AOT told its too pricy for its good

BANGKOK, 12 January 2018: Bloomberg, 4 January, reported the meteoric rise in fortunes at Airports of Thailand, a Happy New Year start for the public listed company that manages six airports in Thailand.

The respected business news channel said the AOT, after strong international tourist arrivals in 2017, had surpassed Spain’s Aena SA as the world’s most-valuable airport services company.

Powered by a 75% gain since May 1, 2017, the operator of Thailand’s main international airports also passed the 1 trillion baht (USD31 billion) market capitalization mark.

Shares of Airports of Thailand jumped 9.2% in December — rallying for a 10th consecutive month according to Bloomberg.

It noted that the surge in stock value indicated AOT was the “best performer in Bloomberg’s Asia-Pacific Infrastructure Top Peers gauge,” with Shanghai International Airport, a distant second place.

So no surprises when a Japanese travel tip website bemoans the fact that AOT’s airports are overcharging for food and even water.  Consumers are feeding profits to the golden giant that has an insatiable appetite for growth and glory.

What’s surprising is that it took a Japanese website’s report to stir  Thailand’s Prime Minister to call for an investigation, if we are to believe statements made by Thai PBS TV news channel, Thursday.

Both  Thai and English language newspapers, online and in print, have been harping on about the price rip-off at the country’s airports for decades. Apparently it never caused a stir in the PM’s office before.

But today, thanks to the instant impact of social media, Twitter and Facebook comments, the flood of complaints and messages reaches even to the PM’s desk.

That should worry AOT’s board of directors. The policy of soldiering on regardless in the midst of sniping and pot shots from the media has worked admirably in the past. Now they cannot be so sure.

In the past, we raised our arms in surrender noting it was probably a waste of time criticising AOT as they conveniently were post deaf and blind as a bat when it came to customer service. What’s the point? The strategy of ignoring the media appeared to work.

Well that might change now, but don’t hold your breath.  AOT directors are well aware that the fantastic boost in revenue and share value to the point the public listed company is cited as a world leader among its peers will ultimately protect it from too much scrutiny.

As the golden goose than makes a bundle and aids economic expansion it is largely immune from its critics. Yet, it cannot afford to ignore the enormous gusts of chilling criticism from consumers especially if reaches millions of views on social media. Then it might impact on share value.

Therefore we could expect a gesture from the AOT. Perhaps s few baht knocked off the price of a bottle of water, or even the creation of food halls in the terminals that sell snacks at lower prices, but still higher than outlets in posh downtown shopping malls.

AOT is keen to create what it calls “Airport Cities” that replicate what consumers enjoy in shopping malls in the high-priced real estate domains of Sukhumvit Road, the golden mile for tourists.

In theory, there appears to be no justification for an airport located on a plot of land, 25 km from the city centre, commanding space rentals and fees that are higher than a six-star shopping mall in downtown Bangkok, a real estate zone that clearly deserves premium rentals.

The perverse logic on rental value takes advantage of the demand to have a shop or restaurant  in an airport terminal to tap a captive audience. It ensures AOT’s stock remains desirable and golden. There will always be a queue of enterprises that believe an airport shop will hit the jackpot.

The real challenge for AOT will come if someone suggests there should be a review of concession fees that force restaurant owners renting space in airports  to charge ridiculous prices for junk food, both the Thai and foreign varieties, in order to maintain a profit margin or simply meet the rental bill.

AOT’s financial objectives are clear. It wants to make non-airline revenue as lucrative as landing fees and other aviation-linked earnings.

If it succeeds with its retail “Airport Cities” the profits will continue to roll in. The only downside for shareholders is the vast investment it will need to make to keep pace with demand over the next 10 years. It is already off the pace in Bangkok, Phuket and Chiang Mai. Vast sums will be needed to play catch up to build terminals and runways to cope with the boom in traffic forecast over the next five years. There is even talk that AOT should take over the management of up to 10 of 28 airports managed by the Department of Airports. It would require a huge investment to fund upgrades.

So expect a token gesture a hot dog and bun here there at a knocked down price, but nothing that would upset AOT’s  golden share portfolio and its ability to grow.