Thai Airways International Public Company Limited

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Thai Airways International Public Company Limited

89 Vibhavadi Rangsit Road
Bangkok 10900
Thailand
(66) 2 513-0121
Fax: (66) 2 513-3398
Web site: http//www.thaiair.com

Public Company
Incorporated: 1947 as Thai Airways Company
Employees: 21,500
Sales: B 105,493 million (US$ 3.12 billion) (1997)
Stock Exchanges: Bangkok
SICs: 4512 Air Transportation, Scheduled

Thai Airways International Public Company Limited is one of the most influential companies in that emerging Asian country. It is an example of the growing success and significance of Asian national carriers, which have carved a niche in ferrying industrial goods from the Far East to Western markets and in serving Western business and leisure travelers. Thailand’s location ensures the carrier a considerable piece of the growing Asian air travel market.

Origins

Airplanes were seen over the Thai capital of Bangkok as early as 1911, but it was not until 1947 that the government of Thailand established a national airline of its own, Thai Airways Company. The country had recognized a need for such an airline network during post-World War II reconstruction. Until then, rivers and canals had been the traditional mode of transportation. The postwar years saw these replaced by highways and roads as main transport arteries, and the aviation industry developing worldwide at the time not surprisingly also had an impact on Thailand.

The original Thai Airways Company was a modest affair—three DC-6 prop-jets; each had 70 seats. Thai Airways’ first head office in Bangkok was situated on New Road, directly across from the main post office. From these headquarters passengers could purchase tickets to nine domestic destinations, including the jungle resorts of Chiang Mai in the North, Lam-pang in the center of the country, and the pristine beaches of Hat Yai to the south.

In 1954 the Thai government identified 130 airfields throughout the country, 104 of which were functional. Thailand’s main airport was Don Maung, outside Bangkok. Thai Airways expanded abroad in 1959 with the help of Scandinavian airline SAS, which assumed a 30 percent shareholding in a new subsidiary, Thai Airways International Ltd. SAS brought technical and managerial expertise and its old propeller planes to the fledgling national carrier; in return, SAS was awarded landing rights in Hong Kong.

Approximately 83,000 passengers were carried to nine Asian destinations in 1960, the first year of Thai’s service. Routes included those from Bangkok to Calcutta, India, via Rangoon, Burma; Bangkok to Tokyo via Hong Kong and Taipei, Taiwan; and flights to Phnom Penh, Cambodia; Saigon, Vietnam; Kuala Lumpur, Malaysia; and Singapore. The airline’s staff numbered 477. That year its pilots flew a total of 8,147 hours.

Thai owed much then, as now, to its unique location. At the crossroads between East and West, North and South, Thailand is a sought-after stopover on numerous flights by airlines from around the world, a situation that has afforded the airline considerable leverage in securing reciprocal landing rights in European and North American airports. Even in the 1990s, Thai remained in a strong bargaining position: long-range jumbo jets flying from Europe to Asia may skip India or the Middle East on their way to Australia, but they need to refuel in either Bangkok or its rival Singapore.

In 1964 Thai added a Caravelle SE-210 jet aircraft to its fleet, which allowed the first scheduled service to Osaka, Japan; Kathmandu, Nepal; and Bali, Indonesia. The aircraft was able to fly between Bangkok and Hong Kong without refueling. It carried 72 passengers and had a takeoff weight of 48 tons. This meant it could carry a payload of ten tons and would burn off three tons of fuel each hour in the air.

Catching Tourists with Silk in the 1960s and 1970s

By the mid-1960s Thailand had become a tourist destination for Westerners traveling in Asia. The lure of the Orient was clear to Thai’s founders; they recognized that the development of the company’s regional route network would depend on access to tourist destinations both in Thailand and throughout Asia. The airline did its best to promote these locales, investing in advertising and public relations. Colorful pamphlets encouraged tour operators and travel writers to visit Asian resorts, and word of mouth in turn inspired other wayfarers to make the trip.

In 1969 the company entered the packaged holiday market with Royal Orchid Holidays, offering the flexibility of individually planned tour itineraries combined with the cost savings usually found only in large group tours. Thai did not, however, want to replace the travel agent, who traditionally sold tours to travelers; nor did it wish to replace tour operators in the field, who looked after travelers once they arrived at each of their tour destinations. Instead, Thai operated as the middleman, bringing travelers and tour operators together, thus putting more people on its planes. By 1972 Thai was ranked 44th among the world’s international airlines, one place behind rival Philippine Airlines.

To emphasize the romance of the Orient, Thai’s air hostesses began wearing traditional Thai silk costumes. Western airlines had been known to criticize their Asian counterparts for exploitation of their hostesses, who, it was charged, were required to maintain a submissive role—traditional in some Asian cultures—in order to offer what the airline perceived as first-rate cabin service. Although space limitations in cabins prohibited traditional costumes by the 1990s, by which time hostesses had switched to more comfortable two-piece silk uniforms, the philosophy persisted. In October 1991 airline president Kaset Roja-nanil announced a change in hiring policy at the airline: an applicant’s physical beauty would be weighed before her educational qualifications. “Intelligent women tend not to be good-looking,” he noted, according to AsiaWeek. Kaset, also a military general and member of the junta then ruling Thailand, maintained that applicants should be screened “the way beauty pageant judging panels select contestants.”

