The Study on Improvement of Low Cost Airline in Thailand
Geography of Thailand
Nature of Airlines
Variables under Study
The Profitability of Low Cost Airlines in Thailand
Operating Results, Selected Airlines, Financial Year 1999
The Economies of Scale Attained By Airline Industry
Human Resource Practices
The future of low cost Thailand Airlines
Contrasting Qualities of State Owned and Non-State Owned Airlines
The Study on Improvement of Low Cost Airline in Thailand
Thailand is a global source for customers seeking cheap labor or material inputs. The country is rich in natural resources -- tin, rubber, natural gas, tungsten, and timber being a few examples. The country is a major source for agricultural products1a.
Thailand also has an abundant supply of low-skilled labor with high participation rates in the workforce 86% for males and 67% for females in 1995. At the same time, the country is the most developed in Southeast Asia, making for a relatively reliable work environment. In consequence, foreign companies use Thailand as a production base in labor intensive and light industries such as textiles, consumer electronics, and auto parts to serve their regional networks1B.
Thailand's comparative advantage of labor cost is, however, slowly eroding. The threats have come from the opening of China's and Vietnam's markets with their even cheaper labor sources. The minimum wage rate of Thai labor in 1996 was 135 baht (U.S. $5.40) per day, compared to $1.25 per day for MNCs in Vietnam and about $3.50 per day in China. The eroding comparative advantage in labor cost is aggravated by increasing electricity, water, and office operating costs. The severe devaluation of the currency in 1997 should improve Thailand's cost position1C.
Strategically, Thailand has a comparative advantage in size and location with its four international airports and two major seaports[footnoteRef:1]. [1: Aharoni, Y. & Nachum, L. (Eds.). (2000). Globalization of Services: Some Implications for Theory and Practice. London: Routledge. Retrieved June 11, 2011, from Questia database: http://www.questia.com/PM.qst?a=o&d=102764448]
One hope for Thailand is to increase its technological capabilities. The country suffers from a shortage of skilled managers, scientists, and engineers, with only 0.2 scientists and technicians per 1,000 people during 1988-92, compared with Korea (2.3) and Japan (7.0). In parallel, foreign MNCs seldom transfer much technology to the country. When MNCs engage in a production strategy, they normally limit it to one using low levels of technological sophistication. Recognizing these problems, the government has embarked on various programs such as expanding research and development, improving education, luring expatriate scientists and engineers' home, and attracting foreign direct investment in technological projects. It has also designated human resource development as a key factor in national development.The prospective role of Thailand as a lead country will be contingent on the success of this plan. Local companies are beginning to play a part. For example, Siew Company, the local joint venture partner of Matsushita, has embarked on a joint investment, PKS Development, with the Crown Properties Bureau and the NEP to make Thailand a transfer base of technology from Japan[footnoteRef:2]. [2: Pendleton, R.L. (1962). Thailand; Aspects of Landscape and Life (1st ed.). New York: Duell Sloan & Pearce. Retrieved June 11, 2011, from Questia database: http://www.questia.com/PM.qst?a=o&d=6505049]
The automotive industry yields a chief example of the Thai government's efforts at trade liberalization. While Thailand market is still regarded as a well protected car market, the government maintains to cultivate and retain liberalization efforts that were originally initiated in 1988. In October of the same year Thailand joined the ASEAN BBC (Brand-to-Brand Complementation) agreement. Since 1991, Thailand has undertaken unilateral measures to liberalize the automotive industry in an attempt to make itself the regional center for automotive assembly and components. The government significantly reduced high import duties on fully assembled cars in 1991[footnoteRef:3]. It also announced, in 1994, a tariff rebate of more than 90% on imported CKD (completely knocked down) car kits that would be re exported as assembled vehicles. The Board of Investment has expanded its promotional incentives for assembly plants to be located in provincial regions. These incentives include a 7 years tax discharge on income earned from exports, reduced duties on imported machinery, and government subsidies for construction, transport, and power.Auto manufacturers can also expect further relaxation in the local content requirements as the Thai government implements the agreement of World Trade Organization[footnoteRef:4]. [3: Alagappa, M. (Ed.). (1998). Material and Ideational Influences. Stanford, CA: Stanford University. Retrieved June 11, 2011, from Questia database: http://www.questia.com/PM.qst?a=o&d=35541491] [4: Sundbo, J. & Fuglsang, L. (Eds.). (2002). Innovation as Strategic Reflexivity. London: Routledge. Retrieved June 11, 2011, from Questia database: http://www.questia.com/PM.qst?a=o&d=108254053]
