Aviation

Thailand Aviation: What Happened to It?

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In our growth markets series, we covered China, Turkey, Australia, Indonesia and South East Asia Aviation. Today, we take a look at Thailand.Last year, Thai Airways announced it was axing the Bangkok-Los Angeles route, in a move that put an end to 35 years of service to the US. Rome and LAX were two loss-making routes reported to be costing the airline $3 million a year. After a net loss of $445 million in 2014, Thai Airways’ debt skyrocketed to $5.9 billion, the highest among Southeast Asian airlines.

Once admired for its dream of competing with the likes of Singapore to become Southeast Asia’s global hub, Thailand has seen things changing fast. From the delivery of its flag carrier’s first A380 to the red stamp received by ICAO last year, Thailand seems to have lost its edge. Or has it? After all, Thailand’s airports have doubled traffic in six years, and carriers are ramping up with aggressive plans for expansion.

South East Asia Restructuring

Even excepting Malaysia Airlines, whose financial troubles were exacerbated by two major aircraft losses less than five months apart, Thai airlines are far from being the only ones to be in or near the red.

Cathay Pacific – whose shares reached a 7-year low this October - is the latest of these to acknowledge that massive restructuring will be needed if it wants to survive. In a post I wrote last year, I counted “less than five profitable LCCs (low cost carriers) in the region (for 24 actors), and barely ten FSCs (full service carriers) out of around 40 players”.

Even South East Asia’s flagship Singapore Airlines caught attention last year when it sent a scary message to investors:

SIA’s future is grim if it doesn’t change the way it do business. The days of Singapore and SIA being the long-haul hub for the ASEAN region is over.

- Mohshin Aziz, Associate Director of Equity Markets (Research) at Maybank Investment Bank

From this point of view, Thai Airways could be heading in the right direction. Its situation worsened in 2014, but now the airline appears to be in safe hands and its executives look confidently towards the future. After routes and staff cuts, the airline is now working on a 10-year expansion plan. All this is when its competitors are preparing bitter plans.

According to a Bangkok-based financial analyst quoted by Bloomberg, Thai’s “high costs, old fleet and inefficiency” kept the airline lagging behind budget and other FSCs in past years. But its management is convinced that "the worst is over".

Low Cost Takes All

Low cost carriers and Middle East carriers are usually blamed for the poor relative performance of legacy airlines in South East Asia. For sure, Bangkok is one of Middle East carriers’ top destinations. It is served by four daily flights each from Qatar Airways and Etihad, two from Turkish Airlines, and six flights a day from Emirates – as many as London Heathrow!

In 2014, Emirates carried 1.3 million passengers to Bangkok, making it the carrier’s second busiest destination. Thailand has also attracted long-haul LCCs Eurowings and Norwegian. That underlines how challenging it has been for Thai airlines to keep fares reasonably high and costs competitive, even with excellent offers. FSC Bangkok Airways, which once had plans to go for long haul cancelled its twin aisle jets orders long ago, and has since focused on profitable growth.

This is also the bet taken by Thai Airways when launching Thai Smile, a medium haul subsidiary launched to operate all single-aisle flights for its mother company. Thai Smile has lower operation costs - despite offering full service - and has allowed the group to keep expanding in Asia without hurting profitability.

Indeed, Asian medium haul traffic has been equally challenged by another kind of player: LCCs. Thailand has one of the highest low cost penetration rates in the world, comparable to Malaysia. On domestic routes, low cost penetration in Bangkok has grown from 40% in 2011 to 67% in 2016. Meanwhile, LCCs have a market share close to 30% for international routes out of Thailand.

As a result, in 2015 more than a third of passengers out of Bangkok are flying on an LCC. In Thailand, LCCs managed to stay relatively healthy, being either profitable (Thai AirAsia) or close to it and with positive margins (Nok Air). Nok Air would likely be profitable if the domestic market had not declined in 2014 following political instability.

Safety Concerns

In 2013, Thailand’s political unrest along with bombings in Bangkok made headlines. These had an impact on tourism, but despite that arrivals have consistently increased, more than doubling since 2009 with the exception of 2014 where tourist flows dropped severely. And although arrivals grew 11% on average in the past decade, still it is believed that some domestic and international routes have overcapacity.

