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Thai Airways decides against ultra-cheap airline

Publication Date : 27-07-2012


Thai Airways International's decision to scrap its planned ultra-low-cost carrier and let its 49-per-cent-owned Nok Air launch international services next year will only lead to greater prosperity for Thai AirAsia, analysts said.

In a posting on its website yesterday, the Centre for Asia-Pacific Aviation (CAPA) reported that THAI had decided to scrap the plan after a feasibility study on expanding into the international market and potential routes.

Nok and THAI also conducted a study that looked at a potential joint-venture ultra-low-cost carrier for the regional market.

Nok Air chief executive officer Patee Sarasin was quoted as saying that while Nok had decided to proceed with the Nok Air-branded project, THAI's board resolved very recently not to proceed with the ultra-low-cost carrier.

CIMB Securities (Thailand) said the decision would ensure the dominance of Thai AirAsia, the country's only low-cost carrier (LCC).

Thai AirAsia on October 1 will start operating from Don Mueang Airport, which will allow greater manoeuvring thanks to its smaller size than Suvarnabhumi Airport and lower congestion.

"The key winner from this development should be Thai AirAsia, as it can continue to enjoy the current benign competitive environment in Thailand," the brokerage said in a research note on the Thai aviation outlook. "In the final analysis, we think THAI will eventually set up a new LCC to compete against TAA but the longer it takes, the more time it will give to TAA to strengthen its network and scale."

Thai AirAsia posted a strong second-quarter load factor of 79 per cent, up by 1 percentage point from the same period last year. It carried 20 per cent more passengers, or 1.9 million, than the year before, thanks to 19-per-cent-greater capacity with the new Chiang Mai-Macau route and additional frequencies on the new Bangkok-Trang route.

Preparing for losses

Asia Plus Securities expects THAI to post a net loss of 1 billion baht (US$31 million) in the second quarter. But for the foreign-exchange gain from fuel hedging as well as a cut in flights to meet lower demand during the off season, the net loss could have widened to more than 2 billion baht ($63 million).

The house estimates that the airline will show a quarterly cabin factor of 75.2 per cent. Official results are not yet disclosed.

THAI had wanted to launch an ultra-low-cost carrier for the regional market, potentially in partnership with Nok, but the group's board recently decided against proceeding with this idea and establishing a fourth brand. It will now stick with its three existing brands - THAI, Thai Smile and Nok Air.

According to CAPA, Nok is preparing to expand into the regional market as it rapidly grows its new Boeing 737-800 fleet.

The new Nok international operation will get off the ground early next year and fill a critical void in the current THAI portfolio, which lacks a product for the fast-growing budget end of Thailand's international market.

Patee told CAPA that Nok has drafted a business plan that envisages launching an international operation in the first quarter of next year.

He said Nok planned to use 737-800s in a two-class configuration for the new international operation, which will most likely start with flights from Don Mueang to China.

Several routes within a three-to-four-hour range of Bangkok are planned for the first year, including several destinations in China.

THAI originally unveiled plans in 2010 to launch a JV ultra-low-cost carrier for the regional market with Singapore-based Tiger Airways. But plans to launch Thai Tiger were dropped in 2011 after repeated delays in securing approvals to establish the new company.

THAI earlier believed it still needed a new brand with a lower cost structure than Thai Smile and Nok.

Patee said the board now had decided to take the planned fourth ultra-low-cost brand "out of the [brand] matrix".

THAI, which is looking for a president after the departure of Piyasvasti Amranand in June, "is trying to focus more on its own products", Patee said.

That leaves Nok on its own to fill THAI's gap in the budget-flyer end of the regional international market.


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