Thai Air Considering New Budget Airline

May 18, 2012

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Thai Airways may set up a new budget carrier to tap strong demand in the regional no-frills sector and the group is on track to achieve its net profit target this year after a strong first quarter, its president said on Friday.

The Thai flag carrier, facing increasing regional competition from bigger rivals such as Singapore Airlines and Cathay Pacific Airways, has reduced flights on some loss-making routes in Europe and focused on profitable destinations in Asia.

"We are joining with Nok Air to study a new ultra-low-cost airline," the airline's president, Piyasvasti Amranand, said in an interview, referring to its 49-percent-owned budget airline unit. "Nok Air will focus on domestic routes and we need another one to tap strong demand from this sector."

Thai Airways also aims to launch a new mid-range airline called Thai Smile on July 7, as part of a revamp after years of losing market share in Asia, where other airlines have benefited from expanding middle classes and fast economic growth.

Last year, the airline terminated plans for a joint venture budget airline with Singapore's Tiger Airways after it failed to secure approval from the Thai government.

Rising passenger numbers and yields plus cost controls helped the airline make a January-March net profit of THB3.6 billion baht, up almost 500 percent from a year earlier and compared to a loss of THB5.4 billion in the fourth quarter.

"We are confident we will achieve our profit target of THB6 billion baht this year after a strong performance in the first quarter," Piyasvasti, 59, a former energy minister, said.

The strong first quarter has prompted Thai Airways to delay the sale of a THB3.5 billion baht bond, initially planned for June, to the end of 2012, Piyasvasti said.

He was not sure if the airline would make a profit in the second quarter, usually the low season for air traffic in Thailand, but expected good earnings in the third quarter.

Piyasvasti, who took the helm in October 2009 to overhaul the 50 year old carrier, said passenger yield had improved in the second quarter as most of the low-price tickets sold in a promotional campaign late last year had now been used.

Cabin factor, the percentage of seats sold, was at 78 percent in April, the highest in five years, and at about 72 percent in the first five months of 2012, he said.

"The change in marketing strategy has boosted yield," he said, adding the airline used smaller planes to serve European routes, where the economic crisis would affect air travel, while demand from Asian routes was expected to rise 30 percent from last year.

The airline aimed to cut costs of THB4 billion baht this year, or 2 percent of its expenses, and it has hedged about 80 percent of estimated fuel usage to offset the volatility of global oil prices, Piyasvasti said.

It had a hedging gain of about THB1.3 billion baht in the first four months of this year, he said. Fuel accounts for about 40 percent of Thai Air's operating costs.

Thai Airways is on track to take delivery of three Airbus A380s in late 2012 and another three in 2013 and aims to expand its total fleet to 109 planes in the next seven years from 90 now, Piyasvasti said.