Management's Discussion and Analysis for the third quarter ended September 30, 2017 for Thai Airways International Public Limited Company and Its Subsidiaries
  1. Executive summary

    World economic growth was likely to continue. The US, EU and Japanese economies expanded at a faster speed as the economic fundamentals improved. Labor market recovering and consumer confidence were in good character resulting the world trade volume has increased. The emerging economies in Asia have continued to grow from the enhanced exports following better global demand. Private consumption has improved in better direction. Meanwhile, the Chinese economy somewhat developed and was likely to decelerate since the reform of the economic structure initiated. Crude oil prices in the third quarter of 2017 increased from the same period of last year due to the reduction of oil production in the oil producing countries.

    The Thai economy in the third quarter of 2017 has improved significantly, driven by robust export growth following the global economic recovery and indicated the highest growth in four consecutive years, especially China, CLMV and the US market. Private consumption also well expanded while the tourism sector has continued to escalate due to the number of foreign tourists arriving mainly from China, CLMV, Malaysia, South Korea and India etc. The number of arrivals in the third quarter of 2017 reached 8.78 million, an increase of 6.7% from the previous year. Furthermore, the easing monetary policy facilitated to boost the economy.

    In the third quarter of 2017, the global aviation industry expanded due to the recovery of the global economy which supported more passenger demand confirmed by the high figures of cabin factor. The International Air Transport Association (IATA) data during the nine month of 2017 has been shown a 7.7% and 6.4% improvement from last year with an average cabin factor of 81.7%. Meanwhile, freight continued to show signs of improvement from last year in almost all areas. Recovery in emerging markets such as India, China and ASEAN-5 meant an increase in the freight load factor from last year's 42.2% to 44.4%.

    Thailand's aviation industry in the third quarter of 2017 had an advanced progressed to solve the standard problems of Thai civil aviation. During September 20-27, 2017, the International Civil Aviation Organization (ICAO) had repeatedly re-examined the Thai aviation standards to remove the red flag position. There were no further objections in safety and other concerns which led to the removal of the red flag status on October 6, 2017; then, the update was publicized by the ICAO website. Consequently, the dismissal of the red flag for Thai aviation and tourism industry would boost both in terms of the credibility of the Thai aviation authorities and confidence to tourists in selecting Thai carriers. This might also influence the FAA upgrading the Thai aviation standard from Category 2, which prohibits the opening of new routes in the United States to Category 1.

    THAI has implemented the third phase of its transformation plan; "Sustainable Growth." This continues from the previous quarter and consists of 6 strategies in operation:

    1. Develop a competitive flight network, increase profitability and reduce complexity of the fleet;

    2. Increase competitiveness and revenue;

    3. Excellent service ring building strategy;

    4. Competitive cost and efficient operation strategy;

    5. Corporate culture building to sustainability and human resources development to excellence strategy;

    6. Portfolio management and new business development for sustainability strategy. In the third quarter of 2017, there were significant actions as follows:

      • Focused on increasing revenue and competitiveness by managing ticket prices, finding more income, and being more efficient distribution to be able to compete with competitors in time.

      • Continued to implement Network management which, on August 1, 2017, THAISmile introduced "Amadeus Altea" to the system by using 4 main modules consisted of Reservation,

        2

        Ticketing, Inventory control, and Departure Control systems. The system would not only allow the better connection between THAI and THAISmile but Thai Smile developed more comfortable to connect with travel agents and other airlines around the world, as well. This enabled the Company to offer a wider range of passenger services and other services as well as to enhance the employees' performance. In addition, it would facilitate to expand the online passenger base and to support the codeshare agreement with alliances in order to increase its service network to customers around the world.

      • Initiated to solve uncompetitive cost and inefficiency complications of Technical, Ground Equipment Service and, Ground Customer Services department to manage healthier cost and better efficiency in the long term basis.

        In addition, THAI was honored the TTG Travel Hall of Fame for the second consecutive times after winning the Best South East Asian Airline Award at the TTG Travel Award for 10 consecutive years. THAI also won Best Inflight Food 2017 from IFSA Compass Awards which was based on votes submitted by International Flight Service Association (IFSA) members. These awards represented premium service standards and overall customer satisfaction of THAI.

