Thai Air First-Quarter Profit May Rise on Travel Demand, Baht

By Anuchit Nguyen

Feb. 13 (Bloomberg) -- Thai Airways International Pcl, the country's biggest airline, may post higher first-quarter profit as a stronger baht reduced debt costs and travel demand rose. Net income probably increased 8.2 percent to 4.12 billion baht ($122 million) in the three months ended December, according to the median estimate of six analysts surveyed by Bloomberg News. Sales may have climbed 5 percent in the quarter to 48.2 billion baht. The Bangkok-based airline is scheduled to report earnings by Feb. 15.

Thai Air benefited from a 6 percent gain in the baht in the quarter, which cut the cost of dollar-denominated fuel and foreign currency debt. The number of passengers rose to 4.99 million in the quarter ended December from 4.74 million a year earlier, according to the carrier's Web site. Its load factor, or proportion of seats filled, rose to an average 77.8 percent from 72 percent a year earlier.

``Bookings for Thai Air's flights have been very high until February because of rising travel demand in the region,'' said Siriwan Naphawaranon, an analyst at Siam City Securities Co. in Bangkok. Thai Air ``had large gains as the stronger baht late last year reduced value of its foreign-currency debt,'' said Siriwan, who has a ``buy'' rating on Thai Air stock.

The airline's move to Bangkok's new airport in September may increase its costs as overcrowding and cracks in the tarmac force the government to shift some flights to the old air field.

Thai Airways shares were unchanged at 44.50 baht in Bangkok on Feb. 12. The stock has gained 0.6 percent this year, compared with the 7 percent advance in the 16-member Bloomberg Asia Pacific Airlines Index.

`Increase Yield'

``Thai Air's flights to and from Europe, one of our biggest markets, are about 90 percent booked,'' Wallop Bhukkanasut, executive vice president for commercial operations at Thai Air, said in a telephone interview. ``We have been trying to increase sales of multi-destination tickets to increase yield and utilization of our aircraft.''

President Apinan Sumanaseni added four new Boeing Co. 777- 200ER planes during the quarter, helping the airline cope with a 5.4 percent rise in passenger numbers.

Thai Airways transferred to Suvarnabhumi Airport on Sept. 28, a move that probably raised ground costs in the quarter. Those costs will rise further when the government reopens the old Don Muang airfield amid congestion and construction flaws, forcing the national flag carrier to duplicate services, facilities and staffing, said Peter Harbison, managing director at the Sydney-based Center for Asia Pacific Aviation. ``The decision to reopen the airport is still not finalized, and is confusing,'' Bhukkanasut said.

Overseas Visitors

Thailand usually attracts its highest number of overseas tourists between November and January as travelers from Europe and some other Asian countries seek warmer weather during their winter season.

A series of bombings on Dec. 31 in Bangkok killed three people and wounded 42. Prime Minister Surayud Chulanont blamed the blasts on ``people who lost their political power'' in a Sept. 19 military coup that led to his appointment, and said the threat of attacks will persist.

Thai Air probably booked a gain of about 1.7 billion baht in the quarter from the Thai currency's strength against the dollar, yen and euro, Siam City Securities' Siriwan said. The baht traded at 35.45 at the end of the quarter compared with 37.57 at the beginning of the period.

Debt

About 78 percent of Thai Air's debt is denominated in foreign currencies, she said. The airline had 101 billion baht of long-term debt as of Sept. 30, according to a stock exchange filing for the fiscal year beginning Oct. 1.

Asia-Pacific passenger traffic is estimated to grow at a 5.7 percent annual rate between 2006 and 2010, outpacing the global average, according to estimates by the International Air Transport Association in Montreal, which represents 260 carriers worldwide.

Increasing passenger numbers have allowed Thai Air to keep fuel surcharges unchanged instead of matching cuts by rivals such as Singapore Airlines, said Bhukkanasut.

Singapore Airlines, the world's largest carrier by market value, last month cut fuel surcharges by as much as 11 percent, the second reduction in less than four months, after jet kerosene prices declined.

Thai Air raised fuel levies on both domestic and international flights by as much as 50 percent in August 2005 and hasn't reduced them since.

Fuel Expenses

Fuel is Thai Air's single-largest cost, accounting for 38 percent of total operating spending in the fiscal year ended Sept. 30. Jet fuel traded in Singapore at a daily average of $74.11 a barrel in the three months to December, compared with an average of $70.17 a barrel a year earlier, according to data compiled by Bloomberg. The price of jet kerosene has fallen from a record $93 a barrel on Aug. 8.

``Falling fuel costs will give Thai Air good earnings potential because rising passenger demand and new aircraft will continue to boost its revenue,'' said Kongsawat Mongkolpornudom, an analyst at Union Securities Pcl in Bangkok.

The following is a table showing the median forecast for Thai Airways' first-quarter earnings compared with the actual results from a year earlier. The figures are in millions of baht.