ch-aviation interview: Patee Sarasin, Vice Chairman Nok Air

ch-aviation CEO Thomas Jaeger had a chat with Patee Sarasin, Vice Chairman of Nok Air. Read our exclusive interview to find out about how the Thai carrier has overcome a tough few years and its plans to use China on its road to recovery.

Learn about Nok Air on ch-aviation:

I’ll start with a personal question, if you don’t mind. Obviously, you’re a big musician, as well, in Thailand.

Oh, not that big!

But you’re quite famous for doing that as well. And recently you performed on The Mask Singer, and you were disguised as an eagle. It’s a show where people don’t know who is singing. Why did you pick an eagle? Did you want to show that Nok Air is attacking again after some difficult years?

No, no. It was designed for me already to be the eagle. I guess what happened was the show took one of our drinking bottles from the plane, which has that eagle on it. So they chose that particular mask to be the key element.

But if you look at recently, you were one of the most profitable airlines in the world, and then had some rough years. What would you say was the key factor? Was it that you had some pilot issues? Or was it the CAA downgrade at exactly the wrong time when NokScoot started? Or was it irrational competition coming into the market? What was the key factor?

All three. The competition came in in such a massive way. And then they started a complete price war on the domestic market. They were willing to lose money on it. And therefore what happens with the overcapacity coming into the market, they start dumping prices, so that really hurt us quite a bit. That’s number one.

Number two, yes, with NokScoot unable to fly to Japan and Korea, probably two or three days after we launched, that became the second really big issue.

And then the third part was an inability to expand across the region. That was our plan, to go across South East Asia, but it was hampered by the red flag from ICAO. So that definitely was truly an issue, as well.

So you’re really focused on the domestic market, and for a long time you were the strongest player in the domestic market. There are some secondary and third tier cities that I have flown to lots of times with you as well. If you look at a market like Nakhon Si Thammarat or Phitsanulok, you have been there by yourself and had a monopoly for many years. And now you suddenly have two or three carriers in there. How do you cope with that?

Well, the key element is how long are the airlines willing to lose money? Obviously, what has been clear is that the price war is not driving the volume in terms of yield for any airline. So therefore even AirAsia, ourselves, we’re looking at the prices to see how we can boost up the prices in order to maintain that particular yield and the same volumes. I think what happened so far, looking at the market now, even with Thai Lion in place, they are trying to push up the prices as well now. So this year, so far, in terms of performance, okay we’re not back in the black yet, but definitely much better.

Yes, I’ve seen the numbers. If you look quarter by quarter…

Yes, the performance is much better than last year.

Just to come back to these market examples, if you look at a market like Phitsanulok – because I’ve lived there myself – you have had two or three daily frequencies in the past on 737s, and now you have all three players flying in there. Have you seen some capacity discipline in the meantime, that after initially overshooting the market it’s now getting more rational?

Basically, with Phitsanulok today, it’s back to normal now for us. But what we did also was to turn the lower load factors, some of our flights, to Q400s instead. So that has been working very well for us.

Plus on the future side, we are planning to fly more to China anyway. So within the next two years you will see Nok Air fly, over 50% of the revenue will come from flying to places like China or India. So we’re sort of manoeuvring the changes in our plan to actually expand to fly much longer with these 737s.

 

within the next two years, over 50% of revenue will come from flying to places like China or India

 

Originally, when you started out flying quite some time ago, and you’ve been there since the beginning, you were already flying to places like Bangalore and so on. And then you quit that, because the first time around it didn’t really work. How has the second time been different? You started quite slowly by testing the waters with going to Yangon and Ho Chi Minh City. And Hanoi you started and now are dropping again. How has the second expansion for Nok Air worked?

First of all, what we’re going to be focusing on mainly this year is going to be China. And next year as well. Because number one, we’re taking some of the aircraft out. About three or four old aircraft out. We actually talked to Boeing already. We’re going to increase the MTOWs for the newer aircraft so that we can fly further. So our focus mainly is going to be going to China, to establish that particular market in a big way.

