June 24, 2008

D-Day Approaches for Nok Air: High Fuel Prices May Sink Budget Carrier

By Boonsong Kositchotethana, Bangkok Post, Thailand

Jun. 20--Far-reaching implications of any drastic decision are holding back leaders of Nok Airlines from determining the fate of the budget carrier, which has been hit hard by high fuel prices and falling traffic.

Top management executives representing the airline and major shareholder Thai Airways International (THAI) are due to meet again early next week to make a final decision, following up on earlier talks held on June 10.

Last week's discussions included Apinan Sumanaseni, the president of THAI which holds 39 percent in Nok Air, and were shrouded in secrecy.

However, an insider who asked to remain anonymous said: "There aren't many options left for Nok Air's future. A very drastic decision has to be made very soon."

With jet fuel prices above US$160 a barrel, it did not make economic sense for four-year-old Nok Air to continue, he said, indicating that a shutdown could be imminent.

The low-cost carrier (LCC) business model simply did not work with oil prices at such high levels, he said.

For reasons that were not made clear, THAI was not currently at liberty to dispose of its shares in Nok Air, he added.

The national carrier is Nok Air's largest shareholder and shares resources, offering preferential aircraft leasing rates and aircraft maintenance fees. THAI has been worried about the no-frills carrier's financial status for the past few years.

Some executives have also expressed unhappiness over Nok pursuing strategies that did not complement THAI's operations, and in some cases seemed to represent direct competition.

Demand for domestic air travel, to which Nok Air is confined to operate following its exit from the Bangalore and Hanoi routes, is also slowing.

THAI itself was having its own difficulties with prohibitive fuel prices and slowing traffic demand, the source added. Mr Apinan himself admitted in an interview this week that the national carrier's near-term focus was on survival, rather than growth, as it was struggling to break even.

THAI is scaling down its 10-year business growth plan including a major fleet modernisation that was to include the procurement of 65 new aircraft.

One of the consequences arising from any drastic decision involves Nok Air's 100-plus pilots and more than 200 cabin staff.

Nok Air operates 52 flights a day, with nine Boeing 737 series jetliners, four of them leased from THAI, and one ATR propeller plane.


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