Airline Leader Interview, Thai Airways CEO Chai Eamsiri

Transcript

Paul Burton:And to kick off our proceedings at the event, it's my great honor to welcome onto the stage the CEO of Thai Airways, Mr. Chai Eamsiri.

Chai Eamsiri:Hello.

Paul Burton:So we're going to cover a range of topics this morning, including restructuring of the fleet, a market overview, how the Thai market is progressing this year, and also how the business is going in the kind of tough post-COVID environment. I think there's a good story to tell. Also, we welcome your questions. Chai has kindly agreed to take Q&A, so I think we'll speak for 20-25 minutes and then hand over to the floor. So Please use Slido or the microphones. So, sir, let me start by asking you, in terms of restructuring of Thai Airways, could you talk about what moves you have made during that time, and how significant is it that you've relisted on the stock market and completed your restructuring project in August this year?

Chai Eamsiri:Thank you. Yep, it's a very long journey. I think everyone goes through that very difficult time during the past 5 years. And we are, the shareholders of the company decided to sell some shares and returning into the fully from the SOE, the state-owned enterprise, to be the private company. Then maybe it's good and bad timing, Because during the pandemic, you know, the airline, we are cash burn business. We don't have a revenue stream into the company while we have to restructuring the company. So it's double crisis. But good thing is it's like playing soccer, football, or rugby. We have a halftime break, then everybody industry breaking, phrasing, Excuse me. So, it's good for us that we more or less have the same handicap, stopping doing business, cleaning the house, restructuring the company, downsizing, improving a lot in terms of the aircraft, the fleet combination. We get rid of most of the old generation aircraft. So currently, we have only the new generation aircraft. But as you know, there's some constraint in the supply chain, especially the aircraft and the engines, equipment. in the airline industry. So, some of the aircraft we have to keep it for the time being, for the interim, waiting for the new production aircraft coming out, which takes years to get the big momentum. But at least we're cleaning the house, we modernize the fleet, we restructure the company. We used to have about 32,000 FTE, it cut down to less than 20,000, currently come back to 22,000. But in terms of the productivity per person and per aircraft, it's improved by 20%. That's in terms of productivity. But in terms of cost, it was reducing by It used to be about 23% of our revenue is a people cost. Now it's about 12% only. It doesn't mean that we are squeezing the workforce, but I think we work smarter. The non-productive process, we're killing all of them. Any process that didn't produce, the productivity, just stop doing it. And we're using a lot of digital, which lately we're just implementing the new website and then mobile application where the people can easily manage by themselves, rest people process. For example, the good and the most improved one is A lot of people complaining about the redeem miles. A lot of passengers want to redeem their miles, but they cannot manage by themselves. But with the new feature, the passenger can manage their booking, their redeem miles by themselves. In the past, they have to call the call center and engaging a lot of call time for the call center. Then following bad experience, So, it's circling around, then we use a system, then the passenger can see all inventory by themselves. They can choose which day, which flight they want to redeem miles. That's increased a lot in terms of the customer satisfaction. That's the operation, but another part is financial restructuring. As you know, in the past, Thai Airways are the loss-making company. We turned the company back, we continued profit-making for the last at least 2.5 years, but I can say 3 years, which will be closing at the 3rd quarter of this year, will be announced in next month. I think I'm confident that during the past 3 years, Thai Airways are making very healthy profit. Then that means Thai Airways is more sexy now. A lot of investors, a lot of the— not only investors, the financial is still coming to us. In the past, 4 years back, I try to call them, they say, oh no, busy, busy, they're struggling in the company now, I don't need to call them, they come back to us.

Paul Burton:Well, it's always good to have a sexy airline on stage to start an event. Sorry, if I may, I really wanted to ask you a couple of questions.

Chai Eamsiri:Sorry, if you keep me talking at 2 hours.

Paul Burton:No, of course, I've got about 50 questions here, so you've dealt with most of them already, but let's focus If we may, very specifically on your fleet strategy, you've been adding a lot of leased widebodies. What types have you added? Are you still looking to add more leased aircraft? How tough is it in the current market to find leased aircraft?