Having said that, one of our biggest mistakes in going to Yangon and Ho Chi Minh, and even Hanoi, is that we didn’t really put in a lot of marketing in terms of these international countries that we’re flying to. So now with these changes, we’re starting to boost the marketing aspect in terms of these particular cities on a local basis, so therefore you can start seeing the changes. Actually we are starting to see the changes already.

And on top of that, and the way we sell things now, is that we try to connect the cities. Meaning, for example, you can buy a ticket from Phuket all the way to Yangon, and vice versa. So that also creates a whole new route for the traveller experience. And it’s working out pretty well so far, as we try to plan out and experiment with these kinds of things.

So in a sense, what was a curse two years ago might have turned into an opportunity now. Because as at September 1st, you have a new AOC, other carriers don’t, so there are new market opportunities now for you to go into China.

Yes, absolutely. We believe that by the end of this year we will finish all the cost reduction programs. And starting fresh next year we should be in a much better position.

So how do you plan this new Utapao base to work out in that context? Is that mainly for charter flights, for Chinese tour operators as it is currently? Or do you plan to also operate scheduled from Phuket, Krabi and so on up into China?

Oh, we’re definitely working towards that; we’re scheduled charters now. We’re converting those to become scheduled very soon.

For example, in Zhengzhou, we do Don Mueang – Zhengzhou today and Nanning. These two cities, we’re experimenting with now to become scheduled. So in other words, reducing the amount where agencies buy our tickets. We have been selling them ouselves through our website. And we have established marketing on WeChat and Weibo. So that is going to be the experiment and that is how we are going to change the way we operate.

In the domestic and also in the short haul regional market, you and Bangkok Airways are the only ones that operate turboprop aircraft. You have the Q400s and the ATRs – I don’t know if they are going to stay or what your plan is there – but it also has the side effect that theoretically you are the only other operator that could operate into Koh Samui. How low would Bangkok Airways have to go so that you would be willing to give it try? Obviously, they know that if they let you in they will have a problem with their high margins.

Yes, absolutely. So first of all, the ATRs, we are planning to phase them out anyway. Because our market is going to be Q400s. So we are working towards that now.

On the Samui part – I’m not sure we’re going to be landing at Samui. The reason is because, number one, we are going to ruin their market. Number two, it’s going to be a price war, and no one is going to win on this one. So the way we do it is through connectivity with the boats that we’ve been doing. I think that we just have to promote that much better, and I think it should be okay.

Are there new domestic markets that you are exploring as well? Two or three years ago you managed to open up a couple of new cities that seemed to work quite well. So you opened to Chumphon and Ranong, and were kind of a pioneer in that. Is that something you are still looking at?

No. We’re definitely looking more in terms of the international market. To increase the stage length to be much higher. We’re exploring Hong Kong – Phuket, we’re exploring Hong Kong – Hua Hin. Because there’s tonnes of hotels in Hua Hin, and it’s also a destination in itself. And for Chinese to come into Thailand, to Hua Hin itself, right now you have to go via Bangkok. And the traffic sometimes is disgusting between Bangkok and Hua Hin. So maybe direct is going to create much more demand.

In your marketing, I’ve noticed that you’ve had a bit of a Southwest Airlines dilemma in the past. Because for years you have been advertising all over the country that it’s free baggage, free food, that you are the premium, number one premium low-cost carrier in Thailand, in Asia and the world. Has it been a bit of an issue for you that you have recently had to adjust that and change the business model to become a bit more AirAsia-like in that sense?

Well, we started to change the model anyway. We’re coming up with a new project which will change the business model.

First of all we have to turn back and see that the competition, the environment has changed. So therefore, today people take airlines mainly just because of the price or the convenience more than the feel or image.

So you think loyalty has gone down?

No, the loyalty hasn’t gone down. But the fact of the newcomers coming now to the market has changed the way they think. So therefore, we are going to change our model a bit – hopefully the beginning of October – to be more LCC-like, and unbundle a lot of things, so that we can be much more competitive.

The problem is the people don’t compare apples with apples, they’ll look at apples with oranges. They’ll just say, oh well, AirAsia is that much cheaper.