Beginning in the late 1960s, Thai also benefited greatly from Asians increasingly traveling to the West. Despite the twin oil shocks of the 1970s, the number of Asians traveling to the West grew by an average of 17 percent a year during the decade—the airline carried 1.31 million passengers to 26 destinations in 1976 alone. By the mid-1970s, Thai’s staff had grown to 4,631, making the airline one of the nation’s largest employers. Vacancies for cabin hostesses and stewards routinely elicited thousands of inquiries. The 1981-82 world recession, however, had a dampening effect, bringing growth in passenger numbers down to 10 percent during those years. Passenger traffic to Asia was encouraged, though, by the success of James Clavell’s popular novel Shogun and the completion of the Tokyo Disneyland, which attracted six million visitors in its first six months of business, in 1981.

As a state-owned airline, Thai was also charged with flying the national flag and acting as an overseas ambassador for Thailand. This included sponsoring leading Thai artists appearing overseas, including musicians and classical dance troupes. Beginning in the 1970s, the growing airline also began supporting community efforts in the region. In 1979, for example, the airline initiated the Asian SAE Write Awards to promote Asian literature.

Aside from establishing international goodwill, these efforts sent a message to Thai competitors that the airline would pursue every avenue to establish dominance in the region. American airlines, like Northwest Orient, Pan American, and United, also expanded into Asia in the 1970s. Regional rivals Singapore Airlines, Philippine Airlines, and Japan Air Lines Co., which were government-owned, were also competing ferociously for market share in the key corridor between London and Sydney and on the Bangkok-Tokyo route.

Modernizing for the 1980s

In 1975 the national carrier made a bid toward modernization when it changed its quaint logo—a dancer in classical dress silhouetted behind lettering that spelled out the word “Thai”—to a distinctive purple and gold symbol approximating the graceful curves of an orchid.

Part of Thai’s success has always been attributed to the quality of its in-flight meals. By the early 1990s Thai’s flight kitchen at Don Maung Airport catered to 44 international airlines stopping over in Bangkok. In 1980 the airline established Air Lanka Catering Services Ltd., a 50-50 joint venture with Air Lanka to develop and operate a modern flight kitchen in Colombo, Sri Lanka. A decade later, Thai established Phuket Air Catering Co. Ltd., in which it held a 25 percent stake in partnership with the Phuket Pearl Hotel. The facility served 2,500 meals daily to flights moving through Phuket, in southern Thailand.

Company Perspectives:

Thai’s distinctive livery incorporates the colours associated with Thailand: the shining gold found in its temples, the magenta of its shimmering silks and the rich purples of its orchids. Our logo has been likened to an orchid but is simply a symbol meant to convey the essence of Thailand; its soft, curving lines combined with a speed line to suggest effortless flight. Similarly, our slogan “Smooth as Silk” derives from the texture and luxurious look of Thailand’s most famous creation: silk. It suggests both the way we fly our aircraft and the way we hope passengers feel when they fly with us, wrapped in comfort and pleasure.

Another extension of the airline was its supply of aviation fuel. In 1983 Thai established Bangkok Aviation Fuel Services Ltd. (BAFS) at Don Maung Airport. The carrier took a 32 percent stake of BAFS, which operated from a depot near the airport housing storage tanks containing 51 million liters of jet fuel. Underground pipes from the depot to aircraft parking bays carried the fuel to customers. As an offshoot of BAFS, Thai in 1990 launched Fuel Pipeline Transportation Ltd. in partnership with Thailand’s state-owned oil enterprises and various multinational oil companies. The aim of the new company was to improve fuel distribution by constructing a 68-kilometer pipeline from the oil refinery and depot at Bangchak and Chong-nonsee, in Bangkok’s dock area, to Don Maung Airport.

Thai also made inroads into the hotel business. In 1983 it obtained a 24 percent stake in the 775-room Royal Orchid K Hotel in central Bangkok. It also maintained a 40 percent stake in the 440-room Bangkok Airport Hotel, adjacent to Don Maung Airport.

Cargo was also another key element of the airline’s business. In 1985 the carrier built a 14-acre “Cargo Village,” in which goods scheduled for shipment to Europe, North America, and other parts of Asia were stored. Thai could carry up to 700 tons of cargo on flights to any of its 13 European destinations. The airline boasted that fresh orchids and popular tropical fruits like rambutan and pineapple could be delivered to Don Maung Airport late in the afternoon and appear on store shelves in London or Paris the following afternoon. Cargo growth significantly fueled revenue for Thai. The airline recorded revenues of B 12.6 million in 1980-81 and B 23.8 million in 1985-86 before posting a record revenue base of B 51.9 million in 1990-91.

