The Transport Ministry has turned down a proposal by Thai Airways International (THAI), Thailand’s flag carrier, to set up a subsidiary to operate a budget airline.

Transport Deputy Minister Prin Suvanadat said last Thursday that the ad hoc committee on the proposed Thai Airways’ sister company demanded a more concrete plan for the operation of THAI Smile Airway.

THAI will have to thoroughly rework its proposal and assess and compare the pros and cons of a subsidiary before reintroducing the proposal and its expected impact to the committee next week.

Gen Prin said that the committee was concerned that THAI’s business will be eroded in the long run since THAI Smile will take over domestic and regional flights from the mother company.

European airlines including Lufthansa, British Airways and Air France set up similar subsidiaries which eventually carried away their mother companies’ revenues, he said.

According to the proposal, THAI’s service on nine routes will be substituted by THAI Smile next year. Among them are Hong Kong, Luang Prabang and Siem Reap.

THAI Smile is expected to operate 372 flights daily by the end of 2015.

Gen Prin said that THAI must clearly identify new routes to substitute losing revenue from the routes given to its sister company.

THAI, listed in the Thai stock exchange, plans to set up a wholly-owned subsidiary with registered capital of 1.8 billion Baht (US$62 million) in the belief that operation costs in the new business unit will be lower, thus generating higher revenue.

It plans to have THAI Smile fly on new routes such as Luang Prabang, Chiang Mai, Hong Kong and Siem Reap next year, and to Samui, Chiang Rai, Phnom Penh, Macao, Shenzhen and Hangzhou in 2015. Its fleet will expand accordingly.