Thai Tiger: Thai Airways puts the Tiger among the pigeons. Regional liberalisation the likely winner


Thai Airways and Tiger Airways are to form a joint venture, “Thai Tiger”, to operate international and domestic Thailand domestic point-to-point services. The new JV, to be owned 51:49 by Thai Airways and another "Thai entity", raises the bar in low cost airline operations competition in Asia and could have a major impact on the pace of airline liberalisation in the region. Until now, the Thai government has been highly protective of its flag carrier and has been threatening to drag the chain on the ASEAN multilateral timetable for moving towards open skies for Southeast Asian airlines. This position could now soften, as high cost Thai Airways will have the opportunity to meet competition on a more equal footing. Some of this competition comes from AirAsia’s JV, Thai AirAsia, as well as from its own JV in low cost airline Nok Air (in which Thai currently holds a 39% stake).

According to a Tiger/Thai Airways media release this morning, the new airline is to be based in Bangkok, operating “international and domestic flights out of Suvarnabhumi International Airport offering short-haul, point-to-point services within a 5-hour flying radius.” The agreement has clearly been consummated quickly in the last few hours, as a hastily arranged media conference is to be called later this morning. Tiger is due to report later this week and would have been keen to have the announcement out in the open in advance.

In the media release, Thai President, Mr. Piyasvasti Amranand, was personally quoted as saying, "we are pleased to partner with Tiger Airways in establishing Thailand's newest airline, Thai Tiger.  With its disciplined approach to the low-cost model, Tiger Airways has proven that it has the right approach to competing effectively in the growing low fare travel market in Asia.  For people in

Thailand and the region, our launching Thai Tiger will mean that in addition to the global network of premium services operated by THAI, more people will have access to new low fare, point to point services, giving a big boost to tourism and employment.”

Good news for ASEAN liberalisation

Significantly, Mr Amranand specifically referred to the ASEAN liberalisation programme, implying that the new JV may well be Thai’s answer to its disadvantage in not having a low cost medium to operate in the region’s market. He believes “that this move will provide revenue opportunities for THAI and allow THAI to be more competitive in the region with the anticipated growth in the low cost market as a result of continued ASEAN air liberalization policies by 2015 which we expect will lead to growth in air travel in the Asian market. Thai Tiger will offer an entirely different line of products to that offered by THAI.”

Also, establishing a brand that is not directly under the Thai Airways banner, will presumably give the carrier more ready access to a range of short haul international routes, especially in north Asia.

Bangkok now to become an LCC centre?

Thailand is highly strategically placed to offer a springboard into the emerging (in low cost terms) markets of China, Japan and Korea, as well as India, where it has so far failed to penetrate effectively. In this respect, the new carrier will be ideally placed to compete head to head with Thai AirAsia.

With these two brands well represented in Bangkok (along with Nok), the airport now becomes an unexpected focus for low cost airline operation. Despite permitting AirAsia to establish one of the first cross border JVs of its nature in the region, the Thai government has not warmly embraced more competition, as its national airline has struggled to become more effective in recent years. The AirAsia variant was a direct outcome of former Prime Minister, Thaksin Shinawatra’s corporate investment in the JV – and therefore beyond the lobbying opposition capability of the national airline.

With this step, Thai now moves up to a more powerful proposition, bringing along with it the confidence to agree to accelerated regional liberalisation.

Not so good new for Nok, AirAsia or Jetstar

Most directly affected by the move will be tiny Nok Air, currently owned 39% by Thai Airways. The JV operation, established in response to AirAsia’s entry into the market, has always been something of a problem for the flag carrier, which never really knew how to manage the sometimes prickly relationship, in which it had only a minority control.

Nok Air last week told CAPA that it would be relying more on investing in its own independent aircraft leasing programme with GECAS, although without any hint of today’s news. Previously, Nok has used part owner Thai’s aircraft under lease arrangements. So, the carrier appears set to make the transition away from its part parent and the next likely step appears to be a divestiture of Thai’s holding.

Nok currently operates five B737-400s, of which two are recent acquisitions from GECAS and three belong to Thai Airways.

