30-Apr-2014 1:20 PM

AirAsia, Nok Air, Bangkok Airways, MAS & soon Finnair drive rapid growth at Thailand’s Krabi Airport

Analysis

Thailand's Krabi Airport has recorded rapid growth over the last two years as the beach destination has emerged as a popular alternative to nearby Phuket.

Seat capacity at Krabi has more than doubled since 2012 and increased by more than 70% over the last year, driven by a rapid increase in domestic and international services. The main Krabi-Bangkok market now has four competitors, up from two, while second competitors have entered the main international routes to Kuala Lumpur and Singapore.

Rapid growth at Krabi is expected to continue, driven partially by capacity constraints at Phuket. Finnair has unveiled plans to start operating services to Krabi in Dec-2014, a major breakthrough for Krabi as it represents its first scheduled service outside Asia. Thai AirAsia is also preparing to open a base at Krabi - a first for the airport - as part of a plan to launch services to China.

Summary

Krabi Airport has experienced rapid growth in the past two years, with seat capacity more than doubling since 2012 and increasing by over 70% in the past year.
The growth at Krabi is driven by a rapid increase in domestic and international services, with the main Krabi-Bangkok market now having four competitors, up from two.
Krabi Airport has overtaken Samui as Thailand's sixth largest airport and is the largest airport outside the Airports of Thailand (AoT) portfolio.
The recent surge in capacity at Krabi is due to the popularity of the beach destination as an alternative to Phuket, which is facing capacity constraints.
Finnair has announced plans to start operating services to Krabi in December 2014, making it the first European carrier with scheduled services at the airport.
Krabi's rapidly growing European market has also attracted other carriers, and China has the greatest potential for growth in terms of new destinations.

Krabi overtakes Samui as Thailand's sixth largest airport

Krabi is currently the sixth largest airport in Thailand, based on current seat capacity. It is now the largest airport outside the Airports of Thailand (AoT) portfolio, which includes Thailand's five largest airports (Bangkok Suvaranabhumi, Bangkok Dom Mueang, Chiang Mai and Hat Yai) as well as Chiang Rai.

Thailand top 10 airports based on seat capacity: 28-Apr-2014 to 4-May-2014

Rank	Airport		Total Seats
1	BKK	Bangkok Suvarnabhumi International Airport	1,214,999
2	DMK	Bangkok Don Mueang Int'l Airport	517,864
3	HKT	Phuket International Airport	259,699
4	CNX	Chiang Mai International Airport	159,602
5	HDY	Hat Yai Airport	78,404
6	KBV	Krabi Airport	58,906
7	USM	Koh Samui Airport	58,492
8	UTH	Udon Thani Airport	42,588
9	CEI	Chiang Rai Airport	37,578
10	URT	Surat Thani Airport	27,678

The recent surge in capacity puts Krabi just ahead of Samui, another popular resort destination in southern Thailand. Samui is located in the Gulf of Thailand off the southeast coast while Phuket is located in the Andaman Sea off the southwest coast. Krabi is on the mainland but on the Andaman coast, about 60km from Phuket by boat or 180km by road.

Samui is one of three airports in Thailand owned and operated by Bangkok Airways.

Thailand's Department of Civil Aviation (DCA) operates 28 regional airports in Thailand, with Krabi being the largest. Krabi could potentially become a candidate for privatisation given its rapidly expanding profile.

Thailand's airports

Krabi has seen seat capacity growth of over 70% since Apr-2013

Krabi currently has about 59,000 weekly seats, including approximately 46,500 domestic seats and 12,500 international seats, according to CAPA and OAG data. Capacity levels one year ago, in late Apr-2013, were only about 34,000 seats, representing growth of over 70%. Two years ago, in late Apr-2012, capacity levels were about 26,000, representing growth of over 120%.

Krabi is currently served by eight carriers - Thai AirAsia, Malaysia AirAsia, Thai Airways, Thai Smile, Nok Air, Bangkok Airways, Malaysia Airlines (MAS) and Tigerair Singapore. In terms of airline groups there are four players.

AirAsia is the largest group, accounting for 43% of current seat capacity in the Krabi market. The Thai Airways Group has about a 36% share, including a 14% share for Thai Airways, a 9% share for full-service regional subsidiary Thai Smile and a 13% share for LCC affiliate Nok Air.

