Could Thai Airways Be The Next Airline To Go Bankrupt? Airline In Crisis Says President

The last few years have been difficult for airlines. During such a strong period of growth for travel and the global economy, the question must be asked how so many airlines have gone bankrupt. Air Berlin, Jet Airways and Thomas Cook along with their aircraft division to name but a few.

The overriding reason is such stringent price competition in the sector. The dawn of low-cost carriers has meant that many full-service airlines are losing money on short-haul flights, and when competition in the long-haul sector becomes so price-sensitive, and privy to many external factors such as fuel costs and government intervention, there is little margin for error in the aviation sector.

I recently published an article in Forbes on how Norwegian could be the next airline to fail. The difference with Norwegian is that their brand has garnered such strong value in recent years that the likely course of action would be that they remain in operation but are taken over. The problem with Norwegian and many other airlines is one of debt. Even as Norwegian’s Q3 results looked like a marked improvement, the unsustainable debt pile is what contracts the often rapid growth that they have thrived off, and makes them even more vulnerable to small market movements. In trying to reduce their debt pile, raising more capital through debt is off the table, and with a decimated equity price, there is little place for airlines who hit turbulence to turn to in raising capital, except bankruptcy or a takeover.

Now, surprisingly, we have Thai Airways who are grappling with their survival. The president of the airline sent out a chilling message to staff recently. Sumeth Damrongchaitham said to airline executives that “today I want staff to be united to overcome the obstacles. Otherwise, the national airline must close down. There is still time for a solution, but there is not much time.”

Although the language of the message seems strong, it does seem to heed as more of an advance warning, rather than an imminent threat of insolvency. Low-cost airlines in South-East Asia have put the Thai national carrier under serious pressure on many ASEAN routes and Sumeth doubles down by remarking “Thai really is in a crisis…everyone will die if the vessel sinks.”

Thai is aiming to cut salaries of managerial staff and Sumeth said that there will be no other rewards for staff because “the top prize is the survival of the company.” Soon after the remarks the Chairman of the airline, Ekniti Nitithanprapas, resigned, following three other executives’ recent resignations without explanation.

Ultimately, politics has weighed on Thai in recent years, but despite a $220 million loss for the first half of 2019, the airline will ultimately likely survive due to its political connection and government ownership.

Thai is seen as a national symbol of tourism and even in tough times, most analysts would argue that the government will support the survival of the airline.

These recent warnings from Thai Airways seem to actually be just that; stark visibility of how the carrier needs to trim back costs to compete in the ever-evolving Asian market. The next few years may continue to see more short-haul mainline routes being transferred to Thai’s low-cost subsidiary, Thai Smile, however, ultimately, the airline should and will survive.