Headwinds before takeoff for new Thai Airways team

[webfact]

Headwinds before takeoff for new Thai Airways team

By Chayut Setboonsarng and Panu Wongcha-um

 

FILE PHOTO: Thai Airways aircraft are parked on the tarmac at Bangkok's Suvarnabhumi International Airport March 27, 2015. REUTERS/Athit Perawongmetha/File Photo

 

BANGKOK (Reuters) - Struggling national carrier Thai Airways International PCL 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 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 last week replaced its latest CEO after 17 months.

 

In contrast, Singapore Airlines Ltd, majority-owned by state investor Temasek, and government-controlled Air New Zealand Ltd, 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.

 

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.

 

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 license, 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 license.

 

"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 is planning to do that with its regional offshoot SilkAir to provide a more consistent experience for customers.

 

In the budget market, Nok Air, 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.

 

"There could be an opportunity for Thai Airways to increase its involvement and potentially take over Nok," CAPA Center 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 and Boeing Co 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 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)

 

-- © Copyright Reuters 2018-09-18

[Chris Lawrence]

10 minutes ago, webfact said:

 

The military-led Thai government, which owns 51 percent of the airline, has representation on the board and oversight of investment plans.

Here in lays the problem.

 

12 minutes ago, webfact said:

In July, the Transport Minister Arkhom Termpittayapaisith said that the carrier would be purchasing 23 new jets for $3 billion but it has yet to place a formal order or disclose the types involved.

The current fleet although maintained are sh*t. Need new planes. Need them now. 

 

Also need good leadership. 

14 minutes ago, webfact said:

Piyasvasti, who was president from 2009 to 2012, brought the airline into profitability but was removed abruptly by the then democratically-elected government.

Maybe bring him back?

[1337markus]

needs to adjust to a market where the good times of having a near-monopoly at home are long over.

 

They just woke up to that fact?

 

Then there are the I am so important people who fly free or get easy upgrades.

 

Then look at the numbers dressed in their colours sitting round check in areas, etc doing nothing but looking at FB on the phone.

 

Some of the issues Singapore airlines would fix immediately.

 

[DoctorG]

13 minutes ago, 1337markus said:

Then look at the numbers dressed in their colours sitting round check in areas, etc doing nothing but looking at FB on the phone.

But these are the relatives of VIP's. We cannot fire them. ?

[Searat7]

How about all the planes taken out of service (particularly the A-340’s) which they did not want to sell before because it would mean booking a loss ?  Until this airline is run by a professional with turnaround experience in the airline industry and there is a hands off approach by the government there is absolutely no chance that this airline will return to sustained profitability.

[fantom]

11 minutes ago, Father Fintan Stack said:

All government employees get 50% off tickets.

 

It's cronyism at its very best.

Fascinating bit of information, do you have any insight as to what other groups get free or reduced priced tickets? And, what if any perks are given to said groups?

[laocowboy2]

1 hour ago, Searat7 said:

How about all the planes taken out of service (particularly the A-340’s) which they did not want to sell before because it would mean booking a loss ?  Until this airline is run by a professional with turnaround experience in the airline industry and there is a hands off approach by the government there is absolutely no chance that this airline will return to sustained profitability.

They wanted to sell them but were not allowed to by the government precisely because there would be a loss crystallized.  Management pointed out (in vain) that the value had gone anyway and the assets should have been impaired years ago - but were repeatedly told 'no'. The 340s  were so fuel-inefficient that they made a loss even at 100% load factor and full fares charged to all!

[Jeremy50]

People still fly with this airline? I had no idea.

[scorecard]

2 hours ago, 1337markus said:

needs to adjust to a market where the good times of having a near-monopoly at home are long over.

 

They just woke up to that fact?

 

Then there are the I am so important people who fly free or get easy upgrades.

 

Then look at the numbers dressed in their colours sitting round check in areas, etc doing nothing but looking at FB on the phone.

 

Some of the issues Singapore airlines would fix immediately.

 

 IMHO another item needing big change is the attitude of the majority of their trolley dollies. 

 

 

[PerkinsCuthbert]

For decades, Thai was seen as a cash cow and a sinecure for life for employees and their extended families, among other vested interests. As the article says, this should have begun to change at least ten or fifteen years ago, with the coming of low-cost, regional airlines. However, just as with so many infrastructure projects, once the cancer has infested the body, it can be very difficult to eradicate.

