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Thai airlines feel the pinch of oil price spikes


August 24,2008

Thai airlines feel the pinch of oil price spikes
High fuel costs have battered Thailand's aviation industry, leaving flag carrier Thai Airways groaning under its losses while smaller operators struggle to survive, reported AFP.

Oil prices jumped above $147 per barrel on July 11. They have since climbed down but remain volatile, casting a cloud over an industry that had seen a fleet of new players taking off.

Thai Airways International blamed fuel costs, as well as a massive foreign exchange loss, for its 9.23 billion baht ($274.3) loss in the second quarter -- its worst quarterly showing in a decade.

The airline's shares have lost half their value since March, plunging from 31.50 baht to 15.20 baht on Friday.

"The main reason was the sharp rise in the price of jet fuel by 73 per cent, causing the company's fuel costs to rise sharply," Ngamnit Sombutpibool, the airline's vice president of accounting, said in a statement.

The airline, majority owned by the government, has repeatedly hiked its fuel surcharge -- now at US$90 per passenger -- but still failed to rein in costs.

Thai Airways now plans to ask 400 staffers to take voluntary retirement, while trimming back its fuel-intensive long-haul flights, cancelling its direct flight to New York and making changes to its Los Angeles service.

The carrier's low-cost sister airline Nok Air has been battered even harder, suffering losses reported at around 100 million baht.

"Last year we expected oil prices of at most US$110-120. But the prices rapidly jumped higher. By that time it was too late to raise ticket prices to catch up with the oil prices," Pinyot Pibulsonggram, the company's vice president of marketing, told AFP.

Aside from fuel prices, the company has suffered from an ambitious expansion of its fleet. The plans were made years ago when demand for low-cost carriers looked brighter, he added.

Nok Air has suspended three routes and is slashing its flight schedule from 70 to 20 a day, Pinyot said. Ticket prices are up 20 per cent, staff salaries have been cut by 25 percent, and 200 workers have been fired, he said.

Pinyot insisted that Nok Air's finances were likely to turn around in August.

"Our loss in July dropped significantly and we already saw profit showing in the first half of August," he said.

"But our big challenges currently are to regain trust among our customers and business partners and to help customers understand our need to raise ticket prices," Pinyot said. "We can no longer call ourselves a budget airline."

Budget carrier One-Two-Go has already been forced to suspend its operations, saying fuel costs had forced the company to restructure its finances.

The airline has never recovered from a plane crash in Phuket last year that killed 90 people. Aviation authorities have also slapped the carrier with a separate suspension order to force it to clean up safety issues.

Another budget carrier, Thai Air Asia, said it was weathering the fuel shock by focusing on other sources of income -- including in-flight food and drink sales, travel insurance, as well as hotel deals and other services.

"Cutting costs is just a dream, especially when global oil prices keep rising steeply. In practice it is too difficult to catch up with rising oil prices by raising air fares or fuel surcharge fees," chief executive Tassapon Bijleveld told AFP.

He said that because of cautious spending, the airline's finances were still in order and the carrier was on track to add new destinations in Southeast Asia.

Aviation officials predict that the financial difficulties could change the industry's landscape.

"If global oil prices keep going up or stay at a high level, we may see more businesses merging or codeshare flights among airlines in Thailand," Chaisak Angkasuwan, director general at Thailand's Civil Aviation Department, told AFP.

"The operators will have to adapt to change with travellers' habits, as people become more cautious with their spending," Chaisak said.

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