Thai’s Comeback
Thai Airways today announced plans to start a new short-haul, full-service carrier.
On the surface, it sounds incredibly silly given the circumstances – I mean, what was Thai Airways thinking?
"Nok" means bird in Thai - is the end nigh for Nok Air?
In 2004, Thai Airways set up a low-cost subsidiary, Nok Air to defend itself from the start of the low-cost carrier revolution in Southeast Asia. However, unlike Tony Fernandes, Tony Davis and then, Alan Joyce, Nok Air’s management was filled with staff who had absolutely no experience in the budget airline model – unable to deal with competition, the airline suspended traditionally popular and high-traffic international routes, and retreated back into the domestic scene but it’d find no comfort in Siam. Despite efforts by the government to make things ‘easier’ for the state-owned budget airline such as transferring aircraft from Thai Airways basically for free, and the reopening of Bangkok’s Don Mueang airport, hoping that the airport’s closer proximity to the city would entice passengers, it was futile. Then-newcomers such as Thai AirAsia and One-Two-Go had the know-how and experience, and were much more successful. With 130 employees and just a fleet of 3 aircraft today, Nok Air was basically a case of too many cooks spoiling the broth; the airline had no fewer than eleven majority shareholders, most of which were various government ministries.
Thai AirAsia has become known for its cheap and reliable service.
The failure of Nok Air had a direct effect on Thai Airways’ domestic market share. IF Nok Air is successful, the opportunity cost that Thai Airways suffers from a shrinking fleet WOULD be mitigated – afterall, the model worked extremely well for Qantas; not only has Jetstar helped Qantas reclaim market share, it has managed to make profits too. Alas, it didn’t work, and with no planes of its own, the planes which WOULD have carried a few premium passengers was lost completely, unexpectedly losing the airline its high-end customers as well. With a highly competitive domestic market, consumers don’t feel the pinch and premium passengers simply migrated to use Bangkok Airways for internal routes.
Thai Airways’ announcement earlier in the year to set-up a low-cost carrier with Tiger Airways was shocking, at least to me. Thai people see Singaporean government controlled companies, in particular, Temasek Holdings as a ‘villain’ of sorts, a co-conspirator to Thaksin’s plans to takeover the kingdom – a throwback to four years ago when the former prime minister sold a significant stake in the country’s prominent tele-communications’ company which his family controls. At the same time, Tiger Airways has received alot of flak for its poor customer service, last minute cancelations and unexplained day-long delays in Australia earlier this year, and in Southeast Asia just a month ago. I can only imagine that Thai Airways’ willingness to stoop down and make such a choice, can only be a sign of the flag carrier’s desperate plea to wrangle market share away from domestic rivals like Thai AirAsia and Bangkok Airways, to regain market share before it slips even further with liberalization.
Sure, One-Two-Go's had one accident, so did SQ. But Phuket-Bangkok for SGD 15 sounds tempting.
When the Thai Tiger venture was launched, Thai Airways mentioned that there IS a future for both Nok Air and Thai Tiger to co-exist but it appears that those words were only said in kind. Clearly, Nok Air’s feathers have been ruffled, and have brought their spat out in public, saying they don’t want Thai Airways’ hand-me-downs, and are demanding new narrowbody aircraft – which Thai Airways doesn’t have to begin with. Thai Airways’ president puts it simply on a October 20th interview, “we can’t control Nok”… Thai Airways plans Thai Tiger to fly routes like Phuket-Chiang Mai, and from Bangkok to Phuket, Chiang Mai, Kuala Lumpur, Penang, Macau, Chennai and Shenzhen – routes which Thai AirAsia is flying.
Bangkok Airways is SOO premium (read: expensive) that Economy Class passengers have a departure lounge!
But Thai Tiger is just one-half of Thai Airways’ plan – it announced plans to conquer the premium market as well, and plans to launch a new short-haul full-service airline in the style of Singapore Airlines’ SilkAir and Cathay Pacific’s Dragonair.
For airlines such as Singapore Airlines, Emirates and Cathay Pacific which have huge widebody aircraft, there are undoubtedly certain routes they can’t fly to because their aircraft simply seat too many people. However, it doesn’t make sense for these carriers to order 110 to 180-seater narrowbody aircraft to fly a few routes – keeping the narrowbody pilots and cabin crew on the same salary scheme as those on the widebody aircraft is unrealistic; an airline would thus have to charge passengers unrealistically high fares. What the airline can do is to hire staff on different contracts, which works well but it can get really sticky and troublesome when the airline needs to restructure, or launch a new route and unions step in to ensure conditions are well under the scope of those agreed contracts.
SilkAir's new cabin interior - still not up there yet.
OR you could split operations publicly through a separate branding – an advantage of this is that pilots and cabin crew are hired on the same work and salary scheme. It also allows the airline to charge lower fares because since salary schemes are likely lower than widebody crews, the reliance on the passenger’s fare to cover costs is lesser. Creating a separate airline also prevents brand dilution – because routes are much shorter, there is less need for a complete ‘service’; passengers CAN do without inflight entertainment and premium passengers DON’T NEED a five-star four-course meal – things which the long-haul widebody fleet might be famous for. Let me give you an example – if Singapore Airlines absorbed SilkAir tomorrow, Singapore Airlines would no longer be a Skytrax rated five-star carrier. SilkAir allows Singapore Airlines access to destinations like Penang, Chongqing, Kathmandu and Medan but without the need to maintain the stellar service, both in terms of soft product (customer service) and the hard product (inflight entertainment, food, et cetera).
Thai Airways is clearly moving from behaving like a state enterprise to a more capital-motivated company. Its ineffectiveness to react to new startups then and subsequent slowness to recognize its failure has cost Thai Airways its market share, and allowed its domestic rivals to leapfrog the national carrier but it’s not resting on its ‘laurels’. The airline has a new two-pronged strategy, one perfected by Singapore Airlines – to attack the low-cost carrier market with Thai Tiger and the short-haul premium market with its own SilkAir.
What about Nok Air, you’d ask? Well, in the words of Thai Airways president Piyasvasti Amrandand in an interview on October 20th, “don’t worry about Nok”.
