Aggressive pursuit of new opportunities for growth - which includes creating foreign subsidiaries and building its own airports - and a focus on its core market have helped the regional thrive in a difficult profit environment
Carriers bemoaning their inability to gain access to major airports must regard Bangkok Airways with awe. Frustrated with the politics that prevented it from flying into Thailand's major tourist destinations, the regional carrier simply set about building its own resort, complete with airport. Coming from obscurity to record profits in a challenging environment, Bangkok Airways continues to prosper by knowing its market and seizing opportunities for growth.
Prasert Prasarttong-Osoth - a doctor whose fascination with aviation was born watching Second World War bombers fly overhead - founded the airline as a charter concern in 1968 and converted it to a scheduled carrier in 1989 to capitalise on Thailand's growing tourism sector. One of Prasert's first route ideas was to link the then-sleepy island paradise of Samui with Bangkok. The plan was not an immediate hit, not least because Samui did not have an airport.
In the face of a government policy that precluded head-to-head competition with flag carrier Thai Airways International, Prasert in 1989 began the process of constructing his own airfield. When financing for the company's fleet and $38 million airport project proved elusive (investment bankers believed the destination could support, at most, two weekly flights), he sold his assets, including the land that now houses his office, to raise the necessary capital.
His problems did not end when the airport's construction was completed. The Thai Government - perhaps protecting its flag carrier - declared that the new airfield was unsafe for passenger operations. For months, Prasert's investment lay fallow until the ICAO inspected the facility and gave its seal of approval. Only then did the government relent and let him serve his new airport.
Finally given a green light, Bangkok Airways has not stopped since. Thirteen years later, it now operates 12 ATR-72 turboprops and two Boeing 717 small jets, carries over a million passengers, has annual turnover of $100 million and profit of $2 million.
Key to managing the company's impressive growth has been a desire to minimise unnecessary complications and not lose sight of its role. "We're an airline for the tourist market," explains Prasert. This self-awareness is reflected in everything the airline does.
For instance, Bangkok Airways has no loyalty programme. Such schemes require maintenance and few of its customers fly the carrier enough to accrue benefits. Being tourism-minded also dictates what cities the carrier serves. When permission was granted to serve China, the company opted for exotic Jinghong and Xian, rather than the more conventional choices. "Beijing and Shanghai are for business," Prasert says.
A desire for simplicity also shapes the carrier's attitude toward inventory management. Even though its 65% seat factor leaves room for improvement, Bangkok Airways rejects over-booking, believing that passenger dissatisfaction and re-accommodation headaches would outweigh load-factor gains.
Similarly, Prasert says that an alliance would be likely to bring more administrative hassle than the additional passengers would merit. Consequently, Bangkok Airways remains steadfastly independent, although Prasert allows that future capacity growth could cause him to re-evaluate this position.
These decisions, however, do not lead to stagnation, as the company posts large annual capacity increases. Aware of the success of Samui airport - the facility currently accommodates over 700,000 annual passengers - and the government's reluctance to fund new airfields, Bangkok Airways has continued to build its own airports. As vice-president Marc Kirner explains: "We need destinations."
Accordingly, the company recently completed a 300 million baht ($6.9 million) airport at Sukothai, Thailand's first capital and home to Buddhist temples which have earned it United Nations designation as a World Heritage Site. Prasert envisages the airport, which at present accommodates only four daily flights, serving as the airline's northern hub and chief gateway to China. Also, by the end of 2002, it will inaugurate a 320 million baht airport at beach destination Trad.
Bangkok Airways has not limited its growth ambitions to the home market. In October 2000, it launched Siem Reap Airways (SRA), a wholly owned subsidiary based in neighbouring Cambodia. Initially, the carrier - which uses ATRs wet-leased from the parent airline - limited itself to flying between capital city Phnom Penh and Siem Reap, home of the famous Angkor Wat temple complex. However, with the collapse of flag carrier Royal Air Cambodge, SRA's aspirations have grown.
In addition to plying the country's trunk route - on which it carries 60% of the traffic - SRA connects Siem Reap with Ho Chi Minh City, and in July it will fly to Hue, also in Vietnam.
Furthermore, by dint of being a Cambodian carrier, SRA is eligible to take advantage of the multilateral open skies agreement between Burma, Cambodia, Laos and Vietnam, something it will use in July when it initiates services between Hue and Luang Prabang, Laos. It also has plans to link Phnom Penh with Ho Chi Minh City later this year.
There has been pressure on SRA to take on local investors or lose its designation as a Cambodian airline. For his part, Prasert appears unfazed. He says Cambodians will be invited to purchase a stake, but, as it has yet to generate a profit (it essentially broke even in 2001), he does not believe the timing is right to sell shares.
As maintaining simplicity of operations appears to be a goal, adding a second fleet type to the equation would not have been an easy decision. However, although the carrier was happy with the performance of its ATR fleet, management believed that the time was right to add more capacity. In the end, as with much of the carrier's history, the decision revolved around Samui.
Although the company had posted six years of more than 20% passenger growth, the necessity for jets surfaced only when the flagship destination had reached saturation. Kirner explains that, with 21 daily roundtrips in the high season, Samui had simply reached its limit in terms of frequencies, but demand showed no sign of slowing.
Bangkok Airways took its first 717 in November 2000 and its second five months later. Even though the introduction of the jet - which it uses to connect Bangkok with Samui, Siem Reap and Phnom Penh - meant large increases in system capacity, seat factors declined by less than a point, as passenger numbers rose by over 20%. Plans call for the airline to take delivery of a third 717 in November, and the carrier is negotiating with Boeing and Pembroke Capital to see which offers the best terms.
The company has still found ways to minimise the managerial disruption arising from the new aircraft. For instance, it decreed that flight deck crew on the 717 would earn the same salary as its ATR pilots, and has kept some of its best and most senior pilots on the ATR.
Bangkok Airways knows the future is not all going to be smooth. Although Thai Airways - with which it competes head-to-head on only the Bangkok-Phnom Penh route - is contracting its short-haul operations, on which it has never made money, new entrants, such as PB Air and Phuket Air, could alter the competitive landscape.
Also, the company is seeing that its dual policies of having an exclusively Thai flightdeck crew and aggressive expansion may prove incompatible. Even with a scholarship programme at a local flight school, the number of new pilots could be insufficient to meet plans of exhaustively operating 12 ATRs and four 717s by next year.
The new jet may also prove to be problematic. Although the company is pleased with the 717's operating and financial performance, if Boeing shuts down the assembly line, the costs of maintaining the aircraft and its engines would rise considerably. Kirner hopes this does not occur, but is already contemplating similar-sized alternatives, such as Embraer's ERJ-190.
Prasert too will not sit back and wait for the sky to fall, but plans to continue growing his airline at the same aggressive pace. A lot of his ambitions centre on the Cambodian subsidiary. "With Royal Air Cambodge now out of the market, there will be real opportunities for Siem Reap Airways," he says. He envisages possibly putting the company's fourth 717 in Phnom Penh to serve destinations in China, as well as Hong Kong and Singapore.
The coming years will see developments at home as well. Bangkok is to have a new international airport in 2005, but will keep Don Muang open as a regional gateway. Although the existing facility will be more convenient to downtown Bangkok, the carrier will move its operations, reasoning that a high percentage of its passengers transfer from intercontinental flights.
Then also is the potential to win third-party catering business, which Prasert believes his flight kitchen is well positioned to capture at the new airport. Just the thing for a company always seeking new growth opportunities.
Source: Airline Business