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How Much Did European Airlines Lose In The First Quarter?

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Park SWISS Air Lines Fleet At Zurich Airport
As the domestic situation in China gradually eases, the pandemic situation continues to ravage the world outside of China, the United States and Europe are still the centre of the global pandemic. In Europe, Italy, Spain, and Germany have just passed the peak of the pandemic, but the situation of the British pandemic has not yet slowed down. It has become the first country in Europe with more than 30,000 deaths. The suspension of the European aviation industry caused by the pandemic continues, and airlines of various countries are still in dire straits.
How Much Did European Airlines Lose In The First Quarter?
How Much Did European Airlines Lose In The First Quarter?

European airlines suffered severe losses in the first quarter

Last week, European airlines released their first-quarter financial reports. We selected the biggest three European full-service airline groups as representatives, combined with the quarterly report data released by the airline and related media reports, and compared them with the first quarter data of 2019 to see how hard it is for the major European airlines in the first quarter.

The first quarter is traditionally the off-peak-season for European and American airlines. Most European airlines also had negative operating profits in the first quarter of 2019. Europe’s largest aviation group, Lufthansa Group, had an operating loss of 336 million euros in the first quarter of last year; AF & KLM, which consisted of Air France and KLM, had an operating loss of 286 million euros in the first quarter of last year. British Airways’ parent company, IAG Group, had an operating profit of 135 million euros in the first quarter of 2019, the only profitable one among the three major aviation groups.

Lufthansa Group
Lufthansa Group Begins Route Network Resumption, Targeting Over 1,800 Weekly Flights

In 2020, under the impact of the pandemic, it is not difficult to foresee a large operating loss in the first quarter of European airlines. From the end of February, the pandemic began to spread rapidly in Europe. In less than a month, the European aviation market fell directly into the “freezing point” from the off-season.

According to media reports, the Lufthansa Group lost 1.2 billion euros (about 1.3 billion US dollars) in the first quarter of 2020, which is the adjusted EBIT loss, (Adjusted EBIT Loss, note: Lufthansa Group’s operating profit and loss was calculated as Operating Result before 2013, and it was called Adjusted EBIT Profit / Loss since 2014) which is four times the 2019 loss. The adjusted profit before interest and tax in Lufthansa’s 2019 financial report was 2 billion euros, which means that Lufthansa lost 60% of its operating profit for the entire year in the first quarter. Carsten Spohr, CEO of Lufthansa Group, described the operation in the first quarter of this year: “At the moment, we are only flying about 3,000 passengers a day. In terms of flight schedule, our company has gone back in time to where it started in 1955 – a decade after the Second World War and following a 10-year ban on flights. In less than 65 days, we have returned to the flight plan levels of 65 years ago. That is extremely bitter, devastating and painful. The Lufthansa Group’s quarterly report for the first quarter of 2020 was originally scheduled to be released on April 30 but was later postponed due to the impact of the pandemic until the second half of May, so the details of the loss are not yet known.

Parked KLM Fleet, Image Rights: Marco Spuyman
Parked KLM Fleet, Image Rights: Marco Spuyman

In the first quarter of this year, Air France & KLM’s operating losses (Income from current operations) amounted to 815 million euros, nearly three times the operating losses in the first quarter of 2019. Due to the increased risk of international pandemics and the introduction of travel restrictions, Air France and KLM, which has a large number of international routes, significantly reduced its capacity in the latter quarter of the first quarter, and revenue in the first quarter fell by 15.5% year-on-year. In addition to the main business loss of 815 million euros, the Air France KLM Group’s loss in the first quarter of 2020 also included 46 million euros caused by fleet adjustments, aviation fuel-hedging losses of 455 million euros, deferred income tax of 173 million euros, and exchange rate losses of 148 million euros, financial expenses of 164 million euros. Eventually, the Air France-KLM 2020 first-quarter net loss (Net income for the period) amounted to 1.8 billion euros. The drop in oil prices caused by the “crude oil price war” that began in March had a greater impact on Air France and KLM. Due to the decline in demand, Air France and KLM were forced to cancel a large number of jet fuel hedging contracts to cope with the low consumption of jet fuel in the future, resulting in huge jet fuel hedging losses.