[shaurene]

I am well retired now but have had lot of experience running companies, in the west.

Thai Airways will NEVER turn around from in the RED to in the GREEN. Government ministers who have no clue what they are doing to turn Thai Air around, I flew with Thai for more than 10 years and had a GOLD CARD with all my miles, but, all of a sudden prices started to increase on the long haul. I changed carriers.

FAULTS:

1: Apply at home and internationally for a CEO.

2: The Government MUST keep their fingers out, 100%

3: Stop this FREE travel. Most of them are wealthy, import and know someone, Thai government ministers should be funded by government expenses  It is ok to give staff a % off, this is very common with air lines.

4: Airport staff need to be trimmed, far to many doing nothing.

But it will never change, sorry to say.

 

 

[Piet390]

The main issue at hand is that Thai Airways as mentioned previously has almost every type of aircraft from both Airbus and Boeing, ranging from A320’s & B737 to A380’s and 747’s. 

 

When looking at competing airlines, especially those in the Middle East, you will note that much of their fleets are standardised and do not operate more aircraft types than necessary. 

 

The fact that Thai Airways has over 7 different types of aircraft from both major manufacturers increases the costs concerning both maintenance and training. 

 

Streamlining their fleet would reduce the costs greatly.

[orchidfan]

2 hours ago, fantom said:

Fascinating bit of information, do you have any insight as to what other groups get free or reduced priced tickets? And, what if any perks are given to said groups?

ID50 and ID80 etc fares for airline staff and many travel agents are common...in fact the norm...worldwide in the Aviation and travel industry

[scorecard]

1 hour ago, shaurene said:

I am well retired now but have had lot of experience running companies, in the west.

Thai Airways will NEVER turn around from in the RED to in the GREEN. Government ministers who have no clue what they are doing to turn Thai Air around, I flew with Thai for more than 10 years and had a GOLD CARD with all my miles, but, all of a sudden prices started to increase on the long haul. I changed carriers.

FAULTS:

1: Apply at home and internationally for a CEO.

2: The Government MUST keep their fingers out, 100%

3: Stop this FREE travel. Most of them are wealthy, import and know someone, Thai government ministers should be funded by government expenses  It is ok to give staff a % off, this is very common with air lines.

4: Airport staff need to be trimmed, far to many doing nothing.

But it will never change, sorry to say.

 

 

 

It will also never succeed, because:

 

- All staff paid way in excess of an appropriate salary band for the job.

- Company funds personal income tax so staff get a salary build up.

- Way too many staff compared to other airlines with similar profile of routes etc.

- Many manager positions which have no reporting staff and no managerial duties.

- Should use less expensive accommodation, same as many airlines do. 

- Cabin crew can reject their up-coming personal flight schedule (I don't want to go to Paris this month, it's too cold)

- Close to zero checking / assessment of work performance (we don't need to check personal performance because most of our staff have a masters degree).

 

From post #12:     '4: Airport staff need to be trimmed, far to many doing nothing'.

 

A few months back at CM airport:

 

- My Thai son asked at the ticket counter about the fare for the next Thai flight to swampy. Response: check the website.

 

- 10 staff at the Thai Smile departure gate, way beyond what is needed. 

 

Edited September 18, 2018 by scorecard

[Skypirate]

As a Retired career Airline pilot, I would suggest they look at the operating profile of the LCC's.

 

Increase aircraft utilization to more than 14 hrs a day.

Reduce aircraft fleets to a few common types.  In turn MX and training costs are reduced and Crew utilization is increased.

Consider employee base salary with reasonable productivity advancement bonuses.

 

We have systematically watched all the Asian Legacy carriers go through the morphing stage with increasing competition from LCC carriers.  KE, JAL, SIN and Cathay have all adapted to new strategies.  TG will need to do the same.

 

 

 

 

[GinBoy2]

I'm going to agree with a couple of previous comments and add some.

Firstly the whole airline biz, is hard. You invest in billions of $ to make margins in the pennies.
To quote Richard Branson, "How to become a Millionaire. Start as a Billionaire, then buy an airline"

But TG has got to be one of the most ineptly run companies on the planet. For the past few years most international airlines have been racking in money.

