Bankruptcy Was Just What Thai Airways Needed
Pushing Back: Inside the Issue
The U.S. Justice Department has removed any doubt about its feelings toward the JetBlue-Spirit merger. It doesn’t like the idea and is suing to stop it. That’s hardly the end of the story though. JetBlue plans to mount a vigorous legal defense, arguing that the flying public will ultimately benefit, not suffer.
Asian airlines that suffered even longer than most from the Covid shock are now bouncing back to life. Hong Kong’s Cathay Pacific and Thai Airways joined Singapore Airlines, All Nippon, and Korean Air as major Asian comeback stories, all reporting double-digit operating margins for 2022’s fourth quarter. Thai Airways performed particularly well, attesting to the power of bankruptcy restructuring. Bangkok Airways had a great quarter too, further attesting to the current unleashing of pent-up leisure travel demand across the world.
No airline did better last quarter than Turkey’s Pegasus Airlines, a low-cost carrier with coverage across multiple regions including Europe and the Middle East. Its operating margin was a breathtaking 25 percent. In Brazil, meanwhile, Azul and Gol are having no problems earning strong operating profits. But foreign exchange woes and other headaches nearly prevented them from paying their bills. Fortunately, they managed to avoid bankruptcy, unlike their rival Latam (not to mention Avianca and Aeromexico). Azul and Gol skirted defaults through out-of-court debt restructurings instead. Latam for its part, now out of bankruptcy and much leaner than before, reported an 8 percent fourth-quarter operating margin, compared to 12 percent for Azul and 15 percent for Gol. (More on Latam’s results in next week’s issue).
Airline Weekly Lounge Podcast
It’s official: The U.S. Justice Department just sued to block JetBlue and Spirit from merging. Will it win? That’s anyone’s guess, but JetBlue CEO Robin Hayes said he plans to fight the regulator. Plus, the latest results from Azul and Thai Airways. Listen to this week’s episode to find out. A full archive of the Lounge is here.
Weekly Skies
The U.S. Department of Justice has filed a suit to block the proposed $3.8 billion merger of JetBlue Airways and Spirit Airlines citing competition concerns.
The regulator claimed that the merger would negatively impact consumers by raising airfares by on average 30 percent, particularly in markets where both JetBlue and Spirit are large. That impact would be felt by at least the 30 million passengers that Spirit carried last year, plus everyone that pays less, thanks to the competitive effect of the discounter’s bargain no-frills fares, the DOJ argued. Massachusetts, New York, and the District of Columbia joined the DOJ in the suit filed in the U.S. District Court for the District of Massachusetts on March 7.
“The merger of JetBlue and Spirit would result in higher fares and fewer choices for tens of millions of travelers across the country,” U.S. Attorney General Merrick Garland said. The merger would violate the Clayton Act that governs antitrust in the U.S.
The U.S. Department of Transportation said that it backs the DOJ’s position, and will deny an JetBlue and Spirit’s application for an exemption to close their merger.
JetBlue and Spirit have repeatedly rebutted such claims arguing that, by merging, the airlines would create a stronger competitor to the Big Four airlines — American Airlines, Delta Air Lines, Southwest Airlines, and United Airlines. This would allow them to provide more service to more destinations, including potential flights to Hawaii.
“We believe the DOJ has got it wrong on the law here and misses the point that this merger will create a national low-fare, high-quality competitor,” JetBlue CEO Robin Hayes said in a statement. He has previously said the airline would take the DOJ to court if it moved to block the merger.
The deal is not without its supporters. Florida’s Attorney General Ashley Moody last week unveiled an agreement with the airlines to support the merger in exchange for commitments to grow and protect jobs in Florida. Under the accord, JetBlue and Spirit would increase the number of seats they fly in both Fort Lauderdale and Orlando — bases for each airline — by 50 percent from current levels, as well as the aggregate number of seats they fly at all other Florida destinations by 50 percent.
“Blocking this merger in an attempt to undo the consolidation in the airline industry is backward thinking,” Association of Flight Attendants-CWA President Sara Nelson said. “It will do nothing to change today’s industry dynamics, but it will ensure things stay the same.”
The AFA, which represents flight attendants at Spirit, backs the merger. However, other unions, including the Transport Workers Union that represents flight attendants at JetBlue, oppose the combination.
The merger of JetBlue and Spirit would create the fifth largest U.S. domestic airline after the so-called Big Four. The combined carrier would have a roughly 8 percent share of the market, based on U.S. Bureau of Transportation Statistics data for the year ending in November. The deal came together after a protracted bidding war between JetBlue and Frontier Airlines last year. Spirit shareholders approved the combination in October.
