Published in September 2015 issue

Asia’s ‘Boutique Airline’ finding its niche.

By Ron Kuhlman

It does not take a PHD to forecast that the Asia/Pacific region will soon dominate the aviation marketplace. The large population, the vast distances involved, and the diverse landscapes all have contributed to the region’s rapid aviation growth as economies grow and incomes rise. And, of course, unlike the mature European and North American markets, much of that development is yet to come.

The region is a laboratory in which countless variations of existing business models are being tried. In AirAsia (AK), we have the first low-cost carrier that has ‘franchised’ itself across national borders.

Other carriers are trying to establish the validity of low-cost in long-haul markets—AirAsia X (D7)—while some legacy carriers are creating sub-brands nimble enough to challenge the upstarts, a strategy that has been repeatedly unsuccessful in the US. And then, we have Qantas (QF), which has tied its future in Europe to a partnership with Emirates (EK).

No doubt, it will take decades before the winners and losers can be fully tabulated, Yet, there are already strong indications that the region can and will support a ‘boutique’ airline—one that offers high standards of passenger service at fares more moderate than those charged by the larger incumbents.

That player is Bangkok Airways (PG).

TOO OLD TO BE LOW COST, TOO YOUNG TO BE A LEGACY

Some time ago, Bangkok Airways made the decision to only fly from Suvarnabhumi (BKK) and not join the bunch of emerging low-cost carriers that have made their home at the Don Mueang International Airport (DMK) regional hub. Not only does PG shun the low-cost designation, but the network and size of the carrier mean that dividing service between two airports would be operationally and financially unfeasible.

Also, while Bangkok is the airline’s home base, much of its focus is on Thai resort destinations and islands. The island of Koh Samui (USM), for example, attracts visitors from around the globe, including many from Southeast Asia. For those travelers, Bangkok Air operates non-stop flights from Hong Kong (HKG), Kuala Lumpur (KUL), and Singapore (SIN), making a BKK transit stop unnecessary. Domestically, PG flies nonstop to USM from Phuket (HKT), Krabi (KBV), Chiang Mai (CNX) and Pattaya (UTP), making the island easy to reach from other Thai resort centers, again avoiding the more time-consuming trip via Suvarnabhumi.

Reminiscent of the early days of aviation, when Pan Am (PA) built its own airports, PG owns and operates the airports not only at Koh Samui but also at Trat (TDX) and Sukhothai (THS). These fields—especially Koh Samui—have created a revenue source, with competing carriers paying PG to use them. It is a clever strategic plan that not only limits competition, but also makes money off those who do compete.

The airline’s investment at Koh Samui continues to gain in value. “Earlier this year, the Department of Civil Aviation of Thailand granted Samui airport permission to increase its flight operating allowance to 50 flights a day,” says Puttipong Prasarttong-Osoth, the airline’s president. “This has allowed Bangkok Airways to increase capacity and to operate more flights in and out of Samui Airport. In March, the company increased flight frequency on the Samui-Singapore route from seven to 10 flights per week and on the Samui-Kuala Lumpur route from seven to 11 flights per week.”

Finally, the Suvarnabhumi-based carrier also offers charter flights, as well as a dedicated Medical Evacuation service that is available 24 hours a day and promises a three-hour response time.

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A LONG HAUL CARRIER? NOT…

Bangkok Airways has tried to be a number of other things in the past decade—some worked, some did not. Several years ago, it attempted to widen its reach with service to Japan and China, but those longer, thinner routes did not produce the expected results and PG decided instead to focus on nearer points that can be reached with flights of one to three hours.

In December 2005, the airline placed an order for Airbus A350-800 aircraft intended for long-haul operations to Europe and Australia. However, the rise of the Middle East Big Three (MEB3)—Etihad (EY), Emirates (EK) and Qatar Airways (QR)—caused PG to rethink those plans. With the -800 model  largely abandoned in favor of its larger relatives, Bangkok was able to work with Airbus to avoid penalties and rejigger its order to get more A320s and A319s instead—and redefined its long-term expansion plans to fit the capabilities of those aircraft. PG has also understood the need for a turboprop subfleet, because some of its destinations cannot accept larger jets or generate enough traffic to make these economically viable.

