06-Nov-2013 7:52 PM

Thai AirAsia & Bangkok Airways lead a challenging capacity surge in the Myanmar-Thailand market

Analysis

The Myanmar-Thailand market is experiencing another surge of additional capacity as airlines from both countries continue introducing new flights. There will soon be about 23 daily frequencies between the two countries, up from 14 only a couple of months ago and eight from mid-2012.

So far the demand has not kept up with supply, resulting in unsustainably low load factors. The intense competition also has led to a reduction in yields.

But the market could get a reprieve as Myanmar and Thailand prepare to lift visa requirements. By the end of 2013 Thailand is expected to become one of the first visa-free countries for Myanmar. This should unleash a new wave of passenger growth although for at least the short term the market seems set to continue to suffer from over-capacity.

Thailand is by far the biggest international market from Myanmar, accounting for nearly half of the country's current international seat capacity. About 800,000 passengers flew between Myanmar and Thailand in the first three quarters of 2013, according to Myanmar DCA data. Myanmar's total international passenger numbers for this period were a little over 1.8 million.

Bangkok is by far the largest market from Yangon, with 719,000 passengers in the first three quarters of 2013. The airport's total passenger traffic (domestic and international) was about 2.6 million.

Yangon-Bangkok began seeing large increase in capacity in 2H2012

Yangon-Bangkok first saw a surge of capacity shortly after Myanmar opened up following the Apr-2012 elections, which was won by Aung San Suu Kyi's National League for Democracy. Foreign carriers from throughout Asia quickly responded in announcing new routes or, in the case of existing routes such as Yangon-Bangkok, additional capacity.

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Thai Airways, Thai AirAsia and Bangkok Airways all introduced in 2H2012 a third daily frequency in the Yangon-Bangkok market. Thai Airways was and remains the largest foreign carrier in Myanmar as all its flights to Yangon are operated with widebody aircraft. Thai AirAsia has an all-A320 fleet while Bangkok Airways uses a mix of A319s, A320s and ATR 72s in the Yangon-Bangkok market.

The additional frequencies from the three Thai carriers drove a sudden 35% increase in capacity in the Yangon-Bangkok market from about 11,000 weekly seats in mid-2012 to about 14,800 weekly seats in Oct-2012, according to CAPA and Innovata data.

In May-2013 there was another modest increase in capacity as Golden Myanmar launched a daily service to Bangkok, becoming the second Burmese carrier to serve the market after Myanmar Airways International (MAI) and the second LCC after Thai AirAsia. MAI continues to serve Bangkok with two daily flights and has been the only carrier in the market that has not added capacity over the past two years.

Nok Air becomes sixth airline serving Yangon-Bangkok market

On 1-Nov-2013 there was another surge of capacity as Thai Airways' low-cost affiliate Nok Air launched services to Yangon while Bangkok Airways added a fourth daily frequency. Nok, which became the sixth carrier and third LCC on the Yangon-Bangkok route, currently operates four weekly 737-800 frequencies but will offer daily service from early Dec-2013 and double daily service from early Jan-2014. Bangkok Airways' four frequencies now include two with A320s, one with A319s and one with ATR 72s.

Thai AirAsia is also again adding capacity to Yangon in Dec-2013, when it introduces four additional weekly frequencies for a total of 25, according to Innovata data. LCC Golden Myanmar has also scheduled a second additional frequency. (Golden Myanmar initially planned to begin the second flight to Bangkok at the end of Oct-2013 but it is not currently selling tickets for the service although it is already included in the Innovata schedule database and on the carrier's website.)

Based on the additional flights planned, capacity in the Yangon-Bangkok market will reach about 22,000 one-way seats in Jan-2014. There are 116 weekly one-way frequencies to Bangkok in the Jan-2014 schedule for Yangon, representing an increase of 107% compared to the 56 weekly frequencies in Jan-2012. On a seat basis, total capacity in the market has roughly doubled from the 11,200 weekly seats in Jan-2012.

Yangon to Bangkok route total (one-way seats per week): 19-Sep-2011 to 27-Apr-2014

Yangon-Bangkok passenger traffic is up only 12% so far this year despite huge capacity increase

The new surge in capacity - with the 32 additional weekly frequencies scheduled to be introduced between the beginning of Nov-2013 and early Jan-2014 - is alarming as the capacity already added on the Yangon-Bangkok route since mid-2012 has not been absorbed. According to Myanmar DCA data, total passenger traffic between Yangon and Bangkok was 719,000 passengers in the first three quarters of 2013, an increase of 12% compared to the first three quarters of 2012. But the total number of flights (movements) during this period increased by 34% from 4,466 to 5,991.

