Thai flies into political turbulence

Thai Airways International (THAI) is likely to see negative growth in the third quarter this year due to the political turbulence.

Brokers predicted that the nation's largest carrier would record a loss this year, though pressure had eased slightly due to the decline in world oil prices and the airline's decision to increase its fuel surcharge.

THAI president Apinan Sumaseni said after a board meeting that the company would see a drop in profits because its average cabin factor was now running at 60 per cent, short of its target of 80 per cent.

He said the main reason was the political turmoil and the travel warnings issued by other countries over the last week.

The airline, he said, had also lowered its revenue target from Bt200 billion at the beginning of the year to Bt190 billion after being hit by the oil crisis.

"THAI missed its operating profit target of more than Bt1 billion in the first half and the airline is expected to miss its profit target in the third quarter," said Apinan.

An analyst at Finansa Securities estimates that THAI will record a net loss of Bt1 billion this year despite increasing its fuel surcharge by Bt100 per domestic flight and US$35 (Bt1,200) to $105 per international flight, plus the decline in oil prices in the second half.

THAI recorded a loss of Bt9.25 billion in the second quarter.

Another factor that might cut THAI's revenue is the indemnity for cargo-freight cartel payment, added Finansa.

Apinan said the weakening of the baht would be a threat for THAI.

He added the airline was considering suspending some flights to save operating costs following a large number of cancellations from the Asian market, especially from China, Korea and Japan. 

The airline had also seen 5-10 per cent cancellation from the European market.

Apinan said the airline had postponed its Bt7-billion fund-raising programme.

In addition, Finansa's analyst said THAI would have to pay the indemnity for cargo-freight cartel of about 10 per cent of total volume or around Bt5 billion to the European Community (EC).

The company had committed "cartel acts" regarding air-freight rates and surcharges for fuel, security and war risk, along with other surcharges that infringe upon EU law and cause damage to air-freight customers.

THAI faced the allegation along with 25 other major carriers, including Lufthansa, Air France-KLM, British Airways, Japan Airlines, Scandinavian Airlines and Cargolux.

The analyst said the cargo-freight cartel payment would affect the investment plan of THAI, especially its new aircraft procurement.

An Asia Plus Securities analyst recommended investors to hold the stock.

The securities house forecasts THAI will see net profit of Bt3.6 billion next year.

Kim Eng Securities (Thailand) said in its research recently that THAI performance would recover in the second half during the high season.

Moreover, the decline in oil price will help the airline record profits of Bt141 million.