07-Dec-2015 10:25 AM

Thailand airline sector: Bangkok Airways again outperforms Thai Airways, Thai AirAsia, Nok Air in 3Q

Analysis

Thanks to a clever and disciplined strategy, Bangkok Airways has been the most profitable airline in Thailand in 2015 and by some measures is also the most profitable in Southeast Asia. Bangkok Airways has generated a significantly higher profit than Thai AirAsia so far this year despite its smaller size while the other four publicly traded airlines or affiliates in Thailand have all been unprofitable - Thai Airways, Nok Air, Thai AirAsia X and NokScoot.

Bangkok Airways also reported the largest profit among Thai carriers in 2013 and 2014. Its outlook for 2016 is bright as its codeshare partners continue to expand in the Bangkok market, providing Bangkok Airways more high yielding short haul traffic.

LCC competition continues to intensify in Thailand, resulting in overcapacity and pressuring yields. But Bangkok Airways is relatively immune to the irrational competition at the bottom end of the market because it focuses heavily on traffic originating outside Southeast Asia and has a large and growing operation at the resort island of Samui, where it owns an airport that is not served by any LCCs.

Summary

Bangkok Airways has been the most profitable airline in Thailand in 2015 and is also the most profitable in Southeast Asia.
Bangkok Airways has generated a significantly higher profit than Thai AirAsia so far this year despite its smaller size.
Bangkok Airways is relatively immune to the irrational competition in the low-cost carrier market due to its focus on traffic originating outside Southeast Asia and its large operation at the resort island of Samui.
Bangkok Airways reported an operating profit margin of 21.4% in 3Q2015, the highest among a group of 20 publicly traded airlines or affiliates in Southeast Asia.
The airline's codeshare partners continue to expand in the Bangkok market, providing Bangkok Airways with more high yielding short-haul traffic.
Bangkok Airways is well positioned to further grow interline and codeshare traffic, which should give it the yields to remain profitable even if competition in Thailand intensifies.

This is the first in a series of reports on Bangkok Airways and the Thai market. This report focuses on the financial performance of Bangkok Airways compared to other Thai carriers in 3Q2015 and the first nine months of 2015.

The second report in this series will look at Bangkok Airways' expansion plans for 2016, including fleet growth, new routes and new codeshare partners.

Bangkok Airways is the smallest but most profitable among Thailand's four main airlines

Bangkok Airways is the smallest of Thailand's four publicly traded airlines. In 3Q2015 Bangkok Airways transported 1.3 million passengers with a fleet of 30 aircraft. Its local full service competitor, Thai Airways, carried 5.15 million passengers with a fleet of 95 aircraft (includes Thai Airways full service regional subsidiary Thai Smile). Thailand's largest LCC, Thai AirAsia, carried 3.58 million passengers with a fleet of 44 aircraft in 3Q2015 while Nok Air carried 1.89 million passengers with a fleet of 27 aircraft.

But Bangkok Airways was by far the most profitable in 3Q2015. The Bangkok Airways Group reported an operating profit of THB750 million (USD21 million) and a net profit of THB591 million (USD17 million) for the three months ending 30-Sep-2015.

The group's airline segment reported an operating profit of THB1.058 billion (USD30 million) on revenues of THB4.945 billion (USD140 million), which equates to an operating profit margin of 21.4% and an average profit of THB806 (USD22.88) per passenger. As a group the operating profit margin was 11.8% on revenues of THB6.346 billion (USD183 million).

Bangkok Airways had the third highest operating profit in Southeast Asia in 3Q2015, behind only Malaysia AirAsia and Singapore Airlines. But it had the highest margin among a group of 20 publicly traded airlines or affiliates in Southeast Asia and posted the highest margin in Thailand by a wide margin.

Thai Airways, Nok, Thai AirAsia X and NokScoot were in the red in 3Q2015

Thai AirAsia had an operating profit margin of only 3.9% in 3Q2015 and a profit of about THB80 (USD2.27) per passenger. The Thai Airways Group, which does not provide a breakdown by subsidiary, had an operating profit margin of negative 6.3% while Nok's margin was negative 11.2%.

Long haul low cost start-up NokScoot had a negative 127% margin on a very low revenue base. A margin figure for the other long haul LCC start up in Thailand, Thai AirAsia X, is not available as its shareholders did not disclose a revenue figure but it incurred an average loss of THB1882 (USD53.43) per passenger in 3Q2015.

