The airlines need help right away
The world's airlines, including those in Thailand, are on the brink of a catastrophe. The situation, triggered by skyrocketing oil prices and consequential slowdown in air travel demand, is becoming more destructive for the industry than all the past crises - Sars, terrorism and war - combined. High oil prices are pushing carriers into uncharted territory.
The International Air Transport Association (IATA) dramatically altered its profit forecast for global airlines when oil prices began to spiral in April. Instead of making a US$4.5 billion profit as projected in March this year, the industry is bracing for a massive loss of $6.1 billion if crude oil stayed at $135 a barrel in the second half of this year. In the last six months, a total of 25 airlines have gone bust or entered into bankruptcy protection, while many are struggling desperately for survival, and the list of airline casualties is becoming longer.
Airline business confidence slumped to new lows in the second quarter of this year, following a steep decline in the preceding quarter, with airlines' chief finance officers now expecting further deterioration in the next 12 months.
The global industry has done a decent job in helping itself to streamline - improving fuel efficiency by 19%; cutting non-fuel unit costs by 18% and distribution costs by 25%. There have also been deferrals in investments, reductions in workforce and curtailment of operations.
Nevertheless, all these efforts are meaningless in the face of a tripling of oil prices since 2006, with a two-fold increase in the last year alone.
Indeed, there is nothing much else airlines can do to lower their costs further to weather the perfect storm. A concerted effort is urgently needed to keep this vital part of the global economy, involving 32 million jobs, 2.3 billion travellers and $3.5 trillion of global business, functioning. Governments, industry business partners and labour must recognise that this is a global crisis and all have a critical role to play.
This is an issue for Thailand as well. Airlines are an engine for national prosperity and failure amongst them would send shockwaves throughout Thailand's tourism industry. Last year, the Kingdom recorded 14.46 million international arrivals (+4.65%) and revenue of 547.7 billion baht (+13.57%). Within the country, it recorded 83 million domestic trips with revenue of 380 billion baht (+4.15%).
This year, the Tourism Authority of Thailand (TAT) projected 15.48 million international arrivals, up 7% over the projection for 2007, with tourism revenue projected at 600 billion baht. The domestic target in 2008 is 83 million trips, up 1.23%, and earnings of 385 billion baht.
Next year, TAT expects 16 million international arrivals and 630 billion baht in tourism revenue. The domestic target is 87 million trips and earnings of 407 billion baht. All these projections will never be achieved if some 90 international airlines, which ferry the bulk of foreign visitors in and out of Thailand, are forced to reduce or suspend flights.
Every day there are more than 97,500 international passengers and over 20,000 domestic travellers passing through Suvarnabhumi Airport. The capital's principal airport, one of the busiest in this region, handles about 550 international flights and 170 domestic services daily.
So it is absolutely sensible for parties concerned like the state-controlled Airports of Thailand Plc (AoT) to provide extraordinary relief, as is being sought by the Airline Operators Committee (AOC), a coalition of international airlines operating in Thailand.
Some of AOC's requested temporary assistance is for AoT to: Waive or cut landing and parking fees by at least 50% for 12 months; a 30% reduction of 400Hz electricity and aircraft air-conditioning charges; review the current boarding fee of 25 baht per passenger; review the concession fees imposed on ground handlers as those fees are actually on passed to airlines. The adoption of this relief package alone should result in a 15% cost savings for airlines. Furthermore, airlines should not be made to pay overtime wages for immigration and customs officers at Suvarnabhumi.
Neither should they be made to shoulder the cost of printing the immigration cards, known as TM6, for passengers. If these cards are provided by relevant government units, such as the Thai Immigration Bureau or TAT, it will save 45 million baht a year for the airlines.
Besides, air navigation service providers also have a part to play in helping airlines reduce their fuel usage by allowing aircraft to reach the optimum altitude as quickly as possible so as to reduce fuel burn, and for continuous descent arrival. Shortening routes will also help.
Boonsong Kositchotethana is Deputy Assignment Editor (Business), Bangkok Post.
Wednesday August 13, 2008