About a year ago, following the fall of the previous government, ICAO downgraded Thailand’s aviation safety rating, after audits reported breaches and lapses. As a consequence, the US-based FAA as well as Japan and Korea are restricting Thai airlines from opening new routes. The FAA also prevents Thai airlines from expanding codeshares with US partner airlines.

Safety concerns could also have impeded the expansion of Thai airlines to internal destinations, but it is fair to say that the restrictions did little damage to Thai Airways: the airline has mostly cut routes these past years to reduce losses.

However, Thai Airways executives have confirmed that the airline will be looking for expansion soon. Getting the Thai civil aviation regulatory body back up to standards will be critical in making sure the airline can easily ramp up business on markets untouched during restructuring. The government is said to be working hard to restore the appropriate level of safety, allowing Thai airlines to expand on safer grounds.

Bangkok Airports Handle 80+ Million Passengers

Bangkok is an impressive aviation capital. With 83 million passengers flying in and out in 2015, the city is the 12th busiest aviation system in the world. Suvarnabhumi, the main gateway to Thailand, reached its full capacity of 45 million passengers five years ago.

Suvarnabhumi airport has been known to impede aviation growth in Thailand, and this year IATA CEO Tony Tyler called for the country to accelerate expansion and fix key issues. However, Airports Of Thailand (AOT) hopes to progressively double capacity to 90 million passengers by 2021 and has already taken "the first step in Suvarnabhumi Airport becoming an Asian hub," according to the Minister of Transport.

Construction work to expand the airport began this year. The first phase, to be completed in 2019, aims at increasing current capacity by 30%, to 60 million passengers. Two other expansion phases are planned that include the addition of a third runway and a second terminal.

When Suvarnabhumi airport first opened in 2006, it was to replace Don Mueang international airport, Thailand’s former international gateway. Don Mueang was closed in September 2006, after all operations moved to Suvarnabhumi.

Don Mueang Airport Reopened

But Don Mueang reopened shortly after following technical problems at Suvarnabhumi that reduced the airport’s capacity, and issues with high airport charges. By 2012, the Thai government ordered all LCCs to be moved out of Suvarnabhumi, in an attempt to reduce congestion.

It is important to recognize that 2012 was already a critical year for Suvarnabhumi Airport: it handled 53 million passengers - like in 2015 - despite its capacity of 45 million. Since then, Don Mueang has grown at the same rapid pace as LCCs carriers in Thailand. More than 30 million passengers passed through the airport in 2015, making it the world’s biggest LCC airport. Aided by the growth of carriers like Air Asia and Nok Air, Don Mueng airport reported a 21% year on year growth in September 2016.  In less than five years, Southeast Asian LCCs have grown so fast they have saturated a 30 million-passenger airport reopened solely for low cost traffic.

Airline-Operated Airports

Thailand’s biggest airports (Bangkok Suvarnabhumi, Don Mueang, Phuket, plus regionals Chiang Mai and Hat Yai) are operated by Thai public company Airports of Thailand (AOT). Most other Thai airports are operated by the Thai department of civil aviation. AOT’s six airports accommodate most of the country’s passengers and account for 110 million passengers (21% growth in 2015).

Thailand is also one of the few countries where private airlines operate airports. Bangkok Airways operates three airports at Koh Samui, Sukhothai, and Trat. Sukhothai and Trat are small airports, but Koh Samui handles 2 million passengers a year, making it the country’s seventh busiest airport; authorities have been weighing the construction of another airport there for a long time. Bangkok Airways built the airport several decades ago before Koh Samui became a busy tourist destination. Now, the authorities want to build a new publicly-owned airport to ensure that all airlines benefit from fair landing rights and competitive fees.

Airport Talent

Bright Future

As this article was being written, freshly-released September 2016 figures show double-digit growth in almost all areas. A tough market, sometimes affected by political unrest, has troubled a few airlines in Thailand, but agile LCCs have managed to keep Thais travelling.

Most carriers are now focusing on restructuring and profitable growth, both domestically and internationally. Infrastructure will likely remain a concern as it is difficult for capacity growth to catch up with flight growth. But Thailand looks to be doing better than many of its ASEAN counterparts on this point.

