Is THAI's turnaround possible?

While consumers are anticipating this with glee, it poses a big threat to airlines like Thai Airways International (THAI). Will the national carrier’s new president, Charamporn Jotikasthira, be able to pilot it through the turbulent skies?

National flag carriers are expanding fast. Based in Doha, Qatar Airways has some 270 aircraft on order. At Hamad International Airport, most of the aircraft in the parking bay belong to the airline. The same goes for other carriers from the Middle East, like Emirates (Dubai) and Etihad (Abu Dhabi).

Airlines in the Lufthansa Group last year welcomed around 104.5 million passengers on board, keeping airports Frankfurt and Munich busy.

The smaller Finnair has made Helsinki-Vantaa Airport a hub, claiming to be the Scandinavian airline that links Asia and Europe. Finnair uses wide-bodied jets to ferry passengers from Asia to Europe, then offers single-aisle aircraft to various destinations in Europe one to three hours away.

According to the International Air Transport Association (IATA), the aviation industry is recovering fast after a rocky period. Latest data in October showed that Asia-Pacific carriers’ traffic rose 5.5 per cent on the same period last year. 

Capacity rose 7.4 per cent and load factor dropped 1.4 percentage points to 74.9 per cent.

THAI will be lucky if it doesn’t fall behind. The airline expects its cabin factor, the number of seats sold as a percentage of capacity, to be about 75 per cent in the fourth quarter. Yet, political instability which has led to a drop in tourists to Thailand and five quarters of losses for the airline means the cabin factor for the whole of 2014 will only be about 70 per cent.

Losses in the first nine months of this year amounted to Bt9.2 billion.

An uphill task faces the new president. Like any new CEO of an ailing firm, Charamporn announced on his first day in office last week that he would turn the company around, using short- and long-term strategies. Of course, it is the job of top executives to boost the morale of employees. But will he be able to do so?

Charamporn is a new face in the aviation industry. That isn’t unusual for THAI, who have appointed several presidents from non-aviation backgrounds. The former Siam Commercial Bank executive served as president of the Stock Exchange of Thailand when it needed someone with a computer background to lay down the infrastructure for regional integration. At THAI, he is expected to put that financial and IT expertise to good use.

Despite being a new face, he has acted fast. New business strategies have already been submitted for the board’s approval. It will be up to the so-called Superboard overseeing state enterprises to say yes to their implementation.

It remains to be seen whether the strategies will help turn around the airline while structural problems remain unsolved.

This year, the airline blamed political turmoil for the losses. Yet, last year, it also posted Bt12 billion in net loss, though the turmoil affected business only in the last quarter.

Competition, especially from low-cost airlines, should be a more serious threat. AirAsia in particular is a prominent player in the short-haul market of destinations within three hours’ flight time. The long-haul competition is also about to get fiercer, with several low-cost airlines set to offer more flights at cheaper prices. Norwegian Air Shuttle, a low-cost carrier that has been expanding rapidly across Europe, has begun flying across the Atlantic and to Thailand.

Booking a flight to South Korea on Sunday, I found that I could either pay Bt17,040 on THAI’s economy class, or Bt13,900 for a business class seat on Thai AirAsia X.  

One former president of THAI has lamented its fading status as a leading airline and pointed a finger at bureaucracy. All decisions – big or small – must be approved by the board of directors (and now there are two boards). The board has a say in everything, including the routing. So if, for instance, the commercial director – who travels the world to explore business opportunities – sees the need to halt flights to a certain destination, this would not be possible without the approval of the board, which consists mostly of government officials.

Another former president was shocked to discover that executive appointments were made at the board’s discretion. Without a key performance index in place, no executive is held responsible when the airline misses business targets.

In stark contrast, it takes just a few weeks for Thai AirAsia to adjust its marketing strategies, the budget airlines’ CEO Tassapon Bijleveld revealed recently. If the survey team finds a promising new destination, the new route can be added in a matter of weeks. Likewise, if a route isn’t performing as expected, it can be terminated within weeks.

On his first day, Charamporn, the 17th president of THAI, said his plan focuses on revamping the business model, work system and strategy to drive the flag carrier forward. The airline needs a big adjustment, he says – like commercial banks after the financial crisis in 1997.

No one can doubt his commitment to the effort of salvaging THAI’s past glory. But we will understand that it’s not totally his fault if he can’t achieve that goal.