But, in the big league, the two airlines who will be most impacted in the long run are likely to be AirAsia and Jetstar, both of whom are vying for regional dominance. Adding a strong international low cost operation to the Bangkok/Thailand mix is a major step up for Tiger and a big signal of added competition ahead. Tiger is currently based in Singapore, with a wholly owned offshoot in Australia, Tiger Australia.

AirAsia is already in the local market with its joint venture, although Jetstar is also seeking to establish bases across the region. Jetstar’s

An interesting mix for SIA and Thai

There are probably no two more forthright competitors in the region than Thai Airways and Singapore Airlines. Although both are members of Star Alliance, the near neighbours for example do not even codeshare, let alone cooperate in any other way. Yet Tiger is majority owned by a combination of Singapore government interests, not least a direct holding of 34.4% by Singapore Airlines itself.

A detail which will work itself out in due course, this is one of the more fascinating manifestations of the low cost airline phenomenon in Asia, where the major LCCs – unlike elsewhere in the world - have been forced to operate in an international environment largely governed by archaic regulatory restrictions. As a result, LCCs have driven the pace of regulatory change, moving in through the side door, leaving not always logical outcomes to be resolved by the flag carriers.

For Jetstar’s parent Qantas, the dual brand has been a godsend, allowing the full service airline to allocate less viable long haul international routes to its wholly owned subsidiary, while also allowing it to establish on Singapore Airlines’ doorstep in Singapore, with both a local short haul operation with A320s and a creating a long haul hub for its A330s - things that Qantas itself could not even contemplate under its own brand.

AirAsia, the first driver of the cross border JV concept, has also made life extremely complex for flag carriers against which it has bumped – including Thai and its government majority owners (Thai is 51% government owned, while Singapore Airlines is 54% owned by the national investment arm, Temasek, along with other Singaporean institutional investors. Both carriers are listed, but with only limited offerings available to the investing public).

But the outcome has generally been that these moves reshape the old system to accommodate them, rather than the opposite. So, somehow, SIA and Thai will have to become used to the idea of being joined in this indirect way.

A Tiger by the tail?

But Tiger is no pussy cat when it comes to purring to its flag carrier majority holders. Minority owned by Indigo Partners and Ryan family holdings, with Singapore Airlines owning 49%, and now publicly listed, Tiger seeks to be fiercely independent. SIA, although having substantial representation on the Tiger board, is unable to control the way the LCC selects its route network. Consequently SIA often finds Tiger going head to head against itself and its wholly owned regional airline subsidiary, Silkair.

If Thai Airways management believes it will be able to limit Thai Tiger’s operations any more than SIA’s does, they may be over optimistic. Nok was often an enigma for Thai, especially on its domestic services. But Tiger is one airline that is likely to be aggressive in its route development.

However, there is plenty of scope for expansion on international routes where Thai Airways is ineffectual, notably in China’s regional cities and it is these that will be of greatest interest to Tiger, as it seeks to spread its wings in Asia. Also in Thai’s favour, the tone of the media release does appear to play down the domestic role of the new JV.

A coup for Tiger

As Tiger happily announces today, “spreading our paw-print means greater economies of scale for Tiger Airways, which in turn enables us to lower costs and fares even further."

The joint venture undoubtedly elevates Tiger a large notch in regional competitiveness with AirAsia and Jetstar. Importantly too, it also gives the LCC far more options in allocating the large number of A320 aircraft aircraft due for delivery over the next few years. Not only does establishment of a new base mean more operating options for the airline, it also spreads the carrier’s risk much more effectively, allowing it the luxury of allocating aircraft as its markets vary in opportunity and growth rates.

Tiger is still a tiny operation in comparison with the big two, with only 10 A320 family aircraft in service in Singapore and 9 in Tiger Australia. But it has big plans, with another 52 arriving between now and 2015, of which 11 are for delivery this year and next. Having plenty of options with this growth profile in prospect will be a decided positive.

… and the region

There will be many more moves in this regional tapestry of low cost airline competition before the end game, but Tiger’s announcement today should not be underestimated in scope.

It is a major step in the increasingly three-way LCC competition, but also happily has the almost inevitable impact of accelerating the process of liberalising Asia’s often unbalanced and restrictive entry system. The Thai government should now be able to stop dragging its heels on regulatory reform. That will in turn put more heat on other slow movers in southeast Asia, such as Indonesia. And so the LCC effect ricochets around the region.

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