Me standing in front of some cute water buffaloes which are locally known as "faai"
This entry is a part of my 2013 Thailand and Laos summer trip.
The distinction and the merge
It has been observed that in the most colloquial form of Thai (Siamese, the Tai variety that is spoken natively in Bangkok and surrounding provinces), khw and kw sounds are pronounced as f. (Brown 1965) In other words, the distinction among khw, kw, and f sounds has been lost. For instance, ขวา (khwaa) "right" and ฝา (faa) "lid" would both be pronounced as faa, and กวาง (kwaang) "deer" and ฟาง (faang) "straw" would both be pronounced as faang. The distinction is maintained in Standard Thai.
Based on my observations, the merge is more prevalent among people in my parents' generation (ages 40-50) and older. Due to our better access to education, people in my generation regularly maintain the distinction. The only time people my age (and perhaps in my circle) merge these seconds is when we do it jokingly. (I suppose this is analogous to how young New Yorkers may say "thirty-third" as toity-toid to mock the speech of older generations, or how young Americans may jokingly say "what, which, whip, where, why" with the /ʍ/ sound, the voiceless labiovelar fricative (for non-linguists, it sounds like there is an emphasis on the h in wh: hhw).)
How did k(h)w become f? (Linguistic explanations)
De-velarization and spirantization of stops may have motivated the merge.
To account for how khw and kw became f, one may propose that khw and k simply underwent the processes of de-velarization and spirantization. In particular, khw and kw lost its velar-ity whereby both became pv which thereafter became fv due to the process of spirantization, and finally fv became f due to the fact that Thai disallows v sound.
An alternative explanation might be that khw and kw first both merged into khw. The khw sound, being a sound which often gets pronounced as xw (it is a known fact that kh and x are pronounced interchangeably in Thai), thence underwent the process of de-velarization-- fv --which thereafter became f since Thai disallows v sound.
Why did k(h)w become f?
As with any diachronic alternation in sounds in languages around the world, one explanation might be that people in one generation did not correctly perceive the sounds produced by an older generation. Perhaps at one point Siamese speakers failed to hear the velar-ity of the khw and the kw, and all they perceived was the labial-ity (from w) and the supposed frication, thus leading them to hear khw and kw as f, and thereafter they commenced to produce khw, kw, and f in an identical way.
When I was visiting Thailand this summer (2013), I came across a person in Chonburi province who was apparently unaware that she had hypercorrected her speech. Although I indeed heard many people there merging khw, khw, and f sounds, I also heard an elderly woman utter ฝาก (faak) as ขวาก (khwaak). I was utterly surprised by this because I had never heard anyone do this.
Why did she over-correct herself?
One reason might be that perhaps she in fact does not hypercorrect at all; it is simply the way her ancestors spoke. The "merge" had been passed down to her.
Another reason might be that she did not go to school or only finished 4th grade (as it was common then) and therefore did not learn of the distinction which exists in Standard Thai.
Another reason might be that she in fact went to school but is too old to remember the distinction that she had learned in school.
Corresponding sounds in other Tai languages
The distinction seems to be maintained in other Tai languages including Northern Thai, Shan, and Lao. Interestingly, in Lao the khw and kw seem to induce vowel shortening. For example, khwaa "right" and kwaang "deer" are pronounced as khua and kuang respectively.