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Why The Three Major US Airlines Failed To Relive The Myth Of Continuous Profits In The First Quarter



US 3 Major Airlines
As of June 13, the number of confirmed American Covid-19 cases has reached 2.09 million. Through a review of the development process of the pandemic, it can be clearly seen that in the first quarter, the impact of the aviation industry was mainly concentrated in March. At the end of January, the first patient was diagnosed in the United States. Passenger screening was started at major airports in the United States, and then three major U.S. airlines were grounded on Sino-U.S. routes. At the end of February, the U.S. Centers for Disease Control and Prevention stated that sooner or later the outbreak would occur in the United States. Started to realize the seriousness of the pandemic and began to adjust the annual development expectation; in March, the United States expected an explosion of newly confirmed cases throughout the country. In mid-March, it announced the restriction of passage between European countries, and the transatlantic routes were affected, which marked that the impact to the industry has escalated, until the US domestic market has gradually fallen, and the aviation industry has completely entered the dark night.

  • In the first quarter of 2020, the operating revenues of the three major US airlines decreased by 17%-19% year-on-year, and the operating losses amounted to US$410 million to US$2.5 billion.
  • At the same time as the revenue has dropped sharply, the airline company has a very high proportion of fixed costs to the total cost.
  • The difference in the amount of loss between the three major US airlines is also due to the difference in cost control capabilities.

Affected by the pandemic, the operating income of the three major US airlines fell by more than 15% year-on-year compared to the first quarter of 2019. American Airlines’ operating income in the first quarter was US$8.52 billion, down 19.4% year-on-year; US United Airlines’ operating income was US$7.98 billion, down 16.8% year-on-year; Delta Airlines’ operating income was US$8.59 billion, down 18% year-on-year.

Among the operating income, both passenger and freight revenue declined to varying degrees. In terms of passenger revenue, the three major airlines fell closer, all from 9 billion to 7 billion. American Airlines, United Airlines, and Delta’s passenger revenue declined by 20%, 19%, and 18%, respectively; The decline in freight revenue is quite different. American Airlines and Delta have dropped from 220 million and 190 million levels to 150 million, with a decline of 33% and 21%, while United Airlines has only fallen from 290 million to 260 million. The range is 8%.

2019 Q12020 Q1Year-on-year change
AMERICAN AIRLINES96,62,27,176,81,56,9-20 %-33 %-3 %
UNITED87,32,95,870,92,66,5-19 %-8 %12 %
DELTA AIR LINES92,51,910,375,71,58,7-18 %-21 %-15 %

Comparison of the revenue composition of the three major US airlines in the first quarter of 2020 (unit: US$100 million)

Despite the decline in travel demand, various airlines have reduced capacity, but the passenger load factor still declined in the first quarter. The average load factor of American Airlines, United Airlines, and Delta Air Lines in the first quarter of this year were 72.7%, 70.9%, and 73.1% respectively. Compared with last year’s data (82.2%, 80.9%, and 82.7%), the decline rate was about 10%.

While revenues have fallen sharply, operating costs have not changed much over the same period. American Airlines’ operating costs have even increased, from US$10.21 billion in 2019 to US$11.06 billion, up 8%; United Airlines’ operating costs have dropped from US$9.09 billion in 2019 to US$8.95 billion, down 1.5% ; Delta Air Lines dropped from 9.45 billion US dollars to 9 billion US dollars, a decrease of 4.8%.

From the perspective of cost composition, fixed costs account for a very high proportion. Among the three airlines, labour costs accounted for the largest proportion, accounting for about 30% of the total cost; followed by jet fuel and related taxes, accounting for about 10%-20% of the total cost, although Saudi Arabia launched in early March The “oil price war” caused the international oil price to “flash”, but the quarterly report has little effect on the cost of the season; in addition, most of the costs of aircraft maintenance, marketing channels, and aircraft leasing are also fixed cost expenditures. Even if the aircraft is parked in large numbers, there is still a lot of cost.

