Low-cost carriers have become a critical part of Thailand’s aviation expansion over the past two decades since the first low-cost operator, Thai AirAsia, was established 23 years ago, giving travellers more options for affordable air travel.
However, as air traffic grows across the country, the Thai market has been dominated by low-cost carriers originating in other countries, beginning with Malaysia’s AirAsia, followed by Indonesia’s Lion Air and Vietnam’s Vietjet.
Over the past decade, Nok Air was the only contender capable of capturing significant market share.
Intense competition from well-established foreign networks means no local airline has been able to compete with AirAsia, Lion Air and Vietjet, and industry analysts acknowledge there is little chance of a Thai low-cost carrier being developed.
GOVERNMENT SUPPORT
“Low-cost aviation is a boom-and-bust business. It can suddenly make you extremely wealthy or drive you into bankruptcy within a very short period of time. We witnessed that from the post-pandemic surge driven by pent-up demand to the severe financial losses caused by soaring fuel prices now,” said Patee Sarasin, chief executive of Really Cool Airlines and former chief executive at Nok Air.
He said he believes governments typically play a critical role in supporting the aviation sector, which is essential for airlines to sustain their businesses during crises.
“Low-cost aviation is highly volatile and can burn through cash to some extent, which makes large investors in Thailand reluctant to get involved. We also lack experts who can successfully navigate this business,” said Mr Patee.
Vietjet and Lion Air have benefited from strong connections and support from their respective governments, which has helped them rapidly expand their networks both domestically and internationally, he said.
Rather than directly inject funds to beef up liquidity, support refers to financial assistance such as loans from state-backed financial institutions, bank guarantees and regulations that enable these airlines to grow, said Mr Patee.
“We have witnessed cases where, especially during crises or periods of intense market competition, the role of governments could be a decisive factor for some airlines. The recent collapse of Spirit Airlines, an ultra-low-cost carrier in the US, stemmed in part from a lack of financial support from the government,” he said.
As the low-cost aviation sector in Thailand has matured over the past decade, Mr Patee said it may no longer be feasible for newcomers to enter the market and compete with established airlines.
In terms of operation, low-cost carriers offer similar services and have much in common, such as aircraft types and route networks, he noted.
RISKY BUSINESS
Adith Chairattananon, honorary secretary-general of the Association of Thai Travel Agents, agreed that Thailand lacks investors who have both the expertise and the funds to establish low-cost carriers with extensive networks, especially those who can accept losses incurred during volatile tourism conditions, which Thailand has experienced several times in the past.
“There are definitely several major investors or large families with enormous funds that are capable of running a low-cost airline, but they view this business as high-risk and highly volatile. As a result, they have turned their backs on the aviation industry and invested in other types of tourism-related businesses instead, such as hotels and resorts,” said Mr Adith.
For instance, one of the wealthiest families in Thailand, the Sirivadhanabhakdi family, has dozens of hotels in its portfolio and is still keen to expand through Asset World Corp and Frasers Property, he noted.
Such families can invest in an airline without putting pressure on their finances, but the business is unattractive to them because of instability, said Mr Adith.
In the past, an unsuccessful venture in the low-cost airline sector involved King Power, which bought 39% of Thai AirAsia in 2016, then sold its stake back to Tassapon Bijleveld the next year, who was then chief executive of the airline.
The Thai tourism market is lucrative, as evidenced by consistent airport expansions and growing profits for airport operator Airports of Thailand.
In addition, foreign airline groups that have established companies in Thailand have been able to expand during flourishing tourism periods.
“The Thai market consistently attracts foreign airlines, as we never lack domestic or international travel demand. In terms of regulations, there should be no issues as registrations of new airlines still consistently occur,” said Mr Adith.
“Yet nobody wants to invest on a large scale to become a leading low-cost airline and compete with foreign brands.”
Like other company registrations, an airline is restricted to foreign ownership of no more than 49%. Even though most low-cost carriers in Thailand are legally recognised as Thai businesses, he said there is still a difference from having a fully Thai-owned low-cost airline, resulting in lost opportunities, particularly when the government wants to stimulate the market and requires close cooperation.
“Bangkok Airways is a public company that has managed its business very well in the full-service segment. Why can’t we have a similar case among low-cost carriers?” Mr Adith said.
To make Thai-owned airlines more competitive, the government need not help to establish them, but it should help them expand or deal with impacts during tough times, such as assisting with fleet sourcing when facing aircraft shortages, he noted.
TOO LATE IN THE GAME
An airline executive who requested anonymity said it is too late for a new low-cost carrier to emerge in Thailand because securing favourable slots at major airports has become extremely difficult, given that the three major players already occupy most of them.
Moreover, the country has already passed the stage when there was ample room for competition.
When Thai AirAsia was established in 2003, Thailand had no low-cost carriers and internet penetration was only 19%, meaning there was significant room for growth as this business model requires independent bookings rather than using travel agents.
“Thailand not having a Thai fully-owned low-cost carrier is not due to regulations. Rather, the business is viewed as a high-risk, high-return venture, so few investors are willing to enter the market, allowing foreign airline groups to gradually capture market share,” the source said.
The cost of establishing an airline is substantial, requiring at least 400 million baht in registered capital and a minimum of two aircraft to begin operations.
Other core costs are also expensive, particularly aircraft maintenance and the recruitment of pilots and maintenance technicians, which require costly training, noted the executive.
Nok Air, which was partly funded by the government, might have been well-positioned for expansion in the past, banking on support such as access to the same ground-handling services as Thai Airways, noted the executive.
However, funding alone proved insufficient as the business ultimately required a high level of expertise to navigate numerous crises.
“In the future, there may be local investors interested in entering this market, but the main challenge at present is a shortage of aircraft,” the source said.
As a result, the most viable options for airline investors in Thailand have been limited to charter flight operations, where overseas partners such as Chinese tour companies cooperate in establishing airlines to serve their tour groups, or potentially use Thailand-based airlines as their nominees.
PASSENGER BENEFITS
Sarun Benjanirat, deputy director of the Civil Aviation Authority of Thailand, said it is a missed opportunity for Thailand to have an absence of any wholly-owned low-cost carriers.
However, in some respects the intense competition benefits consumers as they have a wider range of travel options than those available in neighbouring countries.
Compared with other nations in Southeast Asia, Thailand has more players in the aviation industry. He said the total number of airlines holding an air operating licence is 35, of which seven are major carriers, with five of these low-cost carriers.
Mr Sarun said the abundance of services has made it difficult for new entrants to secure both operational space at airports and market share.
Moreover, intense competition in the aviation market is no longer limited to low-cost carriers, as fares on some routes offered by full-service airlines and low-cost airlines are almost identical, meaning competition now extends across all airline segments, he noted.
“The competition in Thailand is like having seven big fish in the same pond, which makes it quite difficult for them to grow, unlike in other countries that have fewer airlines,” Mr Sarun said.
Unless new airlines adopt a different strategy, such as shifting their hubs from Bangkok to other provinces, it may be difficult to establish and sustain a business amid such intense competition, he said.