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TAA Struggling to Contain Rising Fuel-Induced Losses

July 3, 2008

By Boonsong Kositchotethana, Bangkok Post, Thailand

Jul. 3–Thai AirAsia (TAA) is scrambling to curtail losses this year at no more than the 2007 level as skyrocketing fuel prices and slowing traffic demand make it increasingly harder to run a budget airline.

Some of its strategies are unconventional for a low-cost carrier as it looks to lift revenues and keep seats filled even it means they do offer no profit margin.

TAA could be in the red again this year but hopes the loss will be less than than in 2007, chief executive Tassapon Bijleveld said yesterday.

He declined to say how much TAA lost last year and what it expected this year, saying only that the 2007 sum was “substantial”.

“This year’s general situation seems worse than last year, due partly to the political mess,” he said. “Our financial performance is almost solely tied to jet fuel prices.”

Jet fuel is trading around US$170 a barrel and shows no signs of easing, creating headaches for all airlines.

Fuel now accounts for 50 percent of TAA’s operating cost, up from the 30 percent level that most airlines consider manageable.

TAA aims to carry 4.6 million flyers this year, up from 4.2 million last year.

Despite consumers’ lower purchasing power and oil-fed inflation, Mr Tassapon said the airline was on course to hit its 2008 target, citing a trend that was prevalent in the first half of this year.

TAA estimated it carried 2.1 million passengers in the first half, compared to 1.7 million in the same period last year.

Despite rising fuel cost pressure, Mr Tassapon insisted that the airline had no plan to raise fuel surcharges, now at 550 baht per leg for domestic flight and between 640 and 1,000 baht for flights from Bangkok to regional destinations.

Mr Tassapon said the carrier was resisting fare and fuel surcharge increases to avoid backlash from consumers, which could lead to more empty seats.

Instead, it is working on income-generation and profit-maximising strategies to keep the balance sheet positive.

Among others, it offers corporate accounts under which it sells seats to companies for their travelling employees. It has struck deals with 15 firms including Coca Cola Thailand and Nestle’ Thailand, which buy about 6,000 seats a month.

The airline is considering expanding food and snack choices on board and introducing duty-free sales on international routes in the next two months.

As well, it is considering whether other charges, such as counter check-in fees, could be applied without making passengers feel ripped off.

There is no plan yet to cut frequencies or suspend routes, though a couple of new routes could be launched in the second half of this year.

Meanwhile, the airline is expediting the phasing out of fuel-guzzling Boeing 737-300 aircraft from its fleet by six months and speeding up the phasing-in of fuel-efficient new A320 jetliners. It will have an all-A320 fleet in mid-2009.

TAA’s order for a total of 40 new A320s placed with the European planemaker Airbus remains committed, though delivery dates could be adjusted.

Yesterday, TAA also announced an on-time guarantee, entitling passengers whose flights are delayed more than three hours from the scheduled departure time a voucher worth 1,800 baht.

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Copyright (c) 2008, Bangkok Post, Thailand

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