Products for export, including textiles, VCRs, fashion products, and high-tech manufacturing tools—were also being increasingly shipped to global destinations, and promoted, by Thai Airway. The importance of such flights grew as companies worldwide adopted just-in-time inventory control.

Military Influence on the 1990s

In 1988 Chatichai Choonhavan’s new administration installed air force generals at the top posts of the airline. This ushered in a period of corruption and diminished international stature that would be widely criticized in Western media. In April, Thai International merged with Thai Airways, its onetime corporate parent.

By 1990 Thai was carrying just over 8.1 million passengers yearly and counted a staff of 18,272. The carrier’s pilots flew 143,032 hours that year on 60 jet aircraft. The fleet included four 747-400 jets and six 747-200 jets. Thai Airways posted a profit of $139 million in fiscal 1990; however, the Far Eastern Economic Review reported that creative accounting disguised what was in fact the company’s first loss in 20 years.

With an eye toward future growth, Bangkok planned to build a new airport at Don Maung scheduled to open in 2000, when more than 20 million travelers were expected. This venture called for massive investment, including purchasing 27 new jet aircraft between 1992 and 1996. Thai’s staff in this period was expected to increase from roughly 18,000 to 30,000 employees. To fund this expansion, the airline announced in January 1992 that it would list 20 percent ownership of the company on the Bangkok Stock Exchange. By turning to the private sector, Thai Airways International signaled a move away from full state control—a direction mirrored in the early 1990s across the airline industry as alliances and mergers between competing airlines proliferated.

In testament to its growing importance in Thai society, the airline began hosting a number of national events. In 1991 these included Bangkok’s bicentennial celebrations, Visit Thailand Year, and Arts & Crafts Year. The following year saw Thai host Thailand’s National Heritage Year. Among the sports events the company began sponsoring annually were the Professional Golf Association’s Thai Open and Ladies’ Open. The airline also continued to host a number of international tennis competitions.

In 1991, a military coup overthrew Chatichai Choonhavan. Military-sponsored candidates won their elections, and students were shot at subsequent pro-democracy protests in Bangkok in May. After five years of Thai Air Force control, a mostly civilian board was appointed in September 1992. Finance Ministry official Pandit Bunyapana replaced Gun Pimarnthip as chairman, while Chatrachai Bunyananta replaced as president another air force general, Air Chief Marshal Veera Kitchathorn, who had been implicated in the May killings. Chatrachai was a 20-year company veteran who had worked his way up the ranks and was credited with much of the airline’s success in the mid-1980s. The new leadership effected a modest turnaround nearly immediately.

Chatrachai’s work involved a complete restructuring in order to compete with the megacarriers venturing into Thai airspace. The airline needed to standardize its fleet; 18 different types were too many to fly efficiently. Dispatch reliability proved a persistent problem due to the lack of cash for buying suitable equipment. The company’s planes were typically only operated four or five hours per day, less than half the rates achieved by other airlines.

Some lackluster international routes, such as Seattle and Toronto, were dropped. The domestic market proved most unprofitable, thanks to impossibly low government-mandated fares. Years of nepotism had also helped swell the company’s roster to 20,000, providing another target for cutbacks.

A Future As a Public Company

The company launched a successful initial public offering in early 1993. Approximately ten percent of the company’s ownership became private. Plans to offer another tenth of the shares were soon put into place, but they were quashed by profits that did not meet expectations. In fact, in July 1996, the government canceled the airline’s reflecting program. Still, management persisted in lobbying for ways to reduce government ownership of the carrier. Nevertheless, upon the resignation of Amaret Sila-on in 1995, Air Chief Marshal Siripong Thongyai assumed command of the airline, which seemed to reverse the company’s progression into professional management.

Thai International was again accepting aircraft deliveries in late 1997, necessitating more capital investments. The company finally became 100 percent publicly traded. In order to escape the crowded and expensive Bangkok International Airport, the company built a $120 maintenance facility, the Thai Aircraft Engineering Service Co. Ltd., in the Gulf of Thailand.

After weathering coups, government meddling, and the other, less exotic factors that make managing airlines a challenge, Thai International managed to regain a measure of international prestige. An agreement between Thai International and Lufthansa developed into the powerful Star Alliance, which also included Air Canada, United Airlines, and SAS. In November 1998 the company was named one of the world’s top ten airlines by Conde Nast. It was not immune to tragedy, however, as one of the carrier’s Airbus 310s crashed one month later. (One of these same models had crashed in Thailand in July 1992.) Singapore Airlines and Lufthansa planned to buy shares of Thai Airways in 1999, in order to counter the overtures of British Airways and Quantas into the Asian market.

Principal Subsidiaries

Bangkok Aviation Fuel Services Ltd. (30.7%); Phuket Air Catering Co. Ltd. (30%); Royal Orchid Hotel (Thailand) Ltd. (24%); Amadeus Marketing SA (8%); Aeronautical Radio of Thailand Ltd. (4%); Air Lanka Catering Services Ltd. (Sri Lanka; 40%).