Crowded Thai skies could call
mayday By David Fullbrook
BANGKOK -
Thailand's airline boom looks set to bust with
eight airlines, and possibly more to come, battling for
passengers. Different models may not be enough to save
carriers from collateral damage spilling over from other
sectors in a crowded market where no-frills jostles with
feeder and luxury carriers.
Last December,
low-cost carriers took to Thailand's skies, sending
prices tumbling. Budget Malaysian carrier AirAsia's
ahead of schedule entrance, arm-in-arm with Shin Corp,
the mighty communications conglomerate owned by Prime
Minister Thaksin Shinawatra's family, forced Orient Thai
to launch its low-fare division One-Two-Go ahead of
time.
Nok Air, Thai Airlines' new low-cost
offshoot, promises to start flying trunk routes by July.
In response, AirAsia, which operates small Boeing 737s
like Nok, has added a few more routes, grabbing
headlines, but One-Two-Go carries more passengers using
larger Boeing 757s and 747s.
Air travel was up
23.2 percent in the first quarter of 2004 against the
same quarter last year. Komsun Suksumrun, a Phatra
Securities aviation analyst, expects airlines to sell 9
million to 10 million domestic tickets this year,
against 7 million for 2003, and rising to 12 million in
2005.
"The impact is similar to what happened in
other parts of the world. Demand has been growing
through the year," says Komsun. "Down the road demand
could grow even faster as AirAsia adds more services and
Nok Air starts."
However, such growth may not be
enough to support so many airlines. "Thailand has
sufficient room to grow, but I'm not sure the market can
bear more than two or three true low-cost carriers.
There may be room for one more, Nok Air perhaps. Beyond
that, there will be a shakeout," says Ravindran
Devagunam, an aviation consultant with Deloitte.
Komsun agrees, seeing worrying parallels with
Singapore. "My big concern is a shakeout. With a market
growing 25 to 30 percent, there is only room for two to
three carriers, not five or six. I'm afraid we could end
up with too many airlines like Singapore."
Singapore hosts Singapore Airlines' (SIA)
subsidiaries Tiger Airlines and SilkAir, a Qantas
Jetstar sibling, ValuAir, and Lion Airlines, Indonesia's
leading private carrier, which runs a pseudo-hub. Even
for wealthy Singapore, with plenty of visitors, five or
six airlines may be a few too many for its 4 million
residents.
Nok's launch could burst the bubble.
"The shakeout might take place faster, depending on when
Nok Air launches. There will probably be a shakeout
within six to 10 months, with two or three entrants
exiting the market," says Devagunam.
If not,
tough competition from Thai Airways will. It is already
competing fiercely with One-Two-Go, a response seen
elsewhere in the region. "If you look at the AirAsia,
ValuAir model, the minute ValuAir came out the mainline
carriers cut prices to match," says Devagunam. "Will the
likes of ValuAir be able to sustain that kind of price
competition if they are not truly low cost?" he asks.
One-Two-Go is responding by trying to replicate
the casual walk-up approach taken by bus companies. In
the works: a smart card holding personal information and
a photo, replacing tickets, boarding passes and cash.
Passengers will use it to pay for tickets by buying
credits at convenience stores. Cardholders will receive
bonus credits, special offers and more. One-Two-Go gets
a powerful marketing database.
However
Orient/One-Two-Go is not prepared to destroy itself
fighting a potentially unwinnable battle against
well-connected AirAsia and Nok Air. Such concerns
influenced it to select 757s, as they can easily switch
to medium-haul lucrative Asian chartered and scheduled
routes.
Airlines reveal Achilles'
heal With an increasingly crowded market, Thai
AirAsia may need to tweak its model to survive because
according to Devagunam, "The AirAsia model from Malaysia
may not be completely relevant." Meanwhile Nok's
heritage may be its Achilles' heal. Thai managers, often
divided by squabbles, could turn on Nok if it steals
traffic, rather than picking up travellers new to
flying.
Other carriers may fall victim to
collateral damage as travellers come to expect low fares
on all routes, and tourists wise up and start booking
no-frills airlines online before they depart. "The
survivors will be those that know the model well and how
to drive costs down. I don't have high hopes for Air
Andaman, Bangkok Airways and Phuket Air," says Komsun.
Air Andaman is aiming to cut a niche by
developing new routes and offering a quality, frills
service, akin to JetBlue. PB Air, a small airline
founded by the president of Boonrawd Brewery, continues
to struggle on by focusing on secondary routes using
comfortable new regional jets that come with high price
tags, which make cutting fares difficult.
Phuket
Air is turning to medium-to-long haul routes, including
London, while maintaining domestic services with
turboprop aircraft that, while cheap to operate, are
traditionally unpopular with jet-loving Asians.
Bangkok Airways labels itself "Asia's boutique
airline" to justify its high prices. Whether travellers
will agree in the medium-term is questionable.
Meanwhile, its Bangkok-Samui Island route, one of the
world's highest yielding, is under threat. Upset that
Bangkok Air is dragging its heels about opening up Samui
airport, which it owns, to other airlines, the
government has threatened to build a bigger airport on
the island.
Separation distances make that
unlikely. Meanwhile an airport on nearby Pha Ngan Island
is being considered, with Phuket Air rumored to be
lobbying hard for the rights. If that airport
materializes, Bangkok Air will be in trouble, especially
as its routes to other tourist destinations around the
region face growing competition.
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