THAI transfers routes to Nok: Budget carrier to get domestic routes, jets

Nov 05, 2009 (Bangkok Post - McClatchy-Tribune Information Services via COMTEX) -- TAWNF | Quote | Chart | News | PowerRating -- After reconciling with Nok Airlines earlier this year, Thai Airways International (THAI) now seems ready to help its budget brand fly higher.

The 49-year-old flag carrier looks set to hand over several domestic routes, its six remaining 737-400 jets and other support to its six-year-old affiliate to enable it to fight back against no-frills airline Thai AirAsia.

THAI had been unhappy for some time with the budget airline's "autonomous" style in running its businesses, which sometimes conflicted with the approach of its mother carrier and did not produce the returns the flag carrier expected.

THAI's board and its newly appointed president Piyasvasti Amranand agree that Nok needs to play a greater role as the airline's "fighting brand" to protect the domestic market, which has been eroded by Thai AirAsia.

The national carrier wants Nok to take over several domestic routes that THAI cannot operate profitably under the full-service model, including flights from Bangkok to Phitsanulok, Khon Kaen, Ubon Ratchathani and Mae Hong Son. These routes are seen to be capable of making money if operated on a low-cost carrier business model.

In general, THAI wants to concentrate on overseas services, which constitute the core of its business and are more lucrative, although highly competitive. But THAI will retain some trunk local routes that are essential to transfer its international passengers to key destinations such as Phuket and Chiang Mai, said THAI executive board chairman Wallop Bhukkanasut.

Top executives of both airlines have been in talks about Nok playing a greater role and will spend the next few months finalising details.

But Dr Piyasvasti said Nok must show commitment if THAI is to to hand over assets to the budget carrier.

"Before the mother [THAI] passes on the heritage, the offspring [Nok] needs to behave itself and an agreement in detail needs to be worked out," he told the Bangkok Post.

"What if we pass on some routes to them and for some reasons they cannot or are unwilling to operate?"

Under the so-called "synergy" plan, THAI also wants greater control over Nok through increasing its shareholding, now at 39 percent.

"To have more control, we probably need to boost our stake to 49 percent, maybe by buying holdings from other existing shareholders," said the former energy minister.

Other shareholders in Nok are Krung Thai Bank (10 percent), Dhipaya Insurance Plc (10 percent), the Government Pension Fund (10 percent), CPB Equity Co (6 percent), Siam Commercial Bank (5 percent), Thailand Prosperity Fund by ING Funds Thailand (5 percent), King Power International Co (5 percent) and individual investors (10 percent).

Shareholding is one of the key issues in the THAI-Nok co-operation plan.

In a separate interview, Nok chief executive Patee Sarasin made it clear that the budget airline was not ready to simultaneously take on all the routes and aircraft that THAI would make available.

"We [Nok] would rather take it step by step, gradually work towards the role THAI may want to see us play," he told the Bangkok Post. He added that the airline did not want to repeat the mistakes arising from over-expansion that sank its balance sheet.

Nok posted a loss of 502 million baht last year due to spiking oil prices, global economic turbulence and over-expansion, which included the launch of international services to Vietnam and India.

However, Nok has apparently recovered relatively successfully through a dramatic rationalisation launched in the middle of last year in which the carrier shed nearly half its workforce of 1,000, halved its Boeing 737 jet fleet to three, terminated all overseas routes, slashed flights by half and cut salaries.

Nok has made a profit of 270 million baht so far this year and is on course to close 2009 with a profit of 300 million baht, said Mr Patee.

He said Nok might not be able to build a market to justify the significant capacity of the six B737-400s that THAI could transfer.

But Nok could be prepared to take three of the planes, probably one at a time starting from the first quarter of next year as it gets more routes from THAI, he said.

Nok currently operates five Boeing B737-400s, three of them leased from the flag carrier.

Mr Patee said Nok would prefer to expand cautiously and has no plan to resume overseas operations, which he described as not only costly but risky.

"We cannot be too ambitious nor have too much expectation. We know our constraints," he said.

One major hurdle that executives of both airlines recognise in Nok taking on THAI routes is how to transfer personnel at THAI's provincial operations to Nok without creating a labour dispute.

These THAI staff enjoy higher salaries and better benefits than Nok personnel. "That is the challenge we have tackle," said Dr Piyasvasti.

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