Wednesday, August 18, 2010

Thai turns to Tiger on low-cost

A new Bangkok-based joint-venture between Thai Airways and Singapore's Tiger Airways is expected to help both airlines move ahead with expansion plans and cope with competition in the coming years.

Thai Tiger Airways will start operations in the first quarter of 2011, operating domestic and international flights within a five-hour flying radius out of Bangkok's Suvarnabhumi airport. Thai and an undisclosed Thai entity will hold a 51% stake in the new carrier while Tiger will own the remaining 49%.

It will operate Airbus A320s, just like Tiger's operations in Singapore and Australia. Tiger has taken a slowly-slowly approach to fleet expansion, and has only 10 aircraft in Singapore and nine in Australia. But it has 52 A320s due for delivery by 2015, with 11 arriving this year and next. The joint venture will help it to move some of those aircraft around and maintain a gradual growth in Singapore and Australia.

Tiger Airways A320-200, Europix/AirTeamImages.com
The route network was not disclosed, although there were hints. "Bangkok is a key gateway to the whole of South-East Asia and from its base at Suvarnabhumi airport, Thai Tiger will be well positioned to also serve destinations in North Asia and the Indian sub-continent," says Tiger's chief executive Tony Davis. Bangkok is also an important base for tourists who fly on to the other countries in Indo-China such as Cambodia, Vietnam, Laos and Myanmar. This region has plenty of growth potential for air travel in the coming years, believe analysts.

Tiger, in which Thai's Star Alliance partner Singapore Airlines has a 34% stake, has a fully-owned subsidiary in Australia offering domestic services. Bangkok will be its third base, and will mark the end of a long-term search after plans to set up associate carriers in South Korea and the Philippines were ultimately dropped due to the economic crisis and regulatory uncertainty.

The carrier will provide competition to Thai AirAsia, the Bangkok-based associate of the Malaysian carrier that operates domestic and international services from Suvarnabhumi. That will suit Thai, which has been keen to find a strategy to reverse the trend of falling market share in its home market in recent years. Thai says its regional market share, in passenger numbers to and from Thailand, has fallen to 33% from 42% seven years ago due to competition from the low-cost carriers. Its share of the domestic market has also fallen to 50% from 82% over the same period, it adds.

"If we don't do anything, our market share will decline further," says Thai president Piyasvasti Amranan. "We believe 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." Part of this growth will come from the Association of South-East Asian Nations' air liberalisation policies, which will come into effect by 2015, says Piyasvasti, while also highlighting Thailand's relatively untapped domestic market.

Forming a new subsidiary could also signal Thai's frustration at its inability to derive more value from its 39% stake in domestic low-cost airline Nok Air. The airline, based at Bangkok's smaller Don Mueang Airport, will continue to focus on domestic routes in smaller provinces, says Thai. Nok Air is still unable to operate regional services, and is unlikely to be able to do so by next year as planned, Thai adds.

Critics of the plan in Thailand argue the airline should use Nok, rather than team with a foreign carrier. Others, however, argue that through the deal the flag carrier derives the benefit of joining hands with an experienced low-cost carrier, which has a track record of starting up profitable operations and has one of the lowest costs in the market.

For more on Tiger Airways' strategy see our recent analysis

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