Thai Airways International Plc (THAI) is committed to moving ahead with plans to ensure long-term profit growth, in line with a positive bottom line last year and in the first quarter this year.
The national carrier vows to come up with a series of strategic plans to tackle global aviation challenges such as fierce competition, technological change, varying passenger behaviour and slowing demand in some markets.
The flag carrier is evaluating its business practices and strategies, a phase stipulated in its rehabilitation plan due to end of this year.
The rehabilitation plan calls for the carrier to lower expenses and boost revenue after it experienced hefty losses between 2013 and 2015. THAI reported operating losses of 12 billion baht in 2013, 15.6 billion baht in 2014 and 13.1 billion baht in 2015. Thanks to its rehabilitation plan, THAI turned a marginal net profit of 15.1 million baht last year. Profits totalled 3.15 billion baht in the first quarter of this year, a drop of 47.4% from 5.99 billion baht in the same quarter last year.
THAI is among seven ailing state enterprises undertaking business rehabilitation plans mandated by the government.
According to THAI acting president Usanee Sangsingkeo the carrier's new strategic plan will focus largely on product and service improvement, fleet and network management, revenue and cost management, new investment and human resources.
"As acting president, I will continue to strengthen the airline for more sustainable growth and more profit," she says.
Mrs Usanee, who was previously the executive vice-president of the aviation business unit, was picked in February this year as acting president after the company's presidential selection committee failed to find a new president to replace Charamporn Chotikasthira, whose term ended that month.
She is the airline's first woman to be appointed internally to a top management position after outstanding performances in various areas, including cargo, ground service and catering.
Mrs Usanee says THAI needs to improve its products to strengthen its competitiveness. The company is adding at least 20 new aircraft to its fleet over this year and next year.
Five Airbus A350 have already been delivered while an additional seven Airbus A350 will be arriving next year. The carrier now has six new Boeing 787 and plans to acquire two more similar models in the near future.
"New planes come with modern features so we will have much more product competency to beat up other airlines," says Mrs Usanee.
The company is also refurbishing old aircraft to provide updated features. The decor for five aircraft has been completed, and two more are undergoing renovation.
Although the airline aims add more new aircraft, it will maintain its total fleet at 100 aircraft this year as some older aircraft will be discharged.
Mrs Usanee says the company will initiate a plan to enhance service standards over the next one or two months to improve flight attendant skills and knowledge of modern technology, equipment and new features on board.
"We are going to send our crew to other airlines to observe and learn their products and services. Our crew usually don't fly with other airlines, so they don't realise what special services competitors may have. This will enable us to improve our products and services."
As part of the move to improve its products and services, THAI recently held a customer board meeting attended by frequent-flyers from the public and private sectors as well as members of media. The objective was to collect feedback about THAI products and services, ticket and seat reservations, in-flight meals, passenger lounges, seat comfort, and customer service.
"All feedback will be used to further improve THAI's services for increased customer satisfaction," Mrs Usanee says.
According to Mrs Usanee, the airline also needs to hire more staff, especially younger workers because new graduates understand modern features and young travellers' taste.
The airline has already hired 400 staff, all aged under 24 years, under three-year contracts with the option to renew for three and one years.
"We still need about 200 more new staff this year," she says.
In a bid to raise competitiveness, the flag carrier is also continuing to work closely with alliance airlines operating across the globe.
THAI is synergising marketing activities with Star Alliance. THAI and 28 other members of the global alliance are helping each other promote networks and destinations. Star Alliance earlier announced plans to ramp up its market share and revenue by using more advanced technologies and online platforms to reach more clients.
Aside from networking with Star Alliance, THAI is also teaming up with 13 airlines outside the alliance to offer links to THAI's network, covering more than 600 cities across the world. Carriers from China, the Middle East and eastern Europe have shown the most interest in making indirect alliances.
"No airline can fly alone. All airlines must work with one another for a greater network," says Mrs Usanee.
More importantly, she says the airline needs to re-manage networking and routing, flight frequencies, and seek new clients, particularly from potential markets.
"The airline is penetrating only high-potential markets. But we also have to study market opportunities and learn about the populations, competitors and business results from existing players before making any decisions to open new routes or adjust flights," Mrs Usanee says.
Good yield comes first
In a bid to expand its revenue and increase profit, the airline has been focusing on a revenue management system, a new sales and booking system that works in real-time, which provides effective monitoring and gathers information on other airlines' air fares and promotional activities.
With the new booking system, THAI will be able to adjust fares quickly in response to those of rivals, leading to overall increases in booking, even in the current low season, says Mrs Usanee.
