Healing the wounded Tiger

The Tiger Airways stock as listed on the Singapore Stock Exchange has recovered some lost ground as it moves up from a low of S$0.60 (US$0.48) per share to just below S$0.80 per share although it is still far from its peak of S$2.20 per share. Its initial public offering (IPO) price was S$1.50 per share. It made a debut high of S$1.58 when listed on January 21, 2010.

Is the wounded Tiger finally healing?

Latest performance statistics shows that the budget airline carried 384,000 passengers in February, a fall of 19% from the same month last year. The load factor fell two percentage points to 81%. This was attributed to reduced capacity for its Australian operations because of the limitation placed upon Tiger by the Australian authorities following the carrier’s safety infringement last year, and to increased capacity by 13% for its Singapore operations.

If this is any indication of the trend, it shows a continual decline in the number of passengers carried. In January, the number fell 16% year-over-year to 466,000. And for the 12 months to 29th February, 2012, Tiger carried 5.571 million passengers, declining by 6% compared to the previous year. The numbers for the last two months were below the average of 472,100 for the first 10 months, with February carriage lower by close to 19%.

Image Courtesy of The Daily Paragraph

With only one month left to add up the result for the full financial year FY2011 ending March 31st, 2012, we are unlikely to see a significant lift to the bottom line. Tiger reported a net loss of S$17.4 million in the fiscal third-quarter, which is traditionally a high-demand season, compared to a profit of S$22.5 million in the same period in 2011. Australia and Singapore operations posted losses of S$8.6 million and S$4.8 million respectively. There had been also some concern about Tiger’s investment in its partnership with Philippines carrier SEAir for which Tiger had made a provision of S$7 million for doubtful receivables.

By all indications, it would be a report in red ink compared to a net profit of S$39.9 million the previous year. Yet the year ahead should look better for Tiger in terms of carriage since the Civil Aviation Safety Authority of Australia (CASA) is relaxing the restrictions imposed on the budget carrier, allowing it to operate a maximum of 64 sectors daily from October – an increase from the current 38 sectors daily, to be implemented gradually from July. Tiger operated 60 sectors daily prior to the suspension. This will mean improved fleet utilisation to fill up excess capacity.

Tiger Airways Australia chief executive Andrew David said: “We are continuing with our future Australian expansion as planned. The business goal was to have all 10 aircraft operating in Australia by second half of 2012.” Presently only seven of the 10 aircraft are being utilised. The airline plans to establish a second Australian base in Sydney from July, in addition to Melbourne. This will provide up to 38 services daily through Sydney Airport, including a new Sydney-Brisbane service which holds much promise in light of Air Australia’s exit.

Tiger Australia is expected to perform better than its Singapore counterpart as it focuses on rebuilding its lost business and taking advantage of new opportunities. Singapore operations are likely to see a cap on capacity to improve yield.

There is also the good news that the Indonesian regulator has reactivated the air operator’s certificate (AOC) of PT Manbdala Airlines, which will resume services in April 2012. Mandala’s AOC has been frozen since the suspension of its operations in January 2011. Tiger has acquired a 33% stake in the carrier, a belated success in its acquisition quest after experiencing setbacks elsewhere. This move will also help Tiger shift excess capacity to its new joint-venture as Tiger will lease three aircraft to Mandala initially, increasing to 10 by 2013 in compliance with Indonesian regulations that require new airlines to have a fleet of at least 10 aircraft within its first year of operations.

However, the picture may not be as rosy as it seems. Tiger faces tough competition in the region, particularly from AirAsia and Jetstar. It is also not spared the affliction of the escalating fuel price, which is apt to weigh more heavily on budget carriers than the bigger players. Stakeholder Singapore Airlines (SIA) is said to be looking for a new man to helm the airline – such a move at the top that always comes with expectations of a fresh approach that in this case should help the wounded Tiger heal faster.

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