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THAI realigns plan for a better year

Dec 13. 2011
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Thai Airways International will next year put greater emphasis on Asia, in its bid to grow revenue amid negative factors that include persistently high fuel prices, fierce competition in Europe, and more frequent natural disasters.

THAI president Piyasvasti Amranand said in an interview that a realigned business plan was necessary to keep the cabin factor above 75 per cent, even with disasters like the severe flooding, which dented the airline’s revenue by as much as Bt3 billion.

“Next year’s performance should be better than this year,” he said. “To keep the cabin factor above 75 per cent, that means the level cannot again plunge to as low as 65 per cent even in the low season. All depends on the marketing strategies.”

Floods pulled the cabin factor down below 70 per cent in the current fourth quarter of this year. The impacts are expected to linger into January and February.

Disasters aside, he expressed his concern over fuel prices. Unlike in 2008 when oil prices plummeted quickly after a spike, they stayed high this year despite the euro crisis. Because of a tight supply-and-demand gap, the average price of jet fuel was US$127.80 per barrel as of November 25, compared with the previous peak of $121 in 2008, according to the International Air Transport Association (IATA). Over the past year, it went up 27 per cent and increased airlines’ fuel bills by $61 billion (Bt1.9 trillion). Piyasvasti believes prices will tend to stay high next year.

THAI next year also anticipates fierce competition in Europe to continue, fuelled by Middle Eastern airlines that lure away passengers with their large fleets of new aircraft.

“Under the circumstances, it’s important that we follow the nine business-development strategies, which include the upgrade of products and services and adjusting service routes,” he said.

He is hopeful that the products will be more attractive next year, with the delivery of three Airbus A380 superjumbos as well as other aircraft, including four for Thai Smile, which will commence operations in July. But as these products will mainly replace old ones, this requires the airline to reprioritise routes in line with a limited number of aircraft.

The IATA recently lowered its 2012 forecast for airline profits from $4.9 billion to $3.5 billion, for a net margin of 0.6 per cent. It said European carriers were by far in the most challenging position. Higher passenger taxes and weak home-market economies have limited profitability in Europe. The region’s carriers are forecast to generate a collective profit of just $1 billion.

As margins from European routes are squeezed by competition, THAI is focusing more on Asia. Main routes in Europe will be maintained, possibly with lower frequency or smaller aircraft. Meanwhile, the airline will fly to more secondary cities in Europe while penetrating more Asian destinations, also with help from Thai Smile. As THAI has raised its stake in Nok Air, a budget airline that focuses mainly on domestic routes, Thai Smile is designed to cover more overseas destinations than previously planned.

“It does not make sense to fly to destinations where revenue is below variable costs,” he said.

The change of plan fits the global airline environment. IATA expects Asia-Pacific carriers to post $3.3 billion profit this year, $800 million higher that estimated in September.

Piyasvasti also sees the need to include more cities, to satisfy the 30 per cent of travellers who come to Thailand to get connecting flights, particularly when internal risks could turn away many of the remaining 70 per cent.

“For connecting flights to other Asian cities, Thailand still possesses the geographical advantage. This requires us to realign flight schedules. We might not have tried hard enough in the past,” he said.

Aside from Suvarnabhumi Airport, THAI will make more use of Phuket International Airport, with more direct flights with other cities in the picture to win back travellers lost to other airlines. After Phuket-Copenhagen, the next could be a direct flight to Stockholm.

Piyasvasti will also push forward the expenditure cut, but this would be carried out without compromising safety and service quality. In 2009, THAI saved Bt12 billion, but the amount would be less this year due to quality improvement programmes. Before his term ends in 2013, he would also seek resolution on the planned acquisition of 38 more aircraft.

If things go as planned, he noted, though the available seat-kilometres (ASK) – the passenger carrying capacity – would remain flat next year, revenue passenger-kilometres (RPK) – the volume of paying |passengers – may increase by 45 |per cent.

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