By the Blouin News Business staff

Thai, Malaysian flag airlines restructuring in turbulence

by in Asia-Pacific.

The Thai Airways International Pcl logo is displayed on a model Airbus Group NV A380 aircraft at the company's headquarters in Bangkok, Thailand, on Wednesday, March 25, 2015. Bloomberg/Bloomberg via Getty Images

The Thai Airways logo on a model aircraft  in Bangkok, Thailand, March 25, 2015. Bloomberg/Bloomberg via Getty Images

The flagship airlines of Thailand and Malaysia are changing course amid turbulence. Both are scaling back unprofitable flights as part of broader restructurings, which aim to wrest higher yields from lower overall capacities. Thai Airways will cut 1,401 jobs through “voluntary retirement” this year and suspend its loss-making flights from Bangkok to Los Angeles and Rome as of October 25, the firm’s president Charumporn Jotikasthira said on Sunday.

According to Reuters, the state-controlled carrier aims to reduce operating costs and capacity by 20% under its two-year restructuring plan, which also calls for aircraft sales and a reduction in staffing. The firm is one of several state-controlled companies that Thailand’s military government has targeted for reform since seizing power in May 2014.

“It’s normal that we have to cut costs and adjust flights to suit changing situation,” Charumporn said, adding that Thai Airways aims to cut operating costs by up to 9 billion baht ($258.22 million) this year. These two loss-making routes cost the company over $2.87 million a year. The flight suspension to L.A. will close Thai Airways’ operations in the U.S.– its flights to New York similarly ceased in 2008 because the route was unprofitable.

However, Thailand’s flagship carrier will double the number of flights from Bangkok to London and Frankfurt to twice daily, Charumporn added. He also reiterated his expectation that Thai Airways’ operation will break even at the end of this year, although the bottom line would be impacted by rising restructuring costs. But there remains much work to be done– Thai Airways still has 50 routes that are either loss-making or generate low returns. Diving right in, Thai Airways said it will cut the frequency of its flights to Kolkata, India to further reduce costs.

Meanwhile, Malaysia Airlines will cut its number of weekly flights to Australia by over 40%, from 73 currently to 43 by mid-August. According to the CAPA Centre for Aviation, “the reductions are sensible as for the most part they simply reverse earlier expansion that was overambitious and unsustainable.” Overall Malaysia Airlines’ capacity to Australia in September 2015 will be about 19% below September 2013 levels. Its drawback risks leaving an opening for competitors, particularly Malaysian rival AirAsia X, but the flag carrier has much larger worries.

In the aftermath of the airline’s twin tragedies last year (its flight that went missing off of Indonesia and its flight that was shot down over eastern Ukraine), its recently-appointed CEO Christoph Mueller said “We are technically bankrupt,” and that the “decline of performance started long before the tragic events of 2014.” Thousands of jobs are being cut (Mueller said on June 1 that the airline had “offered jobs” to 14,000 of its existing 20,000 employees), and its global capacity is being scaled back as it seeks to restore profitability within three years at a smaller, more productive level.

By contrast, other airlines in Asia are expanding, in particular to increase capacity with the comparatively wealthy countries of New Zealand and Australia. Starting in September, China Eastern will expand its Shanghai-Auckland flights from a seasonal summer service to a four-times-per-week route year-round. And in November 2015 the Australia capacity of the Singaporean airline Scoot will be up by about 60% compared to last November.

Ultimately, neither demand nor market share is the main consideration in Asia-Pacific air tourism; profitability is.