Seat capacity in the Yangon-Bangkok market was up approximately 35% in the first nine months of 2013, according to CAPA and Innovata data. As a result the average load factor in the Yangon-Bangkok market dropped from an estimated 74% in the first three quarters of 2012 to roughly 61% in the first three quarters of 2013.

Thai AirAsia saw its average load factor in the Yangon market drop from 83% in the first three quarters of 2012 to only 69% in the first three quarters of 2013. Golden Myanmar recorded an average load factor of only 40% in its first five months operating in the Yangon-Bangkok market (May through September). While 40% is a very low load factor, Golden Myanmar entered the market at the beginning of the off-peak season (which in Myanmar runs from roughly May to October) and the carrier would have expected an initial build up period particularly as Bangkok was only the carrier's third destination.

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It is somewhat surprising both Thai AirAsia and Golden Myanmar are planning to add capacity in the market given their relatively low load factors, with Thai AirAsia's load factor about 13ppts below the carrier's system-wide average. But the two LCCs could be keen to respond to Nok's entry as Nok quickly builds up to 14 weekly frequencies.

As of Jan-2014, Nok will account for about 12% of capacity in the Yangon-Bangkok market. LCCs overall will have a 43% share, compared to only 26% in Jan-2013.

Yangon-Bangkok capacity share (% of seats) by carrier: Jan-2014 vs Jan-2013

Jan-2014

Jan-2013

Bangkok Airways adds flights but sees only very slight increase in passenger traffic

The three full-service carriers in the Yangon-Bangkok market also have seen a large decrease in load factors although the data is not exact as unlike the LCCs, the carriers have multiple aircraft types and the flexibility to change aircraft gauge. Bangkok Airways in particular used a mix of aircraft between Yangon and Bangkok. But the carrier has clearly seen a large drop in load factors as its movements at Yangon increased by 31% in the first nine months of 2013 to 1,642 while its passenger traffic at Yangon increased by only 3% to 101,416.

The additional movements were with ATR 72s, as the third frequency Bangkok Airways introduced in 4Q2012 used the ATR 72. But given its passenger traffic figures, Bangkok Airways' Yangon load factor has slipped below 50% so far this year assuming the carrier used A319s/A320s for its other two flights in the market as scheduled.

It is surprising Bangkok Airways has introduced a fourth daily flight, this time using A320 family aircraft, when its passenger traffic only increased by 3% after it introduced the third daily frequency. But the carrier does enjoy relatively high yields on the route as it carries connecting passengers from interline and codeshare partners. Bangkok Airways has strong relationships with several European and Gulf carriers, including Etihad and Emirates, which do not currently serve Myanmar and rely on Bangkok Airways to access smaller Southeast Asian markets.

Thai Airways also has seen its load factor slip. The carrier's passenger traffic to Yangon has increased by 15% over the last year while movements have increased by 38%.

MAI also has seen a significant load factor decrease as the carrier's Bangkok traffic has decreased by 16% while total movements (and presumably capacity) has been flat. As MAI has not participated in any of the capacity increases the flag carrier has seen its share of capacity in the Yangon-Bangkok market slip from about 20% in Jan-2012 to about 10% in Jan-2014.

Yangon-Bangkok passenger traffic, traffic share and estimated load factors by carrier: Jan to Sep-2013 vs Jan to Sep-2012

Carrier	9M2013 Movements	9M2013 Pax	9M2013 Pax share	9M2013 Load Factor	9M2012 Movements	9M2012 Pax	9M2012 Pax Share	9M2012 Load factor
Thai Airways	1638	337,810	47%	*69%	1188	294,726	45%	*83%
Bangkok Airways	1642	101,416	14%	N/A	1128	98,880	15%	N/A
Thai AirAsia	1370	165,531	23%	67%	1100	138,928	22%	70%
MAI	1057	93,590	13%	^55%	1050	110,821	17%	^65%
Golden Myanmar	284	20,328	3%	40%	N/A	N/A	N/A	N/A
TOTAL	5991	718,675			4466	643,355

