Cheap oil alone will not turn THAI around

As of January 9, jet fuel in Asia and Oceania cost US$65.8 a barrel, or 46.7 per cent lower than 12 months ago, according to the International Air Transport Association (IATA).

Thanks to falling crude oil prices, global airlines saw their fuel bills slashed by $20.1 billion last year.

However, even if the oil price alone determined the airline’s survival, THAI would not swing back to the black this year.

A THAI official told Reuters in September that the airline raised its jet fuel hedging to 63 per cent of fuel needs until late this year, compared with 53 per cent until midyear.

"As long as jet fuel prices are still in the range of $100-$125, we will not post losses," the official said.

If that’s the case, the airline is now logging losses as the actual price is already below the hedged levels. This explains why THAI cannot cut fuel surcharges like Thai AirAsia did. There, jet fuel accounts for 44 per cent of operating costs. Thai AirAsia hedged only 15 per cent of total jet fuel usage in the first half of this year.

Besides jet fuel prices, THAI’s financial health depends heavily on many other issues, primarily bureaucracy.

As a state-owned enterprise, with the Finance Ministry holding 51 per cent, over half of the 20-seat board of directors is taken by bureaucrats – generals and officials from the Finance and Transport ministries – who have little knowledge of commercial aviation.

In the past 10 years, THAI was attacked for making the wrong choice of aircraft – for example, the four A340-500s that are now decommissioned. The cruisers, bought for long-haul routes like Bangkok-New York, proved uneconomical when oil prices climbed up.

Singapore Airlines returned similar aircraft to Airbus in 2013. But because of bureaucracy, no THAI board in the past was brave enough to sell those aircraft at a loss, as that would invite investigation. The big birds are grounded but still require maintenance, straining the airline’s finances.

Another wrong decision waits around the corner, now concerning commercial routing.

It’s rumoured that the carrier plans to stop servicing certain routes, or about 30 per cent of all flights, starting with the three weekly flights toJohannesburg, which were dropped on January 15.

No executive was available to explain why. Absent was the operating cost and cabin factor on the route.

A THAI executive said Madrid and Moscow would be axed in March. The airline is running three flights to Madrid and four to Moscow each week. He simply attributed it to poor performance and dwindling passengers. More could be chopped, like Milan, Los Angeles and some destinations inChina and Australia.

Rerouting is normal in the industry. But judging from the poor record at THAI, this raises the question of how fewer operating routes would help the airline turn itself around. There’s hearsay that some upcountry routes were opened at the behest of politicians who had to commute to Bangkok. That was convincing since the flights to their provinces looked very empty.

A former executive also noted that the airline has never done any research to support its marketing decisions. There was no survey on the number of potential passengers. Bureaucracy also demands management to win approvals from the board for key decisions, including the appointment of executive vice presidents.

Frequent changes in the board in the past have led to frequent changes in management titles. Without the key performance index, no one is left to be blamed if any business decision turns out to be a mistake.

Recently, a THAI shareholder, Worawimol Na Ranong, commented on her Facebook page about the deteriorating performance of the airline. She questioned the ethics of the THAI executive who sat on the board of directors of Nok Air when Nok reached an agreement with Singapore Airlines to set up NokScoot.

This quarter, NokScoot will inaugurate medium- to long-haul flights from Don Mueang International Airport. What if it flies to destinations that are money-spinners for THAI? How could the executive support the new company, when he had served THAI longer?

The THAI board is meeting today and a new business plan is in focus. Hopefully, the same mistakes won’t be repeated as nearly all staff, incumbent and retired, are about to lose hope.

THAI had been one of the top five airlines in the world. It took less than a decade to lose that honour. Now, the once-proud aviation leader is rated by Skytrax as a four-star airline.