Orient Thai may start $100m airline in HK

Orient Thai may start $100m airline in HK

Arijit Ghosh, Bloomberg/Bangkok

Orient Thai Airlines Co., which operates Thailand's largest discount carrier, may spend as much as US$100 million to start a low-cost service based in Hong Kong to tap rising air traffic between the city and China.

Orient Thai, which operates Bangkok-based carrier 1-2-Go, may set up the new airline on its own if negotiations with its Hong Kong-based partner CR Airways Ltd. fail, Chief Executive Udom Tantiprasongchai said.

Orient Thai wants a Hong Kong-based venture to tap business from the 70 million travelers who are expected to go by land, sea and air to China from the city next year. By offering cheap fares, Orient Thai is aiming to compete for business with trains, buses or regular airlines like Hong Kong Dragon Airlines Ltd. and China Southern Airlines Corp.

"China is the target," Udom said in an interview in Bangkok. "In the very near future, there won't be any restrictions" for carriers to fly between Hong Kong and China.

China, the world's most populous nation and the fastest- growing major economy, also has the biggest untapped tourism market. About 20 million Chinese traveled abroad in 2003, their visits restricted to only two dozen countries.

"About 80 percent of the market hasn't been tapped," said Peter Harbison, managing director of the Center for Asia Pacific Aviation in Sydney. "The only thing that is stopping the growth is government rules."

Starting in September, restrictions were relaxed to make it easier for Chinese citizens to visit the 29 countries of Europe, including the U.K.

Closely held Orient Thai, which flies 14 aircraft, plans to buy as many as 10 new planes to expand its business in Thailand and abroad. The Bangkok-based company also plans to sell shares in an initial public offering next year.

Discount carriers have mushroomed in Southeast Asia, a region with a combined population of 500 million people. Up to nine discount carriers will fly in the region by the end of 2005.

Thailand, with a population of about 64 million people, has three discount airlines in addition to the national carrier Thai Airways International Pcl.

Orient Thai's 1-2-Go competes with Nok Air Co. and the Thai unit of AirAsia Bhd. Competition is also coming from Singapore Airlines Ltd.'s low-fare carrier Tiger Airways and Valuair Ltd., which both fly to Bangkok from Singapore.

That's forced airlines to look for business in North Asia, a region that encompasses South Korea, China, Japan, Taiwan and Hong Kong.

"We can use Hong Kong as a springboard to expand in other parts of Asia," Udom said.

Orient Thai, which also has a daily service to Hong Kong from Bangkok and the beach resorts of Phuket and Krabi, plans to fly to other Asian nations from Bangkok.

Rising oil prices may affect the company's plans. The price of jet fuel has surged 66 percent this year to a record $63.95 a barrel on Oct. 14. They were trading at $63.70 a barrel yesterday, according to Platts pricing service.

Orient Thai spends half of its operating costs on buying fuel, Udom said. Fuel costs typically account from between 15 percent to 25 percent for regular scheduled carriers such as Thai Airways.

AirAsia's jet fuel make up about 43 percent of costs, according to the airline.