THAI AVIATION INDUSTRY 2014

AUTHORED BY:

MR. NATTAPOL WATTANA ID 5531210128

MR. TANADE SIRINUMAS ID 5531210150

AVIATION BUSINESS MANAGEMENT

SCHOOL OF MANAGEMENT

A TERM PROJECT

SUBMITTED IN PARTIAL FULFILLEMNT OF THE REQUIREMENTS OF

1210327 THAI AVIATION BUSINESS IN GLOBAL AVIATION INDUSTRY

COURSE

MAE FAH LUANG UNIVERSITY

FIRST SEMESTER, 2014

Table of Contents

Acknowledgement …………………………………………………………………... ii

Declaration ………………………………………………………………………….. iii

Executive Summary ………………………………………………………………… iv

Part I

Introduction to Aviation Industry ………………………………………………… 1

Socio-economic Benefits of Air Transport Services …………………………..... 1

Air Transport Encourages Tourism Business ………………………………........ 2

Trends in Aviation Industry ……………………………………………………... 3

External Factor that Impact the Global Aviation Industry ……………………..... 9

Part II

Thai Aviation Industry ……………………………………………………………... 16

Thai Aviation System …………………………………………………………… 16

Supply Side

- Evolution of Thai Aviation Industry ………………………………………... 17

- Thai Aircraft Maintenance and Manufacturer ……………………………… 17

- Trend of Low Cost Carrier in Thai Skies ………………………………....... 18

Demand Side

- Passenger Traffic Growth …………………………………………………... 19

- Cargo Traffic Growth ……………………………………………………… 20

Institutional Side

- Investments in the Thai Aviation Industry …………………………………. 22

- Thai Aviation’s Readiness for ASEAN Economic Community ……………. 22

- The Reasons that Thailand Should Be the Hub …………………………….. 23

- Thai Aviation’s Preparation for the ASEAN Economic Community ………. 24

- The Impacts of ASEAN Economic Community to Thai Aviation Industry ... 24

- Thailand’s Policies Promote Thai Aviation Development …………………. 25

- Opportunities for Thailand as ASEAN Logistics Hub …………………....... 26

References …………………………………………………………………………... 28

i

Acknowledgement

We would like to thank our lecturer, Dr. Suthep Nimsai, for his beneficial guidance

and motivation. He gave the directions to find the useful information. For everything you

have done for us, Dr. Nimsai, we thank you. We would also like to thank Assoc. Prof. Dr.

Singha Chiamsiri for his special lecture that makes us understand the ASEAN Single

Aviation Market and ASEAN Open Sky Policy clearly. Especially, we would like to thank

Ms. Flavie Lepoutre who suggested the outline preparation and presented the searching for

the airlines' information.

Accomplishment this project would have been more difficult without the support of

our friends, Miss Thunchanok Rajitvit, Miss Noppasorn Amphanratana, Miss Ratchanee

Buasrikaew, Miss Kaewalin Meelakchai, Miss Jirakan Kaewkoed, and Miss Tiwaporn

Bussabong. Their sharing the information is very helpful.

Finally, we would like to thank all authors who wrote and provided good and clear

information and knowledge that easily understood.

ii

Declaration

We hereby declare that this project work entitled "Thai Aviation Industry 2014" is our

original work, and we further hereby declare that the report is based on the information

collected by us and has not formerly been submitted to any other university.

Working group

iii

Executive Summary

The Thai civil aviation is on the great position. Thailand has vision to be the regional

hub aviation industry so the upcoming ASEAN Economic Community in 2015 is the

opportunity of Thailand to achieve its goal. Moreover, the global economic growth is one of

factors to drive Thailand economy such as when world economy grow up the traveler may

need to spend their money so they may travel in other countries or the rate of export-import

product may increase according to people's assumption. Nowadays, Thailand economy was

continuously grown passenger traveled although the air freight was reduced from the global

economic slowdown

Aviation System is one of the economic system shows the effect and linkage of

supply side, demand side and institutional side to the market, besides Thai Aviation Industry

also has got the impact from this system. Furthermore, recently, the new competitive trend

from the Low Cost Carrier is aggressive multiplied to reduce the cost to gain more profit

margins in order to fight Full Service Carrier which can stimulate the Thailand economic

growth and the growth of passenger in 2013. Moreover, the Thailand government also

motivate and response the economic growth by planning to invest in the many airport in order

to expand the revenue and opportunity or increase the capacity to support the increasing

number of passenger.

Upcoming ASEAN Economic Community which is in 2015 is the key factors to

motivate economy. Thailand has the great position from location which connects with other

ASEAN member countries, and there are many amazing travelling places with the good

hospitality. Nonetheless, Thailand has to prepare and adapt of airline, airport, and aircraft

maintenance for support the increasing of economic growth in both passenger and air freight.

In addition, Thailand government has issued The Eleventh National Economic and Social

Development Plan (2012-2016) and The National Tourism Development Master Plan (2012-

2016) in order to promote Thai aviation industry. From its vision, Thailand has the good

location and infrastructure to logistic transport, however, Singapore and Malaysia, two of

ASEAN member countries as well, are also in the good location to be the regional hub

besides, they also have good infrastructure development. Thailand can achieve its goal if

government issues the right policy to support.

iv

Introduction to Aviation Industry

Nowadays, air transport has become an important economic and social connective

network all over the world owing to the benefits of quick and inexpensive transcontinental

travel. Airliner capacity has significantly grown for the last 60 years, Douglas DC-3 with a

capability of carrying 32 passengers and a maximum load of 4.6 tons was used in the past,

presently, developed to recently version Airbus A 380 with a seating capacity of 525 and, for

the freight version, a maximum load of 338 tons (The World Bank Group, 2011). Every 15

years, since 1972, the global aviation industry has been honorably grown twice. This growth

is anticipated to continue throughout the next twenty years.

