Stimulus and new jets key to rebound
The financial results of Thai Airways International (THAI) are expected to bottom out in the second quarter, while recently approved tourism stimulus efforts should help airlines in the second half even as renewed US-Iran tensions cause jet fuel prices to rise, say analysts.
Thanapol Jiratanakij, an analyst at CGS International Securities (Thailand), said the flag carrier’s management acknowledged that advance bookings softened in the second quarter amid the Middle East war, yet underlying travel demand remained resilient based on consistently high cabin factors despite industry-wide fare increases.
Passenger preferences shifted towards direct Asia-Europe flights, benefiting THAI’s non-stop network, he said following a CGS-hosted luncheon of the airline’s executives and institutional investors last week.
THAI reduced capacity below its original plan for May and June by trimming frequencies and deploying smaller planes on weaker routes to protect profitability.
With no further capacity cuts planned from July onwards, management expects operations to normalise in the third quarter. Robust electronics-related air cargo demand and the upcoming European peak travel season should provide additional support for yields, load factors and revenue growth in the second half of the year.
“While higher jet fuel prices present a near-term headwind, management believes the impact is manageable as fuel prices have moderated from their recent peak,” said Mr Thanapol.
In CGS’s view, although airlines have limited ability to absorb higher fuel costs given the industry’s thin margins, higher fuel prices are typically not borne entirely by carriers.
“Historically, airlines have been able to recover a majority of higher fuel expenses through fare increases,” he noted.
TOURISM STIMULUS
Dithanop Vattanawakin, an analyst at Krungsri Securities, said three tourism stimulus measures with a total budget of 2.45 billion baht are expected to support the domestic aviation and hotel industries.
The “Thai Tiew Thai Plus” project is similar to the “Tiew Thai Khon La Khrueng” project in 2025, which received a very good response, with entitlements almost fully utilised within the first few weeks of implementation.
The “Fly Thai All the Feeling” project sees the government support fare discounts on domestic flights for participating airlines for a total of 400,000 seats. Meanwhile, the “Thailand Air Connect” project offers partially subsidised scheduled flights and charter flights to persuade foreign tourists to travel here.
With a budget of 500 million baht, airline and airport operators as well as hoteliers can benefit from this latter measure, which set a target passenger volume of 487,000 people, said Mr Dithanop.
FLEET RENEWAL
THAI remains in an investment phase until 2028 as it executes its fleet renewal programme, which management views as the key driver of growth for five years.
The airline expects to receive 28 planes and retire six older aircraft in 2026, ending the year with a fleet of 102, close to pre-pandemic levels, said Mr Thanapol.
The fleet expansion supports network growth across Europe, India and China, while improving capacity flexibility.
Management highlighted the Airbus A321neo as an important jet for short-haul operations and new route development, while the Boeing 787 fleet will underpin long-haul expansion from 2027.
The company also plans to increase frequencies on key routes such as Frankfurt as additional aircraft enter service.
Beyond capacity growth, management expects its upgraded fleet to lift profitability by offering a better product and lower operating costs, he noted.