"Before opening a new route, revising existing routes or adjusting frequencies, the airline will have to consider yields, which are the most important factor."
According to Mrs Usanee, THAI's cabin load factor (a measurement of capacity utilisation) averaged 83% in the first quarter, up from 78% in same quarter last year, and 79% in the second quarter from 69% in the same period last year. This put the average cabin load factor for the first half this year at 81%, up from 75% in the first half last year.
Mrs Usanee predicts the cabin factor for the third quarter will be higher than 80% as advance booking for the period has already jumped 9-12% from same period last year.
The airline expects revenue to be close to 200 billion baht this year.
Last year, the company reported total revenue of 181 billion baht, down from 193 billion in 2015, 204 billion in 2014 and 212 billion in 2013.
Revenue base diversification
According to the acting president, the airline is also seeking more revenue from other units, especially catering, ground service, cargo and aircraft maintenance.
The company is planning to invest in a catering kitchen in Chiang Mai to serve market demand from THAI and other airlines. The kitchen's construction is expected to start within the next two months, with an investment of 100 million baht.
The airline also plans to build a catering house in Phuket and Krabi in the next phase, the investment value of which has not been made available.
"The airline has been working on boosting revenue from non-core units for years. As a result, revenue from supportive units has increased from 10% of total revenue during past three years to 20% this year," she says.
THAI recently signed a memorandum of understanding with French aeroplane maker Airbus to build an aircraft maintenance centre at U-tapao airport in Rayong province, to cater to all aircraft types operating in Thailand and Southeast Asia.
The new centre is expected to push the eastern coast of Thailand to become a high-tech industrial zone and an aviation hub for the region. Construction of the maintenance centre is expected to start late this year.
THAI to underline teamwork
According Mrs Usanee, the government has also ordered THAI to lead its two sister airlines, Nok Air and THAI Smile, to strengthen the country's aviation sector, by improving not only safety and security, but also services and competitiveness.
The three airlines have also formed a working framework called THAI Group to drive the plan, she says.
THAI Group is teaming up with privately-owned Bangkok Airways to promote Thailand as a regional gateway, carrying passengers to all destinations in and outside Thailand.
Mrs Usanee says she also recently created a "DD Command Center" to centralise daily workflow between head offices and all domestic and overseas stations. DD is an internal employee code that represents the position of president.The new unit will help the president work closely and supervise major divisions such as the revenue department, network systems, operations, crisis management and others that are intrinsic to THAI's operations.
The cabinet yesterday approved 2.16 billion baht for the construction of a training centre for human resource development for the aviation industry and to study potential investment projects at U-tapao airport and Sattahip port.
Kobsak Phutrakul, assistant minister to the Prime Minister's Office, said 1.4 billion baht would go to setting up the training centre, to be operated by the Civil Aviation Training Center.
Construction of the centre will begin next year and be completed in 2021. The facility is intended to enhance Thailand's ambitious plans to become the region's aviation hub.
Mr Kobsak said the remaining 760 million baht from the central budget for fiscal 2017 will be allocated to study 12 potential development projects at U-tapao airport and Sattahip port.
Key projects include the airport's high-speed taxiways, software for the second terminal, the master plan for the utilisation of the land around U-tapao airport and nearby areas, and the development of a major new maintenance, repair and overhaul facility.
Mr Kobsak said those projects, once implemented, will help significantly to increase capacity at the airport.
The U-tapao airport development is the first infrastructure project the government has seriously pushed bidding on this year.
Other fast-track developments are the Bangkok-Rayong high-speed rail project worth 158 billion baht, which is expected to be opened for bidding this year.
Under the U-tapao development plan, the airport will be upgraded to handle annual passenger capacity of 15 million passengers a year in the first phase (2017-21), up from 3 million now. The second phase calls for servicing 30 million passengers in 10 years. The final stage is to handle 60 million passengers in 20 years.
The development is projected to require combined investment of 200 billion baht.
Meanwhile, Nathporn Chatusripitak, an adviser to Prime Minister's Office Minister Suvit Maesincee, said the cabinet yesterday also approved 1.85 billion baht to promote the use of rubber among state bodies, mainly the Agriculture, Defence and Tourism and Sports ministries.Of the total budget, 1.55 billion baht will be earmarked for the Defence Ministry to buy rubber mattresses and car tyres and construct a multipurpose playground and road. Another 164 million baht will be allocated to the Agriculture Ministry, while 135 million has been slated for the Tourism and Sports Ministry.