And, in a nod to any potential antitrust concerns, JetBlue and Spirit have offered to divest the latter’s gates and assets in Boston and New York, as well as five gates at the Fort Lauderdale airport where both have large bases.
That proved not enough for Garland. He described the proffered remedies from the divestitures as “speculative” in nature, and not a guarantee of new competition.
Asked whether the DOJ would approve the merger if JetBlue gave up its controversial alliance with American in the Boston and New York markets, Garland said the merger would “exacerbate the problems caused by that alliance, but even without that alliance it still violates” antitrust.
The DOJ sued to unwind the American-JetBlue alliance in 2021. The parties are awaiting a judge’s decision after arguments ended in November.
In its suit against the proposed merger, the DOJ was able to draw heavily from JetBlue and Spirit’s past public comments about each other. For example, when JetBlue made its hostile bid for Spirit last year, executives at the latter repeatedly argued that airfares would rise if the deal happened. Average ticket prices fall by an average of 17 percent when Spirit enters a market, the regulator said. However, when the airline exits a route airfares rise by on average 30 percent — even when JetBlue continues to fly the route.
The DOJ even questioned JetBlue’s argument that it needed to become bigger to keep the Big Four airlines in check. It noted that, over the past decade, the airline has become more like its larger competitors rather than less. This includes airfares where JetBlue often actively participates in incremental average fare increases led by one of its competitors.
“If JetBlue acquires Spirit, it would have more incentives to coordinate with other airlines on price increases and capacity reductions,” the regulator said in its suit.
A quick decision on the DOJ’s suit is unlikely. A settlement is a possibility, however, negotiations could take months. It took three months for the regulator to reach an agreement to drop its suit against American and US Airways proposed merger in 2013. If a settlement is not reached, the suit could go to court.
JetBlue and Spirit have previously said they aim to close the merger by the first quarter of 2024.
Cathay Pacific Breaks Out of Pandemic Stupor
In case there was any doubt, Cathay Pacific Airways just made things crystal clear: East Asia’s airlines are roaring back to financial health.
Hong Kong’s largest airline on Wednesday reported exceptionally strong profits for the final six months of 2022 (it reports only semiannually, not quarterly). The company’s operating margin was 15 percent, becoming the latest East Asian airline to report double-digit figures. Singapore Airlines, Korean Air, Japan’s All Nippon Airways, and Thai Airways all did so for their fourth quarters. Cathay’s 15 percent second-half margin, meanwhile, was a vast improvement from the lowly 2 percent it coughed up in the second half of 2019. It was also good enough to propel the company to a full-year 2022 operating profit; its full-year operating margin was 7 percent.
The numbers look even better for just Cathay Pacific’s core airline operation, not including low-cost carrier HK Express, cargo subsidiary Air Hong Kong, or its 18 percent ownership stake in money-losing Air China (the stake recently dropped to 16 percent). In the half-year, the core operation generated 50 percent of its revenues from passengers and the other 50 percent from cargo, collectively earning a muscular 17 percent operating margin. The core airline achieved a 10 percent margin for all of 2022.
“After three years of unprecedented disruption due to the Covid-19 pandemic, we are pleased to now be at the stage where we are rebuilding a new Cathay Pacific,” the company said in a statement.
Things were rough for Cathay even before the pandemic. Its last decent year before 2022 was 2015. It would lose money in both 2016 and 2017, before eking out disappointingly thin profits in 2018 and 2019. Those were years scarred by tough competition, labor tensions, costly hedging mistakes, airport congestion, and — most damagingly — periodic political unrest that at times caused Hong Kong’s airport to close. Once a British colony that achieved significant autonomy after reverting to China’s control in 1997, Hong Kong in recent years has become more firmly under Beijing’s control. That said, the island retains a separate aviation regulator, with its own international air treaties.
As recently as last March, Cathay was barely flying any passengers. It mentioned one specific day — March 12 of last year — when it flew just 58 people. This January, however, it carried more than 1 million, with a load factor of 87 percent. The airline’s cargo business, while an important source of profits during the pandemic, also experienced operational constraints linked to quarantine rules for flight crews.