During 2010 to 2050, the number of passenger travelled may grow triply. Thus the number of

aircraft used in service may increase doubly from 20,000 to 42,000 and 1,500 aircraft should

be produced every year until 2050 to meet this expected demand (Crespigny, 2014).

Socio-economic Benefits of Air Transport Services

Sustainable development is generated by air transport. It creates economic growth,

provides occupations, improves living standards, relieves poverty and increases revenues

from taxes by supporting tourism and trade. The closer relationships progressing between

countries, both from individual aspect and at a country level is reflected by accruing

international travel. Moreover, the aviation industry encourages 58.1 million jobs all over the

world that some of these people work directly in the industry itself and other jobs which need

air transport for their economic activities and generates $2.4 trillion (3.4%) of global GDP

which are represented in following diagrams.

1

Distribution of global employment in the aviation sector

From these diagrams, the global aviation industry directly generated an estimated

8.7million jobs in 2012.

Airlines: 2.3 million of those people or 26% of the total.

Airport operator: 470,000 people or 5% of the total.

Other on-airport: 4.6 million people or 53% of the total.

Civil aerospace: 1.2 million of people or 14% of the total.

Air navigation service providers: 195,000 people or 2% of the total.

Moreover, air transport also faces with ‘multiplier’ effect which means that they may

receive the impact on global employment and GDP more than its direct impact alone (Air

Transport Action Group, 2014, p. 10).

Air Transport Encourages Tourism Business

Transport is an important component of tourism, giving the key joint between the

tourist origins and destinations. A basic condition for the progress of any tourist destination is

‘good accessibility’ which is determined by the transport services provided. Furthermore, by

reason of the increasing passenger demand that may be generated, the transport industry can

be a major beneficiary of tourism. Aviation is an increasingly essential mode of transport for

tourism markets. While geography has meant that, in modern times, air travel has always

been the notable mode for long haul and much international tourism, moves towards

deregulation, and in specific the occurrence of the low cost carrier sector, have also increased

aviation's essential for short and medium haul tourism trips (Papatheodorou & Forsyth,

2010).

2

Trends in Aviation Industry

Comparison of the key parameters in passengers and air freight for global aviation

industry between 2013 and 2014 are represented in the following table.

Global Passenger Growth Trend (2014 vs. 2013)

Global Cargo Growth Trend (2014 vs. 2013)

Overall, passenger's demand for travel is growing in line with expectations. However,

the increasing growth rate in September was largely driven by economic factors. The

economic weakness in Europe and Latin America was the restrained factor although

strengthening of the US and Asian economies supported the global economy (Tyler, 2014).

The growth in passenger traffic was motivated by Indian domestic travel greatly grew in

September compared to a year ago due to market motivation measures introduced by carriers

while previous improvements in growth rates potentially were attributable to restored

confidence over the new business-supportive government. However, European airlines was

drop for international demand indicating the effect of the Air France crew calling for a strike

and a general weakening of European economic aspects. Russian's domestic demand fell in

September from the economic impact of the Russia-Ukraine crisis reflected by the effect of

price stimulus wore-off and the weakness revealed for economy.

The air freight growth rate was on the positive trend has been led by, from China, the

increasing growth shipment rate came from the release of the iPhone 6. Moreover, there also

were many regions strongly grow namely Middle Eastern (grew by 17.0%), African (expand

by 11.5%), and North American (increasing 5.4%) although the decreasing demand of

European was reflected the worrying uncertainty in European economy which affected by the

Ukraine-Russia conflict. The details concerning regional passenger and cargo traffic are

represented in the following table.

3

International and domestic passenger traffic growth trends by region (2014 vs. 2013)

Regional international cargo traffic growth trends (2014 vs. 2013)

It has been observed that even though there are plentiful of risk in environment, for

example, highly weakening key economies such as in Brazil and Europe, an outbreak of

Ebola to harm people's confidence to fly, and effect of political instability in many part of the

world. However, the positive progress in Asia and United States still continually has

profitability (International Air Transport Association, 2014).

4

Forecasting passenger and air freight traffic trends

Passenger Traffic - During 2008 and 2009, financial crisis radically affected

passenger traffic, yet the revival over period 2009-2013 has proven its resiliency

years. Latest traffic forecast suggests that World RPKs may again double in the next

15 years. This presents a 4.7% annually average growth in the next 20 years, 5.2%

over 2013-2023 and 4.2% over 2023-2033(Airbus, 2014, p. 62).

Moreover, Asia-Pacific may remain to be the leader for origin-and-destination traffic

which is represented in the following diagram

5

The distribution of global traffic growth by region is likely to evolve continually.

Origin-and-destination traffic from/ to/ within Asia-Pacific may remain the largest, in 2033,

accounting for greater than 40% of the World traffic, ahead of Europe and North America

together around 37%. Emerging regions may consequently represent almost two thirds of the

World traffic in 2033. Middle East, African, CIS and Asia-Pacific may be the rapidest

growing regions with traffic more than tripling for these regions in the next twenty years.

Air Freight Traffic -One of the key drivers for the forecasting of the air freight

market is trade volume. Trade was more impacted than GDP during the last financial

crisis, for example, from the trade volume increased at a 5.9% during 2000-2008,

trade growth decreased to a 2.8% from 2008-2013. On the other hand, the GDP grew

at a 2.1% annually at the same period of time (Airbus, 2014, p. 74). From this method,

it is represented in the following diagram.