The conclusion is that with an improved infrastructure and airline profitability, Thailand will likely soon be back on its way to becoming a major aviation hub in the region.

Please leave your feedback or comment in the area below.

Photo: chuttersnap/Unsplash

Introduction to Airport Planning: The Master Plan

On January 1st, 1914. Abram Pheil became the 1st scheduled passenger in aviation history when he travelled between St. Petersburg and Tampa on a two-seater: Benoist XIV. More than 100 years have passed since, and aviation has bloomed as a whole new industry that connects and globalizes the world. According to ICAO, by 2010 there were more than 25,000,000 aircraft movements around the world transporting around 2.8 billion passengers. Certainly a leap compared to 1914. And it keeps on going. Aviation has constantly grown twofold every 15 years, indicating that by 2030, there will be around 6 billion passengers transported through air in the world. As aircrafts become larger, deregulation worldwide increases, and aircraft numbers climb across; there is a big question mark left to answer: How do airports adapt to all this growth?

Airport planning has become a key activity in order to maintain airports to speed with the quick evolution of the Aviation Industry. This, precisely, will be my main blogging topic, bringing you analysis, opinions, in-depth related topics and insights. Of course, your feedback is welcome at the end of each post. But first let’s start from the beginning: Airport planning has a very well-defined product, the “Master Plan”.

What is an Airport “Master Plan”?

The industry provides a lot of definitions which are perfectly valid, but I find that the most complete one is the following:

"The goal of a master plan is to provide guidelines for future airport development which will satisfy aviation demand in a financially feasible manner, while at the same time resolving the aviation, environmental and socio-economic issues existing in the community." – FAA.

Other definitions by ICAO (Section1-2) or industry experts such as Kazda and Caves miss the “financially feasible manner” aspect, which is the end-tail drill of this master planning activity. The need of this “activity” is simply driven by the fact that most airport developments tend to cost quite a lot. Any slight change in the infrastructure of an airport will usually cost around the order of magnitude of the tens of millions (£,$,€), and these changes don’t happen overnight. Reality is that airport development is a tedious process (especially in Europe), and because of the impact that airports have on their localities and the magnitude of the investment costs, any change in an airport must be smartly designed and justified.

The best way to understand what must a Master Plan contains is to start by understanding what relationships do airports have with their locality, region, country, airlines, etc. And all these interactions must be considered when planning since it is crucial for the success of any airport project that the development plans are inclusive from the very beginning of all possible stakeholders.

Airport Master Plan Elements

There are many elements that confine airport planning. All these elements are to be dealt with caution since getting any aspect wrong can be a tipping point for the success or failure of an airport project.

Here are some read-friendly Master Plans for UK medium-sized airports where the different elements can be identified: Aberdeen AirportManchester Airport, Liverpool AirportEdinburgh Airport, London City Airport, and Bristol Airport. All these elements might have different impacts on the airport planning process and have their associated risks detailed below:

Regulation

❖    Adds volatility to the demand. ❖    Dictates the guidelines for design and operation. (Annex 14 ICAO) ❖    Likely to change over short periods of time.

Land Use

❖    Any expansion will usually require of extended surface take. ❖    May limit the expansion options. ❖    Will make the project grow in cost.

Surface Access

❖    Integrates airports as an inter-modal node of the region where it is built. ❖    Threat to service and region benefit impact.

Route Development

❖    The route profile demand will very much define the airside requirements. ❖    It can be considered the main “service product”. ❖    An airport with insufficient runway limits itself to entire markets.

Government

❖    Airports are strategic assets for any nation. ❖    Close relation between the airport development and the governments. ❖    Airport projects can become very unpopular; this could potentially trigger a government intervention which could prevent an airport development to happen.

Local Communities

❖    Community engagement is key for the success of any airport project. ❖    Given the level of impact that an airport has in its locality, a positive relationship has to be constantly managed. ❖    All airports will have against groups which will periodically protest against the airport presence. ❖    Community pressure against airports can paralyse developments before they even start.

Forecasts

❖    Will define the shape that the airport will need to have in the short, mid and long term futures. ❖    In a deregulated market, volatility adds even more risk to the forecasts. ❖    Main input to planning activity.