Quarantines and other restrictions are now in the rearview mirror, and Cathay hopes to return to pre-pandemic levels of passenger capacity by the end of 2024. By the end of this year, it foresees returning to about 70 percent. Beyond 2024, the hope is to grow again, taking advantage of a new third runway at Hong Kong’s airport. Cathay also has orders for Boeing’s new 777-9. It currently flies a mix of current-generation 777s, along with Airbus A350s and A330s (it has Boeing 747 freighters as well). HK Express and what used to be Dragonair (the brand was retired in 2020) operate Airbus A320-family narrowbodies.
HK Express continues to lose money, recording a $69 million loss in the last half of 2022 (all figures in U.S. dollars). The Air China stake continues to stain Cathay’s finances with red ink as well. Air China’s results will surely improve now that China’s travel restrictions have been lifted. The Beijing-based airline does, however, have outsized exposure to longhaul international markets, which are taking longer to recover. In any case, Cathay overall began generating positive cash flow “towards the end of the first half of 2022.” And it’s well positioned to capitalize on the mainland’s reopening. Air China, by the way, owns shares in Cathay, just as Cathay owns shares in Air China. Qatar Airways is a major Cathay shareholder too (both are members of the Oneworld alliance).
In its latest traffic update in mid-February, Cathay said “leisure travel demand over the Lunar New Year holiday was … strong, particularly from Hong Kong, with Japan, Bangkok, and Singapore being the most popular destinations.” It did complain that “unfortunately, despite demand being high for Japan, we had to cancel some of our flights due to restrictions imposed by the Japanese authorities on the number of flights airlines are permitted to operate from Hong Kong.”
During the pandemic, one of the few segments with meaningful demand involved Chinese mainland students connecting to places like Australia, the UK, and the U.S. via Hong Kong. Other connecting traffic has since revived, including travelers using Hong Kong as a gateway between North America and the ASEAN region, or between Europe and Australasia. On the other hand, it faces new competition from a third major Hong Kong-based airline, Greater Bay Airways, which launched last summer. Last week, Greater Bay announced an order for 15 Boeing 737-9s. Hong Kong’s third local carrier is Hong Kong Airlines. Key rivals from outside of the greater China region include Singapore Airlines and the low-cost carrier Cebu Pacific of the Philippines.
Aside from its passenger and cargo operations, Cathay says it aims to evolve into a “premium travel lifestyle brand, consisting of a host of complementary categories — flights, holidays, shopping, dining, wellness, and payment.” It also has a loyalty program with more than 13 million members. And it hopes to expand its home market beyond just Hong Kong, to incorporate the Greater Bay region that includes mainland cities like Shenzhen. That’s consistent with Beijing’s policy push to more deeply integrate the region economically. Hong Kong’s government, meanwhile, is helping airlines advance their recovery by subsidizing free trips to stimulate tourism.
Gol Happy With Aircraft Delivery Delays
Brazil’s second largest airline, Gol, will grow a little less this year than it planned thanks to delays receiving new aircraft from Boeing. But while that may not sound good, management is perfectly fine with the situation.
The São Paulo-based carrier has shaved five percentage points of capacity growth from its forecast for 2023, to up 15-20 percent year-over-year. The reduction is due to delays receiving new 737 Max aircraft, Gol CEO Celso Ferrer said during the carrier’s fourth-quarter earnings call Wednesday.
At the same time, travel demand is strong with bookings “performing very well” since the beginning of the year, Ferrer said. And while corporate travel volumes are down 25-30 percent from 2019 levels, revenues in the lucrative segment have fully recovered.
And what happens when demand outstrips supply of air travel? Travelers pay more, and higher revenues are critical for Gol especially as the airline faces the double expense whammy of high oil prices and a strong U.S. dollar; many major airline expenses, including aircraft leases and fuel costs, are paid in dollars.
“We are ramping up the capacity in the domestic market, very cautiously to maintain the unit revenues that became very crucial for us,” Ferrer said.
Gol’s yields were up 45 percent from 2019 levels — or 25 percent year-over-year — in the fourth quarter. That increase was driven by robust travel demand, particularly among leisure and visiting friends and relatives traffic, while overall airline capacity in Brazil was down about 1 percent from three years earlier, Diio by Cirium schedule data show.
Hence the delay of new 737 Maxes is not a top concern for Gol management this year. The airline ended 2022 with 38 of the aircraft; six fewer than the 44 planes it had expected. This year, Gol anticipates adding 15 more Maxes for 53 by December. The 2023 number, however, is still three fewer aircraft than Gol had forecast for the year as recently as October.