Notes: *Thai Airways load factor data assumes an average of 300 seats per flight. Thai uses A330-300s to Yangon, which the carrier has in two configurations seating 299 and 305. But as Thai Airways has at times used the A300-600s to Yangon, which seat 247 and 260 passengers, the load factor data is only a rough estimate.
^MAI load factor data assumes the carrier has used 162-seat A320s. The carrier is scheduled to use the A320 to Bangkok but also has smaller A319s in its fleet that it could potentially use on some flights. As a result this load factor figure is only a rough estimate.
Source: CAPA - Centre for Aviation & Myanmar DCA

Myanmar-Thailand market will soon get boost as visa requirement is lifted

While the increases in capacity have obviously not been fully absorbed, the Yangon-Bangkok market will benefit from a new visa waiver scheme for Myanmar and Thailand citizens. The scheme, which should be implemented by the end of 2013, comes just in time as airlines are now in the process of adding even more capacity despite the drop in load factors which resulted from the earlier increases.

The foreign ministries of Myanmar and Thailand in recent weeks agreed in principle to lift visa restrictions. The programme has also secured various levels of government approval and should be implemented after the deal is signed during a meeting scheduled for late Nov-2013.

Thailand is already the largest source of visitors for Myanmar, with Thai citizens accounting for 72,000 visitor arrivals and 16% of total visitor arrivals in the first seven months of 2013. Lifting the current visa requirement should lead to a significant increase in the number of Thai visitors, boosting Myanmar's emerging tourism industry.

Tourists coming from Thailand are now required to get a visa from the Myanmar embassy or consulate, because tourist visas are not available on arrival. This can be a tedious and expensive process, which would push many prospective tourists to other Southeast Asian destinations, which already are visa-free to Thai citizens.

The lifting of visa requirements should also drive a significant increase in Myanmar citizens visiting Thailand for holidays and shopping trips. Economic ties between the two countries will also be boosted as business travel is eased. (Myanmar has a business visa on arrival option but the visa is expensive and requires a support letter from a Burmese company.)

The visa-free alternative will be valid for stays of up to 14 days and only available at airports. Visas will still be required at Myanmar-Thailand land borders. Having the visa-free option only available at airports should further stimulate demand for air travel between the two countries, particularly for LCCs.

Myanmar-Thailand market could see adjustments

But the lifting of visas may still not be enough to absorb all the capacity that has been added to the Yangon-Bangkok and broader Myanmar-Thailand markets. Some short-term adjustments are likely if carriers are keen to improve load factors to sustainable levels. This could include fewer flights, particularly during off-peak months, and the down-gauging of existing frequencies.

In addition to Bangkok Airways, Nok has, and Golden Myanmar will soon have, ATR 72s in its fleet, giving these LCCs a smaller aircraft option for the Yangon-Bangkok market. The two cities are less than 600km apart, making them easily (and more economically) served with turboprops.

Thai Airways could potentially hand over some of its Yangon flights to Thai Smile. But the carrier's load factors to Yangon remain relatively healthy compared to other carriers, potentially because it benefits from connecting passengers. Thai Airways accounted for 47% of passengers in the Yangon-Bangkok market in the first nine months of 2013 although its capacity share is only 33% and will slip to 29% by Jan-2014.

Mandalay-Bangkok market also faces challenges

Adjustments in capacity on the other two main routes connecting Myanmar and Bangkok are also possible. There were no non-stop services from Mandalay, the second largest city in Myanmar, to Bangkok until Thai AirAsia began serving the route in Oct-2012. There are now three carriers in the market, with Thai Airways regional unit Thai Smile launching service at the end of Mar-2013 and Bangkok Airways launching service in Sep-2013. But load factors on the route have so far been under 50%.

Thai AirAsia carried 86,040 passengers to and from Mandalay in the first eight months of 2013, giving the carrier an average load factor of only 55%. Thai Smile carried 35,088 passengers during its five months of operations at Mandalay (end of March to end of August), giving it a load factor of 50%. Thai Smile now serves Mandalay with one daily flight using 172-seat A320s while Thai AirAsia after initially offering four weekly frequencies has operated a daily service since Jan-2013 using 180-seat A320s.

MAI also launched daily services from Mandalay to Bangkok in Apr-2013 but dropped the route after only operating 110 flights. MAI carried less than 18,000 passengers on the route before it was dropped, which equates to a load factor of 14%.