Financial highlights (in THB millions) for Thai carriers: 3Q2015 vs 3Q2014

	3Q2015 net result	3Q2014 net result	3Q2015 operating result	3Q2014 operating result	3Q2015 revenues	3Q2014 revenues
Thai Airways Group	-9901	+1086	-2786	-3834	44,342	46,371
Thai AirAsia	+174	-382	+286	-278	7254	5559
Nok Air	-350	-353	-350	-353	3141	2744
Thai AirAsia X	-384	N/A	N/A	N/A	N/A	N/A
NokScoot	-298	N/A	N/A	N/A	234	N/A
Bangkok Airways airline segment	N/A	N/A	+1058	+693	4945	4287
Bangkok Airways Group	+591	-47	+750	+316	6346	5284

Bangkok Airways also outperformed its competitors in Thailand, and by some measures its peers in all of Southeast Asia, in 2013, 2014 and 1H2015. Bangkok Airways' airline segment generated operating profits of THB4.390 billion in 2013 (USD143 million) and THB3.213 billion (USD99 million) in 2014. Overall the Bangkok Airways Group, which includes several non-airline subsidiaries, reported operating profits of THB2.676 billion (USD87 million) in 2013 and 1.711 billion (USD53 million) in 2014.

Through the first nine months of 2015 the Bangkok Airways Group generated operating profits of THB2.261 billion (USD67 million) while the airline segment reported an operating profit of THB3.322 billion (USD98 million). This equates to an operating profit margin of 22.8% and 12.1% respectively.

Bangkok Airways is on track to report record profits for the full year 2015, raising its total three year group operating profit figure to about USD250 million for the 2013 to 2015 period. The three year profit figure for its airline segment should approach USD400 million. This gives Bangkok Airways the third largest operating profit in the Southeast Asian airline sector over the last three years but the highest margin.

Thailand's publicly traded airlines collectively had an operating profit in 9M2015

Thai Airways and Nok both had small operating losses for the first three quarters of 2015 while Thai AirAsia had an operating profit of THB1955 million (USD58 million).

Thai AirAsia X and NokScoot have incurred larges losses due to regulatory restrictions blocking their planned expansion in Japan and South Korea.

Financial highlights for Thai airlines (in THB millions): 9M2015 vs 9M2014

	9M2015 net result	9M2014 net result	9M2015 operating result	9M2014 operating result	9M2015 revenues	9M2014 revenues
Thai Airways Group	-18119	-9211	-348	-11878	137,715	139,645
Thai AirAsia	+1471	-455	+1955	-265	21,873	17,479
Nok Air	-346	-472	-345	-472	9807	8661
Thai AirAsia X	-394	N/A	N/A	N/A	N/A	N/A
NokScoot	-917	N/A	N/A	N/A	529	N/A
Bangkok Airways airline segment	N/A	N/A	+3322	+2207	14,552	13,118
Bangkok Airways Group	+1780	+158	+2261	+1125	18,661	16,261

All Thai carriers have been unable to expand in Japan and South Korea since ICAO raised concerns with Thailand's DCA in early 2015. But Thai Airways has not been impacted as it was not planning any expansion in these markets while Thai AirAsia, Nok and Bangkok Airways have not been impacted as they are only short haul carriers.

Thai Airways, Nok and Thai AirAsia X joined Thai AirAsia and Bangkok Airways in reporting profits in 1Q2015. But Nok, Thai Airways and Thai AirAsia X slipped into the red in 2Q2015 and 3Q2015.

See related reports:

Domestic market conditions in Thailand have been challenging

In Thailand the second and third quarters are typically much weaker than the first and fourth quarters. But intensifying competition, particularly in the domestic market, impacted market conditions in the last two quarters. Demand in late 3Q2015 was also impacted by the 17-Aug-2015 bombing in Bangkok.

In its 3Q2015 results statement, Nok said the domestic market was impacted by "fierce competition from over supply during low season and sluggish economic growth". As CAPA has previously highlighted, Thai Lion Air particularly pursued rapid and aggressive expansion in the Thai domestic market.

Thai Lion has quickly expanded since its late 2013 launch and now accounts for over 20% of domestic seat capacity in Thailand. The Lion Group affiliate does not provide financial figures as it is privately owned but Thai Lion has stated it is not yet profitable and aims to reach break-even three years after its launch.

