Airfares to increase as airlines resume operations on May 1

Major low cost airlines, such as Thai Lion Air (TLA) and Thai AirAsia, will begin operating on May 1 after the Civil Aviation Authority of Thailand (CAAT) announces new health and safety measures.

People will no longer be able to sit next to each other on planes, according to the new measures. For smaller aircrafts with 70 seats, they will now only be able to carry 49 passengers. 

Passengers will also be required to wear face masks at all times, so there will no longer be any food or drinks served on flights.

The CAAT will additionally allow airlines to raise fares from around 3-5 baht per kilometre to no more than 9.4 baht. This means that some airfares could go up by 100 per cent, said CAAT director-general, Chula Sukmanop. 

“The increasing price has to coincide with the demand,” he said. “If they increased their prices but there is no demand, it will be useless anyways.”

For TLA, a subsidiary of Indonesian low-cost airline Lion Air, they will resume six domestic routes to major cities, including Chiang Mai, Hat Yai and Surat Thani.

“The normal breakeven capacity is 60 per cent and the new seating arrangement to leave an empty seat between passengers should still allow us to reach that 60 per cent mark,” said Nuntaporn Komonsittivate, Head of Commercial Affairs at TLA.

For Nok Air, the airline said they have yet to make an assessment on the new breakeven point but that its prices will not be as low as it used to be.

Raj Tanta-Nanta, Nok Air’s Deputy Chief Executive Officer, added that the new airfare prices will truly reflect the actual cost of operation for low-cost airlines from now on.

“The prices for low-cost airline tickets in Thailand was around one third of the tickets in Europe,” he said. “From now on, airlines will no longer be able to compete mainly on [these] prices anymore and the industry will change because of it.” 

Supports from MOF 

The ministry is coming up with measures to help airlines amid travel restrictions, Finance Minister Uttama Savanayana said after a meeting with specialized financial institutions (SFIs) on Thursday.

He said the Ministry of Finance (MOF) is working with the Government Savings Bank (GSB) and its Fiscal Policy Office to come up with loans and other measures in aid of the airlines. 

“We are still discussing measures to help the aviation industry since the 150 billion baht worth of soft loan has been maxed out, so we have to come out with other measures beside the soft loan,” he said.  

Chatchai Payuhanaveechai, GSB’s president and chief executive, said there are two ways to provide loans to airlines.

The first is a new soft loan measure as the budget for the previous soft loan scheme has run out.  

The second method is to use the BOT’s soft loan budget of 500 billion baht, which received a royal endorsement Thursday night. The MOF and GSB will have to come up with specific conditions for the soft loan for airlines, he added.  

The previous scheme saw the BOT lend money to SFIs at a rate of 0.01 per cent. The institutions then lended out to SMEs at 2 per cent per year for two years with a cap of 20 million baht per customer. The BOT’s soft loan is expected to have a limit of 500 million baht per customer but these conditions will have to change to suit airline businesses.

In March, eight airlines asked the government for a soft loan worth 24.15 billion baht with an interest rate of 2 per cent for 60 months. 

They would require at least 25 per cent of their requested amount by April if they are to keep on hiring, they said in March.

About 20,000-30,000 people are working for these airlines. TLA has already let go about 300 employees so far but they have promised to prioritize them when the airline begins hiring again.

AOT measures

The Airports of Thailand (AOT)’s shares took a hit on Thursday and Friday after the listed state-owned company announced measures to help airlines amid travel restrictions still imposed in many parts of Asia. They now expect 53 per cent less passengers and 45 per cent less flights at their airports in 2020.

More than 900,000 flights and 141.8 million passengers have passed through six of their airports in 2019. They now expect the number of passengers to drop to 66.58 million and the number of flights to drop to 493,800 for the 2020 fiscal year ending in September. 

These five measures include reducing rent by 50 per cent for nine months between April 1 and December 31, exemption for parking charges for nine months for airlines that have temporarily cancelled all their flights, and a 50 per cent reduction on parking and landing charges for airlines that were still operating some flights. 

Airlines can also ask for these payments to be extended by six months. The remaining measures involve the extension and reduction of compensation payment to the AOT. 

Tisco Securities recommended investors buy AOT at a target price of 70.5 baht on Friday. They believe that AOT’s measures to help airlines and the new estimations on frequency of passengers and flights will reduce the company’s revenue by 15-36 per cent.

However, since AOT have denied that they will invest in Thai Airways International (THAI) in order to help with the bailout and since they have yet to lower the airport fee, the securities firm recommends a buying position. 

They do not believe that the AOT will come out with any more measures and the one that has been introduced so far is going to have minimal impacts for AOT.

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