@thai Air Final!!
This document was uploaded by user and they confirmed that they have the permission to share it. If you are author or own the copyright of this book, please report to us by using this DMCA report form. Report DMCA
Overview
Download & View @thai Air Final!! as PDF for free.
More details
- Words: 2,263
- Pages: 62
Thai Airways International Presented by
Pantharee S Chananun P Thanita C Duangnapar R
Agenda • • • • • • •
Company Profile Situation Analysis Issue Identification Recommendation Financial Justification Key Success Factor Conclusions
Company Profile • • •
•
Thailand’s Flagship Airline Established in the year 1960 as an IJV between Thai Airways and SAS Government owned the majority shares of 93%
Revenue
Passengers – 79% Cargo – 23% Mail and Others – 6%
Kanok Abhiradee President, Thai Airways
Situation Analysis External Factors
After operating for 43 years… Airline
Country
#Passengers(000)
3
Southwest
USA
74,787
4
United Airlines
USA
66,100
5
Japan Airline
Japan
58,241
6
Northwest
USA
51,975
7
Lufthansa
Germany
45,400
8
Air France
France
43,700
9
All Nippon
Japan
42,251
10
US Airways
23
Thai Airways
24
China Southern
China
15,564
25
Malaysia Airlines
• 138 Years of Airlines Profit American USA 88,241 rd • 2Currently Ranked 23 USA biggest airlines Delta Air 84,245 Worldwide
• Global Instability • 9/11 • Sars • Iraq-US War
• Unexpected Rise in Fuel Price • Local Government Deregulation: Emergence of Lowcost Airlines
• Price and Cost USA 41,263 Pressure Thailand 17,301 • Intense Malaysia Competition 15,144
Route to Success Current position
Perceived Mediocre Player in the International Airline industry with the Net Profit of Bht 12,000 Mil.
Ultimate Goal To Triple Profitability and become Asian Leading Airline with the Net Profit of Bht 36,000 Mil. Bht within the next 5 years
Issues and Objectives Current position Perceived Mediocre Player in the International Airline industry with the Net Profit of 12,000Mil. Bht
Inefficient in Operation
Ultimate Goal To Triple profitability and become Asian Leading Airline with the Net Profit of 36,000 Mil Bht within the Next 5 years
5% Increase in Gross Margin within the Period of 3 Years
Losing Competitive Edge
To Reclaim the World Premium Position in Customer Perception
Rising Opportunity of Low-cost Airline
To Become the Leading Low-cost Domestic Airline within 3 Years
Issue 1 : Inefficient in operation Due to External Factors
Due to Internal Factors
Oil
HRM
Interest Rate
Routing
Exchange Rate
Recommendation 1: COST Saving Strategy Issue 1 : Inefficient in operation Due to External Factors
Oil Interest Rate Exchange Rate
• 100% Oil Hedging • Pool Purchasing with Star Alliance Members • Interest Rate Swap • Decrease fixed rate debt portion from 40% to 50% • Better Currency Matching between Cash Inflow and Cash Outflow from Operations and Debts
Implications: Efficient Operations and Long-term Stability
Recommendation 1: COST Saving Strategy Issue 1 : Inefficient in operation Due to Internal Factors HRM
“Do More with Less” Program • Slow down Recruitment Rate • Job Rotation Program • Restructuring : Departments Business Units Route Rationalization
Routing
• Unprofitable Routes • Route Elimination • Route Frequency Reduction • Attractive Market Destination • Route Selection
Recommendation 1: COST Saving Strategy Issue 1 : Inefficient in operation Due to Internal Factors Route Rationalization
Routing
• Unprofitable Routes • Route Elimination • Route Frequency Reduction • Attractive Market Destination • Route Selection Route Selection Criteria • GDP • Government Liberalization • Travel Shares
Recommendation 2 : Revival Strategy Issue 2 : Losing Competitive Edge • 5 star 3 star • Highly Competitive Environment
Revival Strategy
Be PREMIUM
Outcome: Service Enhancement 5-Star standard •service • Aircraft Interior On-board Service with Thai development program Charm through emphasis of Attract and Retain Customers • On-Board Entertainment intensive cabin crew training Increase Customer Loyalty and Facility Improvement “Tuning ‘Thai’ness into and Innovation Greater Sustainable Revenue Excellence”
