Private regional operators in Thailand complain of protectionism by the aviation authorities, but one airline has sidestepped the bureaucracy
Andrzej Jeziorski/BANGKOK and SIEM REAP
Fed up with the red tape it has encountered in trying to expand its regional operations, Bangkok Airways has arrived at an unorthodox solution.
In a rare move, paralleled only by the founding of Virgin Blue in Australia, the growing regional carrier has set up a 100%-owned subsidiary, Siem Reap Airways International, in neighbouring Cambodia, with an eye to eventually developing this new off-shoot into that country's second national carrier. The Cambodian authorities, for their part, give every indication that they have allowed this to happen as a wake-up call to Cambodia's indigenous airlines, which have a reputation for inefficiency.
Cambodia's secretary of state for tourism, Thong Khon, pointedly referred to this at the inaugural flight of the new carrier, which now operates a wet-leased Bangkok Airways ATR 72 turboprop between its Siem Reap base and the Cambodian capital of Phnom Penh. "The Ministry hopes that there will not be any flight delay or cancellation as tourists faced before, and [Siem Reap Airways] will improve the quality of international standard air transportation services," he said.
The founding of Siem Reap Airways symbolises the impatience of Bangkok Airways management with the Thai Department of Civil Aviation (DCA). Senior managers of Thailand's smaller carriers fiercely criticise the DCA for hindering approval of new routes, as well as for protecting flag-carrier Thai Airways International and troubled second national carrier Angel Air - which has been teetering on the brink of collapse in recent months.
This impatience and lack of confidence remains despite long-awaited Thai Government moves towards deregulation, and repeated reassurances that the much-delayed partial privatisation of Thai Airways is going ahead. The government says it implemented measures on 1 September which should allow private carriers to compete more effectively with the state-owned giant. It has relaxed rules which previously barred direct competition with the flag carrier, and forced smaller airlines into unprofitable stopovers on routes between key Thailand cities.
"For the moment, the 'open skies' policy is not very clear," says Bangkok Airways, while conceding that the situation since September is "not as tense" as it was before. The airline says that with DCA approval still required for any new routes, Thai Airways and Angel continue to get priority. Regional carriers still fear that Thai, for instance, could block approval for any competing route, should it wish to do so.
Stimulus for new start-ups
Nevertheless, the liberalisation move - combined with forecasts of 8% annual growth in tourism in Thailand - has fuelled expansion plans among the kingdom's smaller carriers, and provided the stimulus for new start-ups. One of these is Air Andaman, which plans to start operating from the holiday island of Phuket by the end of November, using a Jetstream 31 turboprop bought from Sweden's Flying Enterprise. The purchase of a second Jetstream 31 from a private operator in Southampton is still being negotiated.
Of all the expansion efforts, perhaps the most notable is the growth of Bangkok Airways, which has now moved into jet operations with the delivery of its first Boeing 717-200. In fact, this also marks the first delivery of a 717 to any Asian carrier.
The new aircraft was handed over at Boeing's former McDonnell Douglas plant at Long Beach, California, on 9 November. It is the first of four to be leased from Pembroke Capital, with the second due to arrive by April, and the remaining two by about 2003.
The newly-delivered, 125-seat 717 is to be flown on current routes to Cambodia - both to Phnom Penh and the increasingly popular Siem Reap, targeted as a destination by many regional carriers because of its proximity to the ancient Khmer city of Angkor. Bangkok Airways has said that the second aircraft is likely to serve routes between Singapore and Koh Samui - another popular Thai holiday island where Bangkok Airways opened its own airport in 1989 - and Luang Prabang in Laos.
In addition to its foray into jet operations, the carrier has announced a complete overhaul of its turboprop fleet. Bangkok Airways runs eight leased ATR 72-200s and one ATR 42-300: all of these will be replaced under an agreement signed with Franco-Italian manufacturer ATR for 12 new, 69 to 72-seat ATR 72-500s. These aircraft are upgraded variants of the ATR 72-210, featuring six-bladed propellers, more powerful 2,050kW (2,750shp) Pratt & Whitney Canada PW127F engines, reduced cabin noise and redesigned interiors.