The world’s top two commercial aircraft manufacturers, Airbus and Boeing, are paving the way for Thailand’s Eastern Economic Corridor (EEC), planning for joint investment with Thai Airways International next year.
Kanit Sangsubhan, secretary general to the EEC, said that the European aircraft manufacturer Airbus is expected to sign for cooperation with Thai in the first quarter of next year, while US aircraft manufacturer Boeing is anticipated to do the same within 2017.
Airbus’s project will include a big repair centre, paint shop, logistics centre and training centre with a projected investment of billions of baht on expectation of a planned repair centre for engines and other key components, Kanit said.
Similarly, Boeing’s plan will include manufacturing aircraft parts and a simulator training centre, he said.
Lithuania’s FL Technics is based in one region with healthy aviation growth, but the firm aims to serve the even more rapidly growing markets far to the East. Since opening its first office in Southeast Asia in 2011, FL has added an office in Bangkok and a hangar in Indonesia. The MRO now employs 100 staff in the East and will employ 250 by the end of 2017, predicts CEO Zilvinas Lapinskas. After that, “we have expansion plans in various regions across the globe, and Asia will without a doubt always be among the priorities,” Lapinskas says.
FL operates a modern, 15,000-meter hangar at an extremely busy airport, Soekarno-Hatta International Airport. “Even though we have just recently started our heavy operations in Jakarta, we already see the potential of having more than one hangar to fulfil the growing needs of Asian airlines,” Lapinskas notes.
FL put its first emphasis in Asia on consulting, training and other services. It is now focused on airframe work. Still, Lapinskas says his firm has over 20 years of MRO work developed a wide portfolio of services in great demand across Southeast Asia. “We will definitely increase our sales in other FL Technics services as well.”The FL CEO argues his firm has competitive strengths in experience, flexibility and its European standards. “More than 20 years of experience in narrowbody airframe maintenance, expertise and a one-stop-shop business model are without a doubt advantages in clients’ eyes.” And being independent of an airlines makes FL extremely flexible in offering maintenance, component support and other services.
THAI AIRWAYS International Plc’s board on Wednesday approved in principle the flag carrier’s plan to procure 28 new aircraft.
The proposal would be fleshed out and resubmitted next month for the board’s approval and then forwarded to the Cabinet later this year.
The board also gave the green light to the airline to fly the Bangkok-Vienna route four days a week for full coverage of the Eastern European market.
Montree Jumrieng, executive vice president for corporate strategy and sustainable development at THAI, reported that the board agreed with the procedures for acquiring 28 aircraft over five years to replace those about to be retired.
THAI will set out their specifications and pricing and propose them in August for the board’s nod before seeking the approval of the Transport Ministry and the Cabinet.
The national airline expects the consideration process to take no more than three months before forwarding the detailed procurement plan to the Cabinet in November or December. Out of the 28 aircraft, 19 will go to THAI and nine to Thai Smile Airline.
THAI aims to receive the first plane within 18 months after signing the purchase contract, or in late 2019, while targeting to have all planes delivered within three years, which would lower the average service life of its fleet of 100 aircraft from 11 years to eight years.
There is no conclusion yet on whether the new aircraft will be bought outright or leased. That depends on the offers from aircraft manufacturers and THAI’s liquidity in the next five years.
THAI has also been thinking about procuring more aircraft in the second phase from 2022-26, as 22 more aircraft will be due for decommissioning.
The second-phase procurement plan is still up in the air as THAI is waiting for the government’s reform plan and the state of its finances.
The Bangkok-Vienna route would be operated for six months during the winter schedule beginning on October 20, using a Boeing 777-200ER.
The targets for the Bangkok-Vienna route are a cabin factor of about 75 per cent and break-even within the first year.
About 40 per cent of the passengers on this route will likely be domestic tourists and those from Indochina. The remaining 60 per cent will be European tourists travelling to Thailand.
If this route suffers losses, it may be dropped within six months.
THAI also plans to extend frequencies from four to five a week to seven promising routes from Bangkok, to Brussels, Rome, Milan, Moscow and Scandinavia.
The meeting heard that the engines of one of six Boeing 787 aircraft had been completely repaired, while three of the planes will be temporarily out of service for engine repair and change this month.
During the maintenance period, THAI will merge its flights to Japan into one flight and reduce those to Singapore to four flights. It will also transfer one flight on the Bangkok-Chiang Mai route to Thai Smile.
Next month, THAI plans to have two of its aircraft undergo maintenance. It will transfer flights on the Chiang Mai, Phuket and Krabi routes from Bangkok to Thai Smile.
