Focus: Headwinds before takeoff for new Thai Airways team

Krung Thai Bank PCL

18/09/2018 04:43

* New president and chairman must tackle costs, fleet -
sources 
    * Governance issues and slow decisions pose challenges
    * Subsidiary Thai Smile should be reintegrated 
    * Plans to buy 23 new jets still pending approval

    By Chayut Setboonsarng and Panu Wongcha-um
    BANGKOK, Sept 18 (Reuters) - Struggling national carrier
Thai Airways International PCL  THAI.BK  is pinning hopes of a
revival to its 1990s heyday on a new leadership team, jet
purchases and improving its brand as tourism booms in the
region. 
    But the new president and chairman taking the helm are
political appointees without aviation experience and several
executives told Reuters the airline needs to adjust to a market
where the good times of having a near-monopoly at home are long
over. 
    Challenges for the new team include cutting costs, managing
a mixed fleet, coping with loss-making subsidiaries as well as
healing long-time rifts between government-appointed management
and airline veterans. 
    Thailand has been the beneficiary of a boom in tourist
arrivals, particularly from China, but as foreign airlines like
Qatar Airways and China Eastern Airlines Corp  600115.SS  have
rushed to add flights, Thai Airways has reported annual losses
for four of the last five years. 
    "Thai Airways did not adapt quickly enough and competes in
one of the world's toughest industries," former Thai Airways
president Piyasvasti Amranand said. 
    The structure of state enterprises in Thailand slows
decision-making because the carrier needs to seek approval from
many agencies for decisions, he said. 
    Other national carriers in the region where the government
takes an active role have had similar struggles; Malaysia
Airlines has yet to return to profitability after two disasters
in 2014 and Garuda Indonesia  GIAA.JK  last week replaced its
latest CEO after 17 months.  urn:newsml:reuters.com:*:nL3N1VY5A8 
    In contrast, Singapore Airlines Ltd  SIAL.SI ,
majority-owned by state investor Temasek, and
government-controlled Air New Zealand Ltd  AIR.NZ , are run in a
hands-off manner and are profitable.
    On paper, prospects are good for Thai Airways. Air traffic
is booming in Asia - the International Air Transport Association
forecast profits of Asia-Pacific airlines to increase 8.4
percent from last year to $9 billion in 2018. 
    Also, Thailand expects 37.5 million visitors this year, up 6
percent from 2017, most of whom arrive by air.
    
    UNDER NEW MANAGEMENT
    But Thai Airways' new president, Sumeth Damrongchaitham, who
started the job this month after an 18-month search, has his
work cut out. 
    The 53-year-old has to turn around the national carrier,
which reported $93 million losses in its April-June quarter amid
higher fuel prices  urn:newsml:reuters.com:*:nL4N1V15KB.
    Thai Airways last posted a profit in the first quarter of
2018. On an annual basis it posted a profit in 2016 and before
that in 2012.
    Sumeth's previous experience has been in managing government
property and in the music industry
    The military-led Thai government, which owns 51 percent of
the airline, has representation on the board and oversight of
investment plans.    
    Jothin Pamon-Montri, a former senior vice president at the
airline, said the lack of aviation experience was not
necessarily a problem, but Sumeth would need to work closely
with career employees.
    "The president must consult management and listen to staff
to solve problems and forget the outside advisers," Jothin said.
    Sumeth will be working with a new board chairman, Ekniti
Nitithanprapas, who ran the State Enterprise Policy Office from
2015 to 2018, a government unit that oversees the airline.
    Ekniti, who took over in July, is seen as a capable
bureaucrat but may have his plate full heading the government's
revenue department and as chairman of the state-owned Krung Thai
Bank  KTB.BK .
    Sumeth and Ekniti declined interview requests. 
    Thai Airways did not respond to a Reuters request for
comment. 
    
    NOT ALL SMILES
    Sources close to Thai Airways said a pressing issue was what
to do with loss-making subsidiary Thai Smile, which was set up
in 2012 as a mid-range brand when Piyasvasti was president.
    Piyasvasti, who was president from 2009 to 2012, brought the
airline into profitability but was removed abruptly by the then
democratically-elected government.
    In 2014, Thai Smile began operating under a separate
licence, in a move that airline sources said led to problems
with service, network connectivity and to tension with the
parent airline.
    Jothin, who was at Thai Airways for 35 years, says a
priority for the new team is to reintegrate Thai Smile under the
Thai Airways brand and licence.
    "We had no plans to spin off Thai Smile into its own airline
at the time. It was going to be another brand under Thai
Airways," Piyasvasti said.
    Singapore Airlines Ltd  SIAL.SI  is planning to do that with
its regional offshoot SilkAir to provide a more consistent
experience for customers.  urn:newsml:reuters.com:*:nL3N1SO6D9
    In the budget market, Nok Air  NOK.BK , in which Thai
Airways holds a 20 percent stake, has been unprofitable for the
last four years in the face of rapid growth from competitors
like Thai Lion Air and Thai AirAsia  AAV.BK   AIRA.KL . 
    "There could be an opportunity for Thai Airways to increase
its involvement and potentially take over Nok," CAPA Centre for
Aviation Chief Analyst Brendan Sobie said. "Developing a new
multi-brand strategy could be an important initial task for the
new CEO. Such a strategy would strengthen Thai's long term
position."
    
    TRIMMING THE FAT
    Thai Airway's legacy of a mixed fleet after purchases by
previous governments is another challenge. Most airlines like to
operate only a few types of jets to gain economies of scale in
areas like maintenance and pilot training.
    But Thai Airways, which requires government approval for
fleet purchases, operates almost every available type of Airbus
SE  AIR.PA  and Boeing Co  BA.N  widebody jet, from A380s to
787s, but none in particularly large numbers.
    The new leadership should "focus on reducing expenses and
trimming the fat," Piyasvasti said, adding that a fleet strategy
should include a rolling plan for new aircraft and
decommissioning old jets that are not fuel efficient.    
    In July, the Transport Minister Arkhom Termpittayapaisith
said that the carrier would be purchasing 23 new jets for $3
billion  urn:newsml:reuters.com:*:nL4N1U72LM but it has yet to place a formal order or
disclose the types involved.
     Thai Airways shares have fallen by 25 percent since
January. Most analysts have "neutral" or "sell" recommendations
on the stock as they wait to see Sumeth's strategy for reviving
the carrier.
    "It is important for Thai Airways to move forward with fleet
renewal and acquisition, which has been repeatedly delayed and
is now a pressing issue," CAPA's Sobie said. "There is still
work to do in the transformation and there are many challenges
to overcome."

 (Reporting by Chayut Setboonsarng and Panu Wongcha-um, Editing
by Jamie Freed and Raju Gopalakrishnan)
 ((Chayut.Setboonsarng@thomsonreuters.com; +6626506126; Reuters
Messaging: chayut.setboonsarng.thomsonreuters.com@reuters.net))