In the face of continuing depressed financial results, Thai Airways International is finally moving to rectify one of its most chronic problems - the varied and operationally costly fleet mix.
Within the next five years Thai plans to reduce aircraft types from 15 to five. This is likely to include the disposal of its McDonnell Douglas fleet of DC-10s and MD-11s.
The airline has already grounded five BAe146s and is leasing out older Boeing 737-200s. All the carrier's older Boeing and Airbus aircraft could go within three years as it takes delivery of new B777 and A330 aircraft.
The move signals an attempt by Thai's president Thamnoon Wanglee to address the airline's structure and economics, and lay the groundwork for privatisation over the next two years.
Thamnoon, only the airline's second civilian president after years of domination by the air force, has been in the job for 16 months and despite some gains and improvements in organisation, Thai is struggling to emerge from a relatively gloomy financial period. Profits tumbled from a high of almost $300 million in 1988/89 to $55 million in 1992/93, only to jump back up to $124 million in the year ending 30 September 1994, although the carrier described the gain as disappointing.
Moreover, in February the airline reported a net profit drop of 14 per cent in the first quarter to 31 December 1994 to $37.3 million. The carrier is also burdened by a 2:1 debt to equity ratio. In comparison, major rival Singapore Airlines has no debt and competitor Cathay's ratio stands at about 1.3:1
Thai is also troubled by low worker productivity and poor aircraft utilisation. Thamnoon has been struggling to introduce reforms, including a review of middle management and a study of the airline's internal business practices which is currently underway. He is also looking at the sale, or hiving off, of the airline's domestic operation to concentrate on international services.
Thai has traditionally relied on low-cost labour to keep its operating costs down but rising living standards in Thailand are increasing worker expectations of better pay. The drastic cut in aircraft types is seen as key to cutting training and maintenance costs and improving productivity.
There is also deep concern within senior management about Thai's inability to attract high yield executive traffic. Less than 15 per cent of the carrier's passenger revenue comes from premium class traffic, compared with the 30 per cent that SIA achieves. As a consequence, Thamnoon is to boost revenues by cutting up to 25 per cent off published first and business class fares from 1 April.
The initiative has sent shockwaves around the region. Other carriers fear discounting of front-end fares could touch off a marketing war which may do untold damage to the high yield end of the business.
The initiative has sent shockwaves around the region. Other carriers fear discounting of front-end fares could touch off a marketing war which may do untold damage to the high yield end of the business.
Source: Airline Business