Gol plans to fully restore its domestic Brazil capacity to pre-pandemic levels, and will also grow international capacity, Ferrer said. Much of the international growth, including new routes to Miami and Orlando, occurred late last year but will show as sequential capacity increases throughout 2023. Gol is holding off returning to near-international markets Lima and Santiago, Chile — strongholds for competitor Latam Airlines — until the markets become “healthier,” Ferrer added.
Speaking of health, Gol — like Azul — has avoided any potential defaults regarding lease obligations. The airline addressed its aircraft lease obligations through a series of transactions including an issue of $200 million senior secured notes due in 2026 (in the fourth quarter), and a $1.4 billion senior secured note due in 2028 (done in last year’s March quarter), Chief Financial Officer Richard Lark said. These “liability management and refinancing” transactions allowed it to stretch out its pandemic-era obligations, and improve Gol’s positive cashflow forecast this year.
Azul, Brazil’s third largest airline, reached deals earlier in March with the majority of its lessors that lowers its aircraft lease payments to market levels, and provides the counterparties with debt and equity worth the balance of their claims. The agreements will allow Azul to avoid a potential bankruptcy filing, and turn an estimated 3 billion Brazilian reais ($586 million) in negative cashflow this year to breakeven.
Both Azul and Gol, which operate almost entirely in the Brazilian domestic market, have been hit hard by oil and the strong U.S. dollar. At Gol, Lark said fuel expenses increased 44 percent year-over-year in the fourth quarter.
Gol executives had little to say on the airline’s planned merger with Avianca in Colombia to form the new airline holding company, Abra. Avianca will be under the new ownership structure by April and approvals are underway to move Gol to Abra as well, Lark said. The two airlines plan to operate as separate airlines and brands — much like the carriers in IAG in Europe — while taking advantage of synergies at the group level. They did not comment on Avianca’s proposed merger with bankrupt Viva Air in Colombia, which has come under scrutiny for potential antitrust violations.
And the numbers: Gol reported a 631 million Brazilian reais operating profit in the fourth quarter, which translated to a strong 14.9 percent operating margin, adjusted for special items. Its net profit was 231 million Brazilian reais. Revenues came in at 4.7 billion Brazilian reais, or 24 percent higher than in the fourth quarter of 2019. Unit costs excluding fuel were up nearly 42 percent year-over-three-years.
Gol anticipates a respectable 12 percent operating margin in the first quarter, peak season for travel in Brazil. It plans to increase capacity 11-13 percent compared to 2022.
Transat On Track for Profitability
Canada’s Transat, which sells vacation packages, said it’s “moving toward a gradual return to profitability,” underpinned by strong demand and high prices. The Montreal-based company, which owns and operates the airline Air Transat, gave its assessment during an earnings call with investors last week.
For its fiscal first quarter — covering the offpeak months of November, December, and January — Transat reported a negative 6 percent operating margin. Losses are not uncommon for Canadian travel companies during winters; Air Canada recently reported a negative 1 percent operating margin for its October-to-December quarter. (Note that Air Canada and Transat agreed to merge in 2019, but the deal collapsed in 2021, after European Union competition regulators signaled their disapproval).
Transat’s bookings for the upcoming spring and summer seasons look strong, enough so for CEO Annick Guérard to declare: “Transat is on an upswing and is headed for a return to profitability.” She added: “These results are especially encouraging since the first quarter, which falls in the shoulder period, is usually the lowest of the year.” The company aims for a positive operating margin of 4-6 percent for the full fiscal year that ends in October.
During the fiscal first quarter, capacity was roughly back to 2019 levels, while load factors reached a healthy 85 percent. During winters, much of Air Transat’s flying is to southern sunshine destinations in Florida, Mexico, and the Caribbean. During summers, it pivots to a more Europe-focused schedule.
December and January were tough months operationally for Canada’s airlines, owing to weather that was rough even by Canada’s standards. Air Transat though, said it was “able to maneuver well through the delays and setbacks that disrupted North American airports in late December and early January.”
Regarding the current February-to-April quarter, Transat says yields on tickets already sold are 25 percent higher than they were in the comparable period of 2019. That’s consistent with a trend evident throughout the airline industry this year: Fares are up sharply, often enough to overcome a significant increase in costs. “The combination of demand and higher prices will allow the corporation to cope with higher costs,” Transat said in a statement. That’s assuming, however, that Canada doesn’t suffer a deep recession this year, or that fuel prices or exchange rates don’t prove troublesome.