These ATRaircraft will serve Bangkok Airways' domestic network, and the airline says this fleet rollover plan will also be completed at about the time the last 717 arrives in 2003. The carrier adds that all its lease agreements incorporate options to buy.
"In the next three years, Bangkok Airways will have the most advanced fleet in the region," says Prasert Prasarttong-Osoth, Siem Reap Airways chairman and Bangkok Airways president and chief executive. He adds that this fleet plan is "conservative", as the carrier has grown 34% annually in revenue terms since 1995. "We are still short of skilled personnel, like cockpit crews," he says, adding that he is assuming 25% revenue growth over the next three years.
In the midst of its fleet upgrade, estimated at some $320 million, the company has established Siem Reap Airways International - causing some consternation among Cambodian industry observers They are worried that a "foreign" airline has taken root in Cambodian soil, to compete with national carriers such as Royal Air Cambodge and other smaller indigenous airlines.
Prasert says the new carrier's founding "represents an important milestone in the fertile relationship between the Royal Cambodian Government and private sector Thai companies, resulting from Cambodia's far-sighted 'open skies' policy".
He plays down the element of competition, stressing that the company is a Cambodian-registered airline - albeit "at this time- fully managed by Bangkok Airways" - and has no desire to "disturb" the business of indigenous carriers. Prasert goes so far as to say that the airline will only expand onto "routes that Royal Air Cambodge is not flying" when it begins international operations.
An eye on Vietnam
While nothing has yet been finalised, the airline is known to be negotiating for traffic rights to destinations in Vietnam, and also has its eye on other regional destinations. Initially, the carrier is aiming for an average 65% load factor on the Siem Reap-Phnom Penh service.
"Siem Reap Airways International will inevitably make a significant contribution to developing the Cambodian airline industry to the highest international standards, both through technology transfer and human resources development," says Prasert. He adds that it will also help to develop the local tourist industry.
"In the long term, I think we [Siem Reap Airways] can go further than Bangkok Airways - in Bangkok Airways we have a lot of bureaucratic things," says Prasert. For example, the airline wishes to fly into Yunnan province in southern China, he says, but to obtain clearance it needs a letter of recommendation to Chinese aviation authorities from the Thai DCA. The process has been held up, however, because the DCA demanded that Bangkok Airways should first get approval from both Thai Airways and Angel Air, despite the fact that neither of these carriers operate on this route.
"When I talk to the Civil Aviation Authority of Singapore, in the afternoon they say yes. If I talk to Cambodia the next week they say yes," says Prasert. By comparison, Thai approval procedures are frustratingly sluggish, he explains.
To Prasert, the priority given to Angel Air - which he describes as "a paper airline" with no flight crews and no engineers - is particularly galling. Bangkok-based Angel was established by a group of Thai businessmen and the local company JVK Holdings in 1997, after a scramble for the 'second national carrier' status which allows it to compete directly with Thai.
Deep in debt
Angel Air began operating domestic and international services in 1998, but has since landed deep in debt, to the extent that it was forced to cease operations in June after months of cutting back services and whittling down its fleet.There have since been numerous resignations in the upper management.
In May, the carrier cancelled a long-term wet-lease with another Thai regional carrier, PB Air, which was operating its fleet of three ex-SAS Fokker F28-4000s on domestic routes on Angel Air's behalf. PB Air is now suing Angel for payment in local courts, despite an announcement in early November by Angel president and chief executive Somchai Bencharongkul that most creditors have agreed to debt restructuring. Since its lease agreement with Angel Air collapsed, PB Air has started its first scheduled international services from Bangkok to Singapore via Krabi, and more new destinations are expected - both domestic and international.