IAG Group’s operating loss in the first quarter of 2020 was 535 million euros. IAG Group CEO Willie Walsh said that before the end of February, the group’s business development trend is good, but since March due to the impact of the government’s border restrictions, most losses occurred in the second half of March. In addition to operating losses, the IAG Group also experienced huge jet fuel and exchange rate hedging losses in the first quarter, as high as 1.325 billion euros, in addition to 22 million euros in non-operating losses. IAG Group’s net loss before tax for the period in the first quarter of 2020 (Loss before tax for the period) reached 1.882 billion euros.

The first quarter has been very bleak, but for the European aviation industry, “the second quarter will be worse” (Lufthansa Group CEO Carsten Spohr said pessimistically in his speech).


Halfway through the second quarter, but the fight for survival still isn’t over

The aviation industry shut down caused by the development of the pandemic will continue. Whether they can survive the long winter in the second quarter will determine the survival of airlines around the world.

As we all know, the operating costs of airlines are divided into fixed costs and variable costs. Even if the airlines ground a large number of flights without variable costs, the fixed costs still need to be paid, including aircraft leases, station expenses, and MRO, employee salaries, ticket refunds, administrative expenses, etc. The level of operating profit and loss reflects the severity of the impact of airline operations caused by the pandemic.

So, how is the viability of European airlines?

We use the loss of each aircraft of each airline company as the evaluation basis in the first quarter, and compare the company management capabilities and cost control capabilities of each airline company. It can be seen that the operating losses per aircraft of the Lufthansa Group and the KLM Group are relatively large, at 1.6 million euros and 1.5 million euros respectively; while the IAG Group’s operating losses per aircraft are 900,000 euros.

The large single-unit loss means higher operating costs, It also means that airlines face greater risks during this special period of the pandemic.

Operating Profit/Loss Q1Fleet SizeOperating Profit/Loss / Fleet Size
Lufthansa Group-1200760-1.6
Air France&KLM-815554-1.5
IAG Group-535595-0.9

European representative airlines ’ratio of operating losses in the first quarter of 2020 to the total number of aircraft of the group (unit: millions of euros)

In the predicament, European airlines are trying to live in this “survival race”, while airlines with high management level and strong cost control ability are easier to survive, and those with poor management ability and higher costs, if they want to successfully overcome this difficulty, then more external assistance are needed, or an urgent deeper cost reform.


Lufthansa Group
Lufthansa Group Airlines
Lufthansa Group Airlines

Lufthansa Group, which had an operating loss of 1.2 billion euros in the first quarter, is still facing the situation of almost all aircraft being parked. Lufthansa is expected to continue for more than a month in this situation. Earlier this month, chief executive Carsten Spohr told employees that the company was burning through €1m per hour. Carsten Spohr had told the media in March that Lufthansa had raised € 5.1 billion in current assets and had obtained a credit line of € 800,000. However, due to the high cost, just a few days later, Lufthansa announced that its current assets could no longer cover the subsequent costs and also could no longer be financed in the capital market. Its self-owned fleet worth about 10 billion euros is also difficult to monetise. Aviation analyst Daniel Roeska speculates, “Evidently, credit markets are all but closed even to the group with the largest unencumbered fleet in Europe,” There may be only two roads Lufthansa facing now, government bailout or bankruptcy.

Park SWISS Air Lines Fleet At Zurich Airport
Parked SWISS Air Lines Fleet At Zurich Airport, Image Rights: EPA

Lufthansa Group has requested assistance from the governments of Germany, Austria, Belgium, and Switzerland. After close communication, it has been confirmed that the German government will provide 9 billion euros in relief aid. As a condition, the government will acquire a 25% stake in Lufthansa, but it will not participate in company management. The Swiss government has also agreed to provide 1.5 billion Swiss francs (1.52 billion U.S. dollars) in loans to Lufthansa subsidiaries Swiss and Edelweiss. If Lufthansa Group can get the loan as early as possible, Lufthansa can escape the fate of the likes of Virgin Australia. Lufthansa expects that the flight volume will be effectively restored in June, however, they are not optimistic about the market expectations in the next 2-3 years. In the follow-up, Lufthansa will reduce the size of the company, lay off 10,000 of its 130,000 employees, and reduce the fleet size of more than 760 aircraft to about 660. Earlier, Lufthansa had closed its low-cost carrier, Germanwings, and retired several aircraft in advance.


