Charamporn Jotikasthira, President, Thai Airways International (THAI); and Puttipong Prasarttong-Osoth, President, Bangkok Airways: Interview

Interview: Charamporn Jotikasthira, Puttipong Prasarttong-Osoth

How has recovering inbound tourism traffic to Thailand in 2015 impacted airlines’ operations and expansion focus?

CHARAMPORN JOTIKASTHRIA: There have been quite a few changing factors for Thai airlines that are impacting business and operations, the foremost of which has been the increase in the number of inbound passengers arriving in Thailand. As of the first half of 2015, inbound arrivals from China, the fastest-growing tourism market for the country, increased by about 50%, while for THAI as a whole the increase in passenger head count during that time period was 19%, boosting the number of seats sold. Cabin factor during the same period also grew by about 7% year-on-year over that period.

However, the year has seen greater fluctuation due to several other factors. Dropping oil prices over an extended period of time, while typically helpful for the industry in general, have resulted in increased competition, so yield has dropped. We and several other airlines take conservative positions in our hedging approach, and thus have not been able to capitalise on lower oil prices so far in 2016, although the full year should be more in line with market prices.

Strategies being implemented as far as reforms for boosting profitability include cutting several non-profitable routes especially among long-haul routes; rationalising our fleet to reduce the number of aircraft types being used; improving revenue through sales strategies for targeted segments; engaging in dynamic pricing to boost cabin factor; and optimising workforce while reducing the reliance on vertical workflow.

PUTTIPONG PRASARTTONG-OSOTH: Taking a long-term view of shifting trends in terms of inbound tourism, Bangkok Airways’ initial focus was the tourist market rather than the business market, and at the time not many Thais travelled abroad for tourism, meaning that up to 90% of our passengers were foreigners. In decades past, there was a clear skew toward European and American tourists flying into Thailand. This has shifted considerably, as Russian purchasing power increased, and more recently, Chinese tourists began arriving in strong numbers, both individually and through group travel. With the proportion of regional and Asian tourists increasing, routes are, of course, being developed and opened along those lines.

Another important factor has been that local Thais have increasingly been travelling as incomes across ASEAN have risen this past decade, leading to a more regional focus. As the world economy often fluctuates, this diversification in terms of markets is important in keeping traffic steady.

How are full-service Thai airlines looking to remain competitive as low-cost carriers (LCCs) continue to grow in popularity across the region?

PRASARTTONG-OSOTH: The aviation market in Thailand is experiencing high competition at the moment, as usual, and recent years have seen several LCCs establish Thai subsidiaries, a major example being Thai Lion Air in late 2013. When LCCs first began entering the Thai market, we at the time thought about how to position ourselves and remain competitive – whether to adopt those same trends and philosophies or to remain as something else, and determined to continue being a full-service carrier as the market still exists for full-service travel in the region. Furthermore, we have been successful in creating growth along niche and new routes through our privately owned airports, namely Samui Airport, Sukothai Airport and Trat Airport, creating new growth opportunities and being able to dictate the competitive environment.

JOTIKASTHRIA: In response to the growing preference for LCCs across Thailand and South-east Asia, we launched our low-cost subsidiary Thai Smile in 2012 to take advantage of the market opportunities present. Thai Smile has, of course, a lower cost base than THAI, which has resulted in the group being able to expand much more on short service routes, which include dozens of profitable routes, making our network more complete.

The key is to be able to tap as much of the ASEAN and South-east Asian market as possible at a time when increasing numbers of passengers can afford to fly in the region. To that end, we are planning to expand our Thai Smile fleet from 15 to 20 aircraft, as well as add new routes in the near future.

To what extent does increasingly liberalised air transport across ASEAN present both opportunities and challenges to Thai carriers?

JOTIKASTHRIA: Thailand has had an open skies policy in place for quite some time, and while that has resulted in strong tourism growth, a large number of players have already entered the Thai market, and competition has increased significantly. We have been competing in this environment for the past 10 years at the very least. However, it would be very beneficial for other ASEAN countries to open up and follow that example. To date, it seems that while many are doing so, they are opening up with conditions rather than aiming for full liberalisation, meaning the benefits have been slow. The potential for us would be quite large if we were able to run direct routes between two cities in foreign nations, so we are eagerly waiting for our neighbouring nations to continue opening up and liberalising the industry.

PRASARTTONG-OSOTH: I think that open skies can be seen as both an opportunity and threat to Thai airlines. In terms of opportunities, while in the past regional routes needed bilateral traffic agreements to dictate the amount of flights possible on any given day or week, liberalisation as has already been instituted by Thailand, Singapore and others results in more of a free market approach in that airlines are able to place their networks to support business growth, while encouraging the growth of codeshare partners as well. Both long- and short-haul networks can be supported by this. As far as being a threat, obviously liberalisation opens the same potential for other ASEAN countries, many of whom already have in place airlines with very advanced networks, equipment and readiness for expansion. In Singapore, for example, Changi Airport is opening its fifth terminal and third runway to anticipate and take advantage of this. However, Thailand still holds clear advantages in terms of geographic location for connectivity and remains well positioned.

What impact do you anticipate the planned expansions of Suvarnabhumi and Don Mueang Airports will have on connectivity?

PRASARTTONG-OSOTH: The government has recently clarified plans to expand terminals and runways to Suvarnabhumi Airport, which is a very positive step as expansion has been discussed for quite a while. Both airports are at or near capacity, and both the passenger and cargo segments will be improved. The expansion of Suvarnabhumi is most critical as it houses full-service carriers and routes which have a greater focus on connectivity, as well as most of the cargo coming through the country. Thus, increasing capacity to account for recent growth in tourism is greatly needed, and parking space increases for aircraft are also a welcome development.

JOTIKASTHRIA: As of now, Suvarnabhumi International Airport, which serves as the main gateway to Bangkok and Thailand as a whole, is already very congested, so we are looking forward to the phase two expansion of the airport. We have been working very closely with Airports of Thailand to come up with the optimal configuration for the airport in order to help ease traffic flow for international routes connecting with domestic routes, as well as also helping to better connect airline alliance members with Thailand.