Redesign Product Offering
First Choice Carrier with the Touches of Thai
Recommendation 3 : Opportunity Capitalization Issue 3 : Emerging Opportunity of Low cost Airlines Capitalize on the opportunity
Low Cost Airline
Simple product
Positioning Low and Target Operating Cost
Fleet
Standardization
Number of Cabin Crew
Minimized
Sales and Reservation policy
Direct sale call center/ Internet
Turn around times
High
Recommendation 3 : Opportunity Capitalization Issue 3 : Emerging Opportunity of Low cost Airlines Capitalize on the opportunity
Low Cost Airline
Positioning
Cheap, Fast, and Reliable Simple product
Positioning Low and Target Operating Cost
Target Market
•Domestic •Price-sensitive •Time-Conscious
“Khum Air”
Recommendation 3 : Opportunity Capitalization Issue 3 : Emerging Opportunity of Low cost Airlines Capitalize on the opportunity
Low Cost Airline
Simple product
Positioning
Low Operating Cost
• Simple Fare Structure • Simple Reservation • No seat assignments • No in-flight Entertainment • Short-term: Domestic • Long-term: Regional
Recommendation 3: Opportunity Capitalization Issue 3 : Emerging Opportunity of Low cost Airlines Low Cost Airline
Capitalize on the opportunity
Simple product
Positioning
Low Operating Cost
To become the leading low-cost domestic airline within 3 years
Timeline Activities Cost Saving Strategy
2003
2004
2005
2006
2007
Hedging Negotiation
• Commodity Derivative • Rationalization
In Contract
Revival Strategy • Customer Study and Research • Product and Service Enhancement • Communicate the message Opportunity Capitalization • Recruitment and Research •Training and Marketing
Product DevelopmentTraining and Monitoring Program
Financial Justification
Internally Generated Fund The Touches of Thais
Low Cost Airline
NPV = 317,605,370,487
Financial Justification 2004 Passenger Sales Growth Total Revenue Growth
2005
2006
2007
2008
11%
15%
15.5%
15.5%
15.5%
9.86%
13.16%
13.94%
14.21%
14.36%
Million in Baht
TOTAL REVENUE PROJECTION 300,000 250,000 200,000 150,000 100,000 50,000 0 2004F
2005F
2006F
2007F
Year Ending September
2008F
Financial Justification 2004 Passenger Sales Growth Total Revenue Growth
2005
2006
2007
2008
11%
15%
15.5%
15.5%
15.5%
9.86%
13.16%
13.94%
14.21%
14.36%
Million in Baht
NET INCOME PROJECTION 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 -5,000
2004
2005
2006
2007
Year Ending September
2008
Financial Justification
Million in Baht
Free Cash Flows (Expected Case) 50000 45000 40000 35000 30000 25000 20000 15000 10000 5000 0 2003/2004
2004/2005
2005/2006
2006/2007
Year Ending September
2007/2008
Financial Justification Free Cash Flows (Best Case) 60000 Million in Baht
50000 40000 30000 20000 10000 0 2003/2004
2004/2005
2005/2006
2006/2007
Year Ending September
2007/2008
Financial Justification
Million in Baht
Free Cash Flows (Worst Case) $45,000 $40,000 $35,000 $30,000 $25,000 $20,000 $15,000 $10,000 $5,000 $0 2003/2004
2004/2005
2005/2006
2006/2007
Year Ending September
2007/2008
Financial Justification
Cases
NPVs
Expected Case
317,605,370,497
Best Case
363,025,101,660
Worst Case
272,185,639,313
Key Success Factor
Operational Efficiency
Route Selection
Premium Services
Conclusion
Inefficient in Operation
Cost Saving Strategy • Risk Mitigation
3% Increase in Gross Margin within the Period of 3 Years
Losing Competitive Edge
• “Do More with Less” Revival Strategy • Route Rationalization • be Premium
To Reclaim the World Premium Position in Customer Perception
Rising Opportunity of Low-cost Airline
• First Choice Carrier through the Touches of “Khum” Air Thai • Simple Product
To Become the Leading Low-cost Domestic Airline within 3 Years
• Clear Positioning • Genuinely Low Cost
To Triple Profitability and Become Asian Leading Airline with the Net Profit of Bht 36,000 Mil. within the next 5 years
Thank you
Slide Navigation Company Profile Situation Analysis Current & Ultimate goal Issues and Objectives Recommendation – Cost Saving strategy – Revival Strategy – Opportunity capitalization
Financial Justification – – – – – – –