For now, though, “the North American airline sector is benefitting from a countercyclical recovery with pent-up demand for travel.” Transatlantic markets have been especially robust, as Air Canada and various U.S. and European airlines have reported. Transat itself is now codesharing with WestJet and Porter Airlines, two other Canadian carriers. Also critical to its strategy are newly-arriving Airbus A321LRs and later XLRs (the first is due in 2025). These have extended range capability that enables more nonstop services between eastern Canada and western Europe. Other priorities include boosting aircraft utilization, reducing seasonality, increasing revenue from ancillary sources, and adding more capacity from eastern Canada. As for human resources, “so far,” said Guérard, “we’ve been able to attract and retain all the people we need.”
It all adds up to a favorable outlook. Said chief financial officer Patrick Bui: “We previously communicated that we were aiming to be cash flow positive by 2024. We are now aiming to be cash flow positive this fiscal year.”
American Rejigs Corporate Sales
American is restructuring of its global sales team with the departure of three experienced senior leaders. The reorganization impacts its U.S operations, and includes a number of layoffs. Other global regions are set to follow, with the cuts coming just weeks ahead of its move to shift more of its airfares to direct retail channels, including its own website.
“I want to let you know that we are going to be a more streamlined sales team going forward, doing much more focused and deliberate work in areas where customers need us, and operating with greater efficiency and effectiveness,” wrote Thomas Rajan, vice president of global sales at American, in an internal memo viewed by Airline Weekly.
According to the communication, three leaders will “transition out of their roles” due to the new structure. They are Michael Albers, interim managing director, central and southwest divisions and Canada; Louis de Joux, managing director, leisure and OTA; and Shane Hodges, managing director, sales Western division and Asia Pacific.
Jim Carter, the airline’s managing director of the Eastern Division, announced his retirement last week. In January this year, American announced chief customer officer Alison Taylor was retiring.
The memo said the airline would look at the “subsequent layers of the domestic sales organization to align with our new world of work and structure.”
Rajan wrote: “To be upfront with you, that will mean reductions across the team.” Regions including Asia Pacific, and Europe, Middle East and Africa, will also be affected.
“We’re continuously evaluating how best to serve our customers’ evolving preferences. For example, a big portion of them have shown us they want to interact directly with American. Others have needs to interact with us through intermediaries.”
An American spokesperson said the reorganization gave the airline “the ability to more quickly adapt to this evolving marketplace. This structure also allows us to deliver simpler solutions to intermediaries as well as provide a heightened focus for our customers’ entire travel ecosystem.”
Routes and Networks
- Qatar Airways plans to add seven new dots to its map this year: Chittagong, Bangladesh; Juba, South Sudan; Kinshasa, Democratic Republic of the Congo; Lyon and Toulouse, France; Medan, Indonesia; and Trabzon, Turkey. The airline did not say when the new routes from its Doha hub would begin or what frequencies were planned. Globally, Qatar Airways will fly roughly 90 percent of its 2019 system capacity in the first quarter, per Diio.
- Delta could be eyeing new point-to-point routes, Senior Vice President of Network Planning Joe Esposito said at a Raymond James event last week. Citing pandemic population shifts and new work-from-anywhere policies at many companies, “point-to-point [route] options may exist from certain top 50 cities,” Raymond James analyst Savanthi Syth wrote on Esposito’s comments. Delta focus cities of Austin, Cincinnati, and Raleigh-Durham were named as growth potential markets, as well as Kansas City where the airport opened an expansive new terminal at the end of February. The airline has also added new routes between its hubs and destinations that have seen significant population growth, for example between Atlanta and cities in Montana.
- JetBlue set a date for its new service to Paris: Daily flights from New York JFK with an Airbus A321LR begin June 29. The airline’s planned Boston-Paris nonstop will begin at a future date. Paris is JetBlue’s second destination in Europe after London, and Charles de Gaulle its third airport after Heathrow and Gatwick.
Feature Story
Sometimes, bankruptcy is just what the doctor ordered.
Thai Airways, Thailand’s largest airline, just stunned the aviation world with a striking 21 percent operating margin for the October-to-December quarter. Not bad for an airline whose operating losses exceeded $100 million last decade.
It’s indeed bankruptcy that’s helping Thai Airways evolve from a deeply troubled airline to one that now appears poised to prosper post-pandemic. The government-controlled company filed for court protection from its creditors in 2020, just months after the Covid crisis struck. It’s since slashed costs, sold off unwanted assets, and — according to the Bangkok Post — roughly halved its workforce. Thai received financial support from its government as well.
