Thailand low cost airlines: rapid growth as fleet triples in 5 years

Summary

• Thailand's LCC fleet has more than tripled in size over the past five years, from 42 to 136 aircraft.
• Four LCCs have launched in Thailand over the past five years.
• There are now six LCCs operating in Thailand, three of which have widebody aircraft.
• Thai AirAsia is the market leader and has more than doubled its fleet over the past five years, from 28 aircraft to 59 aircraft.

Thailand's total commercial passenger aircraft fleet has expanded by 104 aircraft over the past five years, according to the CAPA Fleet Database. The LCC fleet has expanded by 94 aircraft while the full service airlines fleet has grown by only 10 aircraft.

Thailand LCC fleet size (number of aircraft in service) by airline: past five years

Airline	30-Apr-2013	30-Apr-2014	30-Apr-2015	30-Apr-2016	30-Apr-2017	30-Apr-2018
Thai AirAsia	28	37	43	48	53	59
Nok Air	14	17	24	29	30	28
Thai Lion Air	N/A	5	10	20	25	32
Thai AirAsia X	N/A	N/A	3	6	6	7
NokScoot	N/A	N/A	2	3	3	5
Thai VietJet	N/A	N/A	1	1	3	5
LCC Total	42	59	83	107	120	136
Overall Thailand Total	200	241	246	272	279	304

Source: CAPA Fleet Database.

Thai Lion becomes Thailand's second largest LCC

Thai Lion recently overtook Nok in terms of both fleet size and seat capacity. Thai AirAsia remains the market leader by a wide margin, and is about double the size of Thai Lion (both in terms of fleet size and seat capacity).

Thai VietJet became Thailand's fourth short haul LCC in 2016, when it launched scheduled services. Thai VietJet initially began operations in late 2014 with charters but has not expanded rapidly and is a relatively insignificant player, accounting for only 4% of Thailand's total LCC fleet.

In 4Q2017 Thai Lion became Thailand's third LCC widebody operator, along with Thai AirAsia X and NokScoot. Thai AirAsia X launched in 2014 and NokScoot in 2015. Both currently only operate widebody aircraft, although later this year NokScoot plans to start operating 737s, which will be used to operate alongside 777s in the fast expanding Thailand-China market.

Thailand is now the only country with three long haul LCCs. However, Thailand's LCC widebody fleet is relatively small, with just 15 aircraft currently in operation. The LCC turboprop fleet is also very small as there is only one operator, Nok, with 10 aircraft.

All of Thailand's LCC have expanded rapidly

Thai Lion has grown the fastest of Thailand's LCCs, adding 30 aircraft since launching with an initial fleet of two aircraft in Dec-2013.

Nok more than doubled its fleet in just three years, from 2013 to 2016, but has cut its fleet slightly over the past year as part of a restructuring aimed at returning to profitability. Nok currently operates 28 aircraft, which still represents growth of 75%, 12 aircraft, since Thai Lion launched in Dec-2013.

When Thai Lion launched in early Dec-2013, Nok had 16 aircraft and Thai AirAsia had 34 aircraft. Thai AirAsia now has 59 aircraft, representing growth of 25 aircraft, or 74%, since Thai Lion launched.

Thai AirAsia X, NokScoot and Thai VietJet are still relatively small, but all 17 of their aircraft are represented in the five-year growth figures as they are all less than four years old.

LCCs drive rapid growth in Thailand's domestic market

The tripling of Thailand's LCC fleet in five years has, not surprisingly, led to a similar increase in LCC capacity.

Domestic LCC seats in Thailand have more than tripled, from approximately 11 million in 2012 to 33 million in 2017, according to CAPA and OAG data. LCCs currently account for approximately 70% of domestic seat capacity in Thailand, compared to slightly less than 50% five years ago.

The total domestic market has more than doubled over the past five years, driven by a combination of economic growth, an expanding middle class and rapid LCC expansion. Average domestic fares plummeted as Thai Lion became the third LCC competitor on trunk routes, stimulating demand and persuading a segment of the population to trade bus and train journeys for air travel.

Thailand annual LCC seat capacity: 2008 to 2017

Source: CAPA - Centre for Aviation & OAG.

Thailand's international market has also experienced rapid LCC growth

International LCC seats to and from Thailand have also nearly tripled over the past five years, from five million in 2012 to 13.5 million in 2017. LCCs currently account for over 30% of international seat capacity in Thailand, compared to less than 20% five years ago.

Thailand's LCCs have pursued rapid international expansion over the past few years, including in medium haul markets as widebody aircraft were added for the first time. However, foreign LCCs have also expanded in the Thailand market and have accounted for a large proportion of the international growth.

