Thai Airways International is joining up with Singapore's Tiger Airways to operate an ultra lowbudget airline to make up for the market share it has been losing to budget airlines over the past seven years.
THAI president Piyasvasti Amranand said since budget airlines showed up, the national carrier's domestic market share dropped from 80 per cent to 50 per cent, while its regional share declined from 42 to 30 per cent.
"Budget airlines are expanding in Thailand and the region, now holding 17 per cent of the market share from just 2 per cent in the past. THAI has been losing its stand in the market to these new lowcost carriers, so this joint venture is a move to reclaim customers," Piyasvasti said.
He noted that despite the establishment of the new airline - Thai Tiger Airways - Nok Air would maintain its status as a sister company and its operations would expand to cover major domestic routes. THAI holds a 39percent stake in Nok Air.
"Although Nok Air planned to expand overseas, it was unable to do so due to its own limitations. THAI cannot influence the sister company's management and we can't take control of Nok Air's future," he said.
THAI signed a memorandum of understanding for the joint venture yesterday and will hold a 49.8 per cent stake in the business set up with a registered capital of Bt200 million. Its business units and the company's provident fund will hold 1.2 per cent, while Tiger Airways will hold the remaining 49 per cent. Tiger Airways is a joint venture with Ireland's Ryanair and Singaporean alliances, including Singapore Airlines.
Three THAI directors will sit on the joint venture's board, while Tiger Airways has nominated two members, namely its president and CEO Tony Davis and founder of Ryanair, Declan Ryan. The airline's chairman is expected to be a Thai national, and the management and staff will be recruited soon.
Based in Bangkok, Thai Tiger Airways will operate from Suvarnabhumi International Airport, covering domestic destinations and shorthaul flights overseas that take no more than five hours. The airline is scheduled to start operations within first quarter of 2011, pending regulatory approval.
According to Piyasavasti, the new airline will be targeting the lowend market, using Airbus A320 aircraft and offering really low fares. The airline will utilise five aircraft in the first year of operation and will increase to 10 in 2012.
In order to keep its costs low, the airline will use approximately four crew members per flight, offer no services, keep its staff members, especially those in the marketing department, very low because more than 97 per cent of its tickets will be sold via the Internet.
According to Davis, Thai Tiger Airways will help boost the customer base in Thailand and the region, adding that the destinations were still being planned.
He said Thailand was not just a great tourism destination, it was also good gateway to link up with the rest of Southeast Asia.
"We are moving in anticipation of Asean's aviation liberalisation policies set for 2015," Davis added.
He explained that Ryanair had succeeded in Europe despite there being so many other budget airlines, because its tickets went for as low as $50 per sector. He said a similar pricing strategy would be adopted in Thailand.
Lowcost airlines hold 36 per cent of the business in Europe, and 27 per cent in North America. Last year, Ryanair serviced 70 million travellers in Europe. Tiger Airways started flying between Bangkok and Singapore in 2004.
Tassapon Bijleveld, chief executive officer of Thai AirAsia, country's largest lowcost airline, said THAI had made a wrong move by focusing on budget air travel, when the market value in the region was only roughly Bt10 billion, which is not much compared to the premium market.
Even if Thai Tiger Airways is able to gain 50 per cent of the market, it would only have a revenue of Bt5 billion and very little profit.
He said THAI should focus on its strength as a premium airline and the premium market, which is worth more than Bt100 billion. In fact, he said, it should compete with major carriers like Singapore Airlines in offering highend services.
Tassapon added that gaining a market share in Thailand was not easy because of tough competition, though, he said, the AirAsia Group welcomed the new player with no fear.
"We [the AirAsia Group] have nearly 90 aircraft and have covered all destinations in the region. It [Tiger Airways] has less than ten aircraft. So we don't really need to do anything for now. We prefer to wait until the joint venture is sealed," Tassapon said.