AirAsia has seen its share of the market drop slightly over the last two years but the group has still rapidly expanded in Krabi, adding two routes and expanding capacity on its two existing routes. The Thai Airways share has increased over the last year as a result of Nok entering the market while the Bangkok Airways share increased significantly after it added Krabi-Bangkok services in Mar-2013. MAS began serving Krabi in Feb-2014.

Krabi capacity share (% of seats) by airline group: Apr-2014 vs Apr-2013 and Apr-2012

Airline Group	Capacity share Apr-2014	Capacity share Apr-2013	Capacity share Apr-2012
AirAsia	43%	45%	48%
Thai Airways	36%	32%	39%
Bangkok Airways	13%	16%	4%
Tigerair	6%	7%	10%
Malaysia Airlines	3%	N/A	N/A

AirAsia operates easily the largest number of routes from Krabi, four, with domestic services to Bangkok and Chiang Mai and international services to Kuala Lumpur and Singapore. Chiang Mai and Singapore were added in early Dec-2013.

There are currently only five markets served from Krabi - Bangkok, Chiang Mai, Samui, Kuala Lumpur and Singapore. Thai Airways and Nok only serve Krabi from Bangkok while Bangkok Airways serves Krabi from Bangkok and Samui.

AirAsia has competition in all of its Krabi markets except Chiang Mai. Competition in the Krabi-Kuala Lumpur market began in Feb-2014, when MAS entered.

MAS pursues rapid expansion in Krabi

MAS launched services to Krabi on 3-Feb-2014 with four weekly 737-800 frequencies. The carrier quickly added a fifth frequency and recently decided to significantly expand its new Krabi operation with four additional frequencies from 18-May-2014 followed by another five additional frequencies from 15-Sep-2014.

This will give MAS 16 weekly flights to Krabi, roughly matching the capacity provided by the 14 weekly flights from Kuala Lumpur operated by AirAsia with A320s. AirAsia's Malaysian subsidiary launched services to Krabi in 2007 and added a second daily frequency on the Kuala Lumpur-Krabi route in late 2012.

The rapid expansion by MAS highlights the current strength of the Krabi market. MAS is the only full-service carrier currently operating international services at Krabi and its success in the market will likely attract others, such as Singapore Airlines regional subsidiary SilkAir and Cathay Pacific regional subsidiary Dragonair.

While it competes against AirAsia in the point to point Kuala Lumpur-Krabi market, MAS is able to offer connections to Europe, Australia and within Asia. Europe particularly is a large source market for tourists in the Krabi area, which includes several beach towns and offshore islands as well as several scenic inland national parks.

The new MAS flights offer European tourists heading to the Krabi region a new option. Previously European tourists relied primarily on Thai Airways and Bangkok Airways connections via Bangkok. Bangkok Airways works closely with several European and Gulf carriers, while Thai provides connections to its own European flights and flights operated by Star Alliance partners.

Finnair to become the first European carrier with scheduled services at Krabi

Krabi's rapidly growing European market has also attracted Finnair, which recently announced plans to begin seasonal scheduled services from Helsinki. The Finnair flights will start on 10-Dec-2014 and operate twice per week for the northern hemisphere winter season using A340s.

Finnair is confident the new route is viable as it has previously operated charter flights to Krabi. The carrier also plans to operate three weekly scheduled flights to Phuket for the 2014/2015 northern hemisphere winter season.

The decision to offer Krabi and Phuket rather than only Phuket is an indication of the emergence of Krabi as a separate destination.

Phuket constraints play in Krabi's favour

While demand for Phuket continues to grow, infrastructure constraints limit traffic growth. Additional slots at Phuket Airport are currently only available during late night or overnight hours - which can be conducive for long-haul operations but difficult for short-haul flights within Asia. For example, the slot constraints have prevented start-up Thai Lion from operating to Phuket and have prevented Thai AirAsia from expanding its Phuket base beyond the current two aircraft.

Phuket Airport was only designed to accommodate 6.5 million passengers per annum but in 2013 handled 11.3 million passengers. A new terminal is slated to open in 2015, raising capacity to 12.5 million passengers. But further expansion is required as the airport will already be at or above the new capacity figure when the new terminal opens.

Krabi is also approaching its current capacity of about 2 million passengers per annum but a project to expand capacity to 3 million is underway and is expected to be completed by 2015. While Krabi will likely require further expansion to handle the growing demand, it has the space to expand and unlike Phuket is able to squeeze in more passengers without completing an upgrade.

Runway capacity is also not an issue at Krabi. Both Krabi and Phuket have just one runway but a single runway should be sufficient for Krabi for the foreseeable future while a second runway will eventually be needed at Phuket.