Exactly.

Just out of personal interest, I have noticed that if you go out to the cities, to the destination cities, and also in Bangkok, people have a much higher view of you than they have of other airlines. So do you see that you can get the premium yield over other airlines?

I think we still can. It depends on the target market we’re actually going to penetrate. What Nok has had the past two or three years which has been hampering us are much more problematic issues, putting out fires, rather than initiating new products or new innovations or so forth. What we are planning to do now is to come back to that area, to start coming back with innovation and so forth.

AirAsia is trying to come up with products now like a lounge idea, and I don’t think that’s the right way of doing it. Because I think that at the end of the day, the key element is still in the air, what we can provide in terms of the comfort and so forth. We are still the only product that has that element of comfort left in the low-cost areas in terms of the flying experience itself. So we’re going to focus on that particular part. And plus all the other initiatives through innovation and so forth.

You’re one of the founding members of the Value Alliance. How does that actually work for you? Because if you look at the connectivity options you have, you have a bit of a problem in Bangkok. Because you were working with Scoot anyway, and the team behind Scoot, and you have been the guys pushing for this, but everyone else flies to Suvarnabhumi and you fly to Don Mueang. Do you actually see benefits from it yet? Or is still too early to tell?

It’s still very much too early to tell. But like you said, there are constraints, the fact that people fly to Suvarnabhumi and we fly to Don Mueang.

Obviously we’re working towards things with Scoot and NokScoot right now to see how it really works. And then we’re going to start seeing how we move to overcome this space between Suvarnabhumi and Don Mueang airport in the future.

 

There’s got to be a damn good reason for us to expand with new aircraft and acquisitions. Right now we’re reducing capacity on our side.

 

With NokScoot you have so far focused on China and Northeast Asia. Are there plans to also go south? To go to Australia or to go to Europe? Like Thai AirAsia has announced, and at least in the Middle East they have tried it and failed. Or are you happy where you are, and you want to grow that further?

I think China and northern Asia will still be the focus for NokScoot, anyway. They’ve only got three aircraft. They’re adding a fourth one coming in. The red flag might be lifted by the end of this year. So this is where we see much more potential of where we can drive traffic forward up north, rather than down south. In terms of the Middle East, I think AirAsia X tried it. It hasn’t worked out very well. So we know now that potentially it’s just too much competition going down south.

Having said that, we’ve got Emirates, we’ve got Etihad, we’ve got all these guys. And on the back end of the planes it’s like low cost cost anyway. So there’s no point competing with them in that aspect.

I heard that AirAsia X might be going to Europe already. Again, it’s a little bit farfetched for now. I think mainly to focus on something which is much more realistic in Asia is much better. And also the number of travellers in Asia is enormous compared to going to Europe.

What do you think will be the major challenges for the next years to come? Is it the airport infrastructure? You were quoted as calling Don Mueang a zoo.

It is still a zoo.

And in Suvarnabhumi there is some expansion work going on. But in Phuket you have issues, in Chiang Mai you have issues. So is that going to be the biggest issue in the next few years?

There’s two things. Number one, the government either has to balance the number of airlines participating and the capacity coming into the market. That’s number one. Because that is still doable. For the infrastructure part, they have never planned for Thailand to be this full, in terms of every single airport in the market. So both things. Either you build more airports, bigger airports, bigger runways, or you reduce the number of airlines flying domestically. That’s the answer. So it’s up to the government to do this, and nothing on my part.

It’s a challenge, yes. It’s definitely always a challenge. I’ve been running an airline for 13 years. We’ve had our ups and downs and mistakes and profitable days, and so forth. What we’re trying to do now is ride with the changes. The behaviours of the consumers, the destinations, where the market is. And while I’m in position to do this, I’ll continue to plan out in such a way that we have better corporate planning for the future, so that we can expand with what we have. We’re not going to rush to bring in more planes for no reasons. There’s got to be a damn good reason for us to expand with new aircraft and acquisitions and so forth. Right now we’re reducing the capacity on our side, so that we can match demand and supply.

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