Cost Estimation Revenue Projection Net Income Projection Expected cash flow Best Case cash flow Worse case free cash flow Summary
Time Line Key Success factors Conclusion
Back up Navigation • • • • • • • • • •
• efficiency? How does Job Rotation increase Why Hedge? Domestic Route Elimination • Employee training program for the • Create awareness for the touches International Route Selection/Elimination • Why not lay off? Route Selection Criteria • Low cost air line employees SWOT Analysis • Low cost Cannibalization Additional info for Khum Air • Premium in what aspect Khum Air Low costs Tactics Pros & Con for Low cost air line• Marketing Campaign for Low cost Cargo Service Capitalize on Cargo: Sector Growth
Financial Back Up • • • • • • • • • •
Ratio Analysis Assumptions (historical) Assumptions (forecast) Income Statement Balance Sheet (1) Balance Sheet (2) NPV Calculation (Expected Case) Rational for Internal Financing Assumption Rationale behind the high leap from 2004-2005
How does Job Rotation increase efficiency? • Job Rotating within the department • Enhances Individual Skills and Expertise • Increase Flexibility • Allows Productivity when there’re less people • Increase Efficiency
Domestic Route Elimination Elimination Based on: Route Profitability Choices: MaeHongSon Phisanulok Phuket Trang HatYai
International Route Selection/Elimination Genev a
Xi An Bahrain
New Dehli
Nan JIng
Abu Delhi
Elimination Based on: Route Profitability
Rio De Jainairo
Choices:
Source: Thai Airway international
•Geneva •Paris (Daylight) •Abu DhabiBahrain
Route Selection Criteria Country/City with high GDP
Country/City
GDP
Xi An
USD 34.87 M
Nan Jing
USD 23.9 M
Bahrain
5.5% growth
Kuwait
USD 44,770M
New Dehli
USD 104.2 M
Rio De Janeiro
USD 55.255 M
Strength • Most popular airline loyalty program in Asia • Successful alliance in the Star Alliance • Strong technical service, air craft maintenance and engineering 99.36% of dispatch reliability •High quality administration system
Weakness • Labor Union •Rumor of corruption in the Cargo field. •Government as majority stake – Politics Involved High leverage
Opportunity • Healthy long-tern demand in commercial plane Industry deregulation • Increase in world-wide economic growth • Cargo traffic growth • Passenger traffic growth • Large growth of Air Traffic in Northeast Asia, South America and Europe • Increasing trend in short-haul market and nonstop service
Threat • The fear of flying due to SARS and the war in Iraq • The potential increase in oil price • Demand closely related to the GDP and Tourist Arrival to Thailand • Increasing competitive environment -Cathay Pacific -Singapore Airline -Lufthansa -Emirates
Additional info for Khum Air
• Differentiation – Emphasis on easy brand recognition, affordability, and fun – Multiple distribution channels and ease of payment
• Destination – Start in 3 routes Phuket, Chiangmai, and Udonthani – Regional expansion within 3 years expand to Hong Kong and Singapore
Khum Air Low costs Tactics • • • • •
New ticket sales channels Short turnaround time Non-refundable tickets No frill services with purchasing options Purchase of Utilized Airplanes
Pros & Con for Low cost air line Cons • Intense competitions outside Thailand • Possibility of Price war • Statically only 50% of new low cost air line survive
Why Pursuing Low-cost Idea? • First Mover Advantage • Allows Thai airway to focus on quality not Price! • Know-how knowledge on airline operations • Untapped Opportunities to serve price and time conscious travelers • Supported by strong marketing strategy and strategy to be “genuinely” low cost
Why Hedge? • Fuel cost is a major expense for the company • Represent 30.5 % of total operating expense • An increase in one US dollar = increase by approximately 17 million US dollars annually. • Therefore Thai’s need to hedge in order to save cost
Employee training program for the touch of Thai program
• Training – Emphasis on the Thai touches • Thai Manner • Hospitality • Smile
– With the focus of Thai Charms and CONSISTENCY