It has been showed that over the twenty years, the trade may grow at a 4.3% annual

pace. From those trends, the new aircrafts are expected to be built more for increasing

number of passenger and freight. The following show the distribution of new aircrafts by

region.

6

Global aircrafts deliveries by region

Regional distribution of 36,770 new deliveries during 2014-2033

Global fleet and fleet required in the future

World fleet may double from 20,910 airplanes in 2013 to 42,180 airplanes in 2033

categorized by types of aircrafts

The distribution and the global fleet strongly encouraged trend in the aviation sector.

The world’s fleet is maintained to dominate by the single-aisle airplanes. In 2013, 65 percent

of the fleet consists of single-aisle category. And the single-aisle category is approximated

that its share may increase to 70 percent by 2033. Demand forecasting of 35,680 new single-

aisle airplanes estimate that 62 percent may enlarge the fleet while 38 percent may substitute

for the older airplanes. The demand for single-aisle airplanes are impelled by the emerging

markets. By 2033, Asia Pacific airlines may need 9,540 new single-aisle airplanes to enlarge

their fleets from 3,820 to 10,850 airplanes. The demand for single-aisle airplanes are also

driven by the low-cost carrier that use the business models that concentrate on fleet

commonality. Trend of Low Cost Carrier has affected the aircrafts deliveries much in the

single-aisle used in the low cost airlines that are represented in the following diagrams.

7

The business model of LCC tends to be increasing according to new aircrafts

required. Moreover, the region which may need most new single-aisle aircraft is Asia Pacific.

From 2010 to 2050, the totally number of aircraft tends to double. 533,000 new commercial

airline pilots tend to be required to fly the new aircraft over the next twenty years (2014-

2033) (Boeing, 2014, p. 17).

Commercial pilots and technicians, the jobs required in aviation industry

Carbary (2014) stated that the challenge of facing with the global requirement for

airline personnel, which is a world issue that can only be solved by all of the groups involved

include with airlines, aircraft and training equipment manufacturers, training delivery

organizations, regulatory agencies and educational institutions around the world, cannot be

solved by one organization or in one region of the world. Overall, steadily increasing aircraft

deliveries drive the global demand, particularly wide-body aircrafts, and display a global

demand for about 27,000 new pilots and 29,000 new technicians for each year (Boeing,

2014). In addition, trend which can be applied to make the travelling process easier, simpler

and more controllable according to rapid growth of the aviation industry is Fast Travel.

Fast Travel new process for passenger

The Fast Travel program is self-service initiatives which respond to passenger demand for a

more consecutive travel experience and more control through six time-saving. Include with:

Self check-in and/or automatic check-in Flight re-booking

Bags ready-to-go Self-boarding

Document check Bag recovery

In IATA’s 2014 Global Passenger Survey, passengers would prefer to check in online

or automatically by receiving a text message or email greater 75% of total passengers.

Only15% prefers to receive their boarding passes from an agent at an airport check-in

counter. The industry’s target is to apply Fast Travel projects covering 27% of eligible

passengers this year until 2020, the goal is to have 80% of passengers used a complete self-

service suite based on common industry standards (International Air Transport Association,

2014). Furthermore, on the other side, air freight has been developed as E-Freight in order to

reduce the cost and protect the environment.

8

The end of paper-based in air cargo by E-Freight

Some 50 million tonnes of cargo are carried of each year. It does not need another

7,800 tonnes of paperwork to make it occur. The Global Air Cargo Advisory Group

(GACAG) has emerged a roadmap to 100% e-freight that defines the guideline, structure, and

goals for the e-freight program to ensure the success of e-freight. The first element of e-

freight roadmap is engaging regulator to ensure that regulation supports the paperless cargo

although some country has never used electronic documentation. The second element of e-

freight roadmap is using electronic air waybill by supporting of IATA Multilateral e-AWB

Agreement The third element of e-freight roadmap calls for the entire cargo pouch of

documentation convert to go electronic. Once 100%, e-freight has been succeeded,

government and partners may receive benefits of data, reliability and security. Freight

forwarder can save the cost of document handling process (International Air Transport

Association, 2013, p. 40).

External Factor that Impact the Global Aviation Industry

The aviation industry has led to the globalization of the global economy. It connects

buyers and sellers. Goods are also carried across nations. It breaks the obstacle of distance

and time. However, like any other business, the aviation industry is affected by varying in its

external environment namely Political, Economic, Social, Technological, Environmental, and

Legal to analyze the aviation industry. Many businesses are very sensitive to vary in those

factors. They cannot be controlled and can force companies to change their business model.

Political and legal factors

Government interference on a special industry or the economic operation is the

political and legal factors. To protect the passengers’ interests and airline operations’ safety

standards, the government interference can be necessary. Airlines operate in the political

surroundings that are plentifully restrained and regulated (Cederholm, 2014).

Why political and legal factors impact the airline industry?

Political and legal factors that impact the airline industry

Cederholm (2014) said that the restrictions and regulations related to tax policy,

international trade, and competition normally impact the airline industry. Furthermore, the

political issues such as terrorism, war, the disease outbreaks, for instance, Ebola, are also

impact the airline industry.