Chai Eamsiri:We already— not luckily, we intentionally secured aircraft end of '23, beginning of '24. We're signing the purchase agreement with, it's already known, Boeing, 45 firm order, 35 option. We already exercised some option already. 45 is firm, but we exercised option, some of them already. But the first aircraft, according to the initial plan, supposed to be deliver by mid of '27. But as I said earlier, there's some problem in the industry, and it was postponing for 6 months. It will be first aircraft coming into our fleet, the new one, in early '28. But we cannot wait until '28. This year, '25. Another 2.5, 3 years. We have an opportunity lost if we do nothing. We have the demand in the market, but we try to find the supply, the aircraft. That's why we are seeking for the used aircraft which acceptable conditions, which acceptable and fitting into our network. What do we need? So we need the capacity that have a premium class configuration, have a reliable operational efficiency, and of course the total cost of ownership. We've been able to find some, but this is—

Paul Burton:this will be the final negotiation with the Do you feel confident to hit your target of 150 aircraft in your fleet by 2033, given those prevailing market trends?

Chai Eamsiri:In long term, I don't worry very much in the long term. 2033, 150. But actually, if you look back at the numbers today, Thai Airways have only 100 aircraft. 77, 78 aircraft, but 150 seems to be big, very ambitious plan.

Paul Burton:100% growth.

Chai Eamsiri:So, but Thai Airways used to have about 110, 120 aircraft before. That was 15 years ago. 2033, 150. It's very small growth. It's CAGR only 2%, less than 3% CAGR, which is not ambitious. It's really conservative growth. But we forget that we're starting from ground. from scratch. We used 77, we are already adding capacity, but the lowest point is about 60 aircraft, the lowest point that we ever been in during the pandemic. Now we come back, luckily we find some additional Airbus A350, 11 of them during the pandemic. With that, If without that 11 of 350, we couldn't come this far because that's proven that we changed the mindset of the company from the SOE to the private company. We have more agility to make decisions. Otherwise, you couldn't get the aircraft in time.

Paul Burton:Can I ask you, there's been a lot of talk in the market about a potential widebody order. Where are you up to with that process?

Chai Eamsiri:Widebody order? We already placed the order. As I mentioned, we will get the first one on the 28th. Okay. 787 powered by GE. But another smaller fleet, it will be the Airbus I'm talking about Boeing already. I have to mention my partner, another partner also, which is Airbus.

Paul Burton:Please.

Chai Eamsiri:Airbus A321neo, we will be receiving the first line production aircraft in second week of December, the first one. Starting from December until next December, 12 months, We are planning receiving 17 of them, 17 narrowbodies into our fleet. It will be a new cabin, new seating, new IFE, new connectivity, but maybe same CEO, but not the new CEO yet.

Paul Burton:Very good. You've alluded to the new premium economy. Would you like to provide a little more depth about maybe any other additions in that space?

Chai Eamsiri:During the pandemic, a lot of people think, or they have an outlook that what will be the travel pattern after pandemic. A lot of people think, okay, people have some concerned about spending. So they think it will be more back-of-the-bus traveler, premium economy will be leading the airline revenue. But actually, Thai, we didn't think that the way.

Paul Burton:Hmm.

Chai Eamsiri:We think we have to put more premium class, at the front of the cabin. So we decided to investing in expansion, reconfiguration into the business class and also premium economy and then economy. We decided to retrofit 14 of 777-300ER, the existing aircraft that we use, we convert into 3 classes. which the new class is the premium economy. Why? If you go back and study on the figure, the fare, the ticket price, comparing in terms of NPV, I can say, because I'm from finance, NPV, 10 years back, actually, and comparing to the—

Paul Burton:10 years back.

Chai Eamsiri:the income per head of the people, the travel cost is cheaper, about 40% cheaper. So that means people have more purchasing power to pay and to enjoy their comfort. That's the first, first reason. Second reason, the new generation, they don't like saving. They didn't save the money.

Paul Burton:Yeah.