Airlines

❖    Major airlines have an important paper in shaping the operation of an airport. ❖    Future plans of airlines can have big consequences for airports. ❖    Airlines can have a lot of negotiation power when they own most of the slots in an airport.

Environment

❖    Noise impact and Local Air Quality (LAQ) have a great deal of impact on the local communities. ❖    Species environment control can add a lot of cost to an airport project. ❖    Capacity can be limited by nose-factored movements per annum.

The above is only the surface of the complexity the airport planning activity can have, and each element must be dealt with carefully. In my next post, I will cover flexible airport planning as a strategy to deal with uncertainty around airport design and project development.

If you have comments, please register and leave one (or more) at the end of this blog post. Your feedback is appreciated.

References Airline Network Development in Europe and its implications for Airport Planning by Guillaume Burghouwt. ICAO Airport Master Plans Document Information via FAA

China Airports Build: Too Many Too Fast?

Editor's Note - This is a new series by Generation Y, we want to give them a voice too. The first post is written by Guillaume Dupont, a French aviation engineering student in his third year at ENAC (the French national school of aviation in Toulouse, France). He just wrapped up a semester at Beihang University of Aeronautics and Astronautics (BUAA) in Beijing, China. We hope you enjoy it. If you have a comment, we encourage you to leave one (or two) at the end of the article. You will need to register before you can leave a comment. 

Overview

As part of the Chinese government 5-year plan, China is building many airports. A plan that includes the construction of 82 new civil airports and the expansion of 101 existing Chinese airports, totaling more than 230 airports by the end of 2015 with an estimated 80% of China’s population living at less than 100 km of an airport.

Undeniable Need for Airports

As China’s population becomes wealthier and tourism quickly expands, China will certainly need more airports.  Moreover, due to its large territory, relying on air transport is a necessity; however, if we compare China to the U.S where there are 57 airports per million square meters, China has 19 only.  According to the Chinese Civil Aviation Authority, released figures show a strong continuous growth in 2013, reaching 11% to 354 million passengers.

That's all very nice, but this current situation must be contrasted. China's three airport hubs: Beijing, Shanghai and Guangzhou account for one third of the passenger traffic in China (209 million in 2012), and one half of the country's cargo.

Airport Delays, Losses and Subsidies

Poor organization of the Chinese airspace lead passenger flights to suffer long delays. And they are getting worse with the traffic growth.  Furthermore, Chinese airports are widely unprofitable, even though officials claim the contrary, that they turned a profit of $750 million in 2011.

Recently, it was announced that the Chinese Civil Aviation Authority will grant a subsidy of $180 million to 137 airports in 2014, each receiving between $650.000 and $2.7 million.  That is all nice, but why not improve the current situation first before building more new airports?

Unquenchable Appetite for Airports

Presently, there is a huge investment in high-speed trains which creates competition for aviation so I question the usefulness of new airports in cities already reachable easily by train. But for local administrations, building an airport creates confidence which in turn attracts international companies and high-added value industries and services.

Air Transport’s Network Expansion

When skeptics question the risk of overcapacity, officials raise the argument of a network effect: more flights will come from a larger network, and then more airports will naturally bring more flights. And a possible apparition of more low cost carriers in the country in the near future could completely change aviation’s face.

The least active airports in China are served by 3 to 5 airlines, and generally linked to China’s main airport hubs.  43 airports already have more than 2 million passengers per year -compared to 62 airports in the US- and 24 airports have more than 10 million passengers per year.

Large Spend, Large Projects

To conclude, the number of airport-related projects in China is huge, as the projects themselves can be artificial islands, mountains flattening etc. The investment of the aviation authority in 2013 is expected to be $24.2 billion.  As a result, the environmental damage will also be immense. Nonetheless, since only 193 airports could be counted in China at the end of last year, it seems that numerous projects will face delays. The demand increase will not.

References China’s Airport Building Boom Will China Build 82 Unneeded Airports by 2015 China Air Transport Business US China Economy Airports Center for Aviation World Civil Aviation Resource Net

Update 11 Oct 2017: Guillaume Dupont is no longer a student