Thai Airways is in a state of flux, with president Kanok Abhiradee hastily sidelined in the wake of huge losses. But product upgrades and new routes instigated before his departure are beginning to bear fruit
Just days after Thai Airways president Kanok Abhiradee was named winner of an airline quality monitoring website’s 2005 World Airline Leadership Award, he was summarily moved aside by the board of directors, who gave management authority to one of their own.
The move came shortly before, and ostensibly because of, the airline’s announcement that it had lost 4.8 million baht ($115 million) in the April-June quarter. The reason: a 22.7% jump in operating expenses far outstripped a 7.3% increase in revenues. Key factors were a 56.3% increase in fuel costs, which accounted for 30% of total operating expenses and a 50% jump in personnel costs due to a one-time charge for an early retirement programme and imposition of a higher pay structure retroactive to October 2004.
Also adding to the costs were expenses related to a new strategic plan for the carrier, which includes acquisition of Airbus A340 long-haul aircraft, creation of new interiors for its fleet, launch of an expansion of its route system and additional frequencies to its flight schedule, a comprehensive rebranding and livery redesign and continuing expenses related to Thai’s investment of more than 15 billion baht in Bangkok’s new but now further-delayed Suvarnabhumi airport.
“He has certainly brought considerable energy and focus to the business,” Hong Kong-based JP Morgan airline analyst Peter Negline says of Kanok. “The business has definitely been improving under his leadership, but some serious issues remain outstanding. The president has many different masters to serve, so these next steps would always be difficult to achieve.”
It is clear, however, that the board of directors of the government-controlled airline did not agree when they stripped Kanok of his authority and named director Somchinuk Engtrakul, formerly with Thailand’s finance ministry, as acting president. He was Thai’s acting president once before – during a leadership crisis in 2001 when the previous president was fired after less than a year.
Political manoeuvring
Kanok remains Thai’s president, but “without management authorities” for three months. His four-year contract will be up next May and many see the situation as typical political manoeuvring that takes place in the run-up to the appointment of a top executive at the carrier. Add to the mix the fact that Kanok was an outsider – “not one of the boys”, as one observer notes – but a dynamic, outgoing marketing executive who would have ruffled some feathers in the bureaucracy-heavy carrier.
It is not clear how much of Kanok’s plan will be dismantled, as most agree that its basic outlines are essential to bring and keep Thai to the standards of the key Asia-Pacific airlines it competes with. But like most government-controlled airlines, it is overstaffed and its costs are high and the board apparently felt compelled, in the face of last quarter’s losses, to try to get a handle on it. The airline had reported substantially reduced profits in the January-March quarter – but profits nonetheless – after revenues declined 3% and passenger demand fell 15% in the wake of the tsunami in December.
The five-year upgrade and expansion programme that Kanok set in motion after coming on board in 2002 was designed in part to increase Thai’s revenues, particularly by attracting more premium-paying passengers, he explained just weeks before he was stripped of executive powers. As part of its transformation, Kanok sought to make Thai highly customer-oriented, with the change tangible to passengers through a redesign and rebranding.
Thai touch
With the changes, Kanok said, Thai was hoping to project itself as a modern, world-class international airline while keeping a strong Thai cultural background or the “Thai touch”.
Acquisition of the long-haul A340-500s and their introduction on a new nonstop route from Bangkok to New York in May was indicative of the change. Thai’s aircraft can accommodate 215 passengers in three classes, with nearly 50% of the seats for premium passengers – no first class but a new 60-seat Royal Silk business cabin that compares favourably with many carriers’ first-class.
Billed as the fastest link between New York and South-East Asia, the six-days a week flights were an immediate success and have been operating at an 85% load factor. This is far ahead of the projected 75%, although business class loads have disappointed. That is expected to change when the high season begins in November. With delivery of two more A340-500s, Thai plans to go to seven-days a week service in early November. The flight time, originally expected at close to 17 hours, is an estimated 35min faster now that Thai has approval to fly over Chinese airspace.
Under Kanok’s plan, Thai was to introduce daily nonstop A340-500 service between Bangkok and Los Angeles in November, also keeping its four-times-a-week Bangkok-Osaka-Los Angeles service, using Boeing 747-400s. The carrier is considering scaling back the nonstop flights to four times a week and eliminating the one-stops altogether.
Though specific plans are still shifting, Thai appears to be delaying the December start-up of Bangkok-Johannesburg flights, to be codeshared with South African Airways. It is going ahead though with plans to put Moscow on its route map in November with new nonstops three times a week from Bangkok, a route currently operated only by Aeroflot. New A340-600s on the route will have 267 seats: eight in first class, 60 in Royal Silk business and 199 in economy.
The carrier also plans to cut back on unprofitable domestic routes, possibly assigning some to low-cost Nok Air, a carrier created last year with a 39% stake from Thai, which leases it three 737s. Some domestic routes, particularly in the south of the country, were particularly hard hit when the tsunami tore across some of its famed beaches. Although the area is rebuilding – and a good portion was not affected at all – some would-be Asian visitors are expected to avoid the area.
Thailand’s tourism organisations say travel overall has been down, with the average occupancy rate of Thailand hotels at 50%. That is expected to begin rising as the high season kicks in, to 60% in October and 80% in November and December.
Business focus
To support government policy to enhance tourism, trade and investment, Thai’s expansion of routes and frequencies had a focus on boosting service to key business markets within the region and to Europe. Besides this year’s plans for New York and other points, the carrier last year began new services to Milan, Bangalore and Jinghong and increased frequencies on existing highly travelled business routes to Europe and within Asia. Some of the new and expanded services, like the one to Jinghong, originate from fast-growing Chiang Mai, which Thai is fashioning as its northern aviation hub.
But “transforming Bangkok” is its key focus, Kanok said in July. “Thailand used to be a stronger leisure destination in the region, but geography makes Bangkok a hub.” Travellers connecting in Bangkok can save considerable time over competing Asian hubs, he noted. With the new airport, expected to open some time in 2006, Thai and its Star Alliance partners will share a large, central terminal, establishing Bangkok as an efficient hub with expanded connectivity. Kanok said Thai is expecting a 3.2-billion-baht revenue increase annually a year after completing the connectivity plan.
He said he was aware of the industry’s challenges. “In a business with very little profit margin, and with the fuel price hikes, we need to expand cautiously, and do some through our Star Alliance partners,” Kanok said.
But it looks like he was not cautious enough for Thai’s board.
CAROLE SHIFRIN/BANGKOK
Source: Airline Business