There are currently 25 foreign LCCs serving Thailand, accounting for nearly 40% of the total international LCC seat capacity. Malaysia's AirAsia is the largest foreign LCC, with a more than 7% share of international LCC seat capacity. Indonesia AirAsia also has a 2% share, giving the AirAsia/AirAsia X Group approximately a 45% share of total LCC international seat capacity from Thailand.

LCCs account for nearly 50% of traffic at Airports of Thailand

In 2017 LCCs accounted for 47% of total passenger traffic at the six airports in the Airports of Thailand (AOT) portfolio. In 2013 LCCs accounted for only a 32% share at the same six airports: Bangkok Don Mueang, Bangkok Suvarnabhumi, Chiang Mai, Chiang Rai, Hat Yai and Phuket.

LCC traffic has increased by 120% over the past four years, while total AOT traffic has increased by 51%. Total traffic has increased by 45 million annual passengers, with LCCs accounting for 34 million of these passengers.

Don Mueang is now the world's largest LCC airport and will surpass 40 million LCC passengers in 2018. The airport handled 37 million LCC passengers in 2017, compared to less than 16 million in 2013.

See related report: Bangkok Don Mueang Airport: world's largest LCC airport to surpass 40 million passengers in 2018

Don Mueang's LCC penetration rate in 2017 was 97%. The LCC penetration rate was slightly less than 10% at Suvarnabhumi, which is used by most foreign LCCs and nearly all full service airlines serving Bangkok. All of Thailand's local LCCs are based at Don Mueang except Thai VietJet, which is based at Suvarnabhumi.

Phuket had an LCC penetration rate of 44% in 2017, Chiang Mai 64%, Chiang Rai 76% and Hat Yai 84%, based on AOT data. Chiang Rai and Hat Yai are relatively small airports (less than 5 million annual passengers). Chiang Mai handled 10 million passengers in 2017, Phuket 17 million and Suvarnabhumi 61 million.

There are several small to medium sized airports outside the AOT portfolio. Some of these airports have little or no LCC traffic - such as Samui, one of three airports owned by the full service regional airline Bangkok Airways. Other secondary airports such as Pattaya/Utapao are almost entirely served by LCCs.

Thailand's LCC fleet should surpass 150 aircraft by end of 2018

Thailand's LCC fleet will likely exceed 150 aircraft by the end of 2018. Thai AirAsia and Thai AirAsia X each plan to add another four aircraft by the end of 2018. Thai AirAsia has already added three of these aircraft in the first four months of the year, and Thai AirAsia has added one aircraft.

Nok is not planning to expand its fleet in 2018 as it focuses on improving utilisation of its exiting aircraft, primarily through more flights to China. However, NokScoot is planning to add six aircraft in 2018, including a fifth 777 and five 737s. (The fifth 777 was added in Apr-2018 and the five 737s will be added later this year.)

Thai Lion took delivery of the world's first 737 MAX 9 in Mar-2018 and took a second 737 MAX 9 in Apr-2018. Thai Lion is planning to take at least two more 737 MAX 9s by the end of 2018. The airline will also likely take at least a few 737-800s or 737 MAX 8s, but it is hard to predict a specific figure as Lion Group often changes its aircraft allocations at the last second.

VietJet Group allocations are also hard to predict, but Vietnam's VietJet Air could transfer another aircraft or two to Thai VietJet by the end of 2018. So far this year Thai VietJet has added one A320.

International market to support more growth for Thailand's LCCs

Thailand's LCC sector will continue to grow rapidly over the next few years, with a focus on international expansion.

The rate of domestic expansion has slowed significantly over the past year as the domestic market is starting to approach saturation after five years of rapid growth. In 1Q2018 domestic seat capacity in Thailand was broadly flat compared to 1Q2017, whereas international seat capacity was up by more than 10%.

LCCs are well placed to expand in Thailand's international market as the market consists mainly of price sensitive inbound passengers. Visitor numbers to Thailand were up 9% in both 2016 and 2017, reaching over 35 million. Visitor numbers were up 15% in 1Q2018.

LCCs already dominate the domestic market but still have an opportunity to increase their penetration rate in the international market. Rapid overall growth in international travel to and from Thailand also provides plenty of growth opportunities for LCCs without factoring in the likely increase in market share.

Thailand's LCCs will continue to expand their fleets rapidly over the next few years, with a focus on new generation narrowbody aircraft, which offer improved range compared to older models, and medium sized widebody aircraft. A330s, 737 MAX 8s/9s and A320/A321neos are ideal aircraft for Thai LCCs, given that the biggest growth opportunities are in the medium haul sector.