News Backgrounder
Tough road to transformation
Struggling Thai Airways International and AirAsia X aim to come back from the dead under new leadership.
March 1st 2015
Thai Airways International’s (THAI) new president, Charampom Jotikasthira, has not received much leeway from the country’s ruling military junta. Its State Enterprise Policy Committee, the so-called “Super Board”, met in late January and laid down the law. Read More » THAI, it declared, won’t be allowed to go bankrupt, but it has to cut 30% from its costs, increase revenue, drop unprofitable routes, restructure its assets and sell aircraft.
The committee, chaired by the Prime Minister, General Prayut Chan-o-cha, was in no mood for compromise. Under a rehabilitation plan it has approved in principle, the airline will have to make changes to management, personnel and also staff benefits. While no time frame has been identified, THAI will be required to reduce its employees from 25,000 to 20,000 in a program it hopes can be executed on a voluntary basis.
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Charampom, a former Stock Exchange of Thailand (SET) president, got the message. He had cancelled the Bangkok to Johannesburg route in January and days later ordered services to Madrid and Moscow from Bangkok, and from Phuket to Seoul, to end this month. Flights to Los Angeles are also on the list for termination, but a decision won’t be made until the second quarter of this year. The cancelled destinations were all in the red with the Bangkok-Los Angeles flights suffering the same fate, the president said.
Charampom plans to sell 22 of the carrier’s 102-strong fleet by the end of July. He said the job cuts will only be carried out if all other measures to save money fail. All the airline’s assets will be evaluated, he said. Divisions in THAI that don’t deliver good returns will be sold, he added.
Charampom is the carrier’s sixth president since 2000. Most of his predecessors departed prematurely, with the sackings largely blamed on Thailand’s divisive politics. THAI has reported consecutive losses for the last five quarters and has not released full year figures for 2014. It made a loss of $284 million for the first nine months of the year, to September 30. Analysts expect it to post one of its largest annual losses ever for the full 12 months.
The transformation plan, announced five weeks after Charampom accepted the presidency, includes a strategic framework covering six major areas, aimed at introducing stability and sustainability at THAI and restoring respect for the national carrier.
It involves three stages: mitigating losses by cutting perennially loss-making routes, building THAI’s competitiveness in product offerings, service, and human resources and re-building the airline on the back of new organizational strengths.
The six strategic initiatives are:
• Network strategy: Improve the network’s destination selection and route performance
• Rationalise the number of aircraft and aircraft types. Apart from selling 22 aircraft some deliveries will be postponed
• Develop a commercial strategy to deliver more revenue
• Adopt international best practices for operations and improve cost control
• Adopt a structure suited to the new competitive environment along with an appropriate remuneration policy
• Adopt a systematic approach to manage core and non-core businesses
THAI has been operating for years with managements that have had to to endure political interference that eroded the airline’s image, morale and productivity. Most recently, after months of political upheaval that led to a damaging decline in visitors to Thailand, a military junta took control of the country last May.
In 2014, THAI passengers declined by 17.4%, the biggest drop off since 2004. Competition from the increasing number of low-cost carriers either based, or flying into Thailand, also eroded the carrier’s passenger traffic.
“THAI’s 2014 performance was clearly impacted by a prolonged period of civil unrest and political instability. But THAI also has myriad long-term issues - both internal and external - that it failed to address in prior restructurings,” said consultancy CAPA.
As THAI sets off on its hopeful trek to recovery, in neighbouring Malaysia, long-haul LCC, AirAsia X, launched its own turnaround, including the departure of of long-time chief executive, Azran Osman-Rani, who stepped down on January 30.
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The airline’s co-founder, Kamarudin Meranun, is running the carrier, in the new role of group chief executive that will involve overseeing all the airline’s brands, encompassing AirAsia X Berhad in Malaysia, AirAsia X Thailand and Indonesia AirAsia Extra. Benyamin Bin Ismail, who joined AirAsia in 2010 to head up investor relations, has been appointed acting chief executive of AirAsia X Berhad.
No reason has been given for Azran’s departure, but the carrier has been struggling to make money for some time. In the three months to last September, it posted a net loss of $58 million, its worst quarterly result since its listing in July 2013.
Operating A330s, mainly on routes to Australia, Japan and China, it faced increasing competition and suffered from the fallout of two Malaysia Airlines accidents last year. The recent crash of an Indonesia AirAsia A320 on a flight from Indonesia to Singapore is expected to have an impact on the brand, although some analysts believed the airline could return to profit this year because of lower fuel costs.
Kamarudin said he would spearhead strategy for the AirAsia X group while he and Benyamin would lead the reorganization and turnaround at the carrier. “Over the past few months, we saw the company facing challenges in a difficult environment. After a thorough review, a decisive turnaround plan was initiated to put the company on a substantially better financial footing to ensure we bring back confidence to the market,” said Kamarudin.
“With this robust plan in place, AirAsia X will advance to the next chapter of growth and uphold its leadership position in the long-haul, low-cost market. The AirAsia X board and the co-founders, including myself, have confidence in this plan. We will be executing a rights issue and will fully underwrite our portion in support of the company. I am truly confident in turning this company around and bringing it to profitable growth.”
No details of the timing and the price of the shares for the $109 million equity rights issue were disclosed.
