The last few years have been difficult for airlines. During such a strong period of growth for travel and the global economy, the question must be asked how so many airlines have gone bankrupt. Air Berlin, Jet Airways and Thomas Cook along with their aircraft division to name but a few.
Thai Airways fleet in Bangkok Suvarnabhumi Airport
The overriding reason is such stringent price competition in the sector. The dawn of low-cost carriers has meant that many full-service airlines are losing money on short-haul flights, and when competition in the long-haul sector becomes so price-sensitive, and privy to many external factors such as fuel costs and government intervention, there is little margin for error in the aviation sector.
I recently published an article in Forbes on how Norwegian could be the next airline to fail. The difference with Norwegian is that their brand has garnered such strong value in recent years that the likely course of action would be that they remain in operation but are taken over. The problem with Norwegian and many other airlines is one of debt. Even as Norwegian's Q3 results looked like a marked improvement, the unsustainable debt pile is what contracts the often rapid growth that they have thrived off, and makes them even more vulnerable to small market movements. In trying to reduce their debt pile, raising more capital through debt is off the table, and with a decimated equity price, there is little place for airlines who hit turbulence to turn to in raising capital, except bankruptcy or a takeover.
Norwegian Air Shuttle Boeing 737-800
Now, surprisingly, we have Thai Airways who are grappling with their survival. The president of the airline sent out a chilling message to staff recently. Sumeth Damrongchaitham said to airline executives that "today I want staff to be united to overcome the obstacles. Otherwise, the national airline must close down. There is still time for a solution, but there is not much time."
Although the language of the message seems strong, it does seem to heed as more of an advance warning, rather than an imminent threat of insolvency. Low-cost airlines in South-East Asia have put the Thai national carrier under serious pressure on many ASEAN routes and Sumeth doubles down by remarking "Thai really is in a crisis...everyone will die if the vessel sinks."
Thai's Airbus A350XWB take off in Brussels international airport connecting Brussels with Bangkok
Thai is aiming to cut salaries of managerial staff and Sumeth said that there will be no other rewards for staff because "the top prize is the survival of the company." Soon after the remarks the Chairman of the airline, Ekniti Nitithanprapas, resigned, following three other executives' recent resignations without explanation.
Ultimately, politics has weighed on Thai in recent years, but despite a $220 million loss for the first half of 2019, the airline will ultimately likely survive due to its political connection and government ownership.
Thai is seen as a national symbol of tourism and even in tough times, most analysts would argue that the government will support the survival of the airline.
These recent warnings from Thai Airways seem to actually be just that; stark visibility of how the carrier needs to trim back costs to compete in the ever-evolving Asian market. The next few years may continue to see more short-haul mainline routes being transferred to Thai's low-cost subsidiary, Thai Smile, however, ultimately, the airline should and will survive.
Jacob Schram, ny koncernchef i Norwegian. (Foto: Norwegian | PR)
Ny koncernchef med stor international erfaring
Norske Jacob Schram, der er uddannet fra Handelshøjskolen i København, bliver fra den 1. januar 2020 ny koncernchef hos Norwegian.
Selvom det allerede var planen, at Norwegians grundlægger Bjørn Kjos skulle træde tilbage i løbet af 2019 eller 2020, så kom det som en overraskelse for de fleste, da selskabet den 11. juli måtte melde ud, at koncernchefen og stifteren øjeblikkeligt trak sig tilbage.
Norwegian names new CEO
Rob Finlayson
Norwegian Air Shuttle has appointed Jacob Schram as its new CEO, filling the gap left when co-founder and long-standing CEO Bjorn Kjos left the low-cost airline in July.
Schram will start his new role Jan. 1, 2020. Geir Karlsen, who has been acting CEO since Kjos stepped down, will continue as CFO and deputy CEO.
“[Schram’s] extensive management experience from global companies, proven leadership skills, strong commercial consumer orientation and impressive track record of value creation will greatly benefit Norwegian as the company enters into a new phase,” board chairman Niels Smedegaard said.
The Norwegian low-cost, long-haul carrier has been facing financial difficulties linked to its ambitious fleet and expansion drive over the past few years, and has more recently pledged to focus on profitability over growth.
It said Nov. 6 it had raised new capital through a placement and convertible bond issue completed Nov. 5, leaving it “fully funded through 2020 and beyond” based on its current business plan, with gross proceeds of NOK2.5 billion through a private placement and a convertible bond issue of $150 million.
“During the last months, the company has taken a series of measures that has resulted in strong financial improvements,” Smedegaard said.
The latest fundraising round came after the carrier had already undertaken a rights issue, announced in January, to strengthen its balance sheet.
The airline has also been taking other actions in recent months to increase liquidity and reduce capital commitments. These include:
- Restructuring aircraft orders to reduce capital expenditure by NOK22 billion for 2019 and 2020;
- Establishing a joint venture with China Construction Bank Leasing International Corporation DAC that should reduce capital commitments in 2020 to 2023 by another NOK13.7 billion;
- Selling aircraft and shares in Norwegian Finans Holding;
- Extending the maturity of unsecured bonds;
- Raising cost-reduction targets; and
- Entering into a partnership with New York-based JetBlue Airways to build feeder traffic in the US market.
“The airline industry is characterized by strong competition and unforeseen events, but it is also an industry that is important to people everywhere. Now, my main focus will be to bring the company back to profitability and fortify the company’s position as a strong international player within the aviation industry,” Schram said.
Schram, 57, a Norwegian citizen, has 30 years of experience in large international companies, including management roles at Circle K, Statoil Fuel & Retail (SFR), McDonalds and McKinsey and is also the author of a book, “The Essence of Business.”
Over the past year, he has worked with private investments, startups and presentations related to his book and the topic, “Future mobility 2030,” in addition to holding the position of senior advisor at McKinsey, Norwegian said.
Norwegian said Nov. 12 it was adding new seasonal routes from US destinations to Paris and Rome. Calling the US its largest and most important source market, the airline said it would continue to invest in expanding its network.
In October, Norwegian had said it would boost frequencies to some US destinations from London next summer in response to demand, but would reduce flights to Buenos Aires; Rio de Janeiro; and Miami and Orlando, Florida.
Helen Massy-Beresford, helen.massy-beresford@aviationweek.co.uk
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