Wednesday, July 16, 2008

Thailand's One-Two-Go ponders temporary grounding

Founder approaches 'a painful decision'


Travel demand is slowing as costs rise.

The founder of One-Two-Go Airlines is taking a long, hard look at the possibility of ceasing the budget carrier's flight operations in a damage-control exercise at a time of skyrocketing fuel prices and declining traffic demand.

Udom Tantiprasongchai told the Bangkok Post that he was seriously pondering whether to ground One-Two-Go "temporarily" on mounting cost pressures and poor business outlook.

"I'm not lying to myself about the reality of the situation. A painful decision needs to be made," he said.

One-Two-Go is one of the three Thai no-frills carriers, all of which are struggling with fuel prices that have doubled in the past year to above $170 a barrel.

Nok Airlines, 39% owned by Thai Airways International, is also facing troubles, since last July losing 114 million baht. Nok recently won a reprieve from shareholders to continue to fly after the management committed to a rehabilitation package including downsizing of operations, halving the fleet, and cutting salaries of senior staff.

With the package, Nok hopes to return to a break-even point over the next six months and turn a profit in the following six months.

Meanwhile, Thai AirAsia is fighting to curtail losses this year, adopting some methods that are unconventional for low-cost carriers, to boost revenues and keep seats filled even it means they do not offer any profit margin.

The no-frills carrier could be in the red again this year but hoped the losses would be less than in 2007, chief executive Tassapon Bijleveld has said.

Mr Udom's plan to suspend One-Two-Go was also influenced by a sense of betrayal from his two local rivals, which earlier agreed to adopt a survival package a few weeks ago but failed to follow through.

It was agreed that the trio would avoid price-cutting while increasing fuel surcharges, raising fares, reducing capacity and dropping low-traffic routes.

Mr Udom said domestic fares needed to go up by 30% from current levels to about 2,500 baht per leg.

The average domestic fares charged by Thai Airways International is roughly 2,200 baht, compared with 2,000 baht for One-Two-Go, and 1,500 baht for Thai AirAsia and Nok Air.

Fuel surcharges would need to increase to better reflect high fuel prices. Starting on July 5, One-Two-Go raised its fuel surcharge by 100 baht to 850 baht a leg. Fuel now accounts for 70% of its total operating costs, according to Mr Udom.

The higher percentage of fuel is due to its use of eight ageing and fuel-thirsty MD 80 series jets.

"In this kind of environment, anyone can go (bust) anytime," he said.

As a prelude to to a more drastic decision, One-Two-Go has cut frequencies on several routes, with the number of Bangkok-Chiang Mai and Bangkok-Phuket flights down to 21 a week from 28, Bangkok-Hat Yai halved to seven a week, while those to Chiang Rai and Nakhon Si Thammarat are down from seven to two flights per week.

Mr Udom said he was considering the futures of 700 employees working for One-Two-Go in case of a shutdown, though he did not rule out retrenchment possibilities.

Options for the employees could include accepting severance pay, leave-without-pay arrangements, and enrolling in some training courses.

The closure of One-Two-Go, which started flying in December 2003, may not be for good, he said. "If the situation improved with fuel prices being lowered and the profitability outlook was better, we could be airborne again."

Mr Udom declined to detail the financial impact that the airline industry downturn had had on One-Two-Go, saying only, "We are financially sustainable."

But he insisted that the parent carrier, Orient Thai Airlines, would continue to operate, flying chartered services and scheduled flights to Hong Kong and Incheon near Seoul.

Earlier this year, Orient Thai branched out into freight service by creating the country's first dedicated cargo carrier, Orient Thai Cargo, deploying two used Boeing 747-200Fs, acquired from Japan Airlines.

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