Chai Eamsiri:That's the duty of the parents to save the money. They want to spend, spend for the luxury, spend for their comfort. So I think that's the 2 reasons, that's why there's more demand from the premium passenger. That's why we decided to put the premium economy and also put more You've clearly met my kids.

Paul Burton:Can we spend the rest of our conversation talking about the market dynamic? I think it's well reported that tourism to Thailand is year on year down this year. Just your insight into the cause of that, short-term issues, and any impact upon your airline in terms of traffic and capacity?

Chai Eamsiri:Yeah, it was impacting the tourism industry in Thailand. But it may— if I say this, people may think I'm selfish, but I'm running the company. I'm not on the duty to running the countries. I have to running Thai Airways through the storm. Actually, to be frank, we was not infected by the tourist decline. Why? Because we are a network airline. Most of our traffic in the past, about 95% in the past, 95% is point-to-point passenger in and out from Thailand. The latest figure after we implementing the new strategy network airline, that 95 down to 20%.

Paul Burton:20%?

Chai Eamsiri:To be exact, 80, 70, 78, to be exact, 78. 95 to 78. That means we increase the network sales, network passenger. What does it mean? It means that we are diversifying the source of revenue. We are not heavily depending on point-to-point from Thailand. So, tourism, tourist traveler come to Bangkok, we still carry them, but we carry the transit passenger more than in the past. So, that's why we're replacing the tourist traveler by using Bangkok as a hub. For example, China? China is a big market for Thai in the past. Now, they have a problem in terms of the confidence on the safety, travel safety. We know that. So, we're just selling the ticket from China, make a connecting in Bangkok to Europe, to Australia, to India. We fly to India about once a week. 9 cities in India, 5 cities in China, and Thailand is a very good geographical area to connect these 2 biggest countries in the world, 1.4 billion people each country. And surprisingly, up to today, there's no direct traffic between these 2 countries.

Paul Burton:Why?

Chai Eamsiri:Then we just take this opportunity to offer them the connectivity from Bangkok.

Paul Burton:It looks like the Indian market is becoming increasingly important for you. Are you looking to ramp up your services there at all?

Chai Eamsiri:Yes, currently we fly to Delhi 3 times a week. It's triple daily flight. We're planning to put another one, 4, after we're receiving the A321neo. Mumbai, it will be— it's already 2 flights a day already. The rest, at least every flight, every city that we will open, it will be at least daily flight. In the past, in the old days, old school, the airlines starting from 3, 4 flights per week. I said, no, at least Thai Airways, wherever we start, we will start with daily flight. Otherwise, you cannot compete. Otherwise, you cannot get— offer the customer the good products. Schedule is one of the feature of the products. Yeah.

Paul Burton:How's Europe performing for you? Any issues with the overflight issues and any growth prospects in that continent for you?

Chai Eamsiri:Europe is the biggest market. Europe is a single market. Europe is the biggest single market for Thai, representing about 1/3 of our revenue. And overall, more than 85% cabin factor. and good yield. Both P and Q is good, that means end result very good. And Europe, European route is a contributor to the regional route because Bangkok is not the only destination that the European flying to Asia-Pacific. We also have a very extensive Asia-Pacific network, then we offer them like our friends in Middle East offer. For example, if they want to fly from Europe to Vietnam, to Cambodia, even to Indonesia, what's the choice from the passenger? They can fly direct to each that city, or they can fly one stop. Where is one stop? Maybe in the Middle East or in Bangkok. But our strength is we have a one-leg long haul, 11 hours. The people, the passenger can sleep 8 hours, 7 hours, that's more than enough, and make a connecting in Bangkok, 2 hours. In terms of comfortable, I think one leg long haul combined with one short leg is more comfortable than halfway. 6 and 6, you cannot sleep middle of the night. This is our offer to the market.

Paul Burton:Any aspirations to develop the US market as well?