US airlines, who went bust radically changed their business model, and are now some of the most profitable in the industry.

Turnarounds can be done, but it takes imagination and willpower, something severely lacking in Thailand.

So, I'm pessimistic that this basket can ever come back from the zombie state. We have had the lowest jet fuel prices for over a decade, and they still couldn't make a profit. That's now on the rise again, so NOW they are going to make it profitable!

Aircraft mix. Jeez, it's like a kid looking at the next door neighbor and his toys. Well if he's got one of those, I want one.

The the A380 purchase was a classic. They actually tried to cancel it, since with one of the management changes they did correctly recognize that their load factors meant they wouldn't pay. They then discovered that their crack negotiating team had agreed to such horrendous cancellation terms they couldn't back out.

The A340-500's just lose more and more value every day they are stored in DMK. They had the chance to sell them a few years back, but since it was less than what they had them on the books for, they declined. Now they are practically worthless

[trainman34014]

'' On paper, things look good for Thai Airways '' he said.     Sadly that is where the good times will remain as they are clueless when it comes to running an airline which has only remained in operation to service the needs of the Elite !

[SOTIRIOS]

...they been milking the cash cow to death....and tourism in general....for decades...

 

...another rampant perversity...

[boonrawdcnx]

They wanted to sell them but were not allowed to by the government precisely because there would be a loss crystallized.  Management pointed out (in vain) that the value had gone anyway and the assets should have been impaired years ago - but were repeatedly told 'no'. The 340s  were so fuel-inefficient that they made a loss even at 100% load factor and full fares charged to all!

“The 340s  were so fuel-inefficient that they made a loss even at 100% load factor and full fares charged to all!”

Sorry but I don’t know where you got this idea from ?

Of course THAI has difficulties selling them because there are now much newer and more efficient planes on the market.

The A340 was Airbuses first long range plane it was produced for 20 years. A340/2/3/5/6
With the A340 / 600 then holding the title of longest airliner in the world.

The A340 was then (90’s) a real masterpiece in design, performance and efficiency.

Engineers and designers combined their expertise to develop an aircraft that could fly longer distances, get there faster, fly at higher altitude giving you a quieter and smoother ride.

The A340 Airbus’s first long range plane rivaled the performance of the Boeing 747 100 and 200 models.

The airplane is still in use with many airlines and over the last few years I had the joy of flying on A340’s on several airlines like Lufthansa BKK-FRA - FRA, Philippine Airlines across the pacific LAX-MNL for 14.5 hours nonstop - space was so great on that plane I almost wished the flight would last 30 hrs!

I flew on them several times with Air Tahiti Nui PPT - AKL, AKL- PPT , PPT - LAX LAX - CDG, NRT - PPT - NRT - they use A340’s exclusively on all their international routes and I don’t think they would do that if they would loose on every international flight they offer!

ATN fly the A340 on the PPT - LAX - CDG itinerary - an almost 10.000 mile journey - in 19 hours with a 2 hour stopover in LAX.

Of course they are outdated now like the B747’s but the myth that they are fuel insufficient even with a full load is - yes nothing but a myth.


Sent from my iPhone using Thailand Forum - Thaivisa mobile app

[The manic]

10 hours ago, Father Fintan Stack said:

All government employees get 50% off tickets.

 

It's cronyism at its very best.

Nothing to do with cronyism. Its an employment benefit common in many businesses.

[The manic]

7 hours ago, Skypirate said:

As a Retired career Airline pilot, I would suggest they look at the operating profile of the LCC's.

 

Increase aircraft utilization to more than 14 hrs a day.

Reduce aircraft fleets to a few common types.  In turn MX and training costs are reduced and Crew utilization is increased.

Consider employee base salary with reasonable productivity advancement bonuses.

 

We have systematically watched all the Asian Legacy carriers go through the morphing stage with increasing competition from LCC carriers.  KE, JAL, SIN and Cathay have all adapted to new strategies.  TG will need to do the same.

 

 

 

 

I wont use them again because they were too hot. Dreadful. The crew areas were lovely and cool.

[GinBoy2]

8 hours ago, Skypirate said:

As a Retired career Airline pilot, I would suggest they look at the operating profile of the LCC's.