• Monitoring – Extensive customer satisfaction survey
• Evaluation – Set performance bar for every employees
Create awareness for the touches of Thai
• Different Marketing Channel – Media • • • • •
TV Radio Internet Billboard In-flight information
Why not lay off? • Against Thai norm • Government majority stake • Labor Union
Low cost air line employees • Transferred key manager from Thai Airway – Through the uses of incentive • Same salary + Share offer
• Number of employee for Khum Air = 1% of Thai Airway
Low cost Cannibalization • Yes, there will be cannibalization, but it can be minimize through – – – –
Different position Different Product offering Distinct customer expectation Different target market
Premium in what aspect •
Product – Upgrade and modernize aircraft – Improve First and Business class seat and on board entertainment – Offer greater value
•
Service – – – –
Offering grater convenient on ground service Improve information technology Extra comfort, safety and professinalism Catering service – best testing, high quality food
Marketing Campaign for Low cost
• 1st Target: First time flyer – Key message: Everyone can fly – Communication channel • Mass marketing – TV, Billboard, Radio, Magazine
• 2nd Target: Frequent flyer – Key message: Value for Money – Direct Marketing • Target Non-active customer (Thai past customers) – Criteria been non-active for the more than 3 years
Cargo Service Yes, Lucrative Market especially in Asia • Air cargo has expanded about 7.1 percent annually 2.4 times faster than the rate of GDP • World Wide Air freight expect to be grow more than triple over the next 20 years increasing from 131.1 billion RTKs in 2001 to 461.1 billion RTK by 2021 • World Air Cargo will be expanding at 6.4 percent for the next 2 decades
Capitalize on Cargo: Sector Growth •
Increasing security requirement – Shipping insurance
•
Improve service – E-procurement online ordering – Increasing demand and efficiency through online transportation capacity exchanges
•
Increase the alternatives – Variety of product shipped
•
Increase number of fleet – Conversion : wide-body freighter: from modified passenger airplane (Rationale: cost advantage- profitability extremely sensitive to airplane size, market: not premium, shorter ranger services)
Ratio Analysis
Assumptions (historical)
Assumptions (forecast)
Income Statement
Balance Sheet (1)
Balance Sheet (2)
NPV Calculation (Expected Case)
Rational for Internal Financing
Assumption
Million of Baht
Rationale behind the high leap from 2004-2005 High New Projects Starting Cost • On-board Facility Renovation • Airplanes as LCCs • Marketing Campaign • Initial Training
45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 -5,000
2004
2005
2006
2007
Year Ending September
2008
Pantharee S Chananun P Thanita C Duangnapar R
Agenda • • • • • • •
Company Profile Situation Analysis Issue Identification Recommendation Financial Justification Key Success Factor Conclusions
Company Profile • • •
•
Thailand’s Flagship Airline Established in the year 1960 as an IJV between Thai Airways and SAS Government owned the majority shares of 93%
Revenue
Passengers – 79% Cargo – 23% Mail and Others – 6%
Kanok Abhiradee President, Thai Airways
Situation Analysis External Factors
After operating for 43 years… Airline
Country
#Passengers(000)
3
Southwest
USA
74,787
4
United Airlines
USA
66,100
5
Japan Airline
Japan
58,241
6
Northwest
USA
51,975
7
Lufthansa
Germany
45,400
8
Air France
France
43,700
9
All Nippon
Japan
42,251
10
US Airways
23
Thai Airways
24
China Southern
China
15,564
25
Malaysia Airlines
• 138 Years of Airlines Profit American USA 88,241 rd • 2Currently Ranked 23 USA biggest airlines Delta Air 84,245 Worldwide
• Global Instability • 9/11 • Sars • Iraq-US War
• Unexpected Rise in Fuel Price • Local Government Deregulation: Emergence of Lowcost Airlines
• Price and Cost USA 41,263 Pressure Thailand 17,301 • Intense Malaysia Competition 15,144
Route to Success Current position
Perceived Mediocre Player in the International Airline industry with the Net Profit of Bht 12,000 Mil.
