Thai Airways International
2013 strategies unveiledThai Airways International Plc (THAI)
Meeting with president. Yesterday, we hosted a meeting between local fund
managers and Dr. Sorajak Kasemsuwan, the first time he has meet with funds since
being appointed as THAI president in October 2012. The meeting helped to clarify
THAI's strategies and business adjustments to cope with another challenging year for
the airline industry. Key points obtained from the meeting:
Revenue enhancement. THAI expects passenger revenue growth of ~11% in
2013, backed by: 1) an increase in fleet capacity of +8.9% ASK - available seatkilometers
- net of the delivery of 17 new planes minus the retirement of 16; 2)
adjusting its route network by switching from some loss-making routes to more
profitable routes in Asia, notably to Japan, China, Russia and India, via adding to
flight frequencies and new routes; 3) yield improvement from a better ticket
selling system (i.e. boost internet sales from currently 8% of sales) and product
improvement (delivery of new planes and completion of retrofit program).
Cost management. On the non-fuel cost side, THAI plans to keep 2013 operating
cost/unit stable from last year via cutting unprofitable routes, increasing fleet
utilization, improving the procurement process and using more outsourcing. It
aims to manage jet fuel cost via more timely fuel surcharge adjustments and
maintain its 2013 fuel hedging position at close to last year's 85%. To date, THAI
has hedged 68% of its 1Q13 fuel needs and 65% of needs in 2Q13-4Q13.
Strategies to cope with competition. Middle East airlines are coming on strong
and coping with them may lie in boosting its level of collaboration with airlines in
the Star Alliance grouping and focusing on THAI's competitive advantage in shorthaul
routes in Asia. It will handle the competition from the low cost carriers (LCCs)
by use of THAI Smile, a light premium airline, entirely held by THAI, and Nok Air, a
low cost airline, in which THAI holds 49%.
Fleet rejuvenation. THAI plans to cut average fleet age from 10.3 years in 2012 to
8.0 years by 2017. The number of aircraft will rise from 97 at the end of 2012 to 106
in 2017 via replacing 42 old planes with 51 new. It has also engaged in a retrofit
program on 20 planes that will be completed by mid-2014.
Maintain BUY. We maintain BUY with a new 12-month PT of Bt30 (from Bt26), based
on 0.9x PBV (-0.5 SD vs. its 10-year historical PBV at 1.1x). THAI is the most laggard play
in the tourism-related industry: In the past 12 months, THAI's share price was
unchanged, compared to air transport players (AOT +122% and AAV +80%), hotel
operators (CENTEL +193%, ERW +140%, MINT +118%) and the SET (+34%). Against
regional airline peers, THAI is one of the cheapest airlines, trading at 10x 13PE vs. peers
at 13.6x, 0.8x 13PBV vs. peers at 1.1x, and 5.5x 13EV/EBITDA vs. peers at 6.3x. Shortterm
positive catalysts include high season in 1Q13F and the listing of Nok Air.