9

Financial impact of September 11, 2001, on the airline industry

According to Cederholm (2014), the 9/11 attacks or 2001 terror attack negatively

affected all companies in the airline industry along with the top U.S. airlines such Delta

(DAL), American (AAL), JetBlue (JBLU), Southwest (LUV), and United (UAL). IATA (or

the International Air Transport Association) reported that the financial impacts on U.S. and

the worldwide industry are as follows:

The global airline industry took three years to regain the 6 percent decline in their

income during 2000 to 2001. After the September 11, 2001 terror attack, the global

airline industry took five years to report its first net profit. 22 billion dollars of the

revenue decreased from 329 billion dollars in 2000 to 307 billion dollars in 2001. The

global airline industry reported its losses of 13 billion dollars in 2001. After four

continual years of losses, it recorded the first profit of 5 billion dollars in 2006.

The revenue of U.S. airline industry declined from 130.2 billion dollars in 2000 to

107.1 billion dollars in 2002. 5.9 percent of passenger traffic year-over-year (or YoY)

declined in 2001 and 1.4 percent declined in 2002. Airlines were impelled to cut

capacity to match the decreased demand by 2.8 percent in 2001 and 3.9 percent in

2002.

Changes in the US airline industry’s competitive landscape

Deregulation in the U.S. airline industry

All regulations ruling the airfares, airline routes, entry and exit of the commercial

airlines that used to be supervised by the Civil Aeronautics Board (or CAB) previously were

dismissed by the Airline Deregulation Act of 1978. Demand and supply market forces would

determine the airfares and all entire factors. The passengers got the advantages from the

further routes through the hub and spoke model after the deregulation. This decreased

airfares, whereas this increased the competition. The fare of all low-cost carriers was brought

down repeatedly. To bring down the operation costs, airline operated no frills services to

passengers (Cederholm, 2014).

10

Economic factors

A strong economy represent as an impetus for industrial growth. A variety of economic

indicators is also used to measure the economic health. GDP (or growth in gross domestic

product), disposable income, per capita income, consumer confidence, level of business, and

industrial production, for instance, are the sample of economic indicators. Some other main

factor that affects airlines’ profitability is the undulation of oil prices (Cederholm, 2014).

Economic factors support aviation industry

The aviation industry, like many industries, is affected by the economic cycle’s peaks

and troughs. The current growth in developed economies—such as United States that is

driven by the loosening monetary policy—has contributed to an increase in business

confidence, industrial production, and international trade. All of these results energize as

catalysts for airline industry. Air transport results are dealt with global economic growth.

Economic indicator trends can be met with air passenger and freight volumes. The volumes

of passengers carried by an airline are measured by revenue passenger kilometers called

RPK. It is estimated by multiplying the distance of travel by the number of revenue

passengers. Freight traffic is measured by Freight Tonne Kilometers called FTK. The FTK is

greatly associated with business confidence driven by severe demand for products.

Businesses can choose cheaper transport to operate during weak demand period to reduce

costs and maintain margins by using the substituted transport that leads to increased volumes.

Consequently, global economic growth can bring down the FTKs and RPKs. It is represented

in the following graphs.

11

Social and demographic factors

The demand for air travel, over the years, has grown considerably. The changing of

travel preferences among the modern generation implies this. An essential role in forecasting

demand and future travel preferences is performed by the demographic factors. The growth in

the Gen Y (or the millennial generation) may determine the future of United States of

America’s tourism and travel, for instance. The Gen Y includes 16–34 year olds. The

spending of the retiring Gen B’s (the baby boomer generation) people, who were born

between 1946 and 1964, is predicted to decrease (Cederholm, 2014).

Social and demographic factors

Categorizing generations in the United States categorized by the year of birth offers

idea in changing trends in the travel and tourism industry. Indicator shows changing travel

satisfactions among the latest generation in the desire for air travel have risen importantly

over the years. The United States population is categorized as follows:

Baby boom generation – Born between 1946–1964

Generation X – Born between 1965–1979

Generation Y or Millennial generation – Born between 1980–1999

Generation Z – Born after 2000

In forecasting demand, Demographic factors also have an important role. The factors

meet customer's expectations in relate to value-added service providing and frequency of

customers fly in order to adapt themselves or generate strategy for survive. According to

Boston Consulting Group’s research, the millennial generation may become the main market

for tourism and travel industry replaces the baby boom generation’s need, the currently main

market for business travel. Growth by 50% of the total by 2020 and remain strong over 15

years later is the expected result from their spending on business travel.

12

Technological and environmental factors

The firms have to apply the newest technology to use in the company to survive the

violent competition among the airline industry. One of the four pillars under the IATA’s (or

the International Airline Transport Association) strategy to address climate change is also the

technology. The lower fuel spending is the outcome of using the advanced aircraft

technology. This enhances the operation cost and the airline’s efficiency. The old aircrafts

have replaced with new fuel efficient aircrafts by all airlines, for instance, the low-cost

carriers like JetBlue (JBLU) and Southwest (LUV), and the legacy carriers like American

(AAL), Delta (DAL), and United (UAL) (Cederholm, 2014).

The importance of technology in the aviation industry

The role of technology

According to Cederholm (2014), the driving factor for the airlines’ operational

capability development has been the advanced technology. Using mobile technology, IT

solution and the modern aircraft engine technology have been the ways to enhance the

operations and decrease the costs of airlines. The passengers’ travel experience has been

improved and the connection has been created by the technology.

13

Use of technology to reduce fuel cost

Cederholm (2014) claimed that the greatest cost of component of an airline is fuel.

The fuel expense is currently considered more than 30 percent of the total operation costs.

Boeing, the largest aircraft manufacturing company, presented that the advanced aircraft

technology offers the following advantages:

New aircraft such as the Boeing-787, 747-8, 737 MAX able to decrease fuel

consumption by double-digit percentages compared to the older aircrafts. Using

advanced technology winglets also enhances the aircraft performance.