With a second Phuket runway at least several years away, Krabi could continue to serve as a reliever even as Phuket progressively expands terminal capacity. While the opening of the new terminal in 2015 should enable some additional flights, limits at Phuket will likely continue until Phuket completes a broader expansion project including more terminals and a second runway.

New China routes are likely for Krabi

Helsinki could be the first of several new destinations for Krabi. But while attracting more European carriers and potentially Gulf carriers is feasible, China has the greatest potential for growth.

China Eastern has been serving Krabi with ad hoc seasonal flights from several Chinese destinations. There are currently no flights to China but Sichuan Airlines is planning to operate seasonal flights from Chengdu to Krabi from May-2014 to Aug-2014, according to OAG data.

More regular services from Chinese carriers are likely as well as from Thai AirAsia. The carrier recently advertised for the recruitment of Mandarin and Cantonese speaking flight attendants to be based at Krabi and Chiang Mai. While AirAsia has not yet announced any Krabi-China flights, the current recruitment drive (interviews are in May-2014) is an almost certain indication that the group is preparing to open a base at Krabi and operate routes to China.

Krabi base and expansion is part of the Thai AirAsia strategy to de-emphasise Bangkok

Thai AirAsia plans to take six additional A320s in 2014. With the Bangkok market still impacted by the political instability in the capital and with Phuket expansion not possible due to slot constraints, some of these aircraft are likely to end up at Chiang Mai and Krabi.

Thai AirAsia reopened a base in Chiang Mai in late 2013 and has since used the base to launch new routes to Hong Kong and Hangzhou in mainland China. More mainland China routes at Chiang Mai are expected, along with services to China from Krabi, using some of the six additional A320s.

Thai AirAsia is looking to leverage its presence in existing Chinese destinations as it expands in Chiang Mai and soon Krabi. Thai AirAsia currently serves seven destinations in mainland China from Bangkok. Several of these could ultimately be also served from Krabi and/or Chiang Mai.

Bangkok issues further accelerate Krabi's growth trajectory

Even before the recent political issues in Bangkok, Chinese tourist numbers were rising rapidly in both southern and northern Thailand. The issues in Bangkok have further accelerated the growth of Chinese visitors at Krabi and Chiang Mai as a large portion of tourists have elected to avoid Bangkok during the continuing crisis.

Phuket and Samui could also benefit but infrastructure constraints at both airports give Krabi and Chiang Mai an advantage. (Movements at Samui are capped for environmental reasons and so far attempts to increase the cap have not been approved.)

These markets are now primarily served with connecting services via Bangkok. While more point to point services bypassing Bangkok will be added, demand for services from Bangkok to cater to a mix of connecting passengers and local Thais will continue to grow. While Krabi's portion of international capacity, which is now just over 20%, will likely grow, Krabi should also continue to see increases in domestic capacity.

Total domestic capacity at Krabi has already grown by about 75% over the last year and by about 120% since Apr-2012.

Krabi Airport total one-way domestic capacity (seats per week): 19-Sep-2011 to 26-Oct-2014

Most of the domestic growth at Krabi has been driven by the launch of services in the main Krabi-Bangkok market by Bangkok Airways and Nok Air. Bangkok Airways, which previously only served Krabi from Samui, began serving the Bangkok-Krabi route at the end of Mar-2013 and Nok entered the Krabi market in early Jan-2014.

Nok has quickly captured a 17% share of the Krabi domestic market while Bangkok Airways has grown its share to 16%. Thai AirAsia currently has a leading 38% share of domestic capacity at Krabi; Thai Airways accounts for 29%, according to CAPA and OAG data.

Krabi Airport domestic capacity share (% of seats) by carrier: 28-Apr-2014 to 4-May-2014

Nok Air has re-entered Krabi

Nok, which served Krabi back in 2007, started by re-launching with two daily flights from Bangkok Don Mueang to Krabi on 1-Jan-2014. The carrier has already added a third daily frequency, introduced on 30-Mar-2014, an indication of continued strong demand in the Bangkok-Krabi market.

Nok is the second carrier to serve Krabi from Bangkok Don Mueang, joining Thai AirAsia. Thai AirAsia currently operates six daily frequencies on the Don Mueang-Krabi route and during the just-concluded peak season (from late Nov-2013 to mid-Apr 2014) it operated a record eight daily frequencies.

