Capacity Audacity in Asia: Carriers across the region, led by LCCs, have their feet firmly on the growth pedal

Jan 6 2014And you thought you’ve got problems?

Just be thankful you’re not Chokchai Panyayong. The new acting president of Thai Airways, whose predecessor resigned Dec. 20, starts his job with a list of challenges that even the chiefs of Air India or Alitalia wouldn’t envy.

In Bangkok, escalating political protests are threatening Thailand’s critical tourism industry, on which Thai Airways heavily depends. Already, tensions have grown severe enough for Singapore Airlines to have canceled some of its Bangkok flights through the end of February, according to the Straits Times.

The timing couldn’t be worse. The unrest comes just as the ambitious Lion Air enters the market with a new Thai subsidiary operating from Bangkok’s old (and more centrally located) Don Muang airport, which is now a low-cost carrier facility. Last month, Thai Lion began flying the busy Bangkok-Chiang Mai route within Thailand and from Bangkok to Kuala Lumpur and Jakarta in the near abroad as well.

But at least Lion is just contesting shorthaul routes, for now anyway. More worrisome for Thai Airways are the longhaul flights from Don Muang that AirAsia X is planning. The giant AirAsia group, which already has a large shorthaul Thai operation, won approval in October to bring its longhaul unit to the country this year. AirAsia X just ordered more A330s as well, with the range to fly between Bangkok and Europe, one of Thai’s most important markets, which happens to already be under pressure, not just from Europe’s economic downturn but also from low-fare flights that Norwegian recently launched.

The question Thai Airways inevitably had to answer, as so many other Asian legacy carriers are now being forced to answer, is whether to launch a competing low-fare unit as a counterattack. This would put pressure on the new rivals but simultaneously inject even more low-yield capacity into an increasingly saturated market—at a time, no less, when many of Asia’s economies are facing slower growth and foreign exchange volatility, and when weaker currencies in markets like Japan and Australia cast an ominous shadow over Asia’s tourism market. Thai Airways, alas, will take that chance, via its partly owned LCC subsidiary Nok Air, which will form a longhaul-minded joint venture with Scoot, the wholly owned longhaul LCC arm of Singapore Airlines. Thai Airways…

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