The sudden drop in revenue and the difficulty in reducing costs simultaneously caused the three major US airlines to report operating losses in the first quarter of 2020. In the first quarter of 2019, American Airlines, United Airlines and Delta Airlines were all profitable, with operating profits of US$380 million, US$500 million and US$1.02 billion; In the first quarter of 2020, losses were US$2.55 billion, US$970 million, and US$410 million, respectively.

At the same time, the net profit of the three companies also reported losses. Compared with the 2019 net profit of 190 million, 290 million and 730 million US dollars, in the first quarter of this year, American Airlines net losses of 2.24 billion US dollars, United Airlines 1.7 billion US dollars, Delta Air Lines 530 million US dollars.

In the “two trillion” economic stimulus bill signed by Trump, $58 billion will be used for emergency aid in the aviation industry, and the three major US airlines have received more than $5 billion in aid. Among them, American Airlines received US$5.8 billion in aid funds, including US$4.1 billion in grants and US$1.7 billion in low-interest loans; United Airlines received US$5 billion, including US$3.5 billion in grants and US$1.5 billion in 10-year loans. Delta Airlines received US$5.4 billion in bailout funds, of which US$3.8 billion was a grant and US$1.6 billion was a 10-year loan. The amount that had been received in the first quarter reached US$2.7 billion.

Comparing the size of cash and cash equivalents and accounts receivable at the end of the first quarter of the three major airlines in the United States, Delta Air Lines topped $8 billion with the highest level of liquidity, while the other two also exceeded 5 billion. As of March 31, American Airlines had US$3.73 billion in cash and cash equivalents and 1.02 billion receivables; United Airlines had US$5.22 billion in cash and equivalents and US$790 million in accounts receivable; Delta Air Lines had 5.97 billion USD in cash and equivalents and USD 2.28 billion in accounts receivable, totalling USD 8.25 billion, with the strongest ability to resist risks.

However, the loss in the first quarter was just the beginning. In the first quarter, the operating income of the three major US airlines declined by less than 20% year-on-year, and the loss reached US$400 million to US$2.5 billion. In the second quarter, the operating income of the three major US airlines is expected to fall by 90%. If costs cannot be controlled as quickly as possible, the loss in the second quarter will be astronomical.

  • The three major US airlines are facing the reality that the future market prospects are not optimistic, and have shifted their core tasks from “seeking development” to “seeking survival.”
  • In order to survive, the three major US airlines quickly took measures to save themselves, including:
    1) spare no effort to improve the level of liquidity: active financing (even mortgage slots/traffic rights and other resources for financing), application for government assistance, postponement of payment/delivery of aircraft;
    2) Reduce the level of fixed costs: retire the aircraft or lease the aircraft, adjust the fleet structure, and reduce staff.

Compared with the beginning of the year, the share prices of the three major airlines in the United States have fallen sharply: American Airlines, United Airlines and Delta Airlines shares fell 68%, 77% and 67% respectively. In the same period, the S&P 500 fell by only 11%. In many industries, the impact of the aviation industry on this pandemic is evident.

According to the Wall Street Journal, if demand remains at the May level and the airline does not allow employees to take unpaid leave, American airlines’ cash level can be maintained for 6 months without considering government loans and rescue measures. United and Delta can maintain 10 months and 11.3 months.

American Airlines

American Airlines Parked Fleet
American Airlines Parked Fleet

In 2019, American Airlines was impacted by the Boeing 737MAX grounding and the strike of the maintenance and repair union. The development was affected to a certain extent. The original plan to reorganize and accelerate development in 2020 is now impossible. Vasu Raja, senior vice president in charge of network strategy, said that although the company has no plans to close any hub operation this year, it will conduct a comprehensive evaluation of the operating network and hub next year. In the second quarter of 2020, despite reduced capacity (80% capacity reduction in April and May and 70% capacity reduction in June), American Airlines expects daily losses to reach $70 million.

For this reason, rapid measures to reduce costs will be the first priority for survival. At present, American Airlines is streamlining its fleet type, and plans to retire include E190, Boeing 757 and 767, and Airbus A330-300. By 2021, the total number of American Airlines aircraft will be 100 fewer than originally planned. Several other major airlines in the United States, including Delta, United, and Southwest, are taking similar measures to reduce the size of the market in response to shrinking market demand.

