Thai Airways International completed its AOC (Air Operator’s Certificate) recertification this month in accordance with the standards set by the International Civil Aviation Organization. The Civil Aviation Authority of Thailand (CAAT) had to undergo a revision in safety standards in order to address shortcomings identified during a 2015 Significant Safety Concern (SSD) finding. Thai, along with eight other carriers (Thai AirAsia X, Nok Air, NokScoot, K-Mile Air, Thai Smile and Orient Thai Airlines) were impacted by this measure after the 2015 audit raised a number of aviation safety concerns.
Thailand has been downgraded to Category II status by the US Federal Aviation Administration. A Category II downgrade means that carriers registered in that particular country cannot add additional services to the U.S., either through extra frequencies, new cities or up-gauging fleet with more seats. They can only remove markets, down-gauge aircraft or decrease frequencies. They also cannot participate in codeshare agreements with U.S.-based carriers. India was downgraded to Category II restrictions in January 2014, and then restored back to Category I roughly a year later in spring 2015.
Thai canceled its Los Angeles service in October 2015, roughly around the period in which the ICAO had raised heightened concerns about Thailand’s aviation safety standards, and a Category II downgrade was imminent. Thai was a heavily loss-making carrier during this period, and its Los Angeles route was held on largely due to political reasons, rather than out of commercial needs.
However, Thai hinted in July 2016 that it was interested in resuming services to the United States once the Category II hurdles were cleared. The carrier stated that it would consider serving the U.S. market via San Francisco or Seattle this time around, rather than Los Angeles (which has been served both nonstop from its Bangkok hub, as well as via a transit point in Seoul and Osaka). It even served New York nonstop between 2005 and 2008.
The carrier has a varied fleet make-up, including Airbus A350-XWBs and 787-8 and 787-9s, which are ideal aircraft for long, thin routes. Despite this, it is prudent for Thai to not succumb to the temptation of resuming glamor routes. Even though its competitors in the ASEAN region, notably Singapore Airlines, have stated ambitions to either launch or grow nonstop services to the U.S. (SIA resumed nonstop service from San Francisco to Singapore in 2016), it is unwise for Thai to adopt a similar mentality.
Thailand is a huge inbound tourist market, but it is heavily saturated by low-cost competition, as well as the presence of fifth-freedom carriers from the Gulf and North Asia to provide viable nonstop connectivity from the U.S. to Bangkok. In order for an ultra-long haul flight like San Francisco or Seattle to Bangkok to work, it will need to rely on 1). a substantial local market 2). a high-yielding market willing to pay premium fares and 3). the right connecting hub model on both ends in order to support feed traffic.
Unfortunately, the business case for Thai Airways to fulfill such a mission is deficient in all three areas. The Los Angeles – Bangkok is essentially the only US – Thailand city pair that could provide enough local demand to fill a plane between the two nations on a nonstop basis. While Thai previously used fuel-inefficient Airbus A340-500s to fly between the two markets, even the 280-tonne maximum take-off weight version of the A350-900 would be tough to fill profitably. The Thai market, unlike Singapore, is price-sensitive and not high-yielding. European long-haul network carriers are struggling to serve markets like Bangkok on a profitable basis, especially with the low-cost carrier growth in Thailand. It is also very common to find round-trip fares in Economy for under $1,000 between the U.S. and Southeast Asia on Gulf and North Asian carriers.
Finally, Thai Airways does not have a very transparent connecting hub model in Bangkok for international to domestic traffic. Beyond VFR (visiting friends and relatives) traffic headed to Bangkok, a large portion of inbound tourists to Thailand are traveling onwards to beach resort or jungle destinations such as Chiang Mai, Phuket, Samui, etc, and while Thai supports many inbound international flights into Bangkok Suvarnabhumi International airport (BKK), most of its short-haul domestic flights operate out of Don Muang airport (DMX) on regional carrier Thai Smile or low-cost carrier Nok.
In summary, the reinstatement of Thai Airways to Category I status would be much better utilize to formulate stronger codeshare agreements with US carriers, such as United Airlines, rather than to pursue organic growth on its own metal. The prospects appear attractive on paper but are far too risky in practice. If Thai is motivated entirely by allure, then it would be a huge financial burden on a carrier that does not have a track record of maintaining a strong balance sheet. Furthermore, it has only recently come back into the black, and its network is still under attack from intensifying low-cost carrier and fifth-freedom carrier growth in its other long-haul markets. Although it is tempting, especially as regional competitors like Garuda Indonesia and Vietnam Airlines also hold ambitions to expand in the United States, Thai is in a better place by sitting this one out.
Although it is tempting, especially as regional competitors like Garuda Indonesia and Vietnam Airlines also hold ambitions to expand in the United States, Thai is in a better place by sitting this one out.