Sense of urgency for drastic THAI reform still lacking among airline's staff, says president

Corporate September 19, 2015 01:00

By Nophakhun Limsamarnphun
The N

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CHARAMPORN Jotikasthira, president of Thai Airways International (THAI), believes a sense of urgency for drastic corporate reforms is still absent among the majority of the airline's 25,000-strong staff despite the national flag carrier's serious financ

The latest half-year results have shown some improvement, but the airline is still in the red with 2015 losses projected to be Bt297 million, compared to the previous year’s massive loss of Bt10.9 billion.

When Charamporn took over as the airline’s president early this year, he kicked off a two-year programme to return THAI to profitability after years of chronic heavy losses.

Under this programme, the first stage is to stop losses, or “financial bleeding”. Second is to rebuild the airline’s strengths, and third is to put the airline back on a sustainable growth path.

So far, the rescue team has put in place the measures to stop the bleeding and started work on rebuilding strengths.

“I think we’ve done the first stage of stopping the bleeding, and we’re now in the second stage as we managed to boost the cabin factor and yields in the first half of this year. Previously, our yields were not so good because we focused on selling cheap economy-class tickets.

“Now, we need to sell more to the right customer segments; that is, those which are not price-sensitive. Our strength lies in corporate and upscale customer segments and those who are time-sensitive,” he explained

“For the first half of this year, we booked a loss of Bt12 billion from selling unused aircraft and implemented early-retirement programmes costing around Bt3.7 billion. However, there was a foreign-exchange profit of Bt5.9 billion and tax credits worth Bt2.06 billion, resulting in about Bt8 billion in losses.

“Our target is to achieve 70 per cent of the turn-around programme in January 2016, meaning we would have returned to operating profitability around that time. The overall programme should be completed in 2017, after which we aim to be one of the world’s top-five full-service airlines [compared to the current ranking of 19th],” said the airline’s president.

The airline is also in the process of disposing of non-core assets to reduce its debt-to-equity ratio, which stands at 6 to 1. A total of 30 properties in Thailand and foreign countries have been put on sale, including those in London, Copenhagen, Jakarta, Sydney and Madrid.

“They are mainly residential and office properties that we purchased decades ago. We’ll switch to leasing rather than owning these assets, while reducing overhead by combining the supervision of two or more overseas operations into one.

“We’re also reviewing our shareholdings in Novotel, Royal Orchid Sheraton and Amari hotels, as well as BAFS [Bangkok Aviation Fuel Services],” he said.

In addition, THAI currently owns a 39-per-cent stake in low-cost carrier Nok Air, and also operates Thai Smile as a premium low-cost airline subsidiary.

According to Charamporn, full-service and low-cost airlines are in different battlefields or market landscapes, so THAI would have to decide shortly whether to maintain its holding in Nok Air.

In his opinion, the low-cost airline model currently works in markets where the flights are five hours or less. However, some full-service carriers such as Singapore Airlines have multiple subsidiaries and affiliates in low-cost and other market segments.

On different aircraft types, there are too many in the THAI fleet, so another 14 jetliners will be sold to streamline operating costs, he said.

THAI also needs to reduce headcount by another 1,400 and re-engineer its business process, while using more automation.

The airline also has to replace the “silo-management” structure with a flatter organisation, in order to reduce management layers.

“We need to lower cost by 20 per cent in the next 18 months,” he said, adding that one of the biggest challenges in re-engineering the national flag carrier is the staff’s mindset, as many still lack a sense of urgency.

“In fact, drastic corporate reforms should have been done much earlier,” he quipped, implying that it is almost too late to rescue the airline.

To create a better understanding and reduce resistance among staff, Charamporn has been frequently holding “road shows” on his turn-around programme with his staff, in the hope of boosting their responsiveness to measures that would help save the carrier.

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