Thai AirAsia

Singapore Changi traffic growth to slow as Qantas drops hub and AirAsia closes base

Passenger growth at Singapore is slowing significantly, making it very unlikely Changi will expand in 2013 its current streak of three consecutive years of double-digit expansion. Growth in the low to mid single digits will provide some breathing space for authorities to tackle increasing congestion problems. But Singapore authorities should still accelerate airport expansion, particularly the opening of a third runway, because the current congestion has already become an impediment to growth.

In the latest blow to Changi, AirAsia has decided to close its Singapore base. Shifting back to Malaysia the group’s small contingent of Singapore-based crews will have a very slight impact on total passenger figures at Changi. But it signals the challenges Changi faces as its LCC growth figures start to slow down while other airports in the region continue to record rapid increases.

The AirAsia decision follows Qantas moving its transit hub for European services from Singapore to Dubai, leading to a reduction in total Changi capacity of more than 2%.

AirAsia X selection of Bangkok as second base increases pressure on Thai Airways

AirAsia X is close to finalising plans for establishing an affiliate in Thailand, a fast-growing market with favourable conditions for long-haul low-cost operations. The new joint venture project between AirAsia X and Thai partners, which will almost certainly include sister short-haul carrier Thai AirAsia, will put further pressure on the Thai Airways Group.

Thai Airways has already been struggling to fend off increasing LCC competition in the domestic and regional international market, which it has responded to by increasing its involvement in short-haul LCC affiliate Nok Air and launching new hybrid carrier Thai Smile. AirAsia X will bring new LCC competition to some of Thai’s strongest medium-haul markets, particularly Australia, Korea and Japan.

Thai Airways has been studying potential long-haul low-cost options and the launch of an AirAsia X affiliate in Thailand, which will likely commence services within the next year, adds urgency. Thai Airways has already been slightly impacted by Asia’s two other long-haul LCCs, Jetstar and Scoot, but having to compete with a local long-haul LCC represents a much bigger challenge.

Thai Smile turns attention to international market, including three routes to India

This is the second part of a report looking at the Thai Airways Group performance from 2012 and outlook for 2013. The first part looked at Thai’s mainline operation, which has been impacted by unfavourable economic conditions on long-haul routes and faces increasing competition in Asia. This part looks at Thai Smile, a new hybrid unit that the Thai Airways Group launched in Jul-2012.

2013 will be a key year for Thai Smile as the unit rapidly expands and continues to evolve its hybrid model. Thai Smile is adding five international routes over the next month, giving it a network of six international and seven domestic routes. Several more destinations, primarily international, are expected to be added in 4Q2013.

2013 will also likely see Thai Smile transition from being a unit of Thai Airways to a 100%-owned subsidiary. Thai Smile was launched as a unit because using the Thai Airways operators’ certificate (AOC) was seen as a quicker and cheaper solution. But Thai’s board is expected to soon approve a proposal to convert Thai Smile into a subsidiary, which would see it apply for its own AOC.

Thai Airways faces challenging 2013 as competition within Asia increases

Thai Airways has returned to the black, posting a small profit for 2012 despite challenging conditions on its long-haul routes. The airline group plans to again focus growth in 2013 on short and medium-haul routes within Asia, where market conditions are generally more favourable. The group now includes three brands, including LCC affiliate Nok and regional hybrid unit Thai Smile – both of which are entirely focused on the fast-expanding Asian market.

But Thai Airways is also now facing challenges on routes within Asia as competition intensifies. Thai AirAsia is pursuing rapid expansion, putting pressure on Thai. Rapid growth at Nok and Thai Smile will help the Thai Airways Group compete against LCCs but Thai Airways will need to reduce costs and make adjustments in order to achieve sustainable profits.

AirAsia’s 2013 outlook marred by intensifying competition and continued losses at new affiliates

AirAsia faces a potentially challenging 2013 as it accelerates expansion in its three core markets as part of an attempt to fight off intensifying competition within Southeast Asia. Meanwhile, the group will continue to incur losses at the two affiliates it launched during 2012, in the Philippines and Japan, and will incur start-up costs for its new joint venture in India.

The AirAsia Group plans to focus growth in 2013 at the three affiliates which are profitable – AirAsia Malaysia, Thai AirAsia and Indonesia AirAsia. This established trio of LCCs, all of which are now at least seven years old, will take a record 25 aircraft in 2013 for a total of 138 A320s, representing 22% fleet growth.

AirAsia Philippines, AirAsia Japan and AirAsia India are only expected to take about seven A320s in 2013, a surprisingly small figure for the Philippine and Japanese affiliates given they have not yet reached initial economies of scale. The group is waiting for AirAsia Philippines and AirAsia Japan to move into the black, which could take a few years, before pursuing more ambitious expansion.

Nok Air prepares for IPO in 3Q2013 with international expansion, starting with two Myanmar routes

Thailand’s Nok Air plans to pursue fleet and network expansion as it seeks to raise about USD100 million through an initial public offering (IPO). The planned 3Q2013 IPO is one of several milestones for Nok in 2013 as the low-cost carrier resumes international services, initially with flights to Yangon and Mawlamyine in Myanmar. Nok will also take delivery of additional 737-800s, completing in 2013 the phase-out of its 737-400 fleet, which it has been operating since launching services in 2004.

Nok, which is partially owned by Thai Airways, has traditionally been a relatively conservative and low profile carrier. It has not been shy to contract during challenging periods and has never been concerned about establishing an international profile, instead focusing on building a strong local brand in the Thai market. But Nok’s steady profitability and strong position in a growth market should allow for a successful IPO and could eventually lead to significant international expansion.