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Rising oil prices turn into Thai Airways' biggest headache

Luc Citrinot, eTN  Feb 26, 2011

BANGKOK (eTN) - Despite a tough year with 2010 plagued by political turmoil in Thailand and the closure of the European air space consequent to volcanic activity in Iceland in April 2010, Thai Airways (THAI) managed to increase total revenues and its net profit in 2010 despite rising expenses (up by 10.6% over 2009). Last year, total revenues were up by 12.4% at US$6.68 billion (THB 184.3 billion), while net profit reached US$505 million (THB 15.4 billion), up by 109% compared to 2009.

Thai Airways' optimism for 2011 is, however, dampened by the recent surge in fuel prices due to the current turmoil in the Middle East. Last year already, higher fuel prices pushed expenses up by over 26%. But this week, jet fuel prices already hit US$130 a barrel, while crude oil was quoted in Dubai at US$101/barrel. “Despite the fact that we hedged up to 50% of our oil needs, I feel today more concerned about rising fuel prices than about risks from the political situation in Thailand. Consumers' demand for travel could suffer from escalating fuel prices and consequently rising fuel surcharges. We should then monitor the situation very carefully and see what our competitors are doing,” explained Thai Airways President Piyasvasti Amranand during a press conference. Thai Airways already increased its fuel surcharge on February 17 and is likely to raise it again if oil prices stay at that level. So far, travel demand remained healthy with Thai Airways cabin load factor reaching 77.8% in January up from 74% last year.

However, demand could rapidly weaken if air fares continue to rise. “In 2008, rising oil prices were only a question of supply and demand. This time, uncertainties about fuel prices have a political background. It becomes then more unpredictable to assume when this situation might end,” said Mr. Amranand. Thai Airways' business projections for 2011 are likely to be revised to take into account this situation. The airline projected earlier revenues of US$6.55 million for this year based on a moderate rise in fuel prices.

High fuel prices will, however, not deter Thai Airways' management plan to proceed with the renewal of its fleet. The THAI board approved a plan to acquire 75 aircraft plus spare engines over the next 11 years at an estimated cost of US$15.3 billion. “We are due to receive 37 new aircraft: 11 will be narrow-body and 26 will be wide-body, of which 6 will be put in service on intercontinental flights. They will gradually arrive between 2012 and 2017,” added Mr. Amranand. By 2017, the fleet will comprise 105 aircraft from 85. Next year will be a milestone in Thai Airways’ history as the airline will take possession of its first Airbus A380 by August. “We'll consider flying them to high load factors’ routes such as Bangkok-Frankfurt or Bangkok-London,” said Thai Airways President.

The second batch of aircraft (38 planes) will come between 2018 and 2022. “We are looking further at Boeing 777, Airbus A350, and Airbus A380. The new aircraft will significantly decrease our fleet’s average age,” told Mr. Amranand. Thai Airways' fleet average age stands currently at 12.1 years.

Mr. Amranand also explained that Thai Airways' strategic plan continues to proceed on. The airline still expects to launch its new joint venture with low-cost carrier Tiger Airways on regional routes during the first half year. “We still have to solve technical requirements from the Ministry of Transportation, but I am confident. And with fuel prices going up, there is more than ever a market segment of price-sensitive customers to be satisfied with a quality low-cost product,” analyzed Mr. Amranand. The airline continues also to look at buying more shares into its low-cost airline’s affiliate Nok Air. In contrary to Thai Tiger, Nok Air will continue to concentrate on domestic routes.

Last but not least, good news for Thai Airways passengers will be the recruitment of 468 flight attendants. With voluntary retirement implemented over the last year, some 10% of the cabin personal will now be young people. Travelers will then be more likely to see in real the charming smiles and faces of Thai Airways flight attendants that they used to see only printed in magazines!

Rising oil prices turn into Thai Airways' biggest headache
Thai Airways International staff will fly you through fuel price's turbulences / Photo: L. Citrinot

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