Air France KLM Group
Air France KLM Group
Air France Will Resume 30% Of Its Flights From July

Air France & KLM has suffered severe losses due to declining demand and jet fuel hedging in the first quarter, but with capacity cut reduced by 95% year-on-year, the second quarter will be the most difficult stage. Since the impact of the pandemic, Air France and KLM have vigorously reduced costs by reducing group activities expenditures and salary cuts. In the second quarter, it is expected to save 350 million euros per month. As of March 31, Air France and KLM raised liquidity (Liquidity position) amounts to 6.4 billion euros through revolving credit facilities, aircraft mortgage financing, and sales of Sabre shares. These funds can support Air France and KLM operations til the third quarter. Since Air France and KLM have the support of the French and Dutch governments as shareholders, their survival seems to be guaranteed to a certain extent.

Air France and KLM has received good news recently as the rescue promised by the French and Dutch governments finally has a more clear path: The French government announced that it will provide 7 billion euros in aid loans to Air France, of which 4 billion euros will be guaranteed by the French government and will be issued by a consortium of 6 French banks and other international banks. With a term of 12 months, Air France and KLM have the right to extend the loan by a year twice; Another part of the 3 billion euros will be provided by government-managed funds for a period of 4 years. The bailout condition from the French government is that Air France needs to develop into a global environmentally friendly airline with the lowest carbon emissions. Ben Smith, CEO of the Air France Group, thanked the French government in an interview, “the loans will allow Air France-KLM to get through the most difficult period of the next few months, during which our liquidity risked reaching a critical level, and to continue operating for 12 to 18 months, based on assumptions of the reopening of the market.” In response, Ben Smith promised to halve carbon dioxide emissions by 2024.

Air France Fleet Operation
Air France Fleet Operation

The Dutch government’s loan plan is also being developed, and promises that the loan amount will be between 2 billion and 4 billion euros. At the same time, the Dutch government has also put forward some conditions for the loan, including the suspension of shareholder dividends and bonuses, and reduction of executive salaries . For assistance from the Dutch government, Ben Smith said that the Dutch government should provide assistance in proportion to the size of Air France and KLM.


IAG Group
IAG Group Airlines
IAG Group Airlines

Since the pandemic, the IAG Group, which has been profitable for seven consecutive years, has also suffered a great deal. During this period, the IAG Group raised liquidity through methods such as furloughs, salary reductions, and extension of the revolving credit limit period. Although it has been said that it does not seek special loans other than general loans given by government, IAG Group still seems to be experiencing difficulties in temporary capital turnover. In early April, the IAG Group submitted a loan application to the British government. It has obtained a loan of 300 million pounds from the British government. This loan assistance belongs to the British government’s “Coronavirus Corporate Financing Facility (CCFF)”, which aims to implement emergency assistance by providing short-term( from one week to one year ) bridge loans for large companies from one week to one year. For the IAG Group, this is the second government bailout received-last week, IAG Group’s Iberia and Vueling received 750 million euros and 260 million euros respectively of government-backed loans. According to reports, the IAG Group has 10 billion euros of liquidity at the end of April, which has surpassed most of its competitors and will become an important guarantee for the IAG Group to successfully overcome difficulties.

British Airways At Heathrow
British Airways At Heathrow

At the same time, IAG CEO Willie Walsh also said that the IAG Group needs to “reshuffle” to meet the challenges of future uncertainty. One of the measures to “reshuffle” is that British Airways will lay off 30% of its staff, involving about 12,000 employees. In addition, British Airways grounded all routes at London Gatwick Airport in early April, and recently said that after the outbreak, British Airways may not resume Gatwick Airport routes, giving up its base position in London’s second largest airport. British Airways Chief Executive Officer Alex Cruz wrote in a letter to employees: “As airlines, like other industries, we will face the new normal in the future, with” unusual “as usual.”


In addition to the three major full-service airline groups, low-cost airlines in Europe are also striving for survival.