The efficiency way to reduce noise by over 30 percent is using the technology. The

technologies also enhance payload, carrying ability of the aircraft counted by weight,

and range, distance that the aircraft can fly with the given fuel quantity, hence the

airlines are able to extend their network and connectivity because of increasing the

range. Moreover, the payload makes the airline’s revenue and profitability increase.

Some of the advanced aircraft design, for instance, the 777-300ER, is able to expand

the payload by adding ten seats of economy class.

The innovative technology solutions are also used in the other airline operation such as

maintenance and engineering and in-flight operations.

Environmental realization in the aviation industry

Annually, the worldwide aviation industry spends over 200 million tons of fuel. The

industry’s carbon emissions could be affected the increasing desire for air travel and the

mounting crude oil prices. The environmental effect could also manipulate stability the

environmental impact of aviation industry is as follows:

12% of the total emissions from the transportation industry come from air transport.

To drop the aviation carbon footprint of fuel by 80%, Alternative fuels, sustainable

biofuels, are one of the choices.

There is no alternative mode of transport for flights that are further than 1,500

kilometers which caused 80% of the CO2 emissions.

The IATA’s Carbon Neutral Growth or CNG’s goal is improvement in aviation

industry CO2 emissions in 2020. The factors consist of new aircrafts, the growth of biofuels,

and improvement of air traffic management (Cederholm, 2014).

Current developments in alternative fuel

More than ten airlines and several aircraft manufacturers showed flight tests with

various blends containing up to 50% biojet fuel during 2008 and 2011. All over the world,

many projects are taking place in China, New Zealand, Qatar, Scandinavia, Romania and

more and initiatives for the usability of biojet fuels have been cooperated by multi-

stakeholder groups namely airlines, airports, aircraft manufacturers, governments, biomass

and biofuel producers and suppliers (International Air Transport Association, 2014).

14

Aviation industry under the cooperate social responsibility

The concept of welfare of the society and do not destroy the environment is more

becoming famous and affected the aviation industry for the customers’ view that whether

business is eco-friendly. Thus many airlines have integrated the CSR into their strategy and

made the CSR activities such as:

To upcycle discarded or old material to make it valuable – some airlines, like

Air France upcycled old life jackets to become the case or old advertising

poster to be a fashionable bag or another case is Boeing that transform its

carbon fiber to sports gear or Southwest Airline that change their useless seats

on aircraft to be soccer balls.

To use alternative fuel to operate – Most of airlines change to use biofuel to

their aircraft to reduce CO2 emission

To promote through campaign or activities – At the San Francisco

International Airport, passengers are encouraged to carry the empty bottle of

water through security check and stop at the hydration stations to refill their

water for free in order to reduce the waste from security check (Kollau, 2014).

15

Thai Aviation Industry

Thailand is introduced to become a full-service aviation hub and a major

player in the multi-billion dollar aircraft maintenance industry of region. The possibility for

growth in this industry is very high with its geographic location and aggressive encouraging

industries. Between the 2009 to 2028 period, the Boeing Company forecasts a market for the

Asia-Pacific region of around 8,960 new aircrafts worth US$1,130 billion. Thailand’s

aviation sector recently includes air transport services, which consists of passenger and

freight flights, and ground-based infrastructure, which consists of all of the activities at

airports. Combined, these functions recently bring about 1.6% of the gross national product

or GNP. In its Economic Benefits from Air Transport, Oxford Economics forecasts that the

aviation industry may support 393,000 jobs in Thailand: 79,000 directly, 185,000 through the

supply chain and 130,000 from employee spending. A greater 1,802,000 jobs are created

from the effects of aviation on tourism. Furthermore, the report shows that in 2010, in the

Asia-Pacific region, air transport can enhance a total of 24 million jobs within region The

Board of Investment of Thailand, 2012). In Thai aviation industry, besides in global aviation

industry, there are three players in the aviation system as following figure.

Thai Aviation System

There are three major player groups included with:

1. The aviation industry is in supply side (Airline, Airport, Aircraft Maintenance)

2. The customers are in demand side (Passenger, Air Freight)

3. The regulatory and others are in institutional side (Government Policy,

International Agreement) (Wittmer & Bieger, 2011, p. 1)

16

The aviation system is the economic driver of Thai aviation industry as it is shown in

following.

Supply Side:

Evolution of Thai Aviation Industry

In 2013, air traffic continuously grew to 582,411 movement of aircraft or 16.60%

YoY (Year-over-Year). From statistic, Suvarnabhumi airport declined the movement 5.28%

YoY while Don Mueang airport increased 121.30% significantly. Since Air Asia relocated

operating service from Suvarnabhumi airport to Don Mueang airport to establish more

frequency flight (Airports of Thailand, 2013, p. 1).

Thai Aircraft Maintenance and Manufacturer

The aircraft industry in Thailand can trail its origins to the early 20th century when a

professional pilot, trained in France, backed to the Kingdom in 1913 and the first airfield was

established at Sra Pathum Airfield. By reason of need of more space, the airfield at Don

Mueang was opened two years later. Thailand began generating its own airplane at same

year, as reserve parts for foreign models were difficult to come by owing to inefficient

logistics. Thus the Thai airplane parts industry was born. One hundred years later, Thailand

has become aircraft maintenance's regional hub and the manufacturer of parts and

constituents for the aviation industry. In current years, as air transport activity has grown,

Thailand has become a major player in aircraft maintenance industry, and a regional service

and maintenance center for refueling, retrieving, nurturing and refitting airplane. Air freight

and passenger volumes are constant to grow; opportunities in the aircraft maintenance

industry are becoming more tremendous and more profitable The Board of Investment of

Thailand, 2014).

