Australian operations recovering well. Tiger Airways reported 1QFY3/13 results that gave a good account of its recovery potential. Tiger Singapore reported its first operating profit since the Australian groundings, with an operating profit of SGD4m. Tiger Australia narrowed its operating loss to SGD21m, from SGD23m in 1QFY3/12. Encouragingly, quarterly passenger load factors (83.3%) continue to edge towards break-even (90.1%).
JVs show the way. The recent completion of Tiger’s 40% investment in SEAir (Philippine-based) will be their second joint-venture after their 33% stake acquired in Mandala Airlines (Indonesia-based). These JVs, while still in the early stages, look to point the way to jump-start operations outside of Tiger’s current geographical base.
Operating conditions still remain
tough. Despite the positive expansionary signs shown by Tiger, operating conditions remain tough sector-wide for the aviation industry. Jet Fuel once again shows a disconcerting reversion to unsustainable high levels, while competition from regional budget carriers continue to impose yield pressures and erode profitability.
This tiger might be worth a second look. While macro signs remain ominous for the aviation industry, budget airlines such as Tiger continue to ride the wave of budget travel especially in Asia. We believe the company might be showing signs of an imminent turnaround, with the stock trading at a valuation trough of ~2.5x P/BV.
Turning the corner; Passenger loads inching back up Singapore returns to profit, Australia narrowing losses. Tiger’s Singapore operations have shown an encouraging return to operating profit for the first time since Tiger was embroiled in the Jul-Aug 2011 Australian grounding. Although mired in loss-making territory, Australian operations showed a SGD2.2m improvement YoY due to an improvement in yields
Load factors inching back towards breakeven. Fig 3 shows a distinct trend post-Australia grounding (Jul/Aug 2011) of passenger load factors inching towards break-even. Nevertheless, Tiger’s overall 1QFY3/13 passenger load-factor of 83.3% was still almost 7 percentage points shy of the quarter’s breakeven of 90.1%.
Expansionary outlook. The outlook for Tiger Airways will undoubtedly be dominated by their expansionary strategy. Tiger Singapore will be looking to expand capacity through frequency increases and the addition of new routes while Tiger Australia is planning to ramp up services by October 2012 to pre-grounding levels. This will be achieved through its Sydney base which was launched in July, launching Sydney-Brisbane and Melbourne-Hobart services in the coming months, in addition to inaugurating the Sydney-Gold Coast service.
Fuel might crash the party (again). Tiger’s decent 1QFY3/13 results were helped by fuel costs which were lower by 1.1% YoY. As a budget carrier, the fuel component out of Tiger’s total operating cost (42% for 1QFY3/13, 47% for 1QFY3/12) tends to be higher than that of a full-service airline like Singapore Airlines (~40% for both 1QFY3/12 and 1QFY3/13). This necessarily translates to a higher sensitivity of Tiger’s profitability to jet fuel prices, which does not bode well for the company given the recent trend of reversion to highs of USD140/bbl.
New partnerships sealed: the hunt for passengers
Philippines and Indonesia show the way. Tiger has also recently announced the completion of its 40% investment in SEAir (based in the Philippines, Fig 5), which follows its previously announced 33% stake in Mandala Airlines (based in Indonesia, Fig 6). We believe these opportunistic investments give Tiger a good foothold in geographical markets outside its Singapore and Australian bases.
No comments:
Post a Comment