Ultimate Goal To Triple Profitability and become Asian Leading Airline with the Net Profit of Bht 36,000 Mil. Bht within the next 5 years
Issues and Objectives Current position Perceived Mediocre Player in the International Airline industry with the Net Profit of 12,000Mil. Bht
Inefficient in Operation
Ultimate Goal To Triple profitability and become Asian Leading Airline with the Net Profit of 36,000 Mil Bht within the Next 5 years
5% Increase in Gross Margin within the Period of 3 Years
Losing Competitive Edge
To Reclaim the World Premium Position in Customer Perception
Rising Opportunity of Low-cost Airline
To Become the Leading Low-cost Domestic Airline within 3 Years
Issue 1 : Inefficient in operation Due to External Factors
Due to Internal Factors
Oil
HRM
Interest Rate
Routing
Exchange Rate
Recommendation 1: COST Saving Strategy Issue 1 : Inefficient in operation Due to External Factors
Oil Interest Rate Exchange Rate
• 100% Oil Hedging • Pool Purchasing with Star Alliance Members • Interest Rate Swap • Decrease fixed rate debt portion from 40% to 50% • Better Currency Matching between Cash Inflow and Cash Outflow from Operations and Debts
Implications: Efficient Operations and Long-term Stability
Recommendation 1: COST Saving Strategy Issue 1 : Inefficient in operation Due to Internal Factors HRM
“Do More with Less” Program • Slow down Recruitment Rate • Job Rotation Program • Restructuring : Departments Business Units Route Rationalization
Routing
• Unprofitable Routes • Route Elimination • Route Frequency Reduction • Attractive Market Destination • Route Selection
Recommendation 1: COST Saving Strategy Issue 1 : Inefficient in operation Due to Internal Factors Route Rationalization
Routing
• Unprofitable Routes • Route Elimination • Route Frequency Reduction • Attractive Market Destination • Route Selection Route Selection Criteria • GDP • Government Liberalization • Travel Shares
Recommendation 2 : Revival Strategy Issue 2 : Losing Competitive Edge • 5 star 3 star • Highly Competitive Environment
Revival Strategy
Be PREMIUM
Outcome: Service Enhancement 5-Star standard •service • Aircraft Interior On-board Service with Thai development program Charm through emphasis of Attract and Retain Customers • On-Board Entertainment intensive cabin crew training Increase Customer Loyalty and Facility Improvement “Tuning ‘Thai’ness into and Innovation Greater Sustainable Revenue Excellence”
Redesign Product Offering
First Choice Carrier with the Touches of Thai
Recommendation 3 : Opportunity Capitalization Issue 3 : Emerging Opportunity of Low cost Airlines Capitalize on the opportunity
Low Cost Airline
Simple product
Positioning Low and Target Operating Cost
Fleet
Standardization
Number of Cabin Crew
Minimized
Sales and Reservation policy
Direct sale call center/ Internet
Turn around times
High
Recommendation 3 : Opportunity Capitalization Issue 3 : Emerging Opportunity of Low cost Airlines Capitalize on the opportunity
Low Cost Airline
Positioning
Cheap, Fast, and Reliable Simple product
Positioning Low and Target Operating Cost
Target Market
•Domestic •Price-sensitive •Time-Conscious
“Khum Air”
Recommendation 3 : Opportunity Capitalization Issue 3 : Emerging Opportunity of Low cost Airlines Capitalize on the opportunity
Low Cost Airline
Simple product
Positioning
Low Operating Cost
• Simple Fare Structure • Simple Reservation • No seat assignments • No in-flight Entertainment • Short-term: Domestic • Long-term: Regional
Recommendation 3: Opportunity Capitalization Issue 3 : Emerging Opportunity of Low cost Airlines Low Cost Airline
Capitalize on the opportunity
Simple product
Positioning
Low Operating Cost
To become the leading low-cost domestic airline within 3 years
Timeline Activities Cost Saving Strategy
2003
2004
2005
2006
2007
Hedging Negotiation
• Commodity Derivative • Rationalization
In Contract
Revival Strategy • Customer Study and Research • Product and Service Enhancement • Communicate the message Opportunity Capitalization • Recruitment and Research •Training and Marketing
Product DevelopmentTraining and Monitoring Program
Financial Justification
Internally Generated Fund The Touches of Thais
Low Cost Airline
NPV = 317,605,370,487
Financial Justification 2004 Passenger Sales Growth Total Revenue Growth
2005
2006
2007
2008
11%
15%
15.5%
15.5%
15.5%
9.86%
13.16%
13.94%
14.21%
14.36%
Million in Baht
TOTAL REVENUE PROJECTION 300,000 250,000 200,000 150,000 100,000 50,000 0 2004F