Bangkok Airways and Thai Airways/Thai Smile serve Krabi from Bangkok Suvarnabhumi. Thai Airways currently operates two daily flights to Krabi with A330s while Thai Smile operates two daily frequencies with A320s.

Thai Smile initially took over the Bangkok-Krabi route from Thai Airways in Aug-2012, when it launched five daily flights to Krabi. But Thai Airways re-entered the market in Feb-2013 with two daily flights. Again this is an indication of the strength of the Krabi market as the Thai Airways' resumption resulted in a capacity increase for the group.

With Thai Airways operating alongside Thai Smile the group is also able to provide passengers the option of an all-Thai Airways product from connecting destinations, including Europe. It allows for connections to Star Alliance partners (as Thai Smile is not part of Star).

Bangkok Airways sees strong demand at Krabi

Thai Airways' decision to resume mainline service at Krabi could also been seen as a response to full-service competitor Bangkok Airways' decision to launch flights in the Bangkok-Krabi market. Like Nok, Bangkok Airways had served the Krabi-Bangkok market several years ago. Bangkok Airways continued over the years to serve Krabi but only from Samui, which it operates with one daily flight using ATR 72 turboprops.

Bangkok Airways initially launched three daily flights in the Krabi-Bangkok market at the end of Mar-2013 using A320 family aircraft. It added a fourth daily frequency in Dec-2013, again reflecting the strong Krabi market. As CAPA reported in Nov-2013:

The initial performance of Krabi has surpassed expectations, giving Bangkok Airways confidence in pursuing further expansion of the domestic network. It also has led to Nok deciding to resume service to Krabi from 01-Jan-2014, giving the Bangkok-Krabi market four carriers and making it more difficult for Thai Lion or Thai VietJet to potentially enter.

Krabi is one of several domestic routes Bangkok Airways is increasing in late 2013, with a third daily flight from 01-Dec-2013 that will be operated year-round. The focus on Krabi, which is located about two to three hours from the more well-known beach destination of Phuket, comes partially in response to a hotel and resort construction boom. But Bangkok Airways is also keen to grow its market share in Krabi as competition intensifies, with the upcoming resumption of service from Nok and the anticipated launch of service from Thai Lion.

Thai Lion is likely to enter the Krabi market despite a looming dogfight with AirAsia

Thai AirAsia also has expanded domestically at Krabi, launching service from Chiang Mai to Krabi in Dec-2013 and adding capacity from Bangkok. The new Chiang Mai route is currently served with one daily flight.

Lion Air JV, Thai Lion, also initially planned to launch services in late 2013 between Chiang Mai and Krabi and applied for authority to operate the route just prior to AirAsia's application. But Thai Lion wisely decided against launching the route after Thai AirAsia quickly moved to implement its traffic rights, likely as an attempt to fend off its rival.

Thai Lion has still not entered the Krabi market but is likely to begin serving Krabi from Bangkok in 2H2014 as it continues to expand its domestic network and 737-900ER fleet. Thai Lion currently serves two main trunk routes with high frequency service - Bangkok to Chiang Mai and Hat Yai.

With Thai Lion shut out of the Bangkok-Phuket market, Bangkok-Krabi is a logical option. A third LCC and fifth player in the Bangkok-Krabi market would likely lead to lower fares and further stimulate the market, following what has transpired over the last few months on Bangkok-Chiang Mai and Bangkok-Hat Yai.

Further AirAsia expansion and more potential new entrants make for a bright outlook at Krabi

AirAsia will be keen to quickly cement its leading position in the Krabi market before Lion enters. The new base at Krabi will enable Thai AirAsia to accelerate expansion, opening up several new international routes.

Krabi-Singapore in Nov-2013 became the carrier's first of potentially several international routes from Krabi. AirAsia now competes in the market against Tigerair, which has been in the Krabi market for several years and currently operates nine weekly frequencies from its Singapore hub.

The Krabi-Singapore market could potentially support more capacity and potentially a full-service offering from SilkAir. Krabi, which traditionally has been viewed as a seasonal market, has emerged as a popular year-round destination for both the budget and upmarket leisure sector.

Krabi's outlook and its prospects for further rapid growth are bright as Thailand's beach destinations continue to see growing demand regardless of the situation in Bangkok. Unlike the traditionally more common beach destinations of Phuket and Samui, Krabi has the capacity to handle a surge in traffic.

The expected establishment of an AirAsia base and the launch of services from its first European carrier, Finnair, should lead to another surge in traffic at the once sleepy airport in southern Thailand.