THAILAND - Sorajak Kasemsuvan's resignation as president of Thai Airways International last week was no surprise, given external and internal pressure he has had to endure throughout the past 14 months.
Externally, THAI and other premium airlines have been affected by the rapid expansion of low-cost airlines. The situation will only get worse. According to The Wall Street Journal, at least 10 new low-cost carriers are set to take off in Asia in the coming year, expanding fare choices for consumers but squeezing airline margins even more.
According to the International Air Transport Association (IATA), though Asia-Pacific airlines' EBIT (earnings before interest and tax) margin will rise to 4.4 per cent in 2014 from 4.1 per cent this year, their profitability is subdued by weakness in cargo demand and the expect?ed delivery of 710 new aircraft.
THAI this year took delivery of 17 new aircraft, though that number is dwarfed by orders from airlines based in the Persian Gulf.
With high operating costs, Sorajak said in a recent interview with The Nation, THAI cannot survive the fierce competition. He believed the profit margin of 1.5 per cent was too thin to weather the storms, and this highlighted the need for corporate transformation. He envis?aged spinning off business units, keeping only the aviation business.
According to a close aide, this idea did not receive much of a welcome from the THAI board when Sorajak sought their approval last Friday.
"The president has pondered resignation for some time, seeing that his hands are tied. He could not have a say in the route planning or a cost-cutting programme for business units. His time has been devoted to meetings, mostly concerning non-aviation businesses," the source said.
According to the source, with the board's approval, the commercial department in the past year resorted to easy means to boost revenue.
A research note from Asia Plus Securities said that because of intensive sales promotions, THAI's passenger yield in the second quarter was cut by 8.4 per cent from the previous quarter to only Bt2.56 per passenger per kilometre. Though jet-fuel prices dropped in the quarter, THAI witnessed an increase in employee expenses including overtime and bonus pay.
After the company reported a loss of more than Bt6 billion for the first nine months of the year, a promotion was launched recently. A one-way ticket to Chiang Mai is priced at only Bt1,700, a big discount.
All eyes are on the fourth-quarter financial results. It is very likely that THAI will end the year with a net loss, despite the booming tourism industry.
Taking the helm in October last year, Sorajak succeeded Piyasvasti Amranand, whose employment contract was also terminated prematurely even though he was praised for cost-cutting programmes.
In the past four-year period, THAI has welcomed two presidents and is about to appoint a new one, while Ampon Kittiampon has firmly held the chairmanship of the board.
It is difficult to see how a major aviation company can flourish with such high turnover at the top.