17

Trend of Low Cost Carrier in Thai Skies

During the past five years, low cost airlines' competitive capacities were rapidly

mounted, conquering market share at the cost of full service airlines. During 2009-2013, Thai

airlines have been grown, according to global trends. Thai airline players' average revenue

growth was 9.1%, nonetheless, most of the growth was from low cost airlines, whose average

revenue growth was 31.5% compared to average revenue growth of full service airlines was

6.9%.

In 2013, Thai airline market share computed from revenue received from domestic

routes of low cost airlines held 46% while full service airlines held 54%. Thai Airways was

still a leader of the market with 31.6% of the domestic market share, followed by Thai

AirAsia, Nok Air, and Bangkok Airways at 23.2%, 22.7%, and 22.5%, respectively. During

2011-2013, from a market share growth perspective, low cost airlines' market share growth

increased 9%, whereas market share growth of full service airlines decreased by 6%. The

airline with the greatest market share growth was Nok Air at 16.5%

18

Low cost airlines' performance was better than full service airlines with higher

EBITDAR, used for finding the performance of operation by margin of revenue and

operating cost, growth of 42% whereas for full service airlines the average rate decreased by

4%. Owing to efficient cost management, especially cost from fuel, airplane O&M, and staff

related expenses, low cost airlines' EBITDAR growth was greater than revenue growth. Thus,

low cost airlines were able to cut cost more than 10% and leading to better operating results

than full service airlines (Srisamran & Sintanabodee, 2014). It is represented in as following

chart.

Not only in the supply side can drive the Thai economy alone, but the factors in

demand side (or customer) are the factors that should be given the value to make customer

value.

Demand Side:

Passenger Traffic Growth

In 2013, the overall passenger traffic grew continuously from both domestic and

international travel. In comparing Year over Year between 2012 and 2013, it is represented in

as following table (Airports of Thailand, 2013, p. 1).

19

Cargo Traffic Growth

In 2013, the air freight traffic was reduced for 7.2% comparing Year over Year with

2012 by reason of the deceleration of global economic growth. It is presented in as following

table (Airports of Thailand, 2013, p. 1).

Importance of net export toward Thai aviation industry

Since 2012, Thailand international trade has not been energetic due to the slowdown

of global economy.

20

Top 10 exported product of Thailand are in the following figure.

From the figure, it can be observed that three products, highlighted with star, are

transported by air. The proportion of exported products by air is calculated approximately

32% of the total value of exported products or one third of top 10 exported products.

From the figure, it can be observed that three products, highlighted with star, are

transported by air. The proportion of imported products by air is calculated approximately

27% of the total value of imported products or one third of top 10 imported products

(Ministry of Commerce, 2014).

21

Institutional Side:

Investments in the Thai Aviation Industry

The projects which are supported by government in Thai aviation industry are in

follow:

Suvarnabhumi Airport: Mr. Prasong Poontaneat, AOT chairman, revealed that the

AOT is in the process of analyzing, to support for about 65 million passengers, the new

Suvarnabhumi Airport development project up from the present around 45 million

passengers, to surrogate the 2nd

phase Suvarnabhumi International Airport structuring project

after it was rejected. In the new investment plan, it is expected to have the budget cost 40,000

billion baht in order to invest in the new passenger terminal, parking lots, runway and more

28 aprons (National News Bureau of Thailand, 2014).

Trend to build more airports to receive more opportunities

Building six provincial airports to motivate air connectivity: So as to advocate

transport connectivity between Thailand and its neighboring countries, support an exchange

of visits and encourage Thailand's economic growth, the Ministry of Transport is looking into

a feasibility of building six new provincial airports (National News Bureau of Thailand,

2014).

Big projects to promote Thailand as a regional hub of air transport

The Government of Thailand promoted the mega infrastructure plan in 2020. It

needed the budget of 2 trillion baht or $70 billion, moreover, Nakhon Ratchasima is one of

the major centers of this development plans in the northeastern. An advancement of

"Aviation Industrial Area" has currently been approved by the cabinet. There is a chance to

build in Nakhon Ratchasima. One of the objectives of Aviation Industrial Area is to attract

industrialists especially from related aviation industry namely manufacturing of aircraft tires

and other rubber elements so as to motivate strong growth in rubber industry. Areas which

are interesting for the Government to be turned into Aviation Zones include: Nakhon

Ratchasima, U Tapao at Rayong province, Takhlee at Nakhon Sawan province, and

Khampaeng Saen at Nakhon Pathom province. The Department of Civil Aviation (or DCA)

and Industrial Estate Authority of Thailand agreed that owing to the availability of land of

4,000 Rai, Nakhon Ratchasima Airport is the most appropriate location. Thus it became clear

that Nakhon Ratchasima is one of the top choices (Bechegoo, 2013).

Thai Aviation’s Readiness for ASEAN Economic Community

Thailand has many positive factors which can attract international travelers to visit for

a meeting, incentive, conference or exhibition. With many good atmosphere and amazing

places, Thailand is in a good location in both leisure and business travel. This topic is

explained in the next part (Queen Sirikit National Convention Center, 2011).

22

The Reasons that Thailand Should Be the Hub

Thailand has various positive characteristics to attract the international tourists to visit

for an encouragement, meeting, convention, or exhibition held in Thailand, from kindly

welcomes of Thais, prominent venues and lodging, to the numerous striking destinations.

