NewGen Airways flying high
The low-cost airline has managed to stay above the fray as its rivals are mired in the fierce battle for customers, writes Jesus Alcocer
NewGen Airways’ scheduled charter model has allowed the company to stay in the black in Thailand’s fiercely competitive low-cost airline market. The company became profitable just one year after its establishment in 2013. This, said chief executive Jarupong Sornprasit, is because its scheduled charter model has allowed it to stay above the price war that has emerged in the increasingly competitive Thai airline market.
The Bangkok-based carrier is 51% Thai-owned and 49% Chinese. On the Chinese side, its major shareholders are two large tour companies, one in Shenzhen and one in Shanghai, which gives it a privileged position within this industry. On the Thai side, the company’s shareholders are a maintenance repair and operations consortium.
The company has remained in the black since 2014, with the exception of the last quarter of 2016, when the crackdown on zero dollar tourism, and an increase in prices for visas upon arrival, weighed on the company’s topline.
In a previous interview, Mr Jarupong said the company “suffered significant losses in the aftermath.” At that time, the firm expected a loss of 500 million baht, resulting in a loss for the entire year.
The company, which originally planned an initial public offering on the Stock Exchange of Thailand this year, has moved the date to the first half of 2019. The requirement for an IPO is two years of consecutive profits or revenue above 5 billion baht. While the company may have failed to turn a profit in 2016, it is well on its way to its 8 billion baht revenue target this year.
In the first half of the year, the airline served 700,000 thousand passengers. An equal or better performance in the second half would allow the company to hit its topline target.
The company sells 100% of its tickets to travel agencies, a model which Mr Jarupong said is unique in the Thai market. Orient Thai airlines followed a similar model, but they have grounded aircraft because its air operator certificate was not renewed.
All airlines have, to some extent, worked with travel agents, but a flat price model like the one offered by NewGen gives agencies the opportunity to turn a profit during the low season.
“Our prices are the same year round, which means our price points are higher than those of our competitors in the low season, but lower during the high season.”
Other airlines prefer to sell tickets to individual consumers during the high season, when prices rise, leaving little supply for travel agents, which are then priced out or forced to bear unsustainable costs.
Its pricing strategy also means that they are less exposed to the increasingly competitive Thai market, said Mr Jarupong. Thai airlines are also losing market share to deep-pocketed foreign airlines. Moving forward, the competitive environment has already had a disastrous effect on airlines like Nok Air, a situation that will only intensify, as Singapore Airlines, Emirates, Etihad and Lufthansa increase flight frequencies to Thailand in response to growing demand from European, American and North Asian travellers.
“Our business model has kept us above the price war,” said Mr Jarupong.
International travellers to Thailand are increasing at an average rate of 10% per year, and local full service and low cost airlines have struggled to scale at the same rate. NewGen itself is no exception. The company currently serves Chinese tourists coming to Thailand with 12 aircraft across 26 secondary cities in the mainland, but it is still missing out on two key markets: Thai travellers going to China and non-Chinese international travellers.
This year the company set up an office in Suvarnabhumi airport, but it does not have enough aircraft to be based there. It has also negotiated a spot in Chiang Mai and Chiang Rai’s airports, but has yet to procure enough aircraft to supply those channels.
Financial considerations are a barrier to rapid expansion, as are the Ministry of Transport’s regulations. Mr Jarupong said the company has already reached the maximum aircraft quota for the year, but is in the process of applying for an expansion.
In terms of financing, the firm is still unleveraged — it has self-financed its expansion through investments from shareholders and profits, which suggests that alternate channels of financing are still open for exploration. The company also leases 100% of its aircrafts, so it can expand without large capital investments.
Over the next several years, the company will seek to add four new aircraft a year and penetrate more international markets. India is an especially promising market, with a similar population size to China, although only 1.2 million Indian tourists visit Thailand annually, compared with 8.9 million Chinese visitors.
Regulations cap the number of seats sold on flights from main cities, making prices out of reach for many consumers. But NewGen will seek to operate from secondary cities, allowing it to undercut major carriers.