See related reports:

Nok is more exposed to the intensifying domestic competition as it is primarily a domestic carrier. Of the 1.89 million passengers Nok carried in 3Q2015, 1.81 million or 96% were in the domestic market. Nok captured a 25% share of Thailand's domestic market in 3Q2015 as the total market grew by 23% to 7.35 million passengers.

Thai AirAsia is the largest player in Thailand's domestic market, transporting 2.22 million domestic passengers in 3Q2015 which equates to a 30% share of the market. But Thai AirAsia has a much more balanced network than Nok as it also carried 1.36 international passengers in 3Q2015, accounting for 38% of the 3.58 million passengers it carried.

Its relatively large and growing international operation has enabled Thai AirAsia to improve yields over the last year despite the pressure on yields in the domestic market. Thai AirAsia's RASK was up 4% in 3Q2015 while Nok's RASK was down 11% in the quarter.

Conditions in Thailand's international market have been more favourable

Thai AirAsia has a particularly strong network in China, which has enabled it to participate in the rapid growth of the Thailand-China market. Visitor numbers from China have nearly doubled so far in 2015, more than offsetting the decline from 2014 when Thailand's tourism sector was impacted by political instability.

Thailand reported a 24% increase in total visitor numbers in 3Q2015 and a 28% increase for the first three quarters of 2015. For the full year Thailand is expected to attract a record 28 million visitors, which represents growth of 12% compared to 2014.

Thailand annual visitor numbers: 2003 to 2015

Visitor numbers dropped by 7% in 2014, resulting in an extremely challenging year for the Thailand aviation sector. But visitor numbers started recovering in 4Q2014. Thailand is expected to see only a slight increase in visitor numbers in 4Q2015 - which explains the projected 12% growth figure for 2015 after seeing much more rapid growth in the first three quarters of 2015 - as the base in 4Q2014 was much higher compared to the first three quarters of the year.

In Oct-2015, visitor numbers were up by only 1%, due to the higher base from Oct-2014 and the Aug-2015 bombings in Bangkok. All Thai carriers reported that bookings quickly recovered after the bombings but there was some impact on visitor numbers from some source markets in September and October.

Thailand monthly visitor arrivals: Jan-2008 to Oct-2015

Bangkok Airways is well positioned as visitor numbers to Thailand increase

Bangkok Airways has benefitted from the recovery and surge in visitor numbers over the last year as it relies mainly on passengers originating in markets outside its own area of operation - which includes Southeast Asia, South Asia and Hong Kong. Between 70% and 80% of Bangkok Airways passengers are from other regions, depending on the time of year.

About 30% of Bangkok Airways passengers fly on tickets sold by its airline partners through interlines and codeshares.

Another 40% to 50% of its passengers come from outside the region but buy separate tickets which are issued by Bangkok Airways.

Bangkok Airways has a large domestic operation, which accounted for 974,000 passengers or 74% of its total traffic in 3Q2015. But its exposure to the intensifying LCC competition in the domestic market is relatively limited as it focuses on flying passengers around Thailand that are visiting from other regions. About 40% of Bangkok Airways domestic capacity is also allocated to Samui, where there are no services from LCCs.

Bangkok Airways has a similar focus in the international market. While it faces LCC competition on several of its international routes Bangkok Airways mainly carries passengers originating in other regions. It also has three international routes from Samui (Hong Kong, Kuala Lumpur and Singapore) and six international destinations from Bangkok that are not served by LCCs - Dhaka, Nay Pyi Taw, Luang Prabang, Male, Mumbai and Vientiane.

In theory international passengers arriving in Bangkok can buy tickets on LCCs to domestic and regional international destinations. But all of Thailand's LCCs now operate from Bangkok Don Mueang while Bangkok Airways operates from Bangkok Suvarnabhumi, which is served by all foreign full service carriers as well as Thai Airways. This gives Bangkok Airways a competitive advantage as travelling between airports in Bangkok is inconvenient.

Bangkok Airways' partners have been expanding in Bangkok market at a rapid pace

Suvarnabhumi is currently served by about 90 foreign carriers. Bangkok Airways currently codeshares with 20 of these carriers and has interlines with most of the others.

Foreign airlines have expanded at Suvarnabhumi in 2015 as Thailand's tourism sector has recovered. Bangkok Airways stated in its 3Q2015 results presentation that its codeshare partners has grown seat capacity by 24% in 2015 at Bangkok, Kuala Lumpur and Singapore.