THAI expects to complete the repair of these six aircraft and return them to normal service by September.
Rolls Royce, the British manufacturer of aircraft engines, will take full responsibility for the aircraft repair, while THAI will incur other expenses, from opportunity costs for the aircraft repair to expenses for passenger transfers.THAI will finalise the list of additional expense this September before sending it to Rolls Royce to compensate THAI.
"Bangkok - Four Dreamliners of the Thai Airways International are grounded because of engine problems. Thai Airways requires a compensation from Rolls-Royce."
Asian airline operator Thai Airways International is struggling with problems with the Boeing 787. According to the news of the Bangkok Post, The company has grounded its entire Dreamliner fleet, a few weeks ago.
In the meantime, four of the six aircraft are waiting at Suvarnabhumi airport and are not allowed to take off. On the affected routes Thai Airways uses other models. According to company president Usanee Sangsingkeo, the situation should normalize from September. The reason for the grounding is that there are problems with the Rolls-Royce Trent 1000 engines.
Thai calls for compensatory payment
The problem is that there is a risk of corrosion on the turbine blades, which can lead to faster fatigue phenomena and subsequent cracks. Since this had an effect on flight safety, four Dreamliners had to be temporarily withdrawn from traffic, Sangsingkeo said. The engines had been removed and sent to Rolls-Royce's maintenance facility in Singapore.
Because the failures impacted Thai Airways financially, the demands compensatory payments from the British engine manufacturer.
"We are very sorry for the current problems we have in our Dreamliner fleet, and we are working to solve the problem as quickly as possible," says Rolls-Royce.
213 Dreamliner concerned
The problems with the engines began early last year. They were discovered when engineers from ANA, All Nippon Airways, and Boeing investigated an incident that had occurred in February. A Dreamliner had to return to Kuala Lumpur long after the take off when one of the engines overheated. The pilots had to turn it off and made an emergency landing. It then turned out that the turbine blades in the rear part of the engine had fatigue phenomena and threatened to break.Other airlines, whose Dreamliners are also equipped with the Trent 1000 engines, were informed. In addition to Thai, these include British Airways, Singapore Airlines' Scoot, Air New Zealand, Air China and Latam. There are currently 213 Dreamliners flying around the world. The replacement of all defected parts could take up to three years.
A study looking into the feasibility of a 15-billion-baht joint venture between Thai Airways International (THAI) and Airbus to develop a new maintenance, repair and overhaul (MRO) facility is likely to conclude its findings later this year.
THAI's acting president Usanee Sangsingkeo said the results would be submitted to the authorities concerned for approval of the venture, which falls under the public-private partnership (PPP) programme.
The study involves evaluation of the planned facility, known as the TG MRO Complex Development at U-Tapao International Airport, worth about 15 billion baht.
The national flag-carrier signed an initial cooperation agreement with Airbus to study the MRO facility in March this year. The MRO is designed to serve as an aircraft maintenance centre for the Asia-Pacific region and would open in 2021.
Ms Usanee said THAI had been assured of the Civil Aviation Training Centre's cooperation in developing and training staff for the project. Ronnachai Wongchaoum, chief of the aircraft repair and maintenance project, said the MRO facility would cover a 500-rai area at U-Tapao airport in Rayong.
He said the study was expected to be complete in October and an official investment agreement between THAI and Airbus could be signed in March next year. Mr Ronnachai said a holding company would be set up to undertake the project with THAI holding a share of no more than 51% in the MRO centre.
The facility, to be equipped with smart hangers, digital technology to analyse aircraft maintenance information and advanced aircraft testing technology, will have the capacity to service between 50-60 aircraft a year. It is expected to generate an annual income of 1.2 billion baht and should break even in three years.
"The facility is planned to serve new generation aircraft such as the Airbus A380. This aircraft is expected to require major maintenance services in 5-6 years," Mr Ronnachai said.
Thai Airways International Pcl said it plans to modernize its fleet by replacing almost 30 older aircraft over the next five years, adding to the climbing demand for planes in Asia.
The state-run airline is seeking new generation aircraft offering greater comfort and fuel efficiency, and is talking with both Airbus SE and Boeing Co., Chairman Areepong Bhoocha-Oom said in an interview with Bloomberg Television’s Haslinda Amin.
"The portfolio of our airline will have new aircraft almost 100 percent," Areepong said. It’s the right step for Thai Airways partly because fuel costs could be volatile in future even though they are low currently, he said.
