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BANGKOK BLUES
Thai Airways International (THAI) is facing more bottom line punishment as the country’s political crisis deepens. Several countries are advising their citizens to steer clear of Bangkok, forcing international carriers to reduce services during the region’s peak Chinese New Year travel season.
February 1st 2014
Plummeting bookings caused by Bangkok’s protests and heightened political unrest have blown apart Thai carriers’ financial forecasts for the peak Chinese New Year holiday period. Read More »
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The business outlook worsened in the third week of January when the nation’s government, which is operating under vehement attacks both in parliament and on the streets, imposed a two-month State of Emergency in the capital in an effort to control the anti-government protesters.
Several analysts feared there might be yet another coup in the country, an outcome that could add weight to the view that the national flag carrier THAI may be facing losses of up to $1 billion over the next few months.
THAI was already struggling to turn around a dismal 2013 that had concluded with the sudden resignation, in December, of president, Sorajak Kasemsuvan, for “health reasons”. He had been under increasing pressure over poor financial results in the past year, although the political demonstrations have been blamed for the most recent fall off in passenger numbers.
The situation in Bangkok has been deteriorating for two months and racheted up after the deaths of three demonstrators in a shooting incident. In January, there were two incidents involving grenade explosions in which dozens were injured. At press time, the protests had taken more lives.
It is reported that more than 200,000 Thais had joined down town Bangkok demonstrations to demand the resignation of the government lead by prime minister, Yingluck Shinawatra, the sister of former, deposed president Thaksin Shinawatra.
Although the demonstrators agreed not to disrupt air traffic control operations at Suvarnabhumi airport, the unrest is hitting the country’s tourism industry hard.
It is not the first time political upheaval has damaged the country’s airlines. In 2008 “yellow shirt” protestors closed airports in Phuket, Krabi, Hat Yai and Suvarnabhumi. At least the anti- government protestors appeared to have learned a lesson from that economically damaging act. This time around, they have undertaken to avoid targeting Bangkok’s main airport.
But this may mean little. Some 45 countries and regions have already issued travel advisory warnings for Thailand.
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As a result, tourism, a mainstay of the Thai economy, is in an unhappy state. Last year, more than 100,000 Chinese tourists visited Thailand over the Chinese New Year period, generating some $140 million in revenue. The current unrest has led many Chinese travel agencies to cancel tour group travel.
A number of major airlines have reduced flights to Bangkok as the protestors settled in near the main tourist areas of central Bangkok.
In early January, Woradej Harnprasert, director general of the civil aviation department, announced he had been officially informed that Singapore Airlines was cutting 19 round-trip flights to Bangkok from January 14 to February 25. Cathay Pacific Airways reduced flights from Hong Kong to Bangkok between January 7 and 14 and Hong Kong Airlines cut a total of 110 flights from Hong Kong through to January 30.
Low-cost operator, Tigerair, eliminated some flights into Thailand and several other carriers have re-scheduled to fly directly into leisure destinations, particularly Phuket, to bypass Bangkok.
While detailed traffic statistics won’t be available for some weeks, some airlines are reporting load factors on Bangkok services are down by more than 40%.
THAI has maintained a relatively low public profile about the impact of the demonstrations on its business. But it did place a notice on its website, an Update from Thai Airways: Political Unrest, which said announced new conditions would allow passengers to change their date of travel or their route without penalty.
Adding to THAI’s woes is intensifying competition from airlines pouring capacity into the market as they gear up for Asean open skies in 2015. Frost & Sullivan aerospace consultant, Ravi Madavaram, said this intense competition, a struggling national carrier and the volatile political climate are all hurting Thailand’s aviation sector.
The recent entry of Lion Air with a Thai subsidiary, THAI’s internal challenges, Bangkok Airways’ growth plans, the launch of NokScoot and AirAsia X’s establishment of a hub in the city herald difficult times for Thailand aviation, he said.
“Even though Thai Airways focuses on the long-haul, full-service market, 2014 will be challenging because of the carrier’s cost structure, top management issues and increased competition from Middle East airlines.
“With so much capacity being added to the market, yields will fall significantly on all routes and price wars will be mounted to win market share. If the political unrest continues, air travel demand will decrease, which will only intensify market concentration,” he said.
The loss of yet another THAI president could not have come at a worse time. Kasemsuvan took charge of THAI in October 2012 after the airline reported a profit of $191.5 million for that year. His position came under scrutiny following a $258.6 million loss in the second quarter of 2013, after which the board voted to give him “a chance to improve the carrier’s financial position”. By September, THAI had losses of $201 million for the nine months of its fiscal year and reduced its profit forecast from $184.7 million to $61.6 million.
The airline’s passengers continue to decline. For the month of November, load factor dropped to 71.1%, compared with 76.7% in a year earlier. In the same month, THAI carried 1.76 million passengers, down 5.9% from 1.87 million a year earlier.
Adding insult to fiscal injury, THAI was forced to issue a public statement that denied it was threatened with bankruptcy. The carrier said “it is untrue that the company will go into bankruptcy. Since its establishment, THAI has met all debt payments even with low operating results in the past. Therefore, the company will not go bankrupt as it has never missed a debt payment since it was established.”
The statement added that at the end of the third quarter of 2013, the airline had assets, primarily aircraft valued at approximately $9.6 billion, and debts, including interest, of approximately $5.6 billion. This assessment excluded the expenses of 20 leased aircraft in the fleet.
Before his resignation, rumours had circulated for several weeks about Kasemsuvan’s conflicts with his executive board. However, a December board statement insisted the resignation was the president’s own decision and was for health reasons.
A statement from Kanit Sangsubhan, chairman of the THAI executive board said: “The advice by medical physicians to take medical leave of absence for a minimum of two to three months will have an impact on the duties of the president and on company operations. Kasemsuvan has, therefore, submitted his resignation from the position of THAI President, as well as from the Nok Air Board of Directors and THAI Smile Board of Directors.”
The resignation took effect from January 2. Chokchai Panyayong, senior executive vice president commercial, is acting president until a new president is appointed.
THAI has a long history of management unrest and frequent leadership changes. Kasemsuvan’s predecessor, Piyasvasti Amranand, a former Thai government energy minister, was sacked in May 2012 in controversial circumstances. He described his axing as “politically motivated”. Again, he was shown the door after he clashed with his board, despite having turned the airline around and setting it on a profitable course.
