Thai Lion pricing raises industry alarm

Concern is rising that the aggressive pricing of the Thai budget arm of Indonesia’s giant Lion airline group may wreak havoc on Thailand’s low-cost carrier (LCC) market.

Low fare offerings of Thai Lion Air (TLA) such as 300 baht for a one-way BangkokChiang Mai flight against a ballpark 1,500 baht charged by other airlines have been branded “dumping” by rival airlines.

The budget carrier’s revived expansion, with the addition of 10 new Boeing 737900ERs to its fleet this year from eight at the end of last year, will intensify and broaden the fare rivalry further.

Senior executives of rival LCCs, who asked to remain anonymous because of the sensitive nature of the issue, complained the tactic was undermining their attempts to raise fares and earn meagre profit margins, particularly on routes commonly operated by TLA and others.

The executives feel TLA’s fares are set without regard to costs, let alone profit, in order to quickly build up its business and exert control over Thailand’s burgeoning budget travel market.

TLA executives have said its fleet of B737-900ERs is expected to grow by an average of 10 aeroplanes a year until it reaches 50.

Other LCC executives are worried TLA’s aggressive fares in Thailand are for the long term, even as TLA launches competing routes to Thai AirAsia (TAA) and Nok Air.

An industry source estimates TLA’s strategy could have easily cost the airline 2 billion baht in cumulative losses since 2013 when it started operations.

TAA and Nok Air are Thailand’s two budget airline heavyweights, but their ticket prices have fallen by double-digit percentages during the last 21 months as a result of fierce competition partly fuelled by TLA’s fares and sluggish travel demand caused by the political unrest.

SET-listed Nok Air saw its average quarterly fare decline by 28% from the first quarter of 2013 to the third quarter of 2014, sinking to 1,662 baht per flight sector.

TAA’s average quarterly fare tumbled 20% over the same period to 1,789 baht, according to figures compiled by the SCB Economic Intelligence Center.

Last year TAA’s average fare per flight sector contracted 8% to 1,726 baht from 1,885 baht in 2013.

This year TAA seeks to increase its average fare by 3-5% from last year’s level, said TAA chief executive Tassapon Bijleveld.

A senior executive from a TLA competitor said it was acceptable for the airline to come up with “fares gimmicks” from time to time, but not on a permanent basis.

Rival airlines have said there is a danger of TLA sinking into a sea of red ink one day, resulting in its collapse and passengers abandoning it if TLA allows its ledgers to continue to grow in deficit.

“TLA may not realise it should use good business sense until it is stuck with critical cash-flow problems,” said an executive from a rival airline.

A TLA spokeswoman said the airline applied a general LCC business model with a multi-tier fare pricing structure based on prevalent market demand, with promotional fares offered from time to time. She said TLA was not undercutting fares to the extent that average fares were below costs.