THAI to launch regional budget carrier in 2013

Posted on July 5, 2012

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National carrier Thai Airways is working on plans with its sister budget airline Nok Air to launch a new low-cost airline by the middle of next year, with a focus on the regional market.

Chokchai Panyayong, acting president of Thai Airways International Plc (THAI), said yesterday that Nok Air has hired a consultant to conduct a feasibility study for the airline’s launch, with the findings expected to be finalised by the end of this month. After this, discussion over possible business directions between the two firms will kick off.

Chokchai is also THAI’s executive vice president for strategy and business development.

Under the plan, THAI would form a joint venture with Nok Air with registered capital of Bt200 million. THAI would hold a majority stake in the company.

The name of the new airline has not been finalised, but it will avoid the word ‘Thai’ to give it a more international image, especially within Asean. The routes will cover other countries in the region, not only Thailand.

Once up and running, it will be the third airline operated by THAI in addition to flagship carrier Thai Airways. THAI Smile will be launched officially this Saturday with its first flight to Macau from Suvarnabhumi Airport. THAI also holds a 49-per-cent stake in Nok Air.

Having a low-cost regional airline is expected to strengthen THAI’s market position by capturing passengers in every segment ahead of the implementation of the Asean Economic Community (AEC) in 2015.

The launch of the new airline brands follows a business model pioneered by Singapore Airlines Limited, which operates the city-state’s flagship carrier, plus Silk Air and two low-cost airlines – Scoot and Tiger Airways. Scoot focuses on medium and long-haul destinations, while Tiger flies to regional destinations.

THAI’s new airline will adopt a pricing strategy to compete head-on with AirAsia, Chokchai said, adding that the launch would directly benefit consumers by giving them more choice. He was confident there was room for growth in the market, despite the rising number of low-cost airlines. In Asia, this market is still small compared to Europe and the US, where it has been established for a long time, he said. Passengers flying low-cost airlines make up 35-36 per cent of the total air-travel market.

A source in the aviation industry, who declined to be named, was concerned about the plan for a new THAI-operated carrier, saying it could lead to overlapping destinations for THAI and its subsidiaries.

Tassapon Bijleveld, CEO of Thai AirAsia, welcomed the move and said the market was big enough for new players, pointing out that Asean’s 600-million-strong population would be combined into a single market in 2015 under the AEC.

“Success in the market will depend on ability,” he said, adding that he was confident that AirAsia’s strong brand and practical marketing strategy would allow it to keep its market share. Currently, the firm depends on head-on price competition with other players to protect its business.

THAI is struggling to emerge from a period of heavy losses. Last year, the firm posted a Bt10-billion loss. While it expects to earn Bt6 billion in net profit this year, and posted first-quarter net profit of Bt3.6 billion, it expects to see losses in the second and third quarters. In the first five months of this year, net profit missed its target of 50 per cent growth.

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Posted in: Thailand