2005F
2006F
2007F
Year Ending September
2008F
Financial Justification 2004 Passenger Sales Growth Total Revenue Growth
2005
2006
2007
2008
11%
15%
15.5%
15.5%
15.5%
9.86%
13.16%
13.94%
14.21%
14.36%
Million in Baht
NET INCOME PROJECTION 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 -5,000
2004
2005
2006
2007
Year Ending September
2008
Financial Justification
Million in Baht
Free Cash Flows (Expected Case) 50000 45000 40000 35000 30000 25000 20000 15000 10000 5000 0 2003/2004
2004/2005
2005/2006
2006/2007
Year Ending September
2007/2008
Financial Justification Free Cash Flows (Best Case) 60000 Million in Baht
50000 40000 30000 20000 10000 0 2003/2004
2004/2005
2005/2006
2006/2007
Year Ending September
2007/2008
Financial Justification
Million in Baht
Free Cash Flows (Worst Case) $45,000 $40,000 $35,000 $30,000 $25,000 $20,000 $15,000 $10,000 $5,000 $0 2003/2004
2004/2005
2005/2006
2006/2007
Year Ending September
2007/2008
Financial Justification
Cases
NPVs
Expected Case
317,605,370,497
Best Case
363,025,101,660
Worst Case
272,185,639,313
Key Success Factor
Operational Efficiency
Route Selection
Premium Services
Conclusion
Inefficient in Operation
Cost Saving Strategy • Risk Mitigation
3% Increase in Gross Margin within the Period of 3 Years
Losing Competitive Edge
• “Do More with Less” Revival Strategy • Route Rationalization • be Premium
To Reclaim the World Premium Position in Customer Perception
Rising Opportunity of Low-cost Airline
• First Choice Carrier through the Touches of “Khum” Air Thai • Simple Product
To Become the Leading Low-cost Domestic Airline within 3 Years
• Clear Positioning • Genuinely Low Cost
To Triple Profitability and Become Asian Leading Airline with the Net Profit of Bht 36,000 Mil. within the next 5 years
Thank you
Slide Navigation Company Profile Situation Analysis Current & Ultimate goal Issues and Objectives Recommendation – Cost Saving strategy – Revival Strategy – Opportunity capitalization
Financial Justification – – – – – – –
Cost Estimation Revenue Projection Net Income Projection Expected cash flow Best Case cash flow Worse case free cash flow Summary
Time Line Key Success factors Conclusion
Back up Navigation • • • • • • • • • •
• efficiency? How does Job Rotation increase Why Hedge? Domestic Route Elimination • Employee training program for the • Create awareness for the touches International Route Selection/Elimination • Why not lay off? Route Selection Criteria • Low cost air line employees SWOT Analysis • Low cost Cannibalization Additional info for Khum Air • Premium in what aspect Khum Air Low costs Tactics Pros & Con for Low cost air line• Marketing Campaign for Low cost Cargo Service Capitalize on Cargo: Sector Growth
Financial Back Up • • • • • • • • • •
Ratio Analysis Assumptions (historical) Assumptions (forecast) Income Statement Balance Sheet (1) Balance Sheet (2) NPV Calculation (Expected Case) Rational for Internal Financing Assumption Rationale behind the high leap from 2004-2005
How does Job Rotation increase efficiency? • Job Rotating within the department • Enhances Individual Skills and Expertise • Increase Flexibility • Allows Productivity when there’re less people • Increase Efficiency
Domestic Route Elimination Elimination Based on: Route Profitability Choices: MaeHongSon Phisanulok Phuket Trang HatYai
International Route Selection/Elimination Genev a
Xi An Bahrain
New Dehli
Nan JIng
Abu Delhi
Elimination Based on: Route Profitability
Rio De Jainairo
Choices:
Source: Thai Airway international
•Geneva •Paris (Daylight) •Abu DhabiBahrain
Route Selection Criteria Country/City with high GDP
Country/City
GDP
Xi An
USD 34.87 M
Nan Jing
USD 23.9 M
Bahrain
5.5% growth
Kuwait
USD 44,770M
New Dehli
USD 104.2 M
Rio De Janeiro
USD 55.255 M
Strength • Most popular airline loyalty program in Asia • Successful alliance in the Star Alliance • Strong technical service, air craft maintenance and engineering 99.36% of dispatch reliability •High quality administration system
Weakness • Labor Union •Rumor of corruption in the Cargo field. •Government as majority stake – Politics Involved High leverage
Opportunity • Healthy long-tern demand in commercial plane Industry deregulation • Increase in world-wide economic growth • Cargo traffic growth • Passenger traffic growth • Large growth of Air Traffic in Northeast Asia, South America and Europe • Increasing trend in short-haul market and nonstop service