Ryanair
Ryanair Aircraft Livery
Ryanair Livery

In April, Ryanair operated only 600 flights, compared with originally planned 76,000 scheduled flights. Throughout the second quarter, Ryanair is expected to be operating at the same level similar to April. The number of flights performed will be only 1% of the original plan, and the number of passengers is expected to be less than 150,000, only 0.5% of the original plan. Ryanair disclosed to the media in March that it has 4 billion euros in cash and equivalents and can support 18 months in a state of suspension. In its latest market outlook released recently, Ryanair once again stated that it does not need government’s targeted assistance. Although Ryanair did not disclose its latest liquidity amount, Ryanair, which has been profitable for more than ten consecutive years, has higher than average survivability and corporate management. In the early stage of the pandemic, Ryanair quickly took emergency measures, including stopping recruitment, postponing payment, and stopping stock repurchases. Ryanair also believes that the market will be difficult to recover in the short term. In order to cope with the market downturn in the future, it will also reduce the scale of operations, including layoffs of 3,000 people, a 20% salary reduction, and the closure of some European bases. At the same time, Ryanair is negotiating with Boeing to reduce the delivery of Boeing 737 series models in the next 24 months, and is negotiating with its A320 aircraft leaser to reduce the number of future aircraft leases. As of June 2019, Ryanair has 87 operating bases, 16800 employees, and 455 Boeing 737 aircraft, as well as 16 leased Airbus A320 aircraft.


Parked Ryanair Fleet
Parked Ryanair Fleet, Image Rights: Chris J Ratcliffe/Getty Images

Not only did Ryanair not apply for assistance, it also repeatedly opposed the targeted assistance of governments to airlines by various countries, and believed that all government assistance to airlines is contrary to EU law. For example, the French government only refunds aviation tax to airlines of “French nationality”, but other airlines (including Ryanair) that also serve French routes do not enjoy the benefits of tax refunds. Such a policy violates the EU competition law. At present, the targeted assistance issued by European governments to airline companies has exceeded 30 billion euros. In addition, Ryanair also believes that the recovery of consumer confidence after the pandemic will require a long period of low fare stimulation. If they continue to provide targeted assistance to full-service airlines, the market will be completely distorted after flight operations return to normal, high-cost full-service airlines can still adopt low-cost sales, which is very unfair to the airlines such as Ryanair that have been working to reduce costs and provide passengers with low-cost tickets for 20 years. To this end, Ryanair called on the governments of the EU member states to reduce or exempt passenger taxes, take-off and landing fees for the entire industry, or to provide salary compensation for employees throughout the industry, which would be a better method than targeted assistance to flag carrier airlines.


EasyJet
EasyJet Aircraft Livery
EasyJet Livery

Since March 30, EasyJet has grounded all aircraft. The full grounding has continued for more than a month. Recently, EasyJet announced that it has raised enough reserve funds to survive a suspension period of up to 9 months. EasyJet carried out scenario analysis of the impact of flight suspension on the pandemic lasting 3 months, 6 months and 9 months respectively. In these three cases, the required financial support is 1.2 billion pounds, 2.2 billion pounds and 3 billion pounds, and designed a plan to reserve funds in three ways: reducing expenditures, delaying aircraft delivery and multi-channel financing. At present, the weekly operating cost of EasyJet has stabilised at 30 million to 40 million pounds (daily, the weekly operating cost is 120 million to 130 million pounds); In addition, in consultation with the aircraft manufacturer, the short- and medium-term delivery plans for a total of 24 aircraft were postponed. As of March 31, EasyJet had cash of £ 1.4 billion. Through multi-channel financing, EasyJet also received a guaranteed retained cash flow (RCF) of £ 400 million, and £ 600 million of the Coronavirus Corporate Financing Facility (CCFF) unsecured loans, 400 million pounds of fixed-term loans, and 400 million to 550 million pounds of sale-and-leaseback (SLB), bringing EasyJet’s nominal liquidity to 3.3 billion pounds.

Johan Lundgren, CEO of EasyJet said, “EasyJet is still looking at other sources of funding and assistance”, and Johan Lundgren is very confident in the unsealed tourism market. We will act immediately when demand recovers. “I do think there will be demand for holiday passengers. I think the lockdowns we have seen in countries mean a lot of people want to go out and have a holiday, though it depends on what restrictions are in the countries.”


