No Christmas presents this year
Tiger Airways’ results were below expectations, with 9MFY14 core net loss of S$85.5m being more than our previous full-year loss forecast of S$78.7m, due to weaker-than-expected yields in Singapore. We maintain our Reduce call but raise our loss forecasts and consequently cut our target price, which is still based on 1x CY14 P/BV. De-rating catalysts include continued overcapacity in Singapore, coupled with tough Australian and Indonesian markets.
Singapore fails to see year-end cheer
Tigerair Singapore registered its second consecutive quarter of operating losses, at S$17m, which was only slightly better than the S$18m loss incurred in the Sep quarter. What was surprising was how quickly the operating fundamentals deteriorated. In the Sep quarter, RPK demand rose 21.9% yoy, below ASK capacity growth of 27.5%, but the gap widened in the Dec quarter, with RPK rising just 9.2% yoy against 23.3% ASK growth. Consequently, the PLF dropped 9.8% pts yoy to only 75.8% in the Dec quarter, against a less alarming 4.4% pt yoy fall to 78.5% in the Sep quarter. The decline in passenger yields accelerated from 6.7% yoy in the Sep quarter to 11% in the Dec quarter. The combination of lower PLF and lower yield led to a massive 21% yoy drop in revenue per ASK.
Indonesia may have been the cause
Capacity deployment to Indonesia, which Tigerair Singapore expanded almost fivefold from 2,520 one-way seats/week to 9,360 seats/week over the past year, probably led to losses for this sector. Total capacity deployment by all airlines rose 38% over the past year and resulted in overcapacity. While it was critical to add capacity to Indonesia to secure landing slots at its congested airports after the bilateral air traffic rights was expanded, there is a heavy price to pay in the short term. Due to the lack of viable aircraft deployment opportunities for Tiger Airways as none of its countries are profitable, it deployed six new A320 aircraft in Singapore over the past three quarters, with one more A320 to be delivered to the Singapore fleet in the Mar quarter and two A319s coming back from Tigerair Philippines, which will soon be sold to Cebu Air.
Awash with excess capacity
As a result, we think that fundamentals in Singapore will be weak for the next 12 months while Indonesia and Australia will struggle to turn around.
Publish date: 24/01/14