tg911

After three straight money-losing years, Thai Airways International (THAI) will turn a profit next month thanks to stronger sales and cost-cutting, the flag carrier’s president said on Tuesday.

Charamporn Jotikasthira said THAI hired foreign consultants to help improve marketing because 65% of the airline's revenue originated in other countries. Overseas experts also are working on THAI's restructuring...

Passenger load factors have hovered around 73% for a long while, but that should improve to at least 80%, Mr Charamporn predicted.




http://www.bangkokpost.com/business/...president-says

BinSabai

I myself will have so many flights on TG in January that they certainly will turn to profit!

11277m

Yes, in today's BKK Post.

These financial plans always sound so optimistic and confident, and they seem to be repeated, in a slightly different form, every few months.

tg911

Must admit its the kind of headline news i expect to read in Not The Nation.

brunos

It sounds like the President is trying to defend his job.

dh01

It would seem one main reason they can hope to return to profitability is the very low price of fuel, which has helped so many airlines report large profits, even when hampered by strikes (LH, AF come to mind)

tg911

Wonder if their gamble will work out this time.

Thai Airways also plans to extend the period for which it has 73 percent hedging cover to 2016 at the lowest possible price, the official said. The lowest prices at which the airline has hedged so far were at $70 a barrel, he said.

http://www.reuters.com/article/thai-...0UO1IG20150109

Kacee

Meanwhile, current market price is in the $37 range. Wonder how much of TG's losses can be attributable to poor hedging strategies. They should not be playing this game.

Sam Drucker

Anybody know what the current fuel surcharge is, or if they ever rolled it back from the times when fuel prices peaked?

With current fuel prices, the fuel surcharge should be 0, if not a negative value.

brunos

Hedging fuel price is a good, I would even say necessary practice. It makes future costs predictable and allows fair long term planning. Without hedging airlines would be heavily damaged when oil price shoot up without warning. Smoothing volatility is the normal business practice. Not hedging is speculating on oil prices and hoping that it would go down rather than up.
As long as paid oil prices (including hedge) are high, a fuel surcharge is in order. If oil price remains low and hedges concluded at a high price matures, then a zero fuel surcharge should be in order. The US have fined airlines (BA comes to mind) for charging abnormal fuel surcharge. The result is that the overall surcharge is now carefully decomposed into taxes, fuel surcharge and carrier surcharge. This last one is at the discretion of the company.

Kacee

That's like saying "investing in options is a good practice." It can be a good practice if you know what you're doing. The futures markets are a shark tank and the unsophisticated will get eaten alive. Poor hedging strategies can - and have - cost airlines hundreds of millions of dollars.

The evidence suggests TG should not be playing in these waters, at least not without expert assistance.

brunos

I respectfully disagree with you totally.
An airline has almost certain quantities of fuel they need to buy in the coming couple of years. Hedging the fuel price means smoothing volatility in oil prices. This is a wise risk-averse decision. Not hedging means you take a lot of risk (speculate on oil prices).
The situation is quite different for someone with a naked fuel position (meaning no scheduled purchase or sale of fuel for business reasons. Then taking a position in the futures market, long or short, is speculating.

The situation is similar for, let's say a European company who knows that it will have to pay a USD10 million invoice for some equipment six months from now. It could hedge the 10 millions into euros to freeze its expenses. or it could speculate on the EUR/USD rate and not hedged. But a company is not in the business of speculating on currencies (or oil prices). The safe decision is to hedge your dollar expense. Then the European company exactly knows its cost at the time of purchase of the equipment.

Kacee

I'm sorry, but that is a very simplistic view that fails to take into account the complexity of building a properly hedged portfolio.

Airlines frequently fare quite poorly in this arena. For example (and these are just recent ones):

Cathay Pacific Misses Estimates on $482 Million Fuel Hedging Loss.

United, Delta Fight to Reduce Losses; American Enjoys Hedge Freedom.

Main Wheel

It is standard practice in the airline world to hedge fuel. Sure there are losers as quoted but there are also winners.

One may ask why is it standard practice in almost every airline in the world if not for the benefits outlined by Brunos.

If an airline is struggling and the oil price is rising it is how they lock in a price to ensure survival throughout that high period.

Kacee

That is debatable. You will note the second article I linked discusses how AA has not been hedging and how that's worked for them:
In all events, my basic point here is that there is abundant evidence TG's current management doesn't have the expertise/skill needed to successfully hedge.