Airlines in Thailand are struggling to cope with escalating jet fuel prices, which have surged dramatically, now constituting 60% of operational costs as of May, up from 30-35% previously. Anawat Leelawatwatana, Bangkok Airways’ senior vice-president for finance and accounting, revealed that in response to diminished demand and profitability, the airline has either canceled or reduced services on less profitable routes. For example, the Bangkok-Phnom Penh route has seen a reduction from three daily flights to just one, utilizing smaller ATR72-600 aircraft. Meanwhile, flights from Bangkok to Phuket have decreased from six to five daily, and Bangkok-Krabi has been cut from three to two flights per day.
Mr. Anawat indicated that hedging fuel accounted for approximately 25-26% of the airline’s operational fuel requirements for the latter three quarters of the year. Although Bangkok Airways managed to secure a hedged price of about US$80 per barrel—similar to pre-Gulf conflict levels—the recent spike to $160-170 per barrel is viewed as excessive. Due to this price increase, the airline finds that raising fuel surcharges and airfares is insufficient to cover the added costs.
In an attempt to adjust airfares according to demand, Bangkok Airways plans to expand its fleet with two additional ATR72-600 jets by the end of the year, along with one or two Airbus A319 or A320 aircraft, contingent on lease agreements. This expansion would bring the total fleet size to between 22 and 26 aircraft.
Thai AirAsia has also raised its average airfare for new bookings to 2,700 baht starting in April, as the first quarter’s average of 1,836 baht failed to offset rising jet fuel costs. The airline set its fuel prices for May at $200 per barrel, based on prices secured during the peak month of April, according to Siraphop Paphatthananan, senior manager for investor relations at Asia Aviation, which is a major shareholder of Thai AirAsia.
To align with anticipated demand in the second quarter, Thai AirAsia has cut seat capacity by 12% and may adjust flight frequencies or fares if fuel prices continue to climb or demand falls short. To counteract the volatility of oil prices, the airline has implemented cost management strategies, including fuel hedging at $150 per barrel, covering 15% of the fuel needed for the second quarter. Additionally, in collaboration with the Airlines Association of Thailand, Thai AirAsia has sought excise tax relief from the government.
Fuel prices are projected to remain between $150-170 per barrel, a notable rise from the $85-90 range prior to the war, prompting the airline to closely monitor prices. Mr. Siraphop noted that the ongoing conflict has adversely affected operational costs and diminished travel demand, with tourism being categorized as a non-essential activity. Consequently, Thai AirAsia has postponed the delivery of new aircraft from the end of this year to early next year, as it currently has excess seating capacity within its existing fleet of 62 aircraft, of which 55 were operational in the first quarter. He expressed optimism about returning to profitability during the high season, buoyed by higher airfares, stabilized energy costs, and improved demand.
Source: Bangkok Post
