Thai Airways International has entered one of the most troubled periods of its history with the cash-strapped, state-owned carrier being run without a president while suffering from waning demand.
The airline had already been in a downward spiral for more than a year, largely as a result of political troubles in Thailand that have led to frequent changes in government and prompted many prospective overseas visitors to go elsewhere for their holidays.Things have come to a head in recent months, following the abrupt resignation late in November of former president Apinan Sumanaseni following disagreements with the board, which was unhappy over the carrier's deteriorating financial position. Apinan has yet to be replaced and Thai is being headed for now on an acting basis by executive vice-president Narongsak Sangapong.
The disruption caused by the boardroom merry-go-round, as well as Bangkok's two airports being shut for more than a week late in 2008 by anti-government protesters, have hardly helped. This left hundreds of thousands of foreigners stranded in Thailand, putting the spotlight on the country's political woes and causing many tourists to travel elsewhere over the peak year-end holiday period.
Thai relies heavily on leisure traffic and has seen demand fall sharply in all travel classes. For the first nine months of 2008 it lost 6.6 billion baht ($188 million) and it has conceded that its fourth-quarter performance was also poor. It estimates the closure of Bangkok's airports alone cost it around 20 billion baht.
Thai is now working on a restructuring plan which it hopes will lead to financial aid from the government. Deputy prime minister Suthep Thaugsuban said recently the government knows that Thai is in trouble and it will be stepping in with aid.
"The problem at Thai Airways is very alarming and the government will take care of it," he said, adding the government is "very concerned". Thai is seeking nearly $1 billion in fresh capital and at least some of this is expected to come from government-linked institutions.
It recently completed a private placement debenture offering totalling 5 billion baht and aims to raise 15 billion baht to replace existing short-term borrowings. In addition, it plans to raise another 19 billion baht "to bridge the liquidity tightness for 2009".
"The volatile jet fuel price, domestic political conflict leading to the closure of [Bangkok's] airports and the global economic crisis have contributed to the company's currently tight liquidity," it says. Thai says a "Business Improvement Plan 2009-2011" is to be presented to the government soon and it is intended "to improve operations efficiency, prepare the company for the changing business environment and to shore up Thai's liquidity".
It will "emphasise increasing revenue through improving yield, enhancing e-commerce systems to broaden internet sales, as well as revising flight frequency on non-profitable routes".
Cost-cutting measures are also being targeted and the airline will look to "rationalise unnecessary investments", retire older aircraft and improve its in-flight product.
Thai has already detailed plans to rationalise all operations in Bangkok out of the flagship Suvarnabhumi airport, rather than continue to also operate from the city's old Don Muang airport. It is also seeking to defer delivery of new aircraft on order with Airbus.
Financial analysts are generally pessimistic about Thai's near-term outlook and have downgraded their earnings forecasts. Ratings agencies have also been downbeat on the carrier.
Thailand's TRIS Rating, for example, recently downgraded its rating on Thai, saying it "reflects further deterioration in Thai's standalone creditworthiness due to Thai's financial profile that is weakening more than expectation".
It expects the carrier will need to borrow more than the 34 billion baht it has publicly said it needs, estimating that it will in fact need to borrow between 45 billion baht and 55 billion baht.
But it also notes that Thai will almost certainly secure help from the government, which puts it in an adequate position in the medium to long term. It says it expects the carrier's operating performance "should recover no later than the beginning of 2010".
And it is not just Thai that has been facing difficulty, as all of Thailand's airlines have been suffering due to the global economic downturn and from the country's political troubles.
Bangkok Airways, which relies heavily on demand from foreign passengers, has suspended some of its services while Nok Air, which is part-owned by Thai Airways, is operating as a skeleton of its former self after slashing services and reducing the size of its fleet over the past year.
Another low-cost carrier, One-Two-Go, recently restarted operations after a grounding of several months but with a significantly reduced network and fleet.
One carrier, however, Thai AirAsia, says it has been bucking the trend. Its 49% owner, Malaysian low-cost carrier AirAsia, said in its last earnings report that "the competitive environment has turned to our favour" in Thailand as many other airlines have reduced capacity or halted services to secondary destinations.
"We are gaining significant market share as we fill the void in capacity and attract value conscious customers," it says.
Surviving through the current downturn will be a key challenge for the new president of Thai Airways, who should be appointed shortly. The formal search began in January.