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Will Thai Tiger ever bite into the low-cost market in Thailand?

Luc Citrinot, eTN  May 21, 2011

BANGKOK (eTN) - Thai Airways Board of Directors meeting confirmed last Friday that the airline got the approval from the board to launch a new low-cost carrier by the first quarter of 2012. It could look like a surprising move as Thai Airways is already engaged in a joint venture with Singapore-based Tiger Airways to launch a new low-cost unit, Thai Tiger. However, opposition from the Minister of Transport has so far blocked any further progress of the announced deal signed in August 2010.

What are the reasons behind the stubborn – and rather irrational - attitude of the outgoing Minister of Transport Sompon Zarum? Mr. Zarum comes from a political party, the Bhum Jai Tai, a minor partner in the current coalition government of Abhisit Vejjajiva. Although the Bhum Jai Tai Party and Mr. Zarum are marred into various corruption cases – such as an aborted deal on the lease of 6,000 NGV busses for Bangkok public transport for an exorbitant THB 67 billion (US$2.21 billion) - the party remains influential in politics, as it could easily withdraw its support to the democrat party, actually in power.

In the case of Thai Airways International, it seems that current President Piyasvasti Amranand underestimated the Minister’s capacity to harm the airline’s interests. Mr. Zarum dislikes deeply Thai Airways' President who was named by the Minister of Finance and used to previously be Minister of Energy. But above all, he wants to shred competition away as its party tacitly supports Thai AirAsia. The low-fare carrier signed in early 2010 a sponsorship to transport supporters and teams from the Buriram PEA Football Club, which is chaired by Bhum Jai Thai influential supporter, Newin Chidchob. Mr. Zarum used to be the secretary of Mr. Chidchob in the past.

It appears that money collusion and nepotism takes once more their toll on Thai Airways. As a state company, the airline is incapable of making decisions on purely commercial considerations due to permanent political interferences.

In the case of Thai Tiger, delays continue to mount up. Initially announced for April 2011, the carrier's tentative start has now been pushed back to July. But as more hurdles are likely to come, Thai Airways' Board of Directors is moving forward with plan B. The airline will create a 100%-owned subsidiary to cover regional destinations with a low-cost airline’s structure. Thai Wings would be it's possible name. It could start flying by March or April next year with a fleet of 11 Boeing B737 with a single economy-class configuration. As it is a 100% affiliate of Thai Airways, it does not request the approval from the Ministry of Transport.

According to Thai Airways Chairman Ampon Kittiampon, the carrier will compete on routes where TG has lost market shares over the years to other budget carriers such as AirAsia. Staff will be outsourced to keep costs competitive. Thai management estimates that the new subsidiary could reach 70% to 80% load factor during its first year and become immediately profitable.

Thai Wings could become the equivalent of Silk Air for Singapore Airlines, which has been positioned over the years as a full-service carrier with a simplified product. The airline indicates that the deal with Thai Tiger is still going on. Asked to comment on the new decision, a Tiger Airways spokesperson declared that the airline was already aware of Thai Airways' decision to create a lower-cost subsidiary and that they do not feel threatened. The agreement with Tiger Airways, which was originally due to expire at the end of May, has indeed been extended for another two months. By then, elections will have taken place and results known. Who ever will run the next government, both Thai Airways’ and Tiger Airways’ managements are probably praying to see a more efficient Minister of Transport taking over the job.

Will Thai Tiger ever bite into the low-cost market in Thailand?
Even TG flight attendants' smiles leave Thailand's Minister of Transport cold (2nd from the right)

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