Bangkok Airways is projecting a further 14% increase in seat capacity by its partners at these three gateways in 1Q2016. While its main gateway is Suvarnabhumi, Bangkok Airways also codeshares with several of its partners from Kuala Lumpur and Singapore to Samui.

Bangkok Airways codeshare partner seat capacity at Bangkok, Kuala Lumpur and Singapore

Gulf carriers in particular have expanded rapidly in Bangkok. Emirates and Qatar both recently up-gauged more Bangkok flights from 777s to A380s with Emirates deploying its new 615-seat A380 to Bangkok from 1-Dec-2015.

Bangkok Airways codeshares with Emirates, Etihad and Qatar Airways. The three carriers combined have more than doubled capacity in the Bangkok market over the last four years, according to CAPA and OAG data. Middle Eastern carriers overall have overtaken European carriers in recent years as Bangkok Airways' largest group of partners.

Bangkok Airways also has inevitably benefitted from the restructuring of Thai Airways' long haul operation as it has led to market share gains for some of its partners. Thai Airways has been increasing its focus on regional connections as part of a new commercial strategy but the focus is on connections within its own network - and to a lesser extent with existing Star Alliance partners - rather than with potential new partners.

Bangkok Airways' outlook is bright following an impressive string of recent profits

Bangkok Airways is well positioned to further grow interline and codeshare traffic, which in turn should give it the yields to remain profitable even if competition in Thailand continues to intensify. Bangkok Airways is already the most profitable Thai carrier despite having by far the lowest average load factors.

Operating highlights for Thai carriers: 3Q2015 vs 3Q2014

	3Q2015 Load factor	3Q2014 Load factor	3Q2015 RPK growth	3Q2015 ASK growth	3Q2015 passenger growth
Thai Airways	74.4%	71.1%	+4%	-1%	+9%
Thai AirAsia	81%	82%	+20%	+25%	+26%
Nok Air	82.8%	84.2%	+19%	+21%	+8%
Bangkok Airways	67.6%	62.8%	+10%	+2%	+12%

While there is room to improve load factors, Bangkok Airways' load factors will remain below industry norms as it designs its schedules to maximise connections with partners, which typically results in relatively full flights in one direction but relatively empty in the other direction. There are also strong seasonal fluctuations in the feed coming from its partners, making it difficult to sustain a high year round load factor.

But Bangkok Airways has the yields - and a low enough cost base - to post high profit margins despite the low load factors. Bangkok Airways' ability to post profits over the last three years is impressive as it has come in the face of intensifying LCC competition in Southeast Asia's short haul market and very challenging conditions in the Thai market, particularly in 2014.

The carrier's track record of profitability was highlighted by the judging panel for the CAPA 2015 Asia Pacific Aviation Awards for Excellence in selecting Bangkok Airways as the Asia Pacific Regional Airline of the year. The judging panel also highlighted Bangkok Airways' innovative partnership strategy, which has enabled the carrier to differentiate itself in a short haul market dominated by LCCs and grow profitably.

CAPA noted that over the last year Bangkok Airways has become the largest foreign airline in Myanmar while maintaining its status as the second largest foreign carrier in Cambodia and Laos, which gives its partners unrivalled access to key and growing secondary markets in Southeast Asia.

Bangkok Airways President Puttipong Prasarttong-Osoth accepts the CAPA Asia Pacific Regional Airline Regional of the Year Award and discusses the airline's unique history and position in the Southeast Asian market

Quiet performer Bangkok Airways' stock has also outstripped Thai competitors since its Nov-2014 IPO

CAPA also noted that in Nov-2014 Bangkok Airways completed an initial public offering despite difficult market conditions in Thailand.

Over the last year Bangkok Airways' stock price has increased 4%, a modest figure but an impressive showing given the difficult market conditions and the relative performance of its peers. Over the past year the stock price of Nok Air has tumbled by 47% and Thai Airways by 48% while Thai AirAsia parent Asia Aviation is up by only 1%.

Despite its IPO and recent success Bangkok Airways remains a relatively unknown airline and maintains a very low profile.

It has quietly emerged as the best performer in Thailand's dynamic airline sector and it is well positioned to maintain this distinction.

In the second part in this series of analysis reports CAPA will look at Bangkok Airways' expansion plans for 2016, including fleet growth, new routes and new codeshare partners.