Thai Airways needs to plot new course

Thai Airways International president Charamporn Jotikasthira is a man on a mission to save the national flag carrier from bankruptcy. After taking over the top job at the airline, Mr Charamporn has vowed to turn around the beleaguered national carrier. He announced plans to reduce costs, for instance, by selling 22 planes, scrapping unprofitable routes, boosting online bookings and offering an early-retirement programme to staff. These measures look sensible as they attempt to improve the financial status of THAI. However, it will take more than a vision from the newly-appointed president to pull the airline out of its steep decline.

Since its inception in 1960, THAI has become a symbol of national pride and provided world-class service to its customers. The airline has also built up a large fleet of aircraft, covers a wide range of destinations and has a good reputation for its in-flight service.

For decades, THAI’s business flourished thanks to the growing tourism industry and the strategic geographic location of its home country, which lends itself to being a transit route as well as a central location for those doing business or just travelling around the region.

But in recent years, the global airline industry has changed. The market has become crowded with new competitors, especially low-cost airlines. THAI no longer has monopolies on certain profitable routes, due to the open skies policies.

A far-from-perfect management running THAI has taken its toll. The airline has been burdened with higher operational costs than most others, resulting in massive losses.

According to former board member Banyong Pongpanich, THAI shoulders a higher cost for its available seat kilometres (ASK) than its competitors on some routes. For instance, for the Bangkok-Phuket route, which is about 700km, Thai Airways International has an ASK cost of 2,590 baht, compared with Thai Air Asia’s 1,115 baht. Therefore, Thai Airways International cannot reduce its ticket prices and be competitive.

THAI’s poor performance is the result of a combination of factors. With its state enterprise status, some people who sit on the board do not have the right qualifications to make effective decisions for a national airline. Like many state enterprises, political inference has at times affected the direction of the THAI board. Many of the airline’s policies get changed or dropped after a change of government.

The perks given to THAI executives came under public scrutiny when the Prayut government recently announced a reduction in some benefits. Airline employees also receive generous benefits compared with other companies with compatible performance results. Yet, the strong staff union’s members have resisted some necessary reforms for fear of losing the status quo. THAI employs about 25,000 staff, far more, for example, than the roughly 14,000 employed by Singapore Airlines.

As a result, THAI has a surplus of planes which are flying half-empty on some unprofitable routes. The airline also suffers the burden of higher maintenance costs because it has many different models of aircraft, reflecting inefficient procurement decisions. Mr Charamporn plans to cut the number of aircraft models from 11 to eight to streamline maintenance costs.

THAI has also failed to recognise the changing trends of its customers, as seen by its failure to effectively utilise online bookings to boost ticket sales.

Consequently, THAI suffered a loss of 12 billion baht in 2013 and 9.2 billion baht in the first nine months of last year. If this money-haemorrhaging operation continues, the airline may cease to exist, as the government may not have the will, or enough financial liquidity, to keep subsidising its losses.

The sale of old aircraft, along with the plan to drop unprofitable routes, may help stem the bleeding. However, THAI will not make a sustainable recovery unless the people involved have the will to keep the national airline afloat.

Japan Airlines has set a good example of how to bounce back from the brink of bankruptcy. JAL has not only written off a large number of planes, but also communicated the corporation’s need to survive constantly with its top bosses, pilots and ground staff. As a result, JAL managed to cut its expenses without hurting its reputation thanks to the determination of its staff to maintain the airline’s wellknown high standards.

THAI still has many advantages, such as its location and a large number of loyal customers. But the airline can no longer operate maintain its status quo. A successful future depends on cooperation and goodwill from all parties involved to turn it into a profitable airline again.

With its state enterprise status, some people who sit on the board do not have the right qualifications to make effective decisions for a national airline