THAI banks on its fleet improvement programme

When the first phase of Thai Airways International's fleet improvement programme is completed next year, it is expected to not only provide more convenience to passengers and better corporate financial results, but also greater routing flexibility to outmanoeuvre aggressive rivals from the Middle East.

"With the new and retrofitted aircraft, product quality will rise while maintenance costs will decrease. I'll be pleased even if it'll be difficult to move our global ranking above fifth place given the strengths of the four leading airlines," THAI president Piyasvasti Amranand said last week.

He was referring to Skytrack's recent ranking of THAI, which was a sharp improvement from last year's ninth. The top four carriers in the 2011 survey are Qatar Airways, Singapore Airlines, Asiana Airlines and Cathay Pacific Airways.

Retrofitting is underway for 20 aircraft at a cost of Bt5 billion, while seven new planes will join the fleet this year.

Starting in the third quarter of next year, passengers will enjoy more consistent product quality and that should raise revenue per passenger per kilometre (RPK) by 2 per cent per year. Fuel expenses are also expected to ease 3 per cent per year.

In a world of open skies, THAI and the other members of Star Alliance - mostly traditional airlines -are facing fierce competition from emerging airlines in the Middle East. The partner airlines are assisting each other as best as they can.

"Better products and travelling convenience [from direct flights] would keep passengers and allow us to expand routes and flight frequencies," he said.

Pandit Chanapai, executive vice president for commercial operations, said THAI is now re-aligning its route network with an emphasis on secondary destinations and increasing frequencies to popular destinations, mainly to win back business from the Middle East airlines.

"There are different ways to get to Phuket," he said.

"Middle East airlines have not yet fully optimised their fleets, but with the delivery of new aircraft they can place their planes anywhere to pick up passengers. THAI is now carrying only half of the passengers coming into Thailand."

Competition is obvious on the European routes. With its fleet of 87 aircraft, THAI operates 200 flights a week, including 92 to Europe, where it gets 30 per cent of its revenue. Main destinations like London and Frankfurt and Paris on the continent are covered. Yet, as new airlines are picking up passengers from main destinations, THAI has witnessed a drop in passenger numbers.

With more planes, Middle East airlines can operate sector by sector. For example, one can fly from the Middle East to Bangkok, unload 300 passengers here, pick up 300 for the onward flight to Sydney, drop them off there, then take 300 new ones to Christchurch.

As the main destinations have to be served, with a smaller fleet, THAI cannot afford to do the same thing.

Flying to second-tier cities would also help in case major cities limit THAI's access.

In November, THAI will start direct flights from Phuket to Copenhagen and from Bangkok to Brussels.

Pandit said these cities might be smaller, but they can become major "catchment" markets, drawing traffic from nearby towns. The Brussels route was conceived after noticing that at least 40 passengers on each Frankfurt flight to Bangkok were from that city.

In Europe, THAI is eyeing Athens, Madrid, Berlin and Vienna. Prague, Sapporo and Hokkaido are next.

"Importantly, the destinations must show some past records with Thailand, as our main goal remains to bring in tourists to the Kingdom, he said.

"We're pleased to limit our coverage area to a 6,000-mile radius, to keep operating costs under control. Short hauls can be served with small aircraft, and as jet fuel accounts for 35 per cent of operating costs, this will reduce operating costs," he said.

"Fleet utilisation is crucial. We have to improve the cabin factor, and then we can determine the preferred yields."

Due to high operating costs, the Bangkok-New York direct flight would not be resumed.

THAI will add more seats to busy routes like Bangkok-Mumbai, but on some routes, increasing frequencies won't help, given the fierce competition, which means a certain number of passengers must be shared among airlines.

Bigger aircraft will be an option, also at airports where flight slots cannot be increased. For this reason, the Airbus A380 superjumbo arriving in August will be put on the London route as it offers up to 444 economy seats.

The domestic network will be re-jiggled accordingly to promote local tourism. In the works is Thai Wing, a low-cost carrier that is expected to be launched next June to enhance flight connections between Bangkok and destinations within a three-hour flying time.

With operating costs at least 30-40 per cent lower than THAI, Thai Wing will be instrumental in wooing back passengers from AirAsia, which is using Suvarnabhumi Airport as one of its hubs. Domestic passengers can make connections more easily, since Thai Wing will also operate at Suvarnabhumi, unlike Nok Air - another THAI subsidiary - which is based at Don Mueang Airport.

With Thai Wing, THAI envisions more flights connecting Bangkok with destinations in Indochina and the region like Penang and Gaya.

"We have the main and connecting destinations well covered, for seamless transfers. What needs to be done is increasing frequencies," he said.

Pandit expects a continued improvement in the aviation industry. THAI is aiming for a cabin factor of 75 per cent this year, against 73 per cent last year. Occupancy in the first half of this year was 77 per cent.

Travel demand will rise, given no hiccups like the natural disaster in Japan, which led to a decline in demand as well as a spike in energy prices, he said. As the global economy revs up, demand is expected to grow. Likewise, the Asean Economic Community will only stoke demand, as Asean becomes a single market and many holidaymakers are upgrading their vacation choices.

"In 2015, Asean airlines can operate from any capital. Other airlines will be strengthened, but THAI will thrive with its established brand," he said.