Transport
Ready for Liftoff?
THAI Restructure
In early 2015, Thailand’s flagship carrier, Thai Airways International (THAI), announced a major restructuring plan to boost its long-term outlook. A pioneer amongst Southeast Asian airlines, THAI has struggled to adapt to the changing nature of the global aviation industry, which has contributed to its gradual decline and, worse yet, recorded net losses on the horizon. As a result, the carrier, which only four years ago was ranked by Skytrax as fifth best in the world, today finds itself in 19th—behind regional competitors Singapore Airlines, Garuda Indonesia, EVA Air, Asiana Airlines, and Hong Kong’s Dragonair.
Enter Charamporn Jotikasthira, a veteran banker and former president of the Stock Exchange of Thailand. When he assumed control of THAI in December 2014, he vowed the airline would “undergo an urgent transformation” to become profitable by 2016, after incurring operational losses of USD700 million over the past two years. His plans included cutting the workforce, selling assets such as poorly utilized aircraft, suspending unprofitable routes, and improving non-core businesses in a bid to slash costs by over USD220 million. Specifically, this has meant reducing THAI’s aircraft from 135 to 94, halting flights to destinations such as Los Angeles, Johannesburg, and Madrid, and forcing 1,400 people into early retirement as part of a long-term plan to take 5,000 workers off its payroll. “If we can reduce those costs, we will easily make a profit,” Jotikasthira said.
In reality, the restructure program has failed to show any positive signs to-date and instead suggest that THAI’s plunging performance is a longer-term trend. The airline posted a net loss of over USD270 million in 3Q2015, compared to a net profit of USD30 million in the same period the year before. Moreover, in the first nine months of 2015 losses almost doubled YoY and according to sources are on course to exceed the record slump of USD590 million, which was posted following the global financial crisis of 2008. One year into his term and Jotikasthira’s restructuring plan is facing harsh criticism; not least from Prime Minister Prayut Chan-o-cha, who has repeatedly pointed out to the high salaries enjoyed by top management.
Speaking to the Foreign Correspondents Club of Thailand in early November, an event attended by TBY, Jotikasthira stressed that there is no need to panic, as it is necessary to first incur losses when implementing measures such as suspending routes. Furthermore, although remaining adamant that THAI will meet the 2016 turnaround target, he pointed out the external challenges facing the airline and the need for a long-term strategy to combat them.
The rapid expansion of Gulf airliners Etihad, Emirates, and Qatar Airways has been a game-changer in the global aviation industry, not least in Southeast Asia. Where THAI once enjoyed a strong market share in connecting passengers from Europe to Asia and Australia, the Middle East has increasingly grown as the transit hub of choice.
In Thailand alone, the GCC trio have provided 44,000 tickets for flights connecting Europe and the Kingdom, compared to 34,000 seats offered by THAI. Moreover, the airline has been steadily losing market share to regional low-cost carriers (LCC), such as Air Asia. In 2014 THAI accounted for 28% of all passengers in the Bangkok market, down from 31% in 2013. In contrast, LCCs have pounced on the challenging economic conditions in the country throughout 2014 and secured 35% of the Bangkok market share, compared to just 28% in the previous year. However, a possible bright note is that THAI has begun to switch its focus to the Chinese and Japanese markets, whose nationals have contributed greatly to the positive rebound in annual tourist figures this year. Still, in order to truly lift off, the airline’s fate will depend on its ability to cut its soaring costs.
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