Threat • The fear of flying due to SARS and the war in Iraq • The potential increase in oil price • Demand closely related to the GDP and Tourist Arrival to Thailand • Increasing competitive environment -Cathay Pacific -Singapore Airline -Lufthansa -Emirates
Additional info for Khum Air
• Differentiation – Emphasis on easy brand recognition, affordability, and fun – Multiple distribution channels and ease of payment
• Destination – Start in 3 routes Phuket, Chiangmai, and Udonthani – Regional expansion within 3 years expand to Hong Kong and Singapore
Khum Air Low costs Tactics • • • • •
New ticket sales channels Short turnaround time Non-refundable tickets No frill services with purchasing options Purchase of Utilized Airplanes
Pros & Con for Low cost air line Cons • Intense competitions outside Thailand • Possibility of Price war • Statically only 50% of new low cost air line survive
Why Pursuing Low-cost Idea? • First Mover Advantage • Allows Thai airway to focus on quality not Price! • Know-how knowledge on airline operations • Untapped Opportunities to serve price and time conscious travelers • Supported by strong marketing strategy and strategy to be “genuinely” low cost
Why Hedge? • Fuel cost is a major expense for the company • Represent 30.5 % of total operating expense • An increase in one US dollar = increase by approximately 17 million US dollars annually. • Therefore Thai’s need to hedge in order to save cost
Employee training program for the touch of Thai program
• Training – Emphasis on the Thai touches • Thai Manner • Hospitality • Smile
– With the focus of Thai Charms and CONSISTENCY
• Monitoring – Extensive customer satisfaction survey
• Evaluation – Set performance bar for every employees
Create awareness for the touches of Thai
• Different Marketing Channel – Media • • • • •
TV Radio Internet Billboard In-flight information
Why not lay off? • Against Thai norm • Government majority stake • Labor Union
Low cost air line employees • Transferred key manager from Thai Airway – Through the uses of incentive • Same salary + Share offer
• Number of employee for Khum Air = 1% of Thai Airway
Low cost Cannibalization • Yes, there will be cannibalization, but it can be minimize through – – – –
Different position Different Product offering Distinct customer expectation Different target market
Premium in what aspect •
Product – Upgrade and modernize aircraft – Improve First and Business class seat and on board entertainment – Offer greater value
•
Service – – – –
Offering grater convenient on ground service Improve information technology Extra comfort, safety and professinalism Catering service – best testing, high quality food
Marketing Campaign for Low cost
• 1st Target: First time flyer – Key message: Everyone can fly – Communication channel • Mass marketing – TV, Billboard, Radio, Magazine
• 2nd Target: Frequent flyer – Key message: Value for Money – Direct Marketing • Target Non-active customer (Thai past customers) – Criteria been non-active for the more than 3 years
Cargo Service Yes, Lucrative Market especially in Asia • Air cargo has expanded about 7.1 percent annually 2.4 times faster than the rate of GDP • World Wide Air freight expect to be grow more than triple over the next 20 years increasing from 131.1 billion RTKs in 2001 to 461.1 billion RTK by 2021 • World Air Cargo will be expanding at 6.4 percent for the next 2 decades
Capitalize on Cargo: Sector Growth •
Increasing security requirement – Shipping insurance
•
Improve service – E-procurement online ordering – Increasing demand and efficiency through online transportation capacity exchanges
•
Increase the alternatives – Variety of product shipped
•
Increase number of fleet – Conversion : wide-body freighter: from modified passenger airplane (Rationale: cost advantage- profitability extremely sensitive to airplane size, market: not premium, shorter ranger services)
Ratio Analysis
Assumptions (historical)
Assumptions (forecast)
Income Statement
Balance Sheet (1)
Balance Sheet (2)
NPV Calculation (Expected Case)
Rational for Internal Financing
Assumption
Million of Baht
Rationale behind the high leap from 2004-2005 High New Projects Starting Cost • On-board Facility Renovation • Airplanes as LCCs • Marketing Campaign • Initial Training
45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 -5,000
2004
2005
2006
2007
Year Ending September
2008