        In the third quarter, THAI took delivery of 4 operating lease aircraft: 3 Airbus A350-900XWB and a Boeing B787-9 aircraft while returned 1 Airbus A330-300 aircraft and another one which was in the return process resulting total active aircraft of 99, 4 aircraft increasing from December 31, 2016. Aircraft Utilization increased by 4.3% from last year's 11.6 to 12.1 hours/day this year. Production traffic (ASK) increased by 7.9% while passenger traffic (RPK) terrifically increased by 14.9% from the same quarter of last year. The Cabin Factor averaged 78.2%, up from 73.5% in the previous year with 5.99 million passengers carried representing 8.9% increase from last year.

        THAI and its subsidiaries' operating profit was THB 739 million while last year's loss of THB 836 million. Total revenue was THB 46,928 million, an increase from the same quarter of last year by 6.3% due to an increase of passenger and excess baggage revenue by THB 2,470 million (6.9%) from the increase in passenger traffic by 14.9%, despite a drop in average passenger yield by 7.5% due to intense price competition. Freight and mail revenues increased by THB 577 million (12.7%) from the recovery in the export sector. While total expenses amounted to THB 46,189 million, an increase of THB 1,227 million (2.7%) due to an increase in fuel expenses by THB 1,032 million (9.5%) resulting from an increase of 11.3% in average jet fuel price. Non-fuel operating expense was closed to last years. Net finance cost decreased from last year by THB 112 million or 8.7% resulting from cash management and financial restructure.

        This quarter THAI and its subsidiaries had one-time expenses, the amount of THB 537 million and impairment loss of assets and aircraft, amount of THB 1,502 million. In addition, the loss on foreign currency exchange was THB 829 million. Consequently, THAI and its subsidiaries reported the net loss of THB 1,814 million. Loss attributable to owners of the parent amounted to THB 1,825 million. Loss per share was THB 0.84 per share, 0.11 THB or 15.1% higher loss than last year's.

        EBITDA was THB 5,835 million, which was THB 865 million (17.4%) over last year.

        EBITDA margin was 12.4%, as compared to last year's reported 11.3%.

    7. Summary of Operating Results for Thai Airways International PCL. and its subsidiaries
    8. The consolidated financial statements for the third quarter of 2017 consists of THAI's financial statement and 5 subsidiary companies which are 1) THAI-Amadeus Southeast Asia Co.,Ltd., 2)Wingspan Services Co., Ltd., 3) THAI Flight Training Co., Ltd, 4) Tour Eurng Luang Co., Ltd., and 5) THAISmile Airways Co., Ltd.

      Financial Performance : THAI and its subsidiaries

      2017

      2016

      MTHB

      %

      Total operating revenues

      46,928

      44,126

      +2,802

      +6.3

      - Passenger and excess baggage revenue

      38,190

      35,720

      +2,470

      +6.9

      - Freight and mail revenue

      5,137

      4,560

      +577

      +12.7

      - Revenue from other activities

      2,936

      2,990

      -54

      -1.8

      - Other income

      665

      856

      -191

      -22.3

      Total operating expenses

      46,189

      44,962

      +1,227

      +2.7

      - Fuel and oil

      11,892

      10,860

      +1,032

      +9.5

      - Non-fuel operating expenses

      33,120

      32,813

      +307

      +0.9

      - Net finance cost

      1,177

      1,289

      -112

      -8.7

      Operating Profit (loss)

      739

      (836)

      +1,575

      +188.4

      LessMaintenance provision for operating lease aircraft

      92

      -

      +92

      -

      LessProvision for collaborating to change due to the Transformation plan

      440

      -

      +440

      -

      LessLoss from change in ownership interest

      5

      -

      +5

      -

      Less Impairment loss of assets and aircraft

      1,502

      624

      +878

      +140.7

      Add Gain (Loss) on foreign currency exchange

      (829)

      120

      -949

      -790.8

      Loss before income tax

      (2,129)

      (1,340)

      -789

      -58.9

      Net Loss

      (1,814)

      (1,591)

      -223

      -14.0

      Loss attribute to owners of the parent

      (1,825)

      (1,601)

      -224

      -14.0

      Net Loss per share (THB)

      (0.84)

      (0.73)

      -0.11

      -15.1

      Significant operating data

      EBITDA (MTHB)

      5,835

      4,970

      +865

      +17.4

      Number of passengers (Million)

      5.99

      5.50

      +0.49

      +8.9

      Available Seat-Kilometers (Million)