These are five excellent reasons that Thailand should be the hub (Queen Sirikit National

Convention Center, 2011).

Gateway to ASEAN

Thailand is the true gateway to the emerging markets of the Greater Mekong Sub-

region, because it is located in the middle of Southeast Asia, while other ASEAN’s (or

Association of Southeast Asian Nations) member countries look for the easy passage to this

fast growing economic area. Ten ASEAN’s member countries intend to create AEC (or

ASEAN Economic Community) by 2015, the common market that may have an integrated

population close to 600 million people. The free flow of labor, investment, capital, goods and

services within the community and creating the ASEAN Single Aviation Market (ASAM)

along with open-sky policy may be generated by the AEC (Queen Sirikit National

Convention Center, 2011).

Regional MICE Hub

To become the leader in global MICE (Meetings, Incentives, Conferences and

Exhibitions) industry, Thailand has improved the infrastructure, human resources,

accommodation, and experience through previous 20 years. The major venues for exhibitions

and conferences in Thailand succeed in managing domestic, regional, and world events by

using the advanced technology and communications equipment, and having perfect MICE

supplier development (Queen Sirikit National Convention Center, 2011).

Easily Accessible

Thailand may become the main aviation hub with the entry point of Suvarnabhumi

Airport because of its location in the hearth of Asia. Suvarnabhumi Airport supports over 100

flights of the airlines around the world to serving connections to the major cities in every

continent. Moreover, it planned to increase the capacity from 45 million passengers a year to

60 million passengers by 2014. The airlines in Thailand also provide links from the capital to

26 destinations with taking time less than an hour (Queen Sirikit National Convention Center,

2011).

Friendly Hospitality

Thai people are world well known for their friendly hospitality, their courteous

reception to guests. Moreover, the good resorts and hotels in the major provinces and

travelling places of Thailand make this country a famous place to visit. The guests who come

to the hotel in Thailand are assured of a very kindly welcome (Queen Sirikit National

Convention Center, 2011).

23

Great Travel Destination

Thailand is greatly favorite travelling place with 15 million foreign travelers a year

because of wonderful beach and island, national parks and rain forests, hill tribes’ villages,

eco-tourism, adventure tourism, outstanding culture, and world renowned spicy flavor

cuisine. The elephant trekking, diving in southern sea, shopping in the street markets, for

instance, are the interesting activities for the visitors. Thailand also has the Asian spa to

revitalize the tourist’s body (Queen Sirikit National Convention Center, 2011).

Thai Aviation’s Preparation for the ASEAN Economic Community

The Thai aviation industry has prepared to deal with the growth of domestic and

international demand when open the AEC (or the ASEAN Economic Community) in end of

2015. Thailand aimed to be the aircraft service and maintenance center of the region and

struggled to come to be the regional aviation hub. The challenge for Thailand is the initiation

of the ASEAN Single Aviation Market (or ASAM), which has the benefit in terms of the

geological of Thailand. The opening of plentiful new carriers and aviation routes may be led

by the coming ASEAN Economic Community in 2015. Therefore, the great demand of the

airlines is the pilots, and the airline may try to hire experienced pilots. The Civil Aviation

Training Center (CATC) planned to produce more pilots to serve the aviation industry. The

Ministry of Transport believes that the pilots for ASEAN’s member countries may come

from Thailand’s training center (The Government Public Relations Department, 2013).

The Impacts of ASEAN Economic Community to Thai Aviation Industry

Airline

The competition among airlines in Thailand, particularly in the low cost carriers, has

become stronger. The low cost airlines severely mounted their competitive capacities pending

previous five years as seen from the key market share, they have earned at the expenditure of

full service players. The revenues of the low cost carriers rose at a higher pace pending 2009-

2013, with average EBITDAR (Earnings before Income Tax, Depreciation, Amortization and

Rent) increase of 42%. The regional competition and investment in Thailand’s airline

industry may be risen by the enter into force of the ASEAN Open Sky Policy in 2015, as it is

a growing tourism destination with high capability as the Southeast Asian aviation hub. Thai

airline companies should frequently observe the business landscape and adapt their strategies

correspondingly to deal with this anticipated competition (Srisamran & Sintanabodee, 2014).

Airport

To Prepare the readiness for the AEC (or ASEAN Economic Community), the

Transport Ministry may control the feasibility study of connecting with the neighboring

countries by constructing six more airports. The Deputy Transport Minister Arkhom

Termpittayapaisit appointed the Aranyaprathet airport, Betong airport, Kanchanaburi airport,

Mae Sot airport, Muk Dahan airport, and Uttradit airport for the six potential airports to

connect with Malaysia and Indonesia by Betong airport, Myanmar by Mae Sot airport, Laos

24

and Vietnam by Muk Dahan airport, Dawei project in Myanmar by Kanchanaburi airport, and

Cambodia by Aranyaprathet airport. It may take two months for the feasibility study. If the

government approves the projects, the construction of each airport, which takes

approximately five year, may be started in 2015. Meanwhile, the second phase project of the

extension of Suvarnabhumi international airport which has 62 billion baht in cost would go

forward. To determine the AOT (Airports of Thailand) Company’s plan to create the new

multi-function terminal and study the phase two project of the extension of Suvarnabhumi

international airport at once, committee was set. The new runway, the enlargement of the

passenger’s terminal, 28 parking bays for aircrafts, and the monorail train link between new

and old terminals are included in the second phase expansion project for Suvarnabhumi

international airport (Thai Public Broadcasting Service, 2014).