Grounded Boeing 737 MAX aircraft are seen parked in an aerial photo at Boeing Field in Seattle, Washington.
Airbus, Boeing & Entire Supply Chain Are Threatened By Deepened Pandemic Impacts

When will the European aviation market recover?

For the European aviation industry, there are more airlines struggling to survive, and one of the beliefs that allows them to persevere is that the European market demand in July will be the first major recovery and rebound in the summer peak season, and at present, European countries are also drafting policies for reopening after the pandemic. Therefore, European airlines plan to resume flights gradually in the third quarter. In the third quarter, Ryanair expects flights to return to 50% of the originally planned flights, IAG Group expects to resume 45%, Air France and KLM expects to resume 20%, and Lufthansa has not yet started the recovery plan, however, it has said that it will restore the capacity of 160 aircraft in June (currently 60 in operation).

EasyJet Fleet Parked At Southend Airport, Essex
EasyJet Fleet Parked At Southend Airport, Essex, Image Rights: John Keeble/Getty Images

However, most airlines are soberly aware that the pandemic has triggered an economic recession, and it will take two to three years for the market to fully return to the level before the pandemic. In the future, the prospects for economic development in Europe will be more uncertain, and the risk of recession will increase, which will inevitably affect the long-term demand level of the aviation market. In the context of the economic downturn, the market capacity has shrunk and mergers & acquisition trend has intensified, and the European aviation industry will likely change dramatically. Since 2018, the European aviation industry has Monarch airlines, Thomas Cook Airlines, Flybe and other airlines have gone bankrupt one after another. This indicates that the European aviation industry may have entered another round of mergers and acquisition. The arrival of the pandemic will accelerate the reshuffle and reorganisation of the European aviation industry.


<strong>Institute For Aviation Research</strong>
Institute For Aviation Research

This article is authorised and translated from IAR’s research publication, the Institute for Aviation Research is an independent think tank that promotes research into aviation. For more info please go to their website below.


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Market Analysis

Lessons Learned From Thai Airways’ Application for Bankruptcy & Reorganisation

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Thai Airways Fleet
According to a report on May 19, Thai Airways International’s largest shareholder, the Thai government, has submitted a reorganisation plan to the Thai Central Bankruptcy Court. Thai Airways will implement the reorganisation plan under the supervision of the Bankruptcy Court while maintaining normal operations.

Note: Thai Bankruptcy Law

Similar to Chapter 11 of the US Bankruptcy Law, the Thai Bankruptcy Law also allows companies to apply for bankruptcy protection in the event of financial difficulties, temporarily stop paying debts and perform reorganisation procedures to prevent the company from directly entering the bankruptcy liquidation process.


This year coincides with the 60th anniversary of the establishment of Thai Airways, but it has ushered in this huge test of survival. As a large country in Southeast Asia, Thailand has a large population, a relatively developed economy, and tourism is a pillar industry. The development of the aviation industry has very favourable external conditions. Thai Airways is known for its high-quality services and is a Skytrax four-star airline. As a state-owned airline with considerable international prestige, it has become the first mainstream airline in Southeast Asia that cannot be sustained. It is indeed somewhat unexpected. Analysing the reasons for this should serve as a warning.

Let us first look at the market position of Thai Airways.


Market share of Thailand’s domestic route

In the domestic market, Thai Airways’ share of air capacity is only 8%, which is constrained by many low-cost airlines. In the domestic Thai aviation market, Thai AirAsia has the highest share, with a share of 32%; Nok Air accounts for 18%, Thai Lion Air accounts for 16%, and Bangkok Airways accounts for 12%, and Thai Smile Airways accounts for 9%. Among the airlines whose domestic market share is higher than that of Thai Airways, only Bangkok Airways is a full-service airline, and the rest are low-cost airlines. In recent years, the growth of Thailand’s domestic aviation market is more than 70% driven by low-cost airlines. Therefore, it is difficult for Thai Airways, a full-service airline, to “take their fists” in the domestic aviation market.