      22,931

      21,244

      +1,687

      +7.9

      Revenue Passenger-Kilometers (Million)

      17,936

      15,604

      +2,332

      +14.9

      Cabin factor (%)

      78.2

      73.5

      +4.7

      Passenger yield (THB/RPK)

      2.10

      2.27

      -0.17

      -7.5

      Available Dead Load Ton-Kilometers (Million)

      959

      910

      +49

      +5.4

      Revenue Freight Ton-Kilometers (Million)

      609

      515

      +94

      +18.3

      Freight load factor (%)

      63.5

      56.6

      +6.9

      Freight carried (Ton)

      167,582

      144,621

      +22,961

      +15.9

      Freight Yield (THB/RFTK)

      7.90

      8.33

      -0.43

      -5.2

      Number of aircraft (As of Sep 30) (Aircraft)

      99

      94

      +5

      +5.3

      Flight hours (Hours)

      102,329

      96,670

      +5,659

      +5.9

      Aircraft utilization (Hours/Aircraft/Day)

      12.1

      11.6

      +0.5

      +4.3

      Average foreign currency exchange rate

      1 USD : THB

      33.3875

      34.8295

      -1.4420

      -4.1

      1 EUR : THB

      39.1969

      38.8755

      +0.3214

      +0.8

      100 JPY : THB

      30.0863

      34.0770

      -3.9907

      -11.7

      Average jet fuel price

      (USD/BBL)

      66.84

      60.06

      +6.78

      +11.3

      Unit : Million Baht Jul - Sep Variance

      Note : 1) EBITDA = Total Revenue (Exclude gain/loss on foreign currency) - Total Expenses (exclude finance cost, tax, depreciation and amortization, loss from change in ownership interest and impairment loss of assets and aircraft)

      4

      Revenues of Thai Airways International PCL. and its subsidiaries

      Total revenues for the third quarter of 2017 were THB 46,928 million which increased THB 2,802 million (6.3%) from last year. Details are as follows:

      • Passenger and excess baggage revenue

        Passenger and excess baggage revenue was THB 38,190 million which increased THB 2,470 million (6.9%) over last year as:

        • Passenger traffic (Revenue Passenger-Kilometers:RPK) increased by 14.9%, approximately THB 5,295 million in Intercontinental and Regional routes but decreased in Domestic route.

        • Average passenger yield (including fuel and insurance surcharge) decreased by 0.17 THB/RPK (7.5%) or approximately THB 3,049 million. The impacts were partially from the strength of the Thai Baht against Japanese Yen but the trivial weakening the Thai Baht against EURO dollar which depressed the overall passenger yield in Baht term. When excluding such effects, average passenger yield decreased by 0.07 THB/RPK or around THB 1,255 million resulting average passenger yield decreased solely by 4.4% or THB 1,790 million due to the intense competition and reduction of fuel surcharge.

        • Freight and mail revenue

          Freight and mail revenue was THB 5,137 million which increased by THB 577 million (12.7%) due to the increase of freight traffic (Revenue Freight Ton-Kilometers: RFTK) by 18.3% or around THB 785 million resulting from the recovery in export sector. The major expanding markets were China, CLMV countries, and the US while average freight yield (including fuel and insurance surcharge) was 7.90 THB/RFTK, a decrease of 0.43 THB/RFTK (5.2%) or THB 260 million over last year. Average freight load factor was 63.5% higher than last year's 56.6%.

      • Other income

      Other income was THB 665 million which decreased by THB 191 million (22.3%) mainly due to last year's insurance compensation from the "Bird Strike" case, the amount of THB 325 million.

      Expenses for Thai Airways International PCL. and its subsidiaries

      Total expenses for third quarter of 2017 was THB 46,189 million which increased by THB 1,227 million (2.7%). A summary of the operating expenses was as follows:

      - Fuel and oil expense was THB 11,892 million which increased by THB 1,032 million (9.5%) due to the increase in average jet fuel price by 11.3% compared to the same period last year and the growth of traffic production by 7.9% resulting the increase in fuel consumption. However, fuel hedging expenses was THB 1,388 million lower than last year and the strength of Thai Baht against the US dollars caused the lower expense in Baht term.

    Thai Airways International pcl published this content on 13 November 2017 and is solely responsible for the information contained herein.
    Distributed by Public, unedited and unaltered, on 13 November 2017 01:23:04 UTC.

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