Chai Eamsiri:We used to fly to the US for Since I joined Thai Airways, we look back and we think it's not the right time to go back. Why? First, Bangkok and US is quite peripheral. There's 2 ways to fly to US, direct or one stop in East Asia. Hmm. From Bangkok to LA or San Francisco, take about 15 hours, 16 hours. You cannot fly throughout the year. You can fly, but you have to cut the revenue load because it is beyond the efficiency of the aircraft. Up to the existing technology, you can fly maybe with a 350, 777-900. 777-900 or the 777-9, but we don't have both of them yet. The most suitable one now is a -9, but again, as I said, we have to cut down the revenue load. We already studied, we do the flight plan. In some cases, we have to cut down about 100 passengers, only 5 tonnes of cargo. Cargo, it's not viable. Why I do it? Then I'd rather use my partner to Tokyo, to Incheon, or Taiwan to connect my passenger to US.

Paul Burton:Mm-hm.

Chai Eamsiri:And another choice is why don't Thai Airways fly via East Asia? As I said, okay, we start with daily flight. How many flight from that hub to US? 40, 50 flight per day. I'm flying only one flight. It's not— if you are a marketer, there's no need to think. You are a very small drop in the ocean. They just, doing price structuring, then we will easily burn out.

Paul Burton:Thank you. Final question before we spend 5 minutes on Q&A. What is your vision for what sort of airline Thai Airways will be in the next decade? Where, where are you moving? What is your overarching vision for, for the business? Thank you.

Chai Eamsiri:I actually, I don't have any new vision. The existing vision for Thai Airways has been there for decades. First, we would like to be the high-quality full-service carrier. I think we were there already, connecting the world to, to the regional By using Bangkok, we success, partly, partially success already, but we wait for the new capacity to coming in. Thirdly, we're using strong Thai brand. You may notice from the our in-flight service or in cabin, we use a lot of Thai product, but Sometimes if you are using Thai-ness, genuine Thai-ness, it's really difficult to reach. You have to adapt yourself to be contemporary Thai. Like food, if you're serving Thai, authentic Thai food, you cannot eat it. Then we have to adapt to the international test that we already did. The last one is the— we will generate the sustainable profit margin. We already reached that 3 years in a row. We are the very top airline that generate the biggest profit margin for 3 years, more than 20% EBIT margin. To be exact, 22%, 23%. EBIT margin. But in the future, how we make sure— how can we make sure that we are keeping on track with our long-term performance? We every— the most difficult part for the airline is controlling the cost. Revenue you cannot control because it's up to the market, it's up to the competitive. competition in the market. You can control a bit, you can play around the fare, the RBD, the class that you sell, but you cannot 100% control. But cost, you can control your cost. Fuel, you can partially control. Maintenance cost, you can also control. People cost, you can control. So we are quite confident that In terms of cost management in the future, we can control that cost. So that means we can maintain the healthy profit margin in the future.

Paul Burton:Thank you. I think we have time probably for one question. So let's focus on sustainability you've just mentioned. The question is around how you consider sustainability and efficiency of your operations in your overall strategy. And how important on the investor side is sustainability, do you find?

Chai Eamsiri:There's a lot of forum, there's a lot of conference talking about the sustainability. I don't want to go back to the 4 pillars of the ICAO. Of course, the SAF is one of the major pillars for for the aviation industry. I think we as an industry still stuck on how we use SAF as one of the solutions to make the world sustainable. We couldn't find enough feedstock. That's more on the global problem. But I even think that maybe we have to revisit the goal of 2% reduction because it's used a lot of effort. And I don't think by 2050, it's very difficult to reach that goal because of the— that we're facing. But apart from SAF, we just make it more easier for our employee, easier for our partner to understand more about the sustainable. We have 3 themes. The first is the from waste to wealth. From waste to wealth. How we make a waste to be more value and to become more wealthy. Second, from plane to planet. How you can make the— from plane, because plane producing the CO2, how we can make that into the— give some benefit to the planet. And the last one is what you call the plant to planet, waste to wealth, purple to purpose. Purple is Thai Airways corporate color to the purpose. What is our purpose of the company? Most of the product that we brought into the aircraft is biodegradable. Or it's reused and recycled products.

Paul Burton:I think that's a really positive way to conclude our conversation. So, Mr. Chai Eamsiri, thank you so much for your time this morning. It's been a pleasure. So, round of applause, please. Thank you so much.

Chai Eamsiri:Thank you very much.

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