International route market share

Of the two airports in Bangkok, Thai Airways operates from Bangkok Suvarnabhumi International Apt. In the international route market of the airport, Thai Airways has an absolute leading position with a capacity of 30%; Bangkok Airways, which ranks second in capacity, has only a 4% capacity share; Emirates and Thai Smile Airlines each holds 3%, ranking third in place; the remaining 60% is occupied by airlines worldwide with a share of less than 3%.


How big is the impact of the pandemic?

Similar to most airlines, Thai Airways has also been severely affected by the pandemic, and its operations are close to be fully suspended. Since the spread of the pandemic in Asia, Thai Airways has successively grounded flights to many countries in Asia (including China, Japan, etc.); and after the pandemic escalated globally, it has successively canceled flights to Europe, the Middle East, and Australia. Subsequently, few domestic routes (including routes to Chiang Mai, Phuket, and Krabi) were also operated by its subsidiary Thai Smile Airways, leaving only cargo routes intact. As of the end of March, 69 of the 82 Thai Airways aircraft were parked, amounting to 84% of the entire fleet. If calculated based on the fixed cost in the Thai Airways financial report in 2019, in the case of no income from grounding, Thai Airways’ daily expenditure accounts to about 300 million baht (about 9.64 million dollar). Some analysts believe that Thai Airways may lose 66 billion baht (about 2.12 billion dollar) due to the pandemic.


Thai Airways Boeing-777
Thai Airways Boeing-777

Although the Thai government has also provided assistance loans to Thai Airways, it is only a shortfall. According to a report on April 30, Thai Airways has sought approval from the government for an emergency loan of 58.1 billion baht (approximately 1.87 billion dollar), and it will be distributed in instalments according to operational needs. However, Banyong Pongpanich, a former board member of Thai Airways, told the media that the government’s aid loan can only allow the company to maintain its operation for another six months, and cannot solve the fundamental problem. It turned out that before the outbreak of the pandemic, Thai Airways had been losing money for consecutive years. When applying for reorganisation, Thai Airways’ total debt reached 92 billion baht (2.96 billion dollar), and government assistance was far from enough to cover the debt.

Affected by the 2008 global financial crisis and the Thai political violence campaign, Thai Airways had a net loss of 21.38 billion baht (about 687 million dollar) that year, ending its profit record of more than 40 years. Subsequent 2009 and 2010 ‘s return to profit by 7.42 billion baht (about 238 million dollar) and 14.79 billion baht (about 475 million dollar), but the good times are not long. In the past ten years since 2011, Thai Airways was hardly profitable. In 2012 and 2016, the profit was 6.51 billion baht (about 209 million dollar) and the district’s 50 million baht (about 1.61 million dollar). Most of the remaining eight years of losses exceeded 10 billion baht (about 321 million yuan).



It can be seen that, similar to the situation of many other airlines that suffered misfortune under this impact, the pandemic is only overwhelming the “last straw” to breakThai Airways’ back, and the internal cause is the main reason. These airlines have either poor business models or poor business decisions that have been losing money year after year. When market demand is strong on normal days, they can still rely on the stability of their accumulated resources. Once a huge shock occurs, they will immediately exposed the problem of insufficient ability to resist risks.

So, for Thai Airways, what caused it to never return to pre-2008, the glorious era of profitability for forty consecutive years?


The bitter fruit of aimless expansion

Affected by the grounding caused by the pandemic, most Thai Airways employees have been forced to take vacations since April and cut their salaries by 10%-40%. On May 9th, The Thai Airways Workers Union published an article on Facebook rebuking the management and government for “wrong decisions” over the years, which caused Thai Airways to change from year-to-year profit to year-to-year loss. These “wrong decisions” include the introduction of different aircrafts models, the adjustment of shareholding structure, and the introduction of new sales distribution systems. Because Thai Airways and trade unions may have labor conflicts, these accusations may be biased. We have analysed the above-mentioned “accusations” and believe that the main reasons may be the following two points:

  • Aimless introduction of unsuitable aircraft types, the fleet composition is too complicated. The Thai Airways Trade Union mentioned that Thai Airways insisted on introducing Airbus A340 aircraft more than ten years ago. Although the Thai National Economic and Social Development Committee Office at that time repeatedly reminded it to consider carefully, Thai Airways still introduced four Airbus A340-500 during 2004-2005. The union believes that this is the beginning of Thai Airways’ decline.