Thai entered the pandemic in a sickly state, losing money at the operating level for two straight years in 2018 and 2019. Its fleet was too complex, its payroll too boated, its costs too high, its decisions too muddled by politics, and its competition too intense. Thailand is one of the world’s busiest tourism markets, and Bangkok is one of its busiest airline markets. For many decades, large traffic volumes were enough to keep Thai Airways profitable, year in and year out. But things changed dramatically in the 2010s. On international routes, Thai was squeezed between stronger premium players like Singapore Airways and Emirates on one end of the scale, and low-cost carriers on the other. Domestically, Thailand became a low-cost slugfest as the foreign airlines AirAsia, VietJet, and Lion Air all launched Thailand-based joint ventures. Bangkok Airways, more of a full-service carrier, continued to be a tough competitor as well. Thai attempted to fight back with airline ventures of its own, starting with Nok Air which eventually became a competitor, and later Thai Smile, whose days are reportedly numbered.
Put another way, Thai needed a bankruptcy cleansing even before Covid. But it got one when Covid came and — by all appearances — seems to be making the most of it. Though losses mounted as travel restrictions suppressed demand well into the first half of 2022, Thailand began removing restrictions in July. Demand immediately spiked, enabling Thai to post an impressive 12 percent operating margin for the July-to-September quarter, which is typically its slowest period of the year. That suggested a very strong peak season might lie ahead and — sure enough — Thai produced its virtuoso fourth-quarter performance. To repeat: it earned a 21 percent operating margin.
Thai Airways is not out of bankruptcy yet; it hopes to exit next year, followed by a possible re-listing of its shares in 2025. With so much cash now flooding in, meeting those goals hardly seems improbable. The Bangkok Post reports that it began turning a profit in May, and before long was generating so much free cash flow that it scaled back borrowing plans — all of this, keep in mind, before the revival of Thailand’s top tourist market China. That’s still to come. The ongoing absence of Chinese arrivals explains why Thailand received just 5.5 million international visitors in fourth quarter, up from almost nothing a year earlier but still far short of the 10.4 million that arrived in the fourth quarter of 2019. In December alone, Thailand welcomed 2.2 million foreign visitors, down 43 percent from three years earlier. Overall air traffic at Thailand’s airports was still down by a third last quarter, relative to 2019, according to Airports of Thailand.
Thai Airways has a new CEO, Chai Eamsiri, who just took the helm last month. He’ll work with creditors in the bankruptcy process to settle past debts, raise new funds, and craft a new business strategy. One item on the agenda is ordering new widebodies. Four years ago, it had a flying museum of Boeing 747s, 777s, 787s, and Airbus A380s, A350s, A340s, and A330s, according to Cirium Fleets Analyzer. Its active fleet is now down to 777s (some of which will soon need replacing), 787s, A350s, and a handful of A330s.
Helpfully, fuel prices eased a bit last quarter. In the meantime, Thai is forging closer marketing ties with regional rival Singapore Airlines, just as it has with domestic rival Bangkok Airways. Cargo, a vital profit contributor during the depths of the crisis, remains important though losing some steam. In January, the latest month of available figures, Thai filled 74 percent of its seats on flights within Asia, and 92 percent of its seats flying to and from both Europe and Australia. In January 2019, its load factors for regional, European, and Australian flights were 77, 83, and 89 percent, respectively. As for the domestic market, Thai is for now letting Smile handle that, deploying all its mainline capacity on international routes.
The big question now: When will the waves of Chinese tourists return? Thailand’s tourism ministry thinks that 8 million could come this year, compared to 11 million in 2019. The government is hoping for 30 million visitors overall, compared to a record 40 million in 2019.
Thai Airways, for its part, is doing just fine without Chinese tourists. But as mentioned, cargo demand is weakening, and fuel and foreign exchange movements always lurk as threats. Competition, for sure, has mellowed thanks to major capacity contraction across the region. Just as Thai Airways shrank itself during bankruptcy, so did fellow bankruptcy victims Malaysia Airlines, Garuda Indonesia, and Philippine Airlines. They’ll be meaner and leaner now too, however. And other rivals like AirAsia, VietJet, Lion Air, Singapore Airlines, Qantas, the Gulf Carriers, and so on, won’t be going away. Thai Airways, though, is much better positioned to defend itself. Seeing the bankruptcy doctor has greatly improved its health.
By the Numbers
After a dismal decade, Thai Airways finished 2022 with its best operating profit since 2010. Thank an epic fourth quarter, propelled by recovering tourism and drastic cost-cutting for those numbers.
The chart shows Thai’s annual operating margin over time, excluding special items.
Source: Airline Weekly analysis of company data