activity in the world which THAi is poised to capitalise on, should its rehab plan finally pay off.

Many American carriers have already penetrated the Asian market by boosting connectivity with major cities in Korea and China, supplementing their existing routes in Japan and Singapore.

In fact Asian and American airlines are teaming up to cope with an increase in travel, tourism and trade between East and West.

The Asia-Pacific region is the most important for the US.

One of the most important factors set to drive regional growth is the prospect of the two Koreas reuniting.

The leaders of the two nations have already signed an agreement pledging further cooperation.

As a result, airlines in North Korea are set to expand their networks into other countries.

North Korea is also set to open its skies for more interlinks in and out the country.

"Improving relations between two Koreas will have a positive impact on airlines and the aviation sector in the medium term," Mr Krittaphon said.

Meanwhile, aviation in the Asia region will continue to fuel the growing Thailand market, as Japan is now the most popular destination for Thai tourists.

Another market offering promise is India, including major cities such as New Dehli, Mumbai, Calcutta, Hyderabad as well as Bangalore.

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