BANGKOK Thai Airways International Pcl may set up a new budget carrier to tap strong demand in the regional no-frills sector and the group is on track to achieve its net profit target this year after a strong first quarter, its president said on Friday.
The Thai flag carrier, facing increasing regional competition from bigger rivals like Singapore Airlines (SIAL.SI) and Cathay Pacific Airways (0293.HK), has reduced flights on some loss-making routes in Europe and focused on profitable destinations in Asia.
"We are joining with Nok Air to study a new ultra-low-cost airline," the airline's president, Piyasvasti Amranand, told Reuters in an interview, referring to its 49-percent-owned budget airline unit. "Nok Air will focus on domestic routes and we need another one to tap strong demand from this sector."
Thai Airways (THAI.BK) also aims to launch a new mid-range airline called Thai Smile on July 7, as part of a revamp after years of losing market share in Asia, where other airlines have benefited from expanding middle classes, fast economic growth and the liberalisation of Southeast Asian air policies.
Last year, the airline terminated plans for a joint venture budget airline with Singapore's Tiger Airways Holdings Ltd TAHL.SI after it failed to secure approval from the Thai government. Thai Air has a market value of $1.7 billion and is 51 percent-owned by Thailand's Finance Ministry.
Rising passenger numbers and yields plus cost controls helped the airline make a January-March net profit of 3.6 billion baht, up almost 500 percent from a year earlier and compared to a loss of 5.4 billion baht in the fourth quarter.
"We are confident we will achieve our profit target of 6 billion baht this year after a strong performance in the first quarter," Piyasvasti, 59, a former energy minister, said.
Analysts are less bullish, expecting the airline to make a net profit in the range of 1.2-3.5 billion baht in 2012 after a loss of 10.2 billion baht in 2011.
The strong first quarter has prompted Thai Airways to delay the sale of a 3.5 billion baht bond, initially planned for June, to the end of 2012, Piyasvasti said.
He was not sure if the airline would make a profit in the second quarter, usually the low season for air traffic in Thailand, but expected good earnings in the third quarter.
Piyasvasti, who took the helm in October 2009 to overhaul the 50 year old carrier, said passenger yield - revenue from ticket price per passenger per kilometre - had improved in the second quarter as most of the low-price tickets sold in a promotional campaign late last year had now been used.
Cabin factor, the percentage of seats sold, was at 78 percent in April, the highest in five years, and at about 72 percent in the first five months of 2012, he said.
"The change in marketing strategy has boosted yield," he said, adding the airline used smaller planes to serve European routes, where the economic crisis would affect air travel, while demand from Asian routes was expected to rise 30 percent from last year.
The airline aimed to cut costs totalling 4 billion baht this year, or 2 percent of its expenses, and it has hedged about 80 percent of estimated fuel usage to offset the volatility of global oil prices, Piyasvasti said.
It had a hedging gain of about 1.3 billion baht in the first four months of this year, he said. Fuel accounts for about 40 percent of Thai Air's operating costs.
Thai Airways is on track to take delivery of three Airbus A380s in late 2012 and another three in 2013 and aims to expand its total fleet to 109 planes in the next seven years from 90 now, Piyasvasti said.
Thai Airways shares closed down 3.35 percent at a four-month low of 23.10 baht on Friday, while the broader index .SETI was 1.6 percent lower. The stock hit a nine-month high of 27.75 earlier this month.
(Editing by Alan Raybould and Matt Driskill)