Thai Airways’ purchases would add to the hundreds of aircraft worth billions of dollars ordered by Asian airlines, such as AirAsia Bhd. and IndiGo in India, amid a surge in the number of people traveling by air in the region. Boeing forecasts a $6.05 trillion jetliner market in the next two decades globally.
The Bangkok-based carrier is trying to turn around performance after posting losses in three of the past four years. The company’s shares fell 6.1 percent Monday, the most in almost two months, and are down 75 percent from a high in 1999. The stock has eight sell recommendations, nine holds and one buy rating, according to data compiled by Bloomberg.
Concerns that the aircraft purchases could weigh on Thai Airways’ financial health appear to have hurt the stock Monday, according to Siam Tiyanont, an analyst at Phillip Securities (Thailand) Co. in Bangkok.
"The airline’s financial status has recently improved after years of challenges," Siam said. "The plan for new aircraft purchases may be too early and could result in a jump in debt.”
Thai Airways presently has a 100-strong fleet and will seek Cabinet approval for the plane replacement plan by the end of July, Areepong said in the interview Thursday on the sidelines of a conference in Bangkok. Airbus’s A380 superjumbos will remain a significant part of the company’s fleet, while older Boeing 747s will be replaced in the years ahead, he added.
An overhaul of marketing and reservation contributed to record passenger cabin factor of about 85 percent in the first quarter and the full-year target is 80 percent, Areepong said.
The airline’s goal is to exceed last year’s net income, Areepong said. Thai Airways swung to a profit of 15.1 million baht ($445,000) in 2016. It lost money in each of the three prior years.
The airline needs new airplanes to modernize its fleet and boost competitiveness, said Raenoo Bhandasukdi, an analyst at KT Zmico Securities Co. in Bangkok. Thai Airways is expected to bolster profits this year, which would be a good outcome given that some other full-service carriers have struggled against competition from low-cost rivals, Raenoo said.The carrier signed an agreement with Airbus in March to explore joint development of a maintenance, repair and overhaul facility at U-Tapao International Airport near the tourist destination of Pattaya. The project could involve about $1 billion investment and the plans may be finalized in 2018, Areepong said at the conference in Bangkok on Thursday.
US aerospace giant Boeing is keen on investing in making aircraft parts and setting up a training centre in the Eastern Economic Corridor (EEC) area.
According to Ralph Boyce, president of Boeing Southeast Asia, who met Deputy Prime Minister Somkid Jatusripitak yesterday, the company is preparing an EEC investment plan, with a final decision to be reached soon.
Mr Boyce served as the US ambassador to Thailand from 2005-07.
The EEC is a project that has been heavily promoted by the government as a new special economic zone to attract foreign investment.
The corridor spanning more than 30,000 rai in the three eastern provinces of Rayong, Chon Buri and Chachoengsao is projected to help generate new investment of up to 1.5 trillion baht within five years from both the government and the private sector.
The area is meant to be Thailand's new growth engine through 10 targeted industries: next-generation cars; smart electronics; affluent, medical and wellness tourism; agriculture and biotechnology; food; robotics for industry; logistics and aviation; biofuels and biochemicals; digital; and medical services.
"It's now an appropriate time for Boeing to invest in the EEC," Mr Boyce said. "If we don't make a decision now, this opportunity will fly."
According to Mr Boyce, the EEC is offering a good opportunity for investment, with the aviation industry looking promising over the next 20 years as new airlines emerge.
"High demand for captains, aircraft, a maintenance centre and parts are thus anticipated over this period," he said. "Currently, Boeing supplies parts for many airlines, including Thai Airways International (THAI), and has its regional headquarters in Singapore, where operations range from commercial aircraft and defence procurement, services support and training, to advanced research collaboration with the public and private sectors."
Mr Somkid said investment by Boeing would be significant for Thailand, as this would signal warmer ties with the US. Prime Minister Prayut Chan-o-cha is scheduled to visit Washington in July.
The US ranks as Thailand's fourth-biggest investing nation after Japan, Singapore and Indonesia, with a total investment of US$921 million (31.3 billion baht) in 2016, according to Board of Investment data.
The US is Thailand's third-largest trading partner after China and Japan. Two-way trade between Thailand and the US amounted to US$36.5 billion in 2016.
Kanit Sangsubhan, secretary-general of the EEC Office, said flag carrier THAI is expected to be able to sign a joint venture deal with Airbus to establish an aircraft maintenance, repair and overhaul (MRO) centre in the EEC in the first quarter of next year.
The government in March this year approved an aviation reform plan that aims to enhance Thailand's status as the region's aviation hub.
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