Thai Airways A340
Thai Airways A340

Our analysis found that after introducing the Airbus A340 aircraft, Thai Airways used its characteristics of the longest range at that time to open direct flights from Bangkok to New York, aiming to expand the North American market. However, the result turned out to be unsatisfactory. Due to the lack of direct flights, the route changed to have a stopover at Tokyo. Although the flight was the farthest at the time, the 300-seat dual-aisle airliner used a four-engine design, which resulted in a huge fuel consumption for the A340. Soon after, Boeing launched the 777-200LR twin-engine super long-range passenger aircraft, which has lower fuel consumption and longer range capabilities, which quickly made the A340 lose its competitive advantage. In the end, Thai Airways finally grounded the route in 2008 due to the high fuel cost and the economic crisis.

Thai Airways also tried to use A340 to fly other routes, but they were not profitable. In 2017, Thai Airways planned to withdraw A340 from the company’s fleet, but this model is unpopular in the used aircraft market, it is difficult to resell, so it can only be sealed for a long time. These parked Airbus A340 bring additional losses to Thai Airways which amounted to 30-50 billion baht (approximately 965 million -1.62 billion dollar).


Thai Airways Boeing-747
Thai Airways Boeing-747

In addition to the problems caused by the introduction of the A340, from the perspective of the Thai Airways fleet structure, the Thai Airways fleet has been very complex in the past 20 years. In 2019, Thai Airways has a fleet of 80 aircraft, and there are 6 main types of aircraft, including Boeing 777, Airbus A330, Airbus A350, Boeing 787, Boeing 747 and Airbus A380. It can be seen that Thai Airways is using Boeing 777 as its main fleet combination evolved. But at the same time, we have also seen the composition of the past fleet at Thai Airways, the number of aircraft types is scattered, and the main aircraft types have not been highlighted. Moreover, after the change of multiple aircraft types, the economies of scale of the fleet are low.

Aircraft Type200120082019
Boeing-777142031
Airbus-330121515
Airbus-3500012
Boeing-74718188
Boeing-787008
Airbus-380006
Boeing-7371060
Airbus-30020170
Airbus-3400100
ATR-72220
MD-11400
SUM808880

Composition of Thai Airways fleet over the years

  • Aggressive external investment, relative low brand coordination. The Thai Airways Trade Union pointed out that three consecutive external investments after 2010 have made Thai Airways’ financial situation worse and worse:
    • In 2010, the company’s management established Thai Tiger Airways with the loss-making Singapore Tiger Airways without careful consideration. However, under the strong resistance of many parties, the joint venture project ended in failure in 2011. Thai Airways invested 100 million (about 3.22 million dollar) baht falls on the deaf ears.
    • Only 5 months after the Thai Tiger Airways joint venture planned abortion, Thai Airways management decided to invest huge capital to build a low-cost airline brand, Thai Smile Airways, resulting in a loss of 10.16 billion baht (about 327 million dollar) in 2011. Thai Airways expected that Thai Smile Airways would be able to make a total profit of about 5.056 billion baht (about 163 million dollar) from 2014 to 2016, but actually lost 4.485 billion baht (about 144 million dollar).
    • Against the backdrop of meager profits in 2012 and huge losses in 2013, Thai Airways in 2014 promoted the joint venture of its new subsidiary, Nok Air with Singapore Scoot to establish NokScoot, which cost about 983 million baht (about 32 million dollar).
    • In recent years, the operating conditions of the joint ventures and subsidiaries established by Thai Airways are all not very good. Thai Smile Airlines (100% shareholding), Nok Air (16% shareholding), NokScoot Airlines (NokAir 49% shareholding) are in a state of consecutive years of losses.

After careful analysis, we found that the purpose of Thai Airways’ external investment is to form a multi-brand strategy and broaden the market, but in fact, the benefits brought by their multi-brands are far from making up for the high capital investment.

