UNDERPERFORM - Maintained
▊ Tiger Airways’s 2QFY14 was below expectations as its 1H core net loss of S$52m exceeded our previous full-year loss forecast by 25%. This was due to lower-than-forecast yields and load factors in Singapore as capacity expansion was not well absorbed. Associate losses were also larger than expected. We slash our forecasts and cut our target price, still based on 1x P/BV. Tiger Airways will struggle to make headway in the Philippines and Indonesia as a late entrant and its Australian operations are beset by yield pressures. Its core Singapore operations are also struggling with overcapacity. Hence, we maintain Underperform, with de-rating catalysts from its poor results.
Highlights of Jul-Sep 2013
Last quarter, Singapore made its first loss in six quarters, with S$18m in negative operating results vs. S$5m profit a year ago. While ASK capacity in Singapore grew 27.5% yoy, demand only rose 22%, causing loads to decline 4.3% pts yoy to 78.5%. Tiger and its competitors had seized the opportunity from the granting of new bilateral rights to increase capacity between Singapore and Indonesia, with the number of seats to rise 42% between Jun and Dec 2013. The market struggled to absorb this capacity influx and Tiger had to cut its yields in Singapore by 6.7% yoy. Tigerair Singapore’s fleet increased from 19 planes as at end-Mar 2013 to 23 planes at end-Sep and will increase its fleet further to 26 planes by end-Mar 2014. This will compound the currently weak yields and loads for the next 6-12 months.
Terminal 2 blues
The increase in the passenger service charge from S$18 to S$34/pax when Tiger moved from the Budget Terminal to Terminal 2 in September 2012 forced Tiger to cut its own fares to keep the cost of travel affordable. T2’s ground-handling charges are also more expensive.
Tiger shared S$24m in associate losses last quarter, with the losses in the Philippines and Indonesia worsening. Even with Virgin Australia holding 60% of Tigerair Australia, we are not optimistic of a quick turnaround as competition is fierce.
Publish date: 25/10/13