Other Angel creditors include Aeronautical Radio of Thailand, the Airport Authority of Thailand, Thai Airways and the Thai Petroleum Authority. The carrier was also forced to return two leased Boeing 737-400s to Malaysia Airlines earlier this year, after failing to meet its lease payments.
Just before it halted operations, Angel was flying a single Boeing 757, wet-leased from China Southwest Airlines on routes linking Bangkok to Chiang Rai and Chengdu, and from Chiang Rai to Kunming. However, operations resumed in July, under an agreement with Thai charter operator Orient Thai Airlines, which began operating one of its two, 390-seat Lockheed L-1011 TriStars between Bangkok and Hong Kong on wet-lease to Angel. The agreement was originally due to end on 28 October, but has been extended to February next year.
At the same time, Angel is about to embark on a more far-reaching partnership with China Northern Airlines, based in Shenyang, which is to take effect in late November. Angel says the agreement covers the wet-lease of three Airbus Industrie A300-600Rs - each with the option to buy - for three to five years. The first aircraft is to arrive in Bangkok on 27 November.
Services will begin two days later, with five frequencies a week from Bangkok to Taipei via Hong Kong, and one weekly flight from Bangkok to Chengdu. The carrier is pursuing additional rights into Taipei, and expects to launch services to Dubai in the United Arab Emirates in late December. It is also pursuing traffic rights for supplying services to Japan and South Korea.
The two carriers are also negotiating a joint marketing agreement, which will allow China Northern passengers to use Angel services and vice versa, says Somchai. It is understood that the carriers will share revenue under the terms of their partnership.
Meanwhile, existing Angel partner Orient Thai is itself planning a substantial fleet expansion. According to managing director Udom Tantiprasongchai, the carrier is planning to triple its TriStar fleet through acquisition of four more aircraft for delivery next year.
Udom adds there are plans to acquire two new aircraft, most likely to be Boeing 737s, for Cambodian carrier Kampuchea Airlines, in which Orient Thai holds a 40% stake. The rest of Kampuchea Airlines is held by private Cambodian investors.
Siem Reap base
Udom cites Siem Reap as a likely base for the new aircraft, if they are acquired. Orient Thai had operated one L-1011 on behalf of Kampuchea until its subsidiary was forced to halt scheduled operations in 1999 by the consequences of the Asian financial crisis, which hit the region in 1997.
The additional TriStars are needed because of growing demand for charter operations in the region, says Udom. The airline has been looking at the possibility of buying stored ex-British Caledonian aircraft for something over 600 million baht ($16 million).
Udom says he is considering basing two of the aircraft outside Thailand, possibly in Malaysia. Echoing Prasert, Udom says he hopes to avoid further friction with the Thai DCA in this manner - the DCA has repeatedly turned down applications from Orient Thai to begin scheduled services.
Rival to Thai Airways
"They see us as the number one enemy - as a rival to Thai Airways," Udom says of Orient Thai. Like Bangkok Airways, it is also pushing for rights to operate to Chinese destinations.
With this feverish, not to say chaotic, activity in the Thai airline market, the world is still waiting to see some concrete progress towards the privatisation of Thai Airways. But the delays have come with such regularity that nobody was in the least surprised when the pre-initial public offering roadshow was recently shifted into early 2001. Management maintained that the airline's share price remains too low to proceed with the sale for now.
But in what will be seen internationally as a positive move, Thai Airways' shareholders approved a motion on 25 October to increase the maximum stake foreign investors can hold in the carrier to 30%, from 10%. Foreign concerns now own about 4% of the airline, out of a total 7% currently traded on the Thai stock exchange. The remaining 93% is held by the government, which has, for two years now, been planning to sell off a 23% stake, offering a 10% portion to a foreign strategic partner - although some industry observers express doubts about how much management influence such a partner would have.
With general elections scheduled for early January, the privately-owned carriers will be watching closely to see whether the new administration will truly relax state protection of the national carrier and push through with privatisation, and whether it intends to turn 'open skies' into more than just a catchphrase.
Source: Flight International