American Airlines Fleet Livery
American Airlines Fleet Livery

Because American Airlines received US$5.8 billion in aid from the federal government, American Airlines could not force redundancy until the end of September this year. American Airlines CEO Parker said that he hopes to negotiate with his employees to voluntarily leave, and if the results are not good, he will impose redundancy or unpaid leave after October. So far, American Airlines has about 39,000 employees (30% of the total number of employees) agreed to retire early or take unpaid leave.

In terms of increasing liquidity, American Airlines increased liquidity by $2 billion in the first quarter through aircraft leaseback and financing. The company said it still has more than $10 billion in assets available for mortgages, and plans to increase its liquidity to $11 billion at the end of the second quarter from $6.8 billion at the end of the first quarter.


United Airlines planes, including a Boeing 737 MAX 9 model, are pictured at
George Bush Intercontinental Airport in Houston, Texas, March 18, 2019.
Image Rights: Loren Elliott | Reuters

United lost a net loss of $1.7 billion in the first quarter, ending United’s 10-year profit record. Even after deducting one-time items (including losses from investing in Columbia Airlines), the amount of losses still reached US$640 million [1]. United said that compared with the same period last year, in the last two weeks of March, the average daily revenue decline amount reached 100 million US dollars. The company plans to cancel 90% of its capacity in May to cope with the sluggish market demand, which is expected to continue for several months.

For the second quarter, United Airlines expects a daily loss of US$40-45 million.

United stated that it currently has USD 9.6 billion in liquid assets (excluding government bailout funds) and is seeking USD 1 billion in financing in the capital market. At present, most of United’s own aircraft are used for mortgages. They also said that aircraft spare parts, airport time slots, frequent flyer programs, etc. can also be used for mortgage financing when appropriate.

Delta Air Lines

Delta Air Lines Parked Aircrafts
Delta Air Lines Parked Aircrafts

Delta originally expected that 2020 will continue the high profitability of the past decade and become the eleventh profitable year. However, the outbreak of the pandemic shattered Delta’s plan. Delta’s net loss for the first quarter of 2020 reached US$530 million, while the net profit for the same quarter last year reached US$730 million. Delta holds several overseas airline shares, and CEO Ed Bastian said Delta has no intention of selling these shares, but it also has no ability to provide financial support for these companies. At present, Delta’s daily loss is US$50 million. Bastian said he hopes to achieve a balance of payments by the end of the year.

In order to reduce costs, Delta moved quickly and took many positive measures, including negotiating delayed payments with airports, suppliers, and aircraft leasing companies, as well as delayed delivery of aircraft, adjustment of the fleet structure, and management salary cuts.

In the same situation as American Airlines, Delta Air Lines could not force redundancy by the end of September due to the assistance of the US federal government, but Delta managed to reach an unpaid leave agreement with 35,000 employees.

Another important cost reduction measure is the plan to withdraw the Boeing 777 aircraft from the fleet by the end of this year. Delta currently owns 18 Boeing 777 aircraft, and recently spent nearly 100 million US dollars to renovate the cabin interior, which was originally planned to be used for a few more years. As the longest range wide-body aircraft, the Boeing 777 fleet has made significant contributions to the transformation of Delta Air Lines into a global airline. Since the aircraft was put into service in 1999, it has helped Delta Air Lines to open ultra-long distance intercontinental routes from Atlanta to Johannesburg, South Africa and Los Angeles to Sydney. The early retirement of the Boeing 777 also implies that Delta Air Lines believes that the recovery of the long-range intercontinental market will be an extremely long process. Currently, many airline senior executives and industry analysts worldwide believe that long-haul flights will take at least a few years to resume. Delta said that when demand recovers, Delta will use A330 and A350-900 aircraft to carry out long-range flights, of which A350-900 aircraft consumes 21% less fuel than Boeing 777.

