November 04, 2013 00:00
By Bamrung Amnatcharoenrit
The growing number of low-cost carriers is changing Thailand's aviation landscape and competition is heating up. Even as a premium service, national carrier Thai Airways International (THAI) is not immune to the impact.
THAI president Sorajak Kasemsuvan acknowledged that the role of the budget carriers was increasing in the market, but the impact on the company would have to be studied route by route. However, he was confident that the company’s outlook would be positive because the firm has three airlines – THAI, Nok Air, and THAI Smile – to serve all segments.
THAI holds a 39.2-per-cent stake in Nok Air, a low-cost carrier, and 100-per-cent stake in THAI Smile, a light-premium carrier.
“It is natural that the growing number of carriers would lead a big change in the industry. THAI will have to look for ways to retain the highest benefits with the company,” he said.
He said next year would pose one of the biggest challenges for the company. Given the changing business environment, the firm will make major efforts to change the working culture, perception, as well as response to passenger needs in quick time.
Chokchai Panyayong, THAI’s senior executive vice president of commercial, was optimistic of double-digit passenger growth.
So far, he said the firm has not had a clear answer on its future direction, whether the airlines would “maintain, downsize, or expand” its business.
THAI had an operating loss of almost Bt2.9 billion in the second quarter of this year, 88.6 per cent more than the loss incurred during the same period last year. He said it would be hard to earn additional revenue in the rest of the year to offset the loss. He blamed it on the previous high projection.
Next year, THAI Smile will be a growth driver for the company as there is no sign of a full recovery in the European market. THAI Smile was spun off as an independent firm in recent months. The airline has operated its business at a lower cost than its sister airline THAI. For example, it uses the 162-seater Airbus A320-200 to fly, whose size suits the regional market, along with energy-savings. Also, cabin crew are employed on three-year contracts.
European pricing war
Europe is a major market for THAI. But now it is facing a severe pricing war in the economy class category. However, the outlook for premium-class is still good. Overall, the firm has tried to maintain this market as it has a good time slot.
“THAI Smile is suitable for every market, both domestically and regionally,” Chokchai said.
The airline was launched last year. Currently, it has eight aircraft in its fleet and the number will increase to 17 next year and to 20 in 2015.
Last Sunday, it launched its flight to Chongqing and to Changsha from Suvarnabhumi Airport, as the group’s 7th and 8th destinations to China. It would be competing with AirAsia, which operates its flights from Don Mueang. However, air tickets of THAI Smile are priced 5-10 per cent higher than its rival.
The airline sees huge potential in Chongqing, which has a population of more than 33 million. It is a manufacturing base for the automobile industry and has tourist destinations. Its gross domestic product is growing 12 per cent annually. THAI Smile flies to Chongqing three times a week.
Also, Phuket, Bangkok, and Chiang Mai are the favourite destinations for Chinese tourists.
THAI Smile is making efforts to spread its wings to Southeast Asia in readiness for the Asean Economic Community (AEC) in 2015. Clearly, Bangkok is losing its status as the gateway to the region because more direct flights to cities in all countries are being launched. The airline will play a key role in creating flight connectivity with THAI.
Chokchai said Bangkok was still a lucrative city for budget carriers to set up base outside their home countries, thanks to the Thai capital’s strategic location. Competition would be fierce for the use of Don Mueang, with budget carriers such as AirAsia, Thai AirAsia X, VietJet Air, Lion Air, and Scoot setting up bases here.