 

Increase aircraft utilization to more than 14 hrs a day.

Reduce aircraft fleets to a few common types.  In turn MX and training costs are reduced and Crew utilization is increased.

Consider employee base salary with reasonable productivity advancement bonuses.

 

We have systematically watched all the Asian Legacy carriers go through the morphing stage with increasing competition from LCC carriers.  KE, JAL, SIN and Cathay have all adapted to new strategies.  TG will need to do the same.

 

 

 

 

I think that’s very true.If you look at the US legacy airlines, after they existed Chapter 11, they became a sort of hybrid.

 

Their international operations are still pretty traditional, but internally they look no different to any of the LCC, in fact do a price comparison, and there is no difference

[rodney earl]

I used to fly thai but I stopped when I found out that all of their food is killed and prepared the halal way (cut throats and let the animal bleed to death).

[Ossy]

Come on, listen up, you guys . . . I've posted, here on TVF, about every 3mths for the past year, that THAI are doomed. I've read with interest many other posts, today - some of them good enough to be turned into essays - but they all boil down to the ONE SIMPLE DOOMSDAY FACT and that is that no-one, with even an ounce of wisdom and experience of running a successful airline, has got close to the interview room door and that's because no man worth his salt would want to take on the poisoned chalice of an airline that's been allowed to drift into the doldrums for the last 10yrs and, worse still, one that comes under NCPO control.

 

And this new guy, Sumeth, with a background in media and entertainment - comedy, mostly, I understand - with a state-backed entity, simply will not know where to start, apart from installing his ex-employer's comedy capers on the in-flight boredom package, perhaps. They're doomed but, if I'm wrong, I might even consider flying with them . . . MIGHT!

[Chris Lawrence]

When does the little boy start that makes the paper air planes. He is supposed to be heading up the design team. Or maybe the military have him. Either way new set of brains may do wonders and young brain at that.

[Sydebolle]

When I want to learn French, the options might be best choosing a native French speaker with teaching background.
When running an airline it is an absolute must to understand something of the industry. The short stick of the end is that it has to be a Thai national; airline chiefs are not bred in a nursery.

Some Middle East carriers, piling money monthly, are run by non-Middle Easteners. TG was a pristine carrier until 25 years ago. Chatichai was sent into mandatory retirement, all the farangs (Niels Lumholdt or Lennard Holmgren, just to name two) were also retired and "experts" took over. Of almost any aircraft manufacturer and almost any engine manufacturer there were specimens to be found within the TG asset book of corruption. Flights were rerouted or cancelled at will - the result was, that passengers went elsewhere.

The incredible mess at both Don Muang and Suvannaphum airport contributes further to the unattractiveness of using Thai for non-Bangkok flights (Europe-Asia/Australia). I - for one - still have to see endeavours for a dialogue on how to facilitate the transit between the two airports, the shortening of the sometimes endless queues and the (re-)motivation of the mostly terrible, grouchy, unfriendly staff of TG. 

It takes more than just a political appointee; bring in a team of (retired?) experts from the past who have never had a problem in working in a multi-cultural environment. Let it be said but some things are really better run by unbiased caucasians, who have no face to lose and not focussing only on kick-backs and fringe benefits! 

I haven't flown TG for the last 10+ years. Long haul features Asian seating (too narrow/tight), the food sucks and the ground as well as inflight service is second to worst. Twice flights got cancelled and upon rerouting requests (for me to get to my destination) I was sent down the bureaucratic stairway to hell. I have the choice and decided to fly my 80'000 miles yearly with other carriers which understood, that the passenger and not the airline has the choice. 

[BKKBike09]

The TG A340's aren't stored at DMK, but at Utaphao, nice and close to the sea and all that moist salty air. No-one will buy them now. With advances in engine technology over the past two decades reliability and performance of modern twin jets pretty much means 4-engines are history, even for ultra-long range flights. What did Quantas use earlier this year for its Perth-London 17-hour marathon service? 787, a twin.

 

TG's problems don't just extend to their fleet make-up, but also their engine choices. Historically there was no standardization there, either, so the fleet is powered by a mix of RR, P&W, GE/CFM. Meaning E&M crews trained on multiple systems. Hugely inefficient.

 

Reducing the number of employees and freebie flights is critical but that's a hot potato so don't expect much action there!