Thailand's Nok Air Eyes China Expansion, Renewed Profitability

Faced with intense competition and maturation of the local market, low-fare Thai carrier Nok Air has decided to pursue international expansion, first into China, as it seeks to diversify its portfolio and return to profitability.

While Nok has managed to carve out a meaningful presence on its existing domestic and regional routes, the airline has plunged into losses amid market overcapacity and low utilization of its aircraft due to a pilot shortage. Last year the carrier reported a net loss of $20.37 million.

Chief executive officer Patee Sarasin told AIN that Nok Air will launch three weekly flights from Bangkok to Kunming in November, followed by service to Quanzhou by the end of this year. Nok currently serves Nanning with three-times-weekly charter flights, and Chengdu with one daily charter flight.

“It’s perfect timing to go to China,” Sarasin said. “The country is opening up but it has restricted certain Thai airlines from going in. For now, the market isn’t saturated.”

Last year China joined Japan and South Korea in banning new scheduled and charter flights from Thai carriers after an audit by the International Civil Aviation Organization (ICAO) flagged Thailand as a “state with significant safety concerns.”

Sarasin noted that Nok has upgraded its flight operations to satisfy China’s regulatory requirements while pushing forward to expand its regional presence. “China is not the only game we’re going to play in; we’re looking at India for the future,” he said. “But our current focus is the short, three-hour regional flight so we can spread across Asia.”

Bullish about the region’s growth prospects, Sarasin added that Nok can leverage its newly formed alliance—dubbed Value Alliance—to boost usage of its network. The alliance includes eight Asia-Pacific budget carriers and allows customers to book connections using a shared platform. Under the terms of the membership agreement, the carriers will offer code share and interline capacity while all revenue gets distributed based on passenger volumes.

“The critical ideology behind (the alliance) is that we are sitting beside the AirAsia Group and the Lion Group—they’re the big guys,” said Sarasin. “[They’re] not necessarily successful, but they’re big. The alliance takes the strong local brands, ties them up and creates the ability to expand throughout the region. We’re now suddenly exposed to Asia-Pacific.

“The low utilization is because we’ve had a lack of pilots,” Sarasin added. “Our utilization is down to seven to eight hours a day. We’re expecting new pilots in September and plan to get utilization back to 11 hours.”

Sarasin anticipates returning to profitability by the fourth quarter of this year. “Right now our main revenue comes from the domestic market,” he concluded. “In five years, 40 percent of revenue will come from China and regionally.”