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Thai Airways hits air
pocket
By Lan Anh Nguyen,
ThaiDay
BANGKOK - Loss-making Thai Airways
International Plc (THAI), one of the largest
airlines in Asia, has stripped its president of
power and set up a new management committee to run
the company. The dramatic corporate shakeup comes
just days before the national carrier is expected
to post quarterly losses of about seven billion
baht (US$171 million) - far worse than expected.
The Stock Exchange of Thailand, which is
expected to receive Thai Airways' official
quarterly report Monday, halted trading its shares
for an unspecified period. Somchainuk Engtrakul, a
member of THAI's board of directors and former
permanent secretary at the Finance Ministry, will
head the committee, while Kanok Abhiradee - the
president - will keep his job in name only.
At a solemn press conference, the new
committee said it would immediately implement a
series of measures to turn the company's losses
around. "We will try to increase revenue and
maintain yields for the shareholder," said
Somchainuk. "We aim to reduce expenses without
compromising safety and security."
Although its planes have an average load
factor of 75%, the airline blames rising fuel
prices - accounting for 31% of its operational
costs - for its losses. It has recently been
trying to cut costs by fuel hedging - the practice
of buying fuel well ahead of need at a fixed price
to protect itself against sudden fuel-price rises.
Kanok said that at one point, 75% of the fuel used
by THAI was bought with hedging. "Hedging has been
done on a daily basis, but prices are too high now
to hedge," Kanok said, adding that hedging
currently accounts for 16% of the fuel used by the
airline.
Somchainuk also blamed the
company's sluggish response to market forces for
THAI's financial woes. "I don't want to call it a
crisis, but it is the kind of situation that needs
rapid decision making," he said. The new measures
include reducing flights on unprofitable routes
and focusing on niche markets, especially business
travelers. "Many regional routes are not making
money and we will have to reduce [the flight]
frequency," said Vasing Kittikul, executive vice
president in charge of commercial affairs. He said
high operational costs were even preventing the
new direct flights to New York from making a
profit, despite planes being 85% full.
Vasing blamed early retirement packages
paid to some 500 employees and wage rises - the
result of a drawn-out fight between the board and
the labor unions - for the airline's anticipated
third-quarter losses. "We have been in the red for
a few days now," said Kanok. The committee will
decide his fate within three months.
Kanok, who comes from a marketing
background, took over the presidency of THAI in
2002. He is credited with turning years of losses
around, and the company posted a 10 billion baht
net profit in 2004. He is believed to be close to
Prime Minister Thaksin Shinawatra. Employees and
analysts describe him as "good at marketing" and
"proactive", and as someone who "always plans
ahead". Some employees expressed shock at the
announcement, while others said he had lost the
confidence of the board. "There [has been] a lot
of behind-the-scenes politics that we don't know,"
said an employee who wished to remain anonymous.
Somchainuk told the press that the new
management committee, which includes members from
outside the company, was temporary and that an
announcement over the future of the committee
would be made in three months. "It's not Kanok's
fault alone. It's related to every function,"
Somchainuk said, while Kanok sat next to him. "I
am not willing to take this management post for a
long time. I respect shareholders and will try to
manage the company with transparency."
Somchainuk insisted that recent
developments would not affect plans to overhaul
the airline's fleet. Asked about the rumored
delays in the delivery of two Airbus A340s due to
the current national account deficit, he said: "We
are still studying the matter, it's not official
yet." The airline took delivery of four new
A340-500 airbuses in April and is expecting at
least six more A340-600 planes by 2008.
Analysts predict that THAI will not be
able to generate a profit in the fourth quarter if
fuel prices remain at their current level.
"Overall, this [has been] a bad year for Thai
Airways," said Sarit Panjamanond, an analyst at
KGI Securities.
(Copyright 2005
ThaiDay) |
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