The impact of Asean Economic Community (AEC) to Thailand's no frills sector

The approach of the Asean Economic Community (AEC) in a couple of years is meaningful for the aviation industry in Thailand, especially low-cost carriers, which are flocking here to cash in on the business opportunities from the anticipated tourism boom, resulting in greater competition.

Given the country's strategic location as a connectivity base, Thailand is becoming a battleground for aviation players. At present, there are about 24 low-cost carriers flying regionally, including four based in Thailand - Thai AirAsia, Nok Air, Orient Thai, and Solar Air. Some others operate a few flights to Bangkok, such as Tiger Airways and Jetstar Asia Airways from Singapore, Mandala Airlines and Lion Air from Indonesia, and South East Asia Airlines (SEAir) and Cebu Pacific Air from the Philippines. In the early stages, they launched service in their homelands, but lately have started spreading their wings regionally.

"Not only low-cost but more full-serviced carriers will be flying in here when the AEC opens," Udom Tantiprasongchai, chairman of the advisory board of Orient Thai, told The Nation. "Thailand is very lucky to have a good geographical position as a regional centre for the aviation industry. Unfortunately, Thai operators will be forced to face stiffer competition and will find it even harder to stay [in business]."

From now on, Udom said, the market would be more dynamic. Operators will find it more and more difficult to stay on, especially those that lack funding and strategic thinking to cope with the fast-changing business environment.

AirAsia will play a leading role in the Thai market. The recent visit to Bangkok by Tony Fernandes, the airline's founder and chief executive, to meet with Prime Minister Yingluck Shinawatra underscored this. He sought her support for the airline's rising role in the Thai market by using the country as a hub. An analyst who declined to be named said political connections were one of the keys to doing business regionally if companies wanted to secure a foothold in each country.

AirAsia, founded in 2001, has become Asia's biggest low-cost carrier. It has established a business foundation throughout the region, with 118 aircraft in its fleet at present and a further 357 on order. The analyst said it was apparent that the carrier would have a big influence on the regional skies, including Thailand. It could outperform Thai Airways International, the national carrier, within five years. Udom said: "The success of AirAsia today is [based on the fact] that it has deep pockets and [is led by] the visionary Fernandes. He is smart at doing business."

Executives in the industry say AirAsia also prospers because of its business flexibility. It makes decisions quickly, especially when it recognises that part of its business is failing. It keeps its overall operation strong by cutting off poorly performing services.

In contrast, THAI as a state enterprise is bureaucratic, takes a long time to find solutions to problems or launch new routes. Sometimes, by the time it acts, it is too late. There is no doubt THAI has gradually seen its market share snatched away by low-cost carriers, especially in the regional market.

The trend is clear that passengers are looking for affordable flights. They do not mind flying two or three hours with a low-cost carrier even if no food or drinks are served on board.

Fernandes told the media last year in Jakarta that he intended the AirAsia brand to be as well known as Coca-Cola. Its rapid expansion may help fulfil his ambition, and THAI may feel the pinch. Although THAI has a 49-per-cent stake in low-cost carrier Nok Air, that may not be enough to protect its market share from AirAsia's expansion.

This reality is underscored by the size of AirAsia's fleet. Nok Air has 16 aircraft, while Thai AirAsia will have 34 by the end of this year. Yet both were formed around the same time, nine years ago. Also, Thai AirAsia operates 174 daily flights from Don Mueang International Airport, against just 84 by Nok Air. By 2015, Thai AirAsia plans to have 46 aircraft. Although Nok Air also plans to acquire new planes, they are to replace old ones, leaving the total number unchanged. Beyond AirAsia, analysts argue that Tiger Airways, partly owned by Singapore Airlines, is in a strong position. Currently, it holds stakes in Mandala Airlines and SEAir, which will strengthen its route coverage in the region. Previously, Tiger planned to set up a low-cost carrier in cooperation with THAI, but the idea fell through when it failed to win approval from the Thai government.

Meanwhile, Thai AirAsia has adopted more aggressive marketing from season to season, especially low-priced strategy. It has lured a growing number of people to use the service.

Pinyot Pibulsonggram, Nok Air's vice president for sales and marketing, acknowledged that AirAsia was playing a bigger role here, but believed its pricing strategy had not forced Nok Air into a corner. The airline has room for growth by positioning itself as a ''premium low cost" carrier, offering some drinks and snacks for passengers. "Price is the first thing that passengers take a look at, but it is not the final reason they make a decision to buy," he said.

People have welcomed the arrival of more low-cost carriers, although they are foreign. They enjoy the broader travel options. The more low-cost carriers there are, the cheaper the tickets will be. Service charges such as for baggage will also be eased, forced by competition.

So the battle for the skies is getting fiercer. Weak operators will be forced out of business.