When PG began to expand with jets, it turned first to Boeing 717-200s. These stayed in the fleet for about a decade. Eventually, the airline retired them in favor of the better economics of the Airbus A320 family and the efficiencies linked to operating a single family of aircraft. PG has also operated de Havilland Dash 8-100/300 and smaller ATR42-300 aircraft.

At present, Bangkok Airway’s fleet consists of eight Airbus A320s, 11 A319s, eight ATR72-500s and two ATR72-600s, with replacement aircraft arriving throughout 2015, making the fleet younger—but not larger.

A portion of the A319 fleet is configured in a fixed Business/ Economy layout (12 Business/108 Economy) used on longer flights. The standard single-class versions have either 138 or 144 seats. There is a third configuration with all three-abreast seating, with the first three rows providing 12 Business Class seats by leaving the middle seat unsold, for a capacity of 12 Business/120 Economy.

The A320s, on the other hand, are configured in an all- Economy cabin, with 162 seats, while both ATR models seat 70. The daily utilization of the Airbus fleet is of about 10.5 hours, while that of the turbo-props is of about nine.


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A BOUTIQUE AIRLINE?

So, what makes Bangkok Airways a ‘boutique’ airline, as it calls itself? Lounges are available to all travelers in both Business and Economy classes. Business lounges provide all the amenities and comforts found in legacy carriers, while the Economy lounges offer a separate space for travelers with food, ample seating, and facilities for children. Every long flight provides meals for all passengers, served by an attentive staff.

It is no coincidence that, last year, Skytrax named Bangkok Airways the World’s Best Regional Carrier (and the best in Asia)—affirming a reputation for excellent service, even in a region where quality airline service is the baseline.

In terms of fares, PG is rarely the lowest, but neither it is the  highest. Its value proposition is that paying more than rockbottom fares brings service and amenities that even the legacy carriers cannot match on similar routes.

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GETTING BY WITH A LITTLE HELP FROM ITS FRIENDS

While it has chosen to forego its own long-haul flights, PG has formed two-way codeshare links with nine international carriers for distribution of incoming and outgoing traffic. It also has eight one-way codeshares (PG feed to/from Thailand), making it a prime contender for passengers traveling beyond Bangkok to either domestic or nearby international destinations. Three more such agreements are pending, including all three of the MEB3 (Emirates, Etihad and Qatar). PG also has a two-way codeshare with the national carrier, THAI, but that agreement is currently inactive.

Like JetBlue (B6) in the US, Bangkok Airways has seen more benefit in casting a wider network than in gaining membership of a global alliance. This flexibility has enabled PG to codeshare with Star Alliance carriers—including a forthcoming agreement with Austrian Airlines (OS)—and at the same time, to participate in oneworld’s Global Explorer round-the-world fare.

Currently, Bangkok Airways is in a consolidation stage, rather than an expansion one. It has increased frequencies between some existing city pairs and introduced new direct service between some domestic cities. Last winter, PG increased service from Thailand to Yangon (RGN) and Mandalay (MDL) by adding nonstops to both cities from CNX. According to Peter Wiesner, senior vice president for network management, Myanmar is a promising destination, as its business and tourism infrastructure develop. In addition to RGN and MDL, the airline is currently flying to Naypyidaw (NYT) in northern Myanmar. It is one of only two international carriers at that airport; the other is China Eastern (MU), which flies to Kunming (KMG)—a city with far less international potential than Bangkok.

BANGKOG AIR IS DOING FINE

PG’s load factors have been acceptable, with occupancy in the low 70s at the beginning of 2015. During the first quarter of 2015, profit was up by 106.5% over the previous year. Passenger numbers and total revenue each showed double-digit growth as well. So the airline, like Thailand as a destination, is recovering from the few unstable years when political unrest took its toll.

In terms of constraints, some Thai airports, including Chiang Mai and Phuket, are in need of additional capacity, and much of the traffic is unbalanced either by season or days of the week. Moreover, the aviation market in Thailand remains somewhat chaotic, with a continuous parade of new competitors, and the Thai political landscape is far from stable.

Yet, despite all of that, Bangkok Airways seems to have found a secure niche, adding yet one more variation on a theme to the fluid and developing Asian aviation scene.