Turning the tide at Thai Airways

Thai Airways president Piyasvasti Amranand has unveiled wide-ranging targets including lifting its service quality and improving its debt position as the troubled carrier attempts to safely navigate its way out of the stormy seas which have threatened its long-term future.

Like other network carriers, Thai Airways has struggled in the face of first rising fuel costs and then the biting economic crisis, together with increased competition. But its problems have been compounded by a heavy debt load with maturing loans in need of refinancing; political instability which included high profile protests which closed Bangkok's two airports late last year; and political interference.

Former Thai energy minister Piyasvasti officially took the helm at the Star Alliance carrier in October and at least joins with more stability at bothairline and country level . "I am taking on the job at a time when it seems we have reached the bottom and now it seems we are entering a stage of recovery," he says, pointing to an improvement in traffic during the third quarter and signs of some yield recovery in the fourth quarter so far. But, as he finalises work on a new four-year strategy for the carrier due in December, he adds: "There are still many things that need to be done in order to make that recovery sustainable and to strengthen the airline."

Stabilising Thai

After posting a full-year loss of 21.3 billion baht ($629 million) in 2008 the carrier embarked on anumber of measures to ease its problems, including cost-control work which is likely to see it hit an 11 billion baht non-fuel costs savings target this year.

"Thai Airways has done a number of things in order to allow the airline to operate through the turbulence and that is probably something which shows the strength of the company," says Piyasvasti. It also helped the carrier refinance around 23 billion baht in loans through local banks, althougha further 29 billion baht will need refinancing next year.

"There is now sufficient liquidity in the company to sustain operations for the next six months and that allows us to implement further reforms and structural changes in the company," says Piyasvasti. "We still have the problem of competition from other airlines, from low-cost airlines and Middle East airlines with very high products being offered to the customer."

One key area it will address is to make its product and service more "consistent" and, where necessary, raise standards to meet that of its competitors. "There are measures that can be done quickly. Some measures will take a bit more time, like retrofitting the aircraft with [new] seats and in-flight entertainment. Meals could be improved quickly, cabin crew service and services at every touchpoint with the customer will be improved," he says.

Fleet changes will also contribute. It has already taken delivery of three new Airbus A330s and five more will follow. Six A380s will now arrive in 2012/13, and some of its older aircraft - such as its A300-600s and some of its older 747s will be phased out.

"We probably need to lease some new aircraft for the medium-term before the new generation [models] are available, like the A350 and 787," explainsPiyasvasti. "When that is finalised and implemented that will help to speed up the improvement in the quality of product of the next few years."

It will also carry out a network review, likely to result in Thai concentrating on fewer destinations with more frequency and better co-operating with its part-owned budget unit Nok Air to tackle the threat from low-cost carriers, which include Thai AirAsia. "There will be more co-operation with Nok Air, the low-cost airline of Thai Airways which in the past had not really been acting as our low-cost airline but had been acting as our competitor," he says. "We have agreed Thai Airways and Nok Air will work together to fight other low-cost airlines and Nok Air will become the real low-cost airline of Thai Airways." These plans are being finalised and could be implemented from January.

Tackling Debt

He also wants to tackle the carrier's debt position and a recapitalisation is under consideration. "The debt ratio is over 3:1, and that is still too high. That is alright if the airline industry is operating in a normal environment, but given the current environment where there is so much volatility, 3:1 is too risky," he says. "So we need to bring down the debt and obviously the most straight forward way to do this would be to increase capital."

Alongside measures, such as streamlining its decision-making processes and a more consistent fuel hedging strategy, this should better place the carrier to benefit from improved political stability and the gathering pace of the Asian economic recovery.

Piyasvasti says it is too early to say if the carrier can avoid a loss this year -its small first half profit was outweighed by recently announcedthird quarter net losses of just over 4 billion baht. But at the very least it is targeting a return to profit in 2010.

Piyasvasti's appointment might also reduce the outside interference which has been seen at the carrier in recent years. He is determined to empower the carrier's own management team and says there is enormous potential waiting to be unleashed.

"This company has seen a lot of interference by the politicians and the board, to the extent that management had not been thinking at all," he says. "I was surprised at the amount of routine management work being done by the board, but that is being changed very quickly.

"They have to be clear in their roles," he adds, pointing to an August cabinet resolution which outlined the respective roles of the board and the management. "That was one of the conditions I requested to allow the president to have more authority in the procurement and the appointment of key staff," he says.

Source: Airline Business