Aircraft maintenance

Thailand Board of Investment, (2014) stated that the Thai aircraft industry was born

in the early 20th

century. In 1913, the pilots who trained in France came back to Thailand and

instituted an air unit at Sra Pathum Airfield. Because of more space requirement, Don

Mueang Airport was opened in two year later, the same year that Thai aircraft manufacturing

was set up (p. 1). Nowadays, Thailand has become an important player in the aircraft

maintenance industry and the service and maintenance center of the region recently.

Moreover, the Government of Thailand aims to set up the aerospace industrial estate and

repair center in country to service the region in order to support the opening of ASEAN

Economic Community (AEC) in 2015 (Thailand Board of Investment, 2014, p. 3). A report

by Mahitthirook (2014), the aerospace industrial estate and repair center resembles to be

located at the Nakhon Ratchasima Airport because the Nakhon Ratchasima Airport is not

presently used for commercial airport, can be connected to the main provinces by

construction of the motorways, is reachable by train, and has a large runway to support the

large airplane such as a Boeing 747 and several empty spaces. According to Thailand Board

of Investment (2014) Thailand's aircraft maintenance industry is expected to grow continually

after the opening of the AEC. Especially "CLMV" countries (Cambodia, Laos, Myanmar, and

Vietnam) may become the major Thailand's aircraft maintenance industry’s market (p. 2).

Thailand’s Policies Promote Thai Aviation Development

The Eleventh National Economic and Social Development Plan (2012-2016) promote

Thai aviation development

National Economic and Social Development Board (2012) announced that Thailand

planned to encourage improvement of multimodal transportation for both domestic and

international uses by link the roads, railways and water and air transportation together for

creating the international standards for speed, punctuality, and safety, and supporting the

economic collaboration of the region, and build the effective distribution systems to reduce

the cost of logistics. Thailand also planned to increase the efficiency of logistics management

by developing professional human resources and define the strategic role play by major

airports and seaports in order to enlarge the nation’s competitiveness and decrease

transportation costs in the long run (p. 87).

25

The National Tourism Development Master Plan (2012-2016) promote Thai aviation

development

National Tourism Policy Committee (2012) announced that Thailand planned to

improve and develop the logistics systems in order to support the tourism by developing the

air routes. In addition, Thailand planned to build the telecommunication network and

transportation system between neighboring countries and within the region by pushing

forward to create the Liberal Air Policy, for instance, reducing air passenger duty, to

reinforce the potential of Suvarnabhumi Airport to be the regional hub and develop Phuket

International Airport, Chiang Mai International Airport, Mae Fah Luang Chiang Rai

International Airport, Hat Yai International Airport, Krabi Airport, and Trang Airport to have

the potential to be the hub of sub-region (p. 29).

Opportunities for Thailand as ASEAN Logistics Hub

Thailand has a specified benefit because of its geological location. It offers the easy

accession to all main ports in the neighborhood along with China, Japan, and India, moreover

emerging economies such Lao PDR, Vietnam, and Cambodia. Thailand has also pledged to

the Indo-Thai Free Trade Agreement and the South Asia Free Trade Agreement (SAFTA),

which have developed the its trade relationship within the region. These factors have

appeared in the increase of some main ports such Klong Toey, Laem Chabang and Bangkok.

Thailand also has the vast road network. Nowadays, Thailand ranks No. 3 in the

ASEAN region with a road density of approximately 125.7 kilometers per thousand square

kilometers. Thailand could come to be the regional logistics hub of ASEAN as it is adjoining

with Myanmar, Lao PDR, Malaysia, and Cambodia, with the chance of a Trans-Asian

highway link up most countries on the Asian midland. Furthermore, the Government has

taken the initiatives to develop the rail and road infrastructure network to meet the

international standards.

The increase of air transport infrastructure also has the potency to make Thailand get

the logistic benefit. Thailand’s position in the air freight market of the region is boosted by

serving the eminent Suvarnabhumi international airport.

Thailand may be chosen to be the regional operations hub of the international logistics

companies because of Thailand’s outstanding geological location and prosperous industrial

activities. Thailand has already chosen as the regional manufacturing hub of some foreign

automotive companies, for instance, Toyota and General Motors. The additional momentum

to the logistics segment of Thailand could be added by the growth of exports of clothing and

furniture industries (Buranasomphop, 2013).

Challenges

Thailand also needs to conquer some challenges in order to become the regional

logistics hub. It has to compete with the other effective logistics hub that located in the same

region. The Thailand’s prime competitor may be Singapore, which provides the logistics hub

26

in Southeast Asia for numerous companies presently. The good air and ocean transport

infrastructure of Singapore has set up already. The port in Singapore is the most vivid port

with the capacity to support approximately 20 million TEUs (twenty-foot equivalent units) a

year. There is also the state-of-the art airport in Singapore which has the global connection

and the good logistics support.

In the competition to become the ASEAN’s logistics hub, the other major competitor

of Thailand is Malaysia. The efficient infrastructure in Malaysia is being developed swiftly.

Malaysia is able to serve the state-of-the-art logistics support infrastructure such huge

logistics parks within the region with its two seaports and five international airports which

connected altogether with the good road network. Moreover, the government of Malaysia

attempts to smarten up the infrastructure further.

In comparison, the infrastructure development of Thailand is behind the infrastructure

of Singapore and Malaysia. Although it needs to achieve current challenges, Thailand has

good opportunities to motivate as a regional logistics hub. It has to develop ahead of its rivals

first and to achieve in its quest (Buranasomphop, 2013).

27

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