Mandalay-Bangkok passenger traffic, traffic share and estimated load factors by carrier: Jan to Aug-2013

Carrier	8M2013 Movements	8M2013 Pax	8M2013 Pax share	8M2013 Load Factor
Thai AirAsia	478	47,116	70%	55%
Thai Smile	204	17,665	26%	50%
MAI	110	2409	4%	^14%
TOTAL	792	67,190

Despite MAI's quick exit and the relatively low load factors for Thai AirAsia and Thai Smile, Bangkok Airways has decided to enter the Mandalay-Bangkok market with a relatively large amount of capacity. The carrier launched services to Mandalay on 15-Sep-2013 with four weekly A319 frequencies and upgraded the service to daily on 27-Oct-2013.

The new visa waiver programme will help boost inbound tourism figures from Thailand as Mandalay is one of Myanmar's largest tourist destinations and is famous for Buddhist temples. But the 19 weekly flights in the Mandalay-Bangkok market is likely more than the market can handle. The new visa free programme for Thai citizens ultimately may have a relatively limited impact as a lot of passengers flying into Mandalay from Bangkok are tourists originating in other countries and transiting in Bangkok.

Nay Pyi Taw is now served by two Thai airlines but is a tiny market

There are also now flights from Myanmar's new capital, Nay Pyi Taw, and Bangkok. But this market is also likely suffering from over-capacity.

There is no passenger data yet for Nay Pyi Taw-Bangkok as Bangkok Airways only launched the route at the end of Sep-2013, followed by Thai AirAsia in late Oct-2013. Thai AirAsia already serves Nay Pyi Taw daily. Bangkok Airways is now operating three weekly ATR 72 frequencies to Nay Pyi Taw but will add two more weekly ATR 72 frequencies on 1-Dec-2013. Bangkok Airways also plans to operate four A319 frequencies to Nay Pyi Taw for a total of nine frequencies from 3-Dec-2013 to 22-Dec-2013 but this is a temporary increase for the 2013 Southeast Asian Games.

While the Southeast Asian Games will bring considerable traffic to Nay Pyi Taw's new international airport in Dec-2013, the city remains small and unlikely to support such a large amount of capacity to Bangkok, its only international destination. In the first eight months of 2013 the Nay Pyi Taw Airport handled only 43,832 passengers (all domestic). That is the equivalent of about 5,500 passengers per month. Thai AirAsia alone now has about 11,000 monthly seats between Nay Pyi Taw and Bangkok.

As Myanmar's capital expands an international market at Nay Pyi Taw will gradually develop. But for the short to medium term the market will likely be challenging.

Myanmar-Thailand regional market also has opportunities

Airlines are also starting to look at connecting regional cities in Myanmar and Thailand. Nok's regional operation Nok Mini launched service from Mae Sot in Thailand to Mawlamyine in Myanmar on 1-Sep-2013 and from Mae Sot to Yangon on 1 Oct-2013. Both routes are served daily but with wet-leased 34-seat Saab 340s, making them a low risk for Nok.

Nok is keen to expand the Nok Mini operation in Myanmar and find other niche regional routes. Mae Sot is near the Myanmar border and has close ties to Myanmar for trade and NGO activity. The new flights provide a new option over ground journeys which are short in distance but long and arduous because of the poor road conditions.

The visa-free programme could help further increase demand for such regional services as visas will still be required at land crossings. The visa-free travel is potentially available to 23 designated Thailand airports, including several regional airports in northwest Thailand that have ties with nearby Myanmar.

For now the two routes from Mae Sot represent just a very small fraction of the additional capacity seen in the Myanmar-Thailand market. Total seat capacity between Myanmar and Thailand has increased by about 140% in two years, from about 11,200 seats in Jan-2012 to almost 27,000 seats in Jan-2014.

Myanmar to Thailand route total (one-way seats per week): 19-Sep-2011 to 27-Apr-2014

Thailand-based carriers have accounted for most of the additional capacity and now control over 80% of the Myanmar-Thailand market. Thai Airways (including Thai Smile) will account for about 29% of seat capacity in the Myanmar-Thailand market as of Jan-2013 while Thai AirAsia will account for almost 25%, Bangkok Airways almost 20% and Nok Air (including Nok Mini) about 12%.

Myanmar has emerged as an important market for all three of Thailand's main carriers. But so far the capacity growth has been more than the market can handle, impacting profitability. There is huge potential over the medium to long term but it could take some time for all the additional capacity to be absorbed, as the most interested carriers jostle for market position.

Part two

This is the first in series of reports on the dynamic Myanmar market. The next report will look at Myanmar-Singapore, Myanmar's second largest international market.