Struggling amid headwinds
Tiger Airways has struggled to register sustainable earnings since FY12, only recording one profitable quarter over the past ten quarters. We see the losses persisting at least until FY16, as yields will remain suppressed by overcapacity.
Under our new rating structure, our Underperform call on Tiger Airways changes to Reduce. We maintain our target price, based on 1x CY14 P/BV. Tiger will struggle to make headway in the Philippines and Indonesia as a late entrant while its Australian operations are beset by yield pressures. Its core Singapore operations are also struggling with overcapacity. Persistent losses will be Tiger's key de-rating catalyst.
Last quarter, Tiger's Singapore operations sank into losses for the first time in six quarters, with an operating loss of S$18m 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%. The market struggled to absorb the capacity influx between Singapore and Indonesia, forcing Tiger to cut its yields in Singapore by 6.7% yoy. 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 Sep 2012 added to the carrier's misery, as Tiger had to cut its own fares to keep the cost of travel affordable.
Associates a lingering sore spot
Tiger shared S$24m in associate losses last quarter, with the losses in the Philippines and Indonesia worsening. Even with Virgin Australia holding a 60% stake in Tigerair Australia, we are not optimistic of a quick turnaround as the competition is fierce.
What to expect for 2014
Tigerair Singapore‟s fleet increased from 19 planes as at end-Mar 2013 to 23 planes at end-Sep and will increase further to 26 planes by end-Mar 2014. This will compound the currently weak yields and loads over the next 6-12 months. The Philippines aviation market is also in serious overcapacity, which has resulted in the country's most cost-efficient airline, Cebu Pacific, clocking in losses last quarter. With little sign of capacity rationalization for the aviation industry in all the countries that Tiger has a foothold in, losses are likely to continue for the budget carrier in 2014, and we expect breakeven only in FY16.
Publish date: 29/11/13