Although in the domestic market of Thailand, the total size of the three airlines of Thai Airways, Nok Air and Thai Smile Airlines has reached a 35% capacity share, it seems to be comparable to its rival AirAsia Thailand. But in fact, Thai Airways, which holds only 16% of the Nok Air’s shares, has a weaker binding capability on the company, and the company basically maintains independent operations and even directly competes with Thai Airways on some routes. According to the Thai Airways Trade Union, the company has even ignored the requirements and recommendations of Thai Airways. Thai Smile Airlines is a wholly-owned subsidiary of Thai Airways, but its brand positioning has fluctuated between low cost and regional full-service. It also operates two bases at Suvarnabhumi Airport and Don Mueang Airport in Bangkok. Thai Airways operated solely at Suvarnabhumi Airport cannot be effectively connected, and the coordination is low. However, NokScoot, which is controlled by Nok Air, only uses Don Mueang Airport as its operating base in Bangkok and cannot assist Thai Airways in transporting passengers. It can be said that the multi-brand strategy development of Thai Airways lacks consistency, and it is difficult to form a joint effort against a stronger competitor such as Thai AirAsia.

In addition to the above problems, the corruption history of Thai Airways has also made people lose confidence in it. The bribery case of British aircraft engine manufacturer Rolls Royce caused widespread concern in 2017. The investigation found that it had paid bribes to Thai Airways employees in order to maintain T800 engine orders for Boeing 777-200s models of Thai Airways, and Thai Airways took bribes. The total amount is up to 36.38 million US dollars. Therefore, when the government is preparing to provide assistance loans to Thai Airways, many Thais believe that this state-owned airline company with a history of corruption should not be rescued.

Faced with large consecutive losses, the management has also made many efforts to save the current company. In order to boost the company’s revenue, the management proposed a six-point development strategy:

First, to reduce costs without affecting the company’s service level; second, to reduce waste, and implement the “Circular Economy” strategy; third, to develop new markets with profit potential; fourth, increase revenue from main operations, including digital transformation and development of auxiliary revenue; fifth, in-depth cooperation with partners to expand sales channels; sixth, enhance transit experience and attract more passengers.


Thai Airways A350
Thai Airways A350

Where is the future for Thai Airways?

After many years of glorious history, Thai Airways has to face reorganisation as a result of a combination of factors. Thai Airways has already come to this point where at this stage, Thai Airways should look into the future and think about how to survive.

Thai Airways is currently implementing restructuring, and initially plans to reduce the size of the fleet, reduce the number of leased aircraft, and will lay off 6,000 personnels (about 30% of the employees) to reduce labor costs.

The Thai government, as a shareholder, is still working hard to help Thai Airways recover. The Thai government has sold about 3.2% of its 51% Thai Airways shares to the Vayupak 1 mutual fund operated by Krung Thai Bank. After the transaction, the Thai government’s shareholding in Thai Airways fell to 47.86%. Although the Thai government is still the largest shareholder of Thai Airways, according to the Thai company division rules, Thai Airways is no longer a majority-owned state enterprise. The government’s move is to help Thai Airways get rid of some of the legal obstacles for major state-owned enterprises to obtain protection under the bankruptcy law, so that Thai Airways can better obtain the protection of the provisions of the bankruptcy law.


Thai Airways enlightenment to us

The deep foundation accumulated by Thai Airways’ forty years of profit has been exhausted in ten years, and because of the excessive development of the plan, the debts are entangled. It is a pity that the “Black Swan” event caused the airline to be on the verge of bankruptcy.

In fact, what is more horrible for the airline than the “Black Swan” event is the “Gray Rhino” event. The “Gray Rhino” incident is a large probability crisis that usually occurs during the business development of the enterprise. The signs were already showing before the outbreak, but it is often overlooked by managers with fluke, and eventually has devastating consequences. As far as Thai Airways is concerned, the loss caused by the initial wrong decision is a sign of decline, but Thai Airways has not been alert and failed to stop the loss in time.

It can be said that every large airline company that has applied for bankruptcy or reorganisation since the outbreak has had its own development problems before the outbreak, and thus fell first among the hits of the “grey rhino” and “black swan” events. Such a crisis also makes us think about what the meaning of “steady development” means for airline companies.


<strong>Institute For Aviation Research</strong>
Institute For Aviation Research

This article is authorised and translated from IAR’s research publication, the Institute for Aviation Research is an independent think tank that promotes research into aviation. For more info please go to their website below.

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