Thai Airways Diversifies Portfolio and Takes Multiple Routes to Bring Back Profitability

Written by Nichakorn Prateepsawangwong on January 11, 2018

The Background

Swearing by its mission to be “the first choice carrier with touches of Thai”, Thai Airways International (THAI) has long been identified by its quality service, onboard catering and friendly welcome, as reflected by its position among the top 20 best airlines in 2017 by Skytrax.

The national carrier of Thailand was founded in 1960 as a joint venture between Thailand’s domestic carrier, Thai Airways Company (TAC), and Scandinavian Airlines System (SAS) to later become state-owned in 1977 through an acquisition by the Ministry of Finance. The Ministry today holds more than 50% of the company’s shares.

Aside from being a commercial airline, the national carrier extends its offerings to transport goods, parcels and mail by air to cities around the world.

Its catering department also brought its renowned first-class menu to land through a bakery franchise called Puff & Pie in 1997 that surprisingly became one of the unit’s main income generators.

The efforts led to more boutique restaurants openings in 2013, targeting young customers that look for unique dining experiences.

Puff & Pie Bakery shops are located at many airports, leading public hospitals, and government offices in Thailand. Source: EDTGuide

Shielded by the local government and profiting successful side-businesses, how did the prestige national airline hit so much financial turbulence?

The Challenge

From 2013 to 2014, Thailand’s economy essentially shut down as the citizens protested against then Prime Minister Yingluck Shinawatra, the sister of Thailand’s former president, Thaksin Shinawatra.

The country’s political unrest damaged the tourism industry as many travellers were weary of visiting Thailand due to safety concerns and locals suffered from slow economic recovery.

Protests against then Prime Minister Yingluck Shinawatra. Source: The Malay Mail

Less flights into the country naturally impacted THAI as witnessed in the company’s reported cumulative losses since April 2013 of over $500 million. Lower passenger numbers, fuel prices and foreign exchange losses were also among top attributing factors.

Following the protest of Yingluck in 2014, Thai Airways’ annual number of passengers dropped from 21.5 million in 2013 to 17.8 million in 2014.

Thai Airways annual passenger numbers from 2008 to 2014. Source: CAPA – Centre for Aviation and company reports

To make matters worse, the airline had expanded its fleet by seven aircrafts to 100 planes in the fourth quarter of 2013, which was one of the factors, among weak Thai baht, that resulted in a total net loss of $487 million.

Thai Airways annual net loss (in THB, billions): 2008 to 2014. Source: CAPA – Centre for Aviation and company reports

Even the company’s catering business couldn’t reverse the heavy losses.

Those [catering unit] high-margin businesses currently contribute only 20% of our revenue, while 80% of revenue is from ticket sales,” said Usanee Sangsingkeo, Executive Commercial Vice President and acting President of Thai Airways International

The companies troubles were quickly summed up:

The company [THAI] had not made profit for four consecutive years” – Nikkei Asian Review

How did the company manage to bounce back?

The Strategy

As 80% of the airline’s revenue came from ticket sales, the airline had to pay more attention to its main income generator to save itself from seeing more red.

Thai Airways should focus on profitable routes like Japan and premium offerings,” said Chakrit Puechpan, Executive Vice President of MFC Asset Management, which holds shares in the airline.

Well, the company was in luck.

In June 2013, Thai citizens received a visa exemption to Japan, a favorite international destination for Thais. This, together with the low fares provided by competitive online travel agencies, and the emergence of online travel reviews encouraged more Thais to travel and kickstarted the country’s tourism once again.

Social media was also a large factor that influenced more travellers to pack their bags. Given the popularity of Facebook pages like Ar-Pae.com, Pro Addict, and Chang Trixget that share travel discounts and promotions and garner millions of  followers. To reach a demographic that would be highly interested in using its services, the company established partnerships with Facebook groups and offered them exclusive promotions to lure more customers.

Roughly 23% of travellers in APAC often look for great travel deals when consuming content.

Amid the fierce competition from low cost airlines, THAI could no longer afford to sell its tickets at prices much higher than competitors.

To reach a demographic that would be highly interested in using its services, the company established partnerships with Facebook groups and offered them exclusive promotions to lure more customers.

Thai Airways promotions on promotional page, Ar-pae.com. Source: Ar-Pae.com

To compete with the influx of budget airlines, Thai Airways launched a subsidiary called Thai Smile to focus on domestic and regional destinations.

Thai Smile was voted as the top airline from Tripadvisor’s Travellers’ Choice in 2017. Source: ThaiIndia

Although the airline’s fare is still pricier than fellow budget airlines like AirAsia, VietJet, and NokScoot, many travellers still find full-service carriers like Thai Airways to be more bang for the buck given perks like a flexible business class cabin.

By 2015, the number of domestic passengers rose to 31.3 million, from which Thai Airways and Thai Smile transported 6.1 million passengers, 28.8% higher than the year before.

To expand its profit centers even more, Thai Airways launched an ecommerce site called Thai Shop to sell branded merchandise such as luggage and backpacks online. The company partnered with ecommerce enabler aCommerce to successfully capture online demand from channels popular among travellers like search engine to boost its online presence.

Thai Airways ecommerce website, Thai Shop, selling travel essentials and branded merchandise.

The Future

The airline plans to revamp its fleet of aircrafts by adding 30 more new planes over the next five years to boost its competitiveness and maximize fuel efficiency to save on operating costs. But could it be too soon?

The airline’s financial status has recently improved after years of challenges. The plan for new aircraft purchases may be too early and could result in a jump in debt,” said Siam Tiyanont, an analyst at Phillip Securities.

The company seems to be moving in the right path as Thai Airways gained a profit of $445,000 in 2016, the first time in the last three years. Slow and steady does it to financial recovery.

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