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Thai Airways

Will Thai Airways have the courage of Malaysia Airlines?

Stéphane Hanot  Jan 27, 2009

BANGKOK, Thailand (eTN) - Repeated rumors about Thai Airways International quasi-bankruptcy have surfaced in Thailand’s newspapers over the last ten days, forcing the country’s national carrier to issue a release to officially deny it. But, according to The Nation newspaper, Thai management last Thursday also had to reassure the airline’s employees assuring of “stable outlook’” and adding also that staff lay-offs would be the last option.

It is definitely true that the airline will not go bankrupt. Thailand’s government, which holds 51 percent of the airline through the Ministry of Finance, will not let it happen. Thai Airways might even get a financial injection due to a severe liquidity shortage. The airline needs some Baht 19 billion (US$ 540 million) to resolve its liquidity problems. It has earlier discussed an agreed with Airbus to postpone the first payment of six new Airbus A330-300 by three months. The six jets must be delivered over the year and replace aging aircraft such as Airbus A300 and Boeing 747-300.

Thai Airways lost already Baht 6.6 billion (US$ 188 million) during the first nine months of the year with experts estimating now that the airline could lose up to US$ 300 million. In an interview conducted in late December, Thai Airways executive vice president for commercial and marketing Pandit Chanapai estimated that the closure of both Bangkok airports between November and December had cost the airline some Baht 500 million per day.

However, Bangkok airports’ woes just accelerated a rapid downturn in the airline’s fortune. If Thai Airways wants to survive, it has to change its way to conduct business and get rid of political interference, nepotism and its culture of inefficiency. In the last decade, Thai Airways’ strategy has been constantly fluctuating due to regular changes in its board of directors. They are generally acknowledged as rather incompetent as most of them are political appointees.

Thai Airways currently has one of the oldest fleet of any large Southeast Asian carrier. On average, 11.6 years with over 20-years old aircraft such as Airbus A300 and Boeing 747-400.

Adding to the airline’s woes is its overstaffing problem. The airline currently has 27,000 employees, compared to 14,000 at Singapore Airlines or 19,000 at Malaysia Airlines.

The Thai flag carrier is also struggling to build an efficient air hub at Bangkok Suvarnabhumi. complete missed integration of low cost subsidiary Nok Air into Thai’s network strategy, the forced transfer of some domestic routes to Don Muang or Thai website’s failed revamp can be described at best as “misguided” strategic decisions from the board.

Transport Minister Sopon Sarum acknowledged himself recently the need to have a board of directors capable to deal with hard times. “The new board must consist of people who can devote themselves and their time to their work,” the minister explained.

Under close scrutiny are all perks and advantages provided to all employees and especially directors and board members. The Bangkok Post revealed that the minister would like to review various allowances for fuel expenses, entertainment and attending board of directors meeting. Each year, directors, their families and accompanying passengers are entitled to 15 free first-class tickets for domestic and international routes with previous directors and their families to pay only 25 per cent of normal fares for up to 12 international and six domestic trips per year. Staff can enjoy up to 90 percent discount on air tickets, according to The Bangkok Post.

Although Thai Airways can’t indulge itself such luxuries for its employees, it is unlikely that anything will happen. The Minister will definitely face resilience from Thai staff with a board of directors watering down any decision until another Minister of Transport takes over. It is also unlikely that Thai Airways will reduce its staff, many of them being there thanks to their connections. “Retrenching employees will be the last option,” reassures Chanapai.

Finance Minister Korn Chatikavanij asked already Thai Airways management to present a restructuration plan that will lead to financial sustainability of the airline and have long-term effects. Only a credible plan would open up the doors to the Ministry’s generosity.

Some measures have already been taken but they are certainly insufficient. According to Chanapai, Thai has started restructuring its network. Non-stop very long haul routes from Bangkok to Los Angeles and New York are already gone, Johannesburg was close on January 16 and Auckland is now under review.

“With the sharp decline in markets such as Korea and Japan, we think to provide more intra-orient flights,” added Chanapai.

Under consideration are frequencies such as Bangkok-Manila or Taiwan-Japan or Bangkok-Manila-Korea. Chanapai would also like to fly to the USA via Mainland China. Capacities will now be adjusted strictly to demand and not anticipated with a close eye on yields. But rather to close routes, Chanapai is keener to play on frequencies.

The airline wants also to renegotiate fees with its GDS. “It still costs us US$3 per transaction,” stresses the executive vice president. Other decisions include the reshaping of Thai website. “Only 3 percent of our sales are on the web as we would like to reach at least 12 percent”.

And by next March, Thai will finally retransfer all its domestic operations from Don Muang to Suvarnabhumi.

Financial relief will also come from the end of a costly fuel hedging operation in March and an anticipated travelers’ come-back in the second half of the year. Despite controversies about the delivery of new Airbus A330, the brand new aircraft will help Thai airways to cut its fuel and maintenance costs substantially. But Thai Airways must further act and is due to present more measures in February. And they should be painful, if politics allow it.

The airline could take its inspiration from its Malaysian neighbor. Managed in a similar way to Thai Airways today, Malaysia Airlines (MAS) was on the verge of bankruptcy in 2006. It went then through a painful but successful restructuring process. With new cash injected into the airline, Malaysia’s government also told the management that it would be the last time they would bail out the national carrier. But they also promise not to interfere into MAS management and commercial decisions. Today, Malaysia Airlines is again profitable. A lesson to be meditated by Thai authorities and Thai Airways board of directors.

Will Thai Airways have the courage of Malaysia Airlines?
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