Delta B777
Delta Air Lines B-777

In addition to the accelerated retirement of the 777 aircraft, Delta is also accelerating the retirement of the elderly McDonnell Douglas MD-88 and MD-90 aircraft, which are expected to be fully retired in June. This also means that Delta will no longer need so many pilots. John Laughter, senior vice president of operations for Delta Air Lines, mentioned in an internal letter to Delta employees that in the fall, Delta will have about 7,000 pilots surplus. “This is a number that worries us very much. We want the number of pilots to match the number of our fleet,” he added. It is estimated that by the third quarter of 2021, Delta will have a surplus of 2500 to 3500 pilots. Therefore, it is expected that after October 2020, Delta will drastically reduce pilots.

While striving to reduce costs, Delta is also actively increasing its cash flow. Although it is already the airline with the best liquidity among the three major US airlines, Delta still dare not take it lightly. Delta’s liquidity at the end of the first quarter was US$6 billion, and it is expected to reach US$10 billion by the end of the second quarter.

Delta said it will use the time resources of major domestic airports and London Heathrow Airport, as well as the air rights of some international routes as collateral for financing. Since March, Delta has raised US$5.4 billion, including commercial loans and US$1.2 billion in aircraft sale and leaseback. In addition, the company also received US$2.7 billion of the US$5.4 billion in bailouts promised by the federal government. At the same time, the company is also eligible to apply for a US$4.6 billion mortgage loan. CEO Ed Bastian believes that the government’s bailouts are sufficient, and no additional funding is needed.

  • The three major US airlines in the post-pandemic era:
    -Fleet size and personnel size will be reduced
    -Airline network will be significantly adjusted: shrink international airline network, strengthen domestic network

Delta Air Lines & American Airlines
Delta Air Lines & American Airlines

Similar to other markets, senior executives in the US aviation industry generally believe that the domestic aviation market will recover earlier than the international market.

American Airlines believes that demand in the international market will remain sluggish for a long time, and said to its pilots last week that the B330-200 fleet will be parked at least until 2022. CEO Doug Parker said, “In response to the long-term downturn in the market, American Airlines decided that its future strategy is not to expand, but to reduce its size.”

Delta Air Lines CEO Ed Bastian believes that it will take 2-3 years for the market to return to the level before the outbreak. In an internal letter to his employees, he said, “Delta must reduce its size to cope with the market downturn. Even if the pandemic is under control, we still need to be prepared for a period in which demand cannot be fully recovered. I hope the market will recover soon, but in When making plans, we must face reality.”

The realistic attitudes of the three major US airlines in anticipating market prospects, and the prompt action they take when reducing costs and increasing cash flow, all demonstrate good coping capabilities in the face of drastic market changes. The strategic adjustments that the three major US airlines may adopt in the future are worthy of competitors in other industries to think ahead and deploy their strategies in advance.

<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.

  1. Alison Sider, 2020, ‘American Posts Big Loss as Air Travel Collapsed’, Wall Street Journal, 30 April 2020, viewed on 17 May 2020, < &gt;
  2. Alison Sider, 2020, ‘Delta Reports First Loss in Five Years’, Wall Street Journal, 22 April 2020, viewed on 17 May 2020, <;
  3. Alison Sider, 2020, ‘United Airlines Warns of $2.1 Billion Coronavirus-Related Loss’, Wall Street Journal, 20 April 2020, viewed on 17 May 2020,<;
  4. Alison Sider and Dave Sebastian, 2020, ‘Delta to Retire Boeing 777 Fleet to Cut Costs Amid Coronavirus’, Wall Street Journal, 14 May 2020, viewed on 17 May 2020, <;
  5. Karen Langley, 2020, ‘With Earnings ‘Out the Window,’ Investors Turn to Survival Metrics’, Wall Street Journal, 16 May 2020, viewed on 17 May 2020, <;

1 Comment

1 Comment

  1. Pa Favor

    June 13, 2020 at 11:56 pm

    The answer is simple —————- CORONA ! Bro those mexican beers, LOL

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Market Analysis

Lessons Learned From Thai Airways’ Application for Bankruptcy & Reorganisation



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

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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