Owing to the extraordinary importance of the country and its tourist locations the state has devised the means of transportation for all categories of people and tourist, so that they can relish the aesthetic beauty of Thailand and at the same time the state can earn the quantifiable sum of money[footnoteRef:5]. [5: Asia Top Companies by Sales. (2000, June). Business Asia, 8, 38. Retrieved June 11, 2011, from Questia database: http://www.questia.com/PM.qst?a=o&d=5001764374]
Geography of Thailand
Thailand is the one nation in Southeast Asia that was never colonized by European powers. This historical fact, proudly asserted by Thais, is often attributed to the Chakri administration's skills at compromise and negotiation. Thailand emerges as the space in-between British and French colonies. Lack of direct colonial experience does not mean that Thai modes of production were not shaped by external forces nor that there was no interference in the internal affairs of the Thai state. 'The French were reorganizing the country's legal system, the British its treasury and the Germans its army. In the nineteenth century, most commercial enterprises were in white hands and the rulers preserved independence by allowing colonial powers to exploit the nation and its resources (Copeland 1993:159). Thailand has the characteristics of a colonial state with an illegitimate military used as a resources of interior control rather than exterior fortification[footnoteRef:6]. [6: Thai Airways Sees Return to Profitability Starting Q3. (2009, August 18). Manila Bulletin, p. NA. Retrieved June 11, 2011, from Questia database: http://www.questia.com/PM.qst?a=o&d=5031797291]
The internal reforms following the turn of the century were not sufficient to transform an absolute monarchy to a constitutional one, and in 1932 a small group of the allied coalition takeover and forced Rama VII to become Thailand's first constitutional monarch. Political changes and World War II strengthened efforts to develop a Thai national identity, and selectively borrow Western paths to modernity and progress. The military has had a great influence on Thailand through its involvement in the many coups and political crises since 1932. Through the 1950s and 1960s, Thailand was transformed from a subsistence based agricultural economy to a market-oriented rice economy and by the eighties, to an industrializing economy. While the Thai military with American support provided the stability to make this economic transformation possible, military ambitions had other consequences[footnoteRef:7]. [7: Thierauf, R.J. (1987). A Problem-Finding Approach to Effective Corporate Planning. New York: Quorum Books. Retrieved June 11, 2011, from Questia database: http://www.questia.com/PM.qst?a=o&d=29035447]
Thailand experienced an exceptionally high rate of economic growth between 1985 and 1996 due to the dynamic growth of urban manufacturing, tourism and the service industry. The booming economy was growing by 8% a year in the late 1980s, and even 6.4% in 1996. Thailand is now facing a financial crisis of major proportions, and did not even reach its revised projection of 0.6% growth in 1997. Land prices soared in the boom years, and developers overextended themselves, building condominiums and housing estates for the new urban middle class. Banks and finance companies were stuck with huge foreign loans to these developers, at the same time that the central bank was no longer willing to prop up the local currency (baht). Investors, local businesses, and consumers all suffered after the currency was allowed to float in July 1997. By October, the baht had fallen 40% in value. Higher prices and unemployment worsened the situation. The October 1997 collapse of the Thai financial markets prompted Prime Minister Chavalit Yongchayudh to remind investors that they should not leave a country. Other approaches to encourage investors to continue to support Thailand include promotional messages in the Thai Airways magazine, Sawasdee (November 1997:41): 'Those who look behind the headlines, however, are finding that Thailand's growing pains can mean substantial gains for investors. Out of the country's crisis, opportunity has arisen.' The government's mismanagement of the crisis increased political instability, resulting in the resignation of Prime Minister Chavalit Yongchayudh on 30 October 1997. The $17 billion (U.S.) bailout from the International Monetary Fund offered the country financial support, contingent on following a recovery plan that included checking inflation and reducing public spending such as halting the construction of Bangkok's $4.5 (U.S.) billion expressway[footnoteRef:8]. [8: Beirman, D. (2003). Restoring Tourism Destinations in Crisis: A Strategic Marketing Approach / . Crows Nest, N.S.W.: Allen & Unwin. Retrieved June 11, 2011, from Questia database: http://www.questia.com/PM.qst?a=o&d=102031189]
The new 'people's constitution' passed by parliament in September of 1997 began the process of…