Thai tumbles to 2013 loss amid tourism and currency pain

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Thai Airways International fell to a group operating loss of Bt2.9 billion ($89 million) in 2013 as exchange losses compounded its struggle to fill sharply increased capacity.

The Star Alliance carrier posted revenues of Bt206.3 billion for the year ended December 2013. This marked a 2.5% increase on the previous year excluding Nok Air – the low-cost carrier in which it holds a stake, and which floated on the stock exchange last June. Including Nok Air, revenues were 1.3% down from the 2012 figure.

But costs over the same period rose more sharply: 3% including Nok Air and 7% excluding the carrier. As a result, Thai Airways tumbled to an operating loss of Bt2.9 billion. This compares with a 2012 group profit of Bt6.1 billion including Nok Air and Bt5.7 billion when the budget carrier is excluded.

Thai Airways last year took delivery of 17 aircraft as part of its fleet developments plans – replacing six older aircraft and five that were returned to lessors – and launched a series of new routes.

As a result, it lifted capacity more than 8%, above the region's average growth rate for 2013. But the carrier's traffic did not match this expansion, in part because of political turbulence in the region during its peak season and restrictions in the number of Chinese tourists. Traffic increased only 4%, meaning its load factor fell 2.5 percentage points to 74.1% during the year.

Like many carriers in the region, it also struggled to keep pace with extra cargo capacity in the difficult air freight market. Thai's freight load factor in 2013 dropped more than three percentage points.

But much of the damage to its financial position came from the strengthening value of the Thai baht during 2013. "The impact from the strong Thai baht against foreign currencies – especially the Japanese yen, which is one of major currencies in terms of revenue – reduced operating revenue by approximately 4.3%," the group says. While the stronger currency contributed a 1% saving in operating costs, this was countered by additional costs from its expanded capacity.

A consolidated loss on foreign currency exchange of nearly Bt4 billion – compared with a gain of over Bt6 billion in 2012 – meant net losses spiralled to Bt12 billion in 2013. This compares with a profit of more than Bt6 billion in 2012.

"The impact of the political turmoil in the country that lasted from the end of 2013 is expected to affect the confidence of investors and tourists to travel into the country in the first quarter of 2014 more severely than in the fourth quarter of 2013," the company says. It also points to an expected reduction in Chinese tourists already occurring as a result of new Chinese tourism regulations implemented in October 2013.

To counter this lower demand, the airline is to reduce its planned number of flights during the first first half and focus on increasing revenue from other business units and ancillary revenues, together with an "intensive" cost management programme.

But, citing Thai tourism ministry predictions of a 13% increase in tourism numbers in 2014, it says it has "high hopes" the situation will recover from the third quarter onwards.