Tony Concil talks to Charamporn Jotikasthira, THAI President, about the airline’s restructuring efforts in a highly competitive market
How do you see THAI moving forward?
The airline has competitors that are like Olympic class athletes, which is a real challenge. To compete, we have to get everything right, across all functions.
We are in the middle of a two-year restructuring program that will see us slim down, get in shape and then grow again.
At this point we are in the strength-building phase where we are improving the processes, systems, and skills in the airline so we can compete with those Olympic athletes. It means going to the gym more often and hiring the top coaches in each discipline, including international talent. We don’t have time to re-invent the wheel, so we are looking for the best talent to coach our people.
We are already starting to see results. Passenger numbers have increased from 17.7 million to 18.4 million even though we have cut four major routes and reduced the fleet by ten aircraft. We are getting into shape, but there is still fat on the organization. IATA tells us that average global load factors are around 80%, but we are only filling 73% of seats. So there is much more for us to do.
Are you worried about over-capacity in the region?
There is no doubt that there is over-capacity. But, we’ve lived with that for a while. It is a reality that we need to deal with by ensuring that our capacity is deployed in the most efficient way possible.
There are some things that cannot change. Our location and the Bangkok hub are not going to change. That’s a good thing, because they are strengths. Long-term, you can change the fleet, but there is not much that you can do immediately other than progressively develop the product.
Where we can impact change in the near-term is with the network and having the right strategy to reach the right customers through the right intermediaries. Our product is a high end one. The seat pitch in our long-haul Economy is 34 inches making it one of the more luxurious in the world. It also means that we have fewer seats on each aircraft. So we need to target time and comfort-sensitive customers over price-sensitive customers.
THAI has a big network. Is that sustainable or are the agreements that Emirates has done with Malaysian and Qantas the way forward?
We’re not focusing on that yet. We have to get our basics right first. We fly to 11 destinations in Europe, five in Australia and 20 in North Asia. Bangkok is a popular destination for all and we are the strongest competitor in the “non-stop to Bangkok” market.
If we are having a problem with any of those destinations we can probably resolve it with adjusting the aircraft, timing or pricing.
Partners are helpful in taking us beyond our network. But, I don’t see a one-size-fits-all solution. Star Alliance partners already help us a lot in Europe. But, we might need different partners to cover the Middle East, for example.
Also, there is an emerging opportunity in ASEAN with the open skies agreement. Thailand has long had open skies. This has put a lot of pressure on THAI as the national carrier, particularly because this has not always been reciprocated. But, new opportunities will be created as other markets in the region open up. It will be difficult for THAI to take advantage of all. Some are just not suitable for our operations. So, partnerships will likely play a role.
How much does the appreciation of the US dollar affect you?
The Thai Baht has fallen in value against the dollar by about 20%. That has been a counter-balance to the oil price drop. Keep in mind that we pay a lot of big bills in dollars, including fuel, aircraft, and maintenance. That’s why even with the fall in oil prices, business is still tough. About half of our costs are in dollars.
Thailand has been through some difficult times recently. How has this affected tourism to the country?
We have had isolated, random incidents that could hit any country at any time. There is no long lasting impact. There was a negative impact for a few months, but 2015 has seen tourism growth of about 20%.
A lot of the growth is coming from China. With the market turmoil early in the year everybody was talking about a China slowdown. We are not seeing any signs of that. While that is good news, I should point out that European traffic is still our biggest revenue source—about 75%.
Does the government understand THAI’s role in tourism growth?
They appreciate our role. In fact, they want us to grow faster to drive tourism arrivals. But, it appreciates that aviation is a tough business and they understand the restructuring process that we are going through. But, they are also eagerly anticipating that the process will eventually help us to grow and bring more people to Thailand.
We work closely with the Tourism Authority of Thailand to ensure that Thai Airways is an effective promoter of Thailand. Currently we are focusing on the “ASEAN Connect” campaign. It’s about promoting Thailand as the gateway to ASEAN.
To support this effort we are looking at 5-10 routes in the ASEAN region which could be flown by Thai Smile. And we are also looking at how we could help feed these routes with long-haul traffic. By June, we should complete our network planning for the next three seasons. We are hoping to create efficiencies in the process that will allow us to expand the network and bring more tourists without expanding the fleet.
It is a good process and there are reasonable expectations. We make our network decisions on what will generate the best return for our shareholders—the main one being the Ministry of Finance. Our objective is to finish the restructuring at light speed this year. And, in parallel, prepare for growth.
Have the safety warnings about Thailand from ICAO and the US Federal Aviation Administration (FAA) affected the business and your growth plans?
It makes life difficult for us. At a very practical level, we are facing much more scrutiny in our daily international operations. Normally we would expect about 36 inspections a year. In the past year we have had over 100. Safety is the top priority. So when a red flag is raised about a country—as was the case with both the ICAO and the FAA audits—you would expect this.
We want the Civil Aviation Authority of Thailand to go faster and lift this red flag over Thailand. The country has been listed for more than a year already. And only their action can move things in the right direction. I am not happy that it is taking so long.
And that is important in a much bigger way. Because the country doesn’t have a, “clean bill of health,” it makes it difficult for us to add new routes or even to get permission for charter flights. That is particularly important because we do want to go back to the US in 2017. And that cannot happen until we are out of the FAA’s Category Two Rating.
Even as the audit results reflect on how the government implements global standards, we have taken this as a challenge and opportunity for the airline to improve its safety performance. We launched a “Beyond Compliance” initiative to shore-up our commitment to safety.
A key component of the program is to align our own operating practice with global best practice. We are currently in the internal process of aligning our operating procedures with European Aviation Safety Agency (EASA) standards. We did have a choice between EASA and the FAA model.
We chose to follow the EASA route for some very practical reasons, the first being that a large portion of our operations are to Europe. Even more fundamentally however, we found that the EASA standards were more adaptable for both larger and smaller countries. The standards date from EASA’s founding in 2003, so the approach is very modern.
The Enhanced IATA Operational Safety Audit has been extremely useful as well. We have just passed our fifth audit. The aim is to engage more with the airline community in terms of safety and push best practice boundaries.
Is Suvarnabhumi Airport suitable for your needs?
Suvarnabhumi needs to be bigger and better. The first priority should be to fix the soft spot problem with the asphalt. We also need an additional runway. I am pleased that the focus is on a 4,000 metre runway—longer than the first proposal. But, we needed it yesterday!
Then we need to expand the terminal capacity. Terminal 2 should be in place by 2020 with a capacity for an extra 30 million passengers. It’s really important to get it right. We have a big interest in this at THAI and so does Star Alliance.
Will automation and passenger self-service help?
Definitely, and we are looking to get help to implement IATA’s Fast Travel initiatives.
It is necessary to drive efficiency because of overcrowding and there has to be an option to move passengers through the airport quickly. Anything in terms of self-service would be useful.
My view is that we should not be chasing the trend, but leading it. At this point we are making lots of changes as part of our re-structuring. So, l don’t want to settle on yesterday’s solutions. I’d rather be in the forefront of implementing what will be the industry’s future.
You came from a finance background. What has surprised you about the industry?
Actually, it’s as crazy as I expected! There are actually significant similarities with banking. Take risk management. I was involved in the stock market before. At 2am in the morning something happens in New York and you need to react. It’s like that in aviation too.
And they are both service industries. And success is about getting the best deal for the customers. I sell a different product now, but many of the principles are the same.
What I like about this industry is that it is real. You can touch the aircraft. You can see the passengers arrive and depart. You can witness the cargo being loaded and unloaded. In banking, it is less tangible—pressing buttons to move money that you never see.
What kind of boss are you?
Change management is what I am used to. Thailand had a financial crisis in 1997, so I’m used to the work I’m doing and driving change. My last job was with the Thai Stock Exchange. I was preparing for privatization—a program that was eventually dropped with a change in government. But, we did change the organization completely. At the time I started the volume traded on the Thai exchange was about 40% that of Singapore. Today it is equal to Singapore plus Malaysia.
Here it is a similarly well-defined mission. There is a limited timeline for restructuring THAI that is locked in—two years—and my job is to drive the activities needed to achieve our goals at the right time and with the right people. The focus is on executing the project and ensuring the relevant departments are at full speed.
Motivating people is at the heart of any successful transformation. Clear targets are essential so that everybody sees the same goal. That is the difficult part. People must believe in the target and its achievability.
In an organization with as much history as THAI, overcoming inertia is a big hurdle to get over. Small successes really help in building momentum so that the company is moving in the right direction every month. That convinces the team, indeed the whole organisation and your partners, that the restructuring is working.