THAI in trouble

Deputy Transport Minister Thaworn Senneam has ordered the airline to overhaul its financial rehabilitation plan and draw up yet another new business plan within 30 days. He said the airline’s existing recovery plan, implemented just a year ago, did not seem to be working and questioned how serious the carrier’s executives were in dealing with the worsening financial situation. The new plan had to set clear objectives of cutting expenditure and bringing in more revenue to the company and it should include flight route adjustments and more efficient use of information technology, he added. That may be easier said than done.

One of THAI’s issues is that its fleet is ageing, and operating fuel-hungry last generation metal doesn’t help the bottom line. At present, several aircraft are either grounded because of engine problems or are out of commission, not generating revenue for the airline. That has caused profits to fall short of target, explained Sumeth, adding the depreciating value of the airline’s assets and fuel costs are also hurting the company’s balance sheet. He planned to change that by ordering 38 new jets worth an estimated $7.5 billion but that strategy was stymied by the government which ordered the THAI Board to suspend its procurement plan for six months.

There are other stumbling blocks to profitability. Having one of the highest ratios of staff per aircraft in the world doesn’t help. Nor does the fact it is State-owned and can’t take speedy commercial decisions like most of its competitors. Sumeth says THAI has lost its market leadership on several routes, including the once lucrative services to North Asia. These had been generating a third of THAI’s revenue but are now dominated by budget operators. On top of that, European routes are also not bringing in as much revenue as the airline hoped due to multiple factors including the strong baht and the economic fallout from Brexit.

While no details of the approach THAI will take in its latest recovery plan have been made public, Sumeth has already said costs will be cut by reducing the salaries of managerial staff and following a zero inventory policy at its catering department. A detailed look is also being taken on all its routes and any which are failing to bring in sufficient profit margins will certainly be dumped. Added to this, the THAI group is looking to a multi-million dollar joint venture maintenance, repair and overhaul (MRO) facility being built in partnership with Airbus at U-Tapao airport as a potential big source of future revenue.

Interestingly, THAI isn’t the only big carrier suffering in South-East Asia, despite the region being one of the fastest growing air traffic markets in the world. In neighbouring Kuala Lumpur, Malaysia Airlines has also hit bad times with its government owners looking to find private investors to take a major strategic stake and carry the burden of ongoing losses and high debt. The carrier’s holding company, government investment arm Khazanah Nasional invited 20 potential partners to put in bids and has now shortlisted that to four, though it isn’t saying who they are. It is probably a sign of the times that it, too, has been hit by low cost competition. In the meantime, there is no doubting how serious the situation is in Bangkok.

“I want staff to be united to overcome the obstacles. Otherwise, the national airline must close down,” warned Sumeth. “There is still time for a solution, but there is not much time. Competition is very fierce this year. There will be no other rewards for the staff, because the top prize is the survival of the company,” he declared.’